SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(MARK ONE)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 

FOR THE YEAR ENDED: DECEMBER 31, 1996
                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 

COMMISSION FILE NUMBER: 0-12802

                           EL CHICO RESTAURANTS, INC.
             (Exact name of registrant as specified in its charter)

           TEXAS                                       75-0982250
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

       12200 STEMMONS, SUITE 100
            DALLAS, TEXAS                                              75234
(Address of principal executive offices)                            (Zip Code)

        Registrant's telephone number, including area code: (972) 241-5500

               Securities Registered Pursuant to Section 12(b) of the Act:

                                      NONE

               Securities Registered Pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.10 PAR VALUE

     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

     The aggregate market value of the voting stock held by nonaffiliates of the
registrant  as of March 4, 1997 was  $24,495,109.  As of that  date,  there were
3,697,375 shares of the registrant's Common Stock, par value $.10, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's  definitive Proxy Statement to be furnished to
shareholders in connection with its Annual Meeting of Shareholders to be held on
May 8, 1997, are incorporated by reference in Parts I and III of this Form 10-K.

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]




<PAGE>



                                     PART I

ITEM 1.           BUSINESS.

         El Chico Restaurants,  Inc. (generally referred to herein together with
its predecessor and subsidiaries as the "Company"  unless the context  otherwise
requires)  was  incorporated  in Texas in 1957 as a  successor  to a  restaurant
business  operated since 1940. The Company's  primary  business is operating and
franchising  full-service,  family-style  restaurants  under the name "El Chico"
that offer moderately priced, high quality,  Mexican-style cuisine and alcoholic
beverages.  As of December 31, 1996, a total of 95 restaurants were in operation
in Alabama,  Arkansas,  Florida, Georgia, Indiana, Kansas, Kentucky,  Louisiana,
Mississippi,  Missouri, Oklahoma, South Carolina, Tennessee, and Texas, of which
67  were   Company-operated   and  28  were  franchised.   Included  in  the  67
Company-owned  restaurants  were  one  restaurant  under  the  name  "Casa  Rosa
Restaurante",  and two restaurants under the name "Cantina Laredo." During 1996,
the Company opened two  Company-owned El Chico  restaurants,  one of which was a
replacement  store for a store closed  earlier in the year,  and  converted  two
Company-owned  El Chico  restaurants  to franchise  stores.  In  addition,  four
Company-owned stores were closed, and three franchised stores closed,  including
one destroyed by fire that is expected to be reopened in 1997.  The Company also
is engaged in designing and supplying  food-service equipment through its Pronto
Design and Supply, Inc.
subsidiary.

EL CHICO RESTAURANTS

         In addition to offering  Mexican-style  cuisine,  El Chico  restaurants
offer a  limited  number  of  non-Mexican  and  children's  items.  The  Company
continually evaluates and revises its menu to improve its products.

         The restaurants,  which cater to families, are open daily for lunch and
dinner and offer entrees that  generally  range from $3.99 to $10.99.  Alcoholic
beverages,  which are served  primarily  with meals (as opposed to bar service),
generated approximately 8 percent of all restaurant revenues for 1996.

         The average El Chico restaurant seats approximately 200 people, and the
average restaurant size is approximately  5,700 square feet. The decor generally
features painted stucco walls,  complementary  furnishings,  and a bar area. The
exterior  of  the   freestanding   restaurants   reflects  a  style  of  Mexican
architecture.  The Company  believes  that  periodic  remodels are  important to
maintaining the  competitiveness  of its restaurants.  During 1995 and 1996, the
Company began to remodel the interiors and exteriors of certain new  restaurants
opened in 1993 and 1994, including retrofitting of full-service bars, as well as
extensive  upgrades of older  restaurants.  The Company  anticipates  continuing
these remodeling programs in 1997 and thereafter.

         The Company makes  centralized  purchasing  arrangements  for the basic
ingredients  of its menu items in order to secure  favorable  prices and uniform
quality  specifications.  The Company  currently  purchases most ingredients and
supplies  through a single  distributor  under a contract that may be terminated
upon 12 months'  written  notice to its  distributor.  In the event that for any
reason the Company's primary distributor ceases to meet the Company's needs, the
Company  does  not  anticipate  that it would  have  significant  difficulty  in
obtaining food items and supplies at competitive prices from other sources.

         The Company utilizes local  advertising for individual  restaurants and
broadcast  advertising  where market  penetration is efficient as well as public
relations  activities  aimed at individual  restaurants and entire markets.  The
Company's advertising campaigns emphasize freshness,  quality food, good service
and value.  During 1996, the Company's  expenditures  for  advertising  were 2.8
percent of Company-owned restaurant revenues.


                                                        -1-

<PAGE>



FRANCHISED RESTAURANTS

         Generally,  the El Chico restaurants  franchised by the Company operate
for an initial term of 15 years,  require an initial franchise fee of $35,000, a
continuing  royalty fee of 4 percent of the franchisee's  gross revenues,  and a
marketing fee of 1 percent of such gross revenues.

         The Company exercises stringent qualification criteria in selecting its
franchisees.  Among the criteria for  selection are the  franchisee's  financial
strength,  successful history of restaurant business management,  and commitment
to the Company's high standards of business conduct.  The Company's  franchisees
are required to comply with the Company's  standards  and operating  guidelines.
The Company  regularly reviews the performance of its franchisees to ensure such
compliance.

SPECIALTY RESTAURANTS

         As of December  31, 1996,  the Company  owned and operated two types of
specialty restaurants  consisting of two Cantina Laredo restaurants and one Casa
Rosa Restaurante. The Company plans to open a third Cantina Laredo in fall 1997.

NEW RESTAURANT CONSTRUCTION

         Management estimates that the cost of building,  equipping, and opening
a new freestanding El Chico restaurant will range from $1,425,000 to $2,350,000,
including approximately $290,000 to $830,000 for land, approximately $600,000 to
$760,000 for sitework, construction, and landscaping, and approximately $535,000
to $760,000 for equipment,  furniture, and opening costs. The cost of developing
new Company  restaurants will vary,  primarily because of varying costs of land,
sitework, signage, pre-opening, and labor.

         During 1996, two Company-owned El Chico restaurants were opened. By the
end of 1997, the Company expects to open two to four additional  restaurants and
remodel approximately ten El Chico restaurants.

SERVICE MARKS

         The Company has obtained  federal  registration of the service mark "El
Chico",  the El Chico design,  and other  related  service  marks.  The El Chico
service mark is also currently  registered in 9 states.  These service marks are
of material importance to the operation of the Company's  business.  The Company
has also  federally  registered  service marks for "Casa Rosa  Restaurante"  and
"Cantina Laredo" as well as various other phrases related to its restaurants.

EMPLOYEES

         As of December  31,  1996,  the Company  employed  approximately  3,600
persons  (including  full-time  and  part-time  personnel),  of whom  3,500 were
restaurant   employees  and  100  were  restaurant   supervision  and  corporate
employees.  Company  restaurants  employ an  average of  approximately  50 to 60
full-time or part-time employees. None of the Company's employees are covered by
collective bargaining agreements,  and the Company has never experienced a major
work  stoppage,  strike,  or labor dispute.  The Company  considers its employee
relations to be good.


                                                        -2-

<PAGE>



COMPETITION

         The restaurant  business is highly  competitive,  and competition among
restaurants serving Mexican cuisine is increasing. The Company believes that the
principal  competitive  factors in its restaurant  business are quality,  value,
service,  atmosphere,  and location. The Company's restaurants compete with many
food  service   operations  in  the  vicinity  of  each  restaurant,   including
restaurants  specializing  in  Mexican  food.  The  Company  believes  that  its
competitive position in certain markets is enhanced by regional name recognition
and  by  its   moderately   priced  menu,   quality  food,  and  a  comfortable,
full-service,  family-oriented  dining  atmosphere.  Other  companies,  however,
continue to open restaurants similar to the Company's  restaurants,  and certain
of these competitors have greater resources than the Company.

GOVERNMENTAL REGULATION

         The  Company  is  subject to  various  federal,  state,  and local laws
affecting  its  business.  Many  stringent  and  varied  requirements  of  local
governmental bodies with respect to zoning, land use, and environmental  factors
have  increased and can be expected to continue to increase both the cost of and
the  time  required  for  constructing  new  restaurants  as well as the cost of
operating Company restaurants.  The Company's restaurants are subject to various
health, sanitation, and safety standards and are also subject to state and local
licensing and regulation with respect to the service of alcoholic beverages. The
service of alcoholic  beverages is material to the business of the Company.  The
failure to receive or retain,  or a delay in  obtaining,  a liquor  license in a
particular  location  could  adversely  affect the Company's  operations in that
location.  Liquor  licenses  must  be  renewed  annually.  The  Company  has not
encountered any significant problems relating to alcoholic beverage licenses and
permits to date.

         The Company may be subject in certain states to  "dram-shop"  statutes,
which may  establish  liability for improper  alcoholic  beverage  service.  The
Company carries liquor liability coverage as part of its existing  comprehensive
general liability insurance.

         The  Company is also  subject to state and federal  labor  laws.  These
include the Fair Labor  Standards  Act,  which  governs  such matters as minimum
wages,   overtime,   and  other  working   conditions;   the   Immigration   and
Naturalization  Act, which governs employee  citizenship  requirements;  and the
Americans with  Disabilities  Act, which governs  non-discriminating  employment
practices and reasonable accommodations for disabled persons, both employees and
customers.  A significant  portion of the Company's  food service  personnel are
paid at rates related to the federal minimum wage; and,  accordingly,  increases
in the minimum wage increase the Company's labor costs.  The Company has managed
cost increases from past minimum wage increases by adjusting prices,  adding and
deleting menu items,  and changing plate  presentations.  The Company  increased
prices 1.5  percent to  compensate  for an increase  in minimum  wage  effective
October  1, 1996 and will  increase  prices,  if  necessary  for an  anticipated
increase in minimum wage effective September 1, 1997. Minimum wage will increase
from  $4.75 an hour to $5.15 an hour.  However,  the  ability  to manage  future
increases depend on the size of the increases, their timing, and the competitive
environment.

         In recent  years many states have  enacted  laws  regulating  franchise
operations.  Much of this legislation  requires detailed disclosure in the offer
and  sale of  franchises  and the  registration  of the  franchisor  with  state
administrative agencies. The Company is also subject to Federal Trade Commission
regulations  relating  to  disclosure  requirements  in the sale of  franchises.
Additionally,  certain  states have enacted,  and others may enact,  legislation
governing the termination and non-renewal of franchises and other aspects of the
franchise  relationship that are intended to protect franchisees.  The foregoing
matters may result in some modifications in the Company's franchising activities
and some  delays or  failures in  enforcing  certain of its rights and  remedies
under license and lease agreements.  The laws applicable to franchise operations
and relationships are developing  rapidly,  and the Company is unable to predict
the

                                                        -3-

<PAGE>



effect on its intended  operations of additional  requirements  or  restrictions
that may be enacted or promulgated or of court  decisions that may be adverse to
franchisors.

         Effective   September  1,  1991,  the  Company   elected  to  become  a
non-subscriber  of the Texas  Workers'  Compensation  Act.  Upon this  election,
excess  liability  insurance  was  acquired,  and an employee  benefit trust was
established to provide for benefits in the event of injury. Indications are that
this election has been favorable;  however, the Texas Workers'  Compensation Act
has  undergone  certain  favorable  reforms,   with  further  changes  expected.
Management reviews this election periodically.


ITEM 2.           PROPERTIES.

         As of  December  31,  1996,  the  Company  owned  20 of its  restaurant
locations  and leased the  remaining 47  restaurant  locations.  The leases have
terms that  expire  between  1997 and 2010,  excluding  renewal  options not yet
exercised,  and have an average remaining term of approximately eight years. The
leases  generally  provide  for rentals  ranging  from 3 percent to 6 percent of
gross restaurant sales, with a stated minimum rental. Under substantially all of
its leases,  the Company is required to pay real estate  taxes,  insurance,  and
maintenance expenses. Construction is in process on a leased site in Round Rock,
Texas with an April 1997 opening  date. A lease has been executed for a location
in Dallas,  Texas for a new Cantina Laredo, with a fall 1997 anticipated opening
date.

         Of the 67 restaurants  operated by the Company as of December 31, 1996,
49 were freestanding buildings, nine were located in strip shopping centers, and
nine were located in shopping  malls.  As of the same date, one of the Company's
28 franchised locations was leased by the Company and subleased to a franchisee,
and 27 were directly leased or owned by the franchisees.

         As of March 4, 1997,  the Company owned four tracts of raw land,  which
are located (i) adjacent to two open and operating Company-owned locations, (ii)
adjacent  to a former  Company  restaurant  presently  leased  to a  non-related
business,  and (iii) in a market where the Company has deferred indefinitely its
plans for  further  development.  As of the same  date,  the  Company  owned two
parcels of real estate,  one of which is leased to a  non-related  business.  In
addition,  there are seven locations that are leased by the Company but not used
in Company  operations;  two are subleased to  non-related  businesses,  two are
previously impaired Company-owned restaurants operated by franchisees, and three
are closed  restaurant sites for which the Company is in the process of locating
subleases or other dispositions.

         During  1993,  the  Company  purchased  a  67,665  square  foot  office
facility,  where it had been leasing  approximately 20,000 square feet of space.
The Company  continues  to office in the facility and is leasing the majority of
the  remaining  square  footage to unrelated  businesses.  A 15,000  square foot
warehouse is leased which houses  restaurant  equipment  and is located in close
proximity  to the  office  facility.  The  Company  also  owns a  tract  of land
consisting  of  approximately  one acre and an 8,000  square  foot  building  in
Carrollton,  Texas.  This  property is utilized  primarily  for the  training of
restaurant management and for test kitchen operations,  with a portion leased to
another party.


ITEM 3.           LEGAL PROCEEDINGS.

         Although the Company is a defendant in various  lawsuits arising out of
the  ordinary  course of its  business,  in the  opinion  of  management,  these
lawsuits will not have a material adverse effect upon the Company's  business or
financial position.



                                                        -4-

<PAGE>




ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No  matters  were  submitted  to a vote of the  Company's  shareholders
during the fourth quarter of the year ended December 31, 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

         As of March 4, 1997,  the  executive  officers of the  Company  were as
follows:

     Name                   Age           Position with Company

Wallace A. Jones            45            President, Chief Executive
                                          Officer and Director

Lawrence E. White           46            Executive Vice President and
                                          Chief Financial Officer

Charles A. Coope            45            Senior Vice President, Franchising and
                                          Development

Mark P. Lamm                39            Vice President, Operations

Michael E. Sick             42            Vice President, Marketing

Susan R. Holland            40            Vice President, Treasurer, Controller
                                          and Secretary


     The terms of office and  biographical  data with respect to Mr.  Wallace A.
Jones, as set forth under the heading  "Election of Directors" in the definitive
Proxy  Statement  regarding the Annual Meeting of Shareholders of the Company to
be held on May 8, 1997, are incorporated herein by reference.

     Lawrence  E. White  joined the  Company as Chief  Financial  Officer in May
1992.  During the period from September 1994 to January 1995, Mr. White held the
interim  position of Chief Operating  Officer in addition to his duties as Chief
Financial Officer. From September 1989 to April 1992, Mr. White served as Senior
Vice   President  and  Treasurer  of  Metromedia   Steakhouses,   Inc.,   having
responsibility  for  financial  management  of both  Ponderosa  Steakhouses  and
Bonanza Family  Restaurants as well as a meat-processing  and  food-distribution
subsidiary.  From February 1987 to September 1989, Mr. White was employed by TGI
Friday's,  Inc., where he served as Director of Financial Planning and Analysis,
and later served as Treasurer.  Prior to Mr. White's tenure at TGI Friday's,  he
held  financial  positions at Lone Star  Technologies,  Inc.,  and at Ford Motor
Company.

     Charles A. Cooper  assumed his present  position as Senior Vice  President,
Franchising  and Development in November 1996.  Previously,  Mr. Cooper was Vice
President,  Development  since  February  1993. Mr. Cooper joined the Company in
April 1991 as Director of Real Estate and in April 1992 assumed responsibilities
as Director of Franchising and  Development.  From September 1988 to April 1991,
Mr.  Cooper  served as  Director of  Marketing  with S.W.S.  Realty,  Inc.  From
December 1977 to August 1988, Mr. Cooper served in various capacities  including
President of National Retail Properties  Corporation,  a subsidiary of Southland
Investment Properties.

                                                        -5-

<PAGE>



     Mark P. Lamm assumed his present position as Vice President,  Operations in
November  1996.  Mr.  Lamm  joined the  Company in  September  1984 as a general
manager  and  since  1985 has  served  in  various  capacities  as a  multi-unit
supervisor,  his latest  being  Regional  Vice  President  from  January 1996 to
November 1996, at which time he was promoted to Vice President, Operations.

     Michael E. Sick joined the Company as Vice President, Marketing in February
1995.  From July 1994 until January 1995,  Mr. Sick served as Vice  President of
Marketing  for Pearle  Vision.  From  November  1986 to July 1994,  Mr. Sick was
employed by Jack in the Box Restaurants,  initially as Director- Field Marketing
and  Promotion  and  from  April  1991 as  Vice  President-Field  Marketing  and
Promotion.

     Susan R.  Holland  has  been  Vice  President,  Treasurer,  Controller  and
Secretary  since October 1996.  Ms.  Holland joined the Company as Controller in
November 1985 and has served as Treasurer  since August 1990. From December 1984
to  November  1985,  Ms.  Holland  was   self-employed  as  a  Certified  Public
Accountant.  From  August  1978 to  December  1984,  Ms.  Holland was with Grant
Thornton, with her last position being Audit Manager.








                                                        -6-

<PAGE>



                                     PART II



ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                  STOCKHOLDER MATTERS.

         The  Company's  common stock is quoted on the National  Association  of
Securities Dealers Automated  Quotation System ("NASDAQ") National Market System
under the symbol  "ELCH".  The following  table sets forth the high and low sale
prices  as  reported  on the  NASDAQ  National  Market  System  for the  periods
indicated.


                                              High                      Low
         Calendar Year 1996

         First Quarter                      $  9.50                   $   7.63
         Second Quarter                     $  9.13                   $   7.00
         Third Quarter                      $  8.25                   $   7.13
         Fourth Quarter                     $  8.75                   $   6.88


         Calendar Year 1995

         First Quarter                      $ 11.75                   $   7.63
         Second Quarter                     $  9.88                   $   7.63
         Third Quarter                      $ 12.63                   $   9.38
         Fourth Quarter                     $ 12.13                   $   9.00


         To date,  the  Company  has not paid any cash  dividends  on  shares of
common  stock.  It is the general  policy of the  Company to retain  earnings to
support the Company's growth.

         On February 15, 1996, the Board of Directors  authorized the repurchase
of up to 409,000 shares of the Company's  outstanding  common stock from time to
time in the open  market.  As of  December  4,  1996,  409,000  shares  had been
purchased at an average price of $7.84, for a total purchase of $3,208,000.

         On December 29, 1994 the Board of Directors  authorized  the repurchase
of up to 210,000  shares of the Company's  outstanding  common stock in the open
market.  As of March 15, 1995,  210,000  shares had been purchased at an average
price of $10.35, for a total purchase of $2,173,975.

         As of March 4,  1997,  the number of record  holders  of the  Company's
common stock was  approximately  300, and the Company  estimates that as of that
date there were 1,100 beneficial owners of its stock.





                                                        -7-

<PAGE>



ITEM 6.           SELECTED FINANCIAL DATA.

         The following summary of selected  financial data has been derived from
the more detailed  Consolidated  Financial  Statements  and Notes thereto of the
Company contained elsewhere in this report or previous reports.

<TABLE>
<CAPTION>


                                          YEAR           YEAR           YEAR          YEAR         TRANSITION     FISCAL YEAR
                                         ENDED          ENDED          ENDED         ENDED        PERIOD ENDED       ENDED
                                      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,    DECEMBER 31,     JUNE 1,
                                          1996           1995           1994           1993          1992 (2)       1992 (4)

                                                                   (In Thousands Except Per Share Amounts)
INCOME STATEMENT INFORMATION:
<S>                                  <C>            <C>            <C>            <C>             <C>           <C>       
Revenues.............................$   104,481    $   104,618    $   97,826     $    88,465     $   51,257    $   90,818
                                     ===========   ============   ===========    ============    ===========   =============


Income (loss) before income taxes....$   (5,051)(1) $     5,592    $    5,581     $     4,339     $    2,912(3) $   (1,568)(5)
                                     ===========   ============   ===========    ============    ===========   ============
Net earnings (loss)..................$   (3,062)(1) $     3,958    $    3,728     $     2,713     $    2,135(3) $     (969)
                                     ===========   ============   ===========    ============    ===========   ============
Net earnings (loss) per share........$    (0.79)    $      0.98    $     0.88     $      0.64     $     0.49    $    (0.22)
                                     ===========   ============   ===========    ============    ===========   ============

BALANCE SHEET INFORMATION:
Total assets.........................$    47,527    $    51,039    $   43,964     $    37,347     $   31,730    $    32,499
Long-term debt.......................$     9,765    $     8,435    $    5,533     $     3,303     $    1,109    $     1,215
Stockholders' equity.................$    26,285    $    32,497    $   28,882     $    24,844     $   21,900    $    22,679
<FN>


(1)    DURING 1996, THE COMPANY  RECORDED A PRE-TAX SPECIAL CHARGE OF $9,421,000
       TO PROVIDE  FOR THE  IMPAIRMENT  AND EXIT  PLANS OF SIX UNITS  SLATED FOR
       CLOSING, THE IMPAIRMENT OF THE CARRYING VALUES OF THREE OTHER STORES THAT
       WILL CONTINUE  OPERATING AS WELL AS A WRITE-DOWN OF CERTAIN OTHER ASSETS.
       IN ADDITION,  THREE PARCELS OF REAL ESTATE WERE SOLD RESULTING IN PRE-TAX
       GAINS OF $1,203,000.  EXCLUDING THE  NON-RECURRING  IMPAIRMENT CHARGE AND
       PROPERTY  GAINS,   NET  EARNINGS  FOR  THE  FULL  YEAR  WOULD  HAVE  BEEN
       $2,363,000, OR $0.61 PER SHARE.

(2)    ON NOVEMBER 6, 1992, THE COMPANY CHANGED ITS FISCAL YEAR FROM THE MONDAY 
       NEAREST MAY 31 TO DECEMBER 31.

(3)    INCLUDES A TAX-FREE GAIN OF $847,000 ON DISPOSITION OF ONE OF THE 
       COMPANY'S SPECIALTY RESTAURANTS.

(4)    FISCAL 1992 INCLUDES 53 WEEKS OF OPERATIONS.

(5)    DURING  FISCAL 1992,  THE COMPANY  RECORDED A PRE-TAX  SPECIAL  CHARGE OF
       $3,977,000 TO PROVIDE FOR: WRITE-DOWNS OF UNDERPERFORMING RESTAURANTS AND
       OTHER  PROPERTIES AND ASSETS,  HIGHER THAN EXPECTED  INSURANCE COSTS, AND
       COSTS ASSOCIATED WITH PERSONNEL CHANGES.

</FN>
</TABLE>




                                                        -8-

<PAGE>



ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS.

           Forward-looking  statements  regarding  management's present plans or
expectations for new restaurant openings,  remodels, other capital expenditures,
the financing thereof, and disposition of impaired restaurants involve risks and
uncertainties   relative  to  return  expectations  and  related  allocation  of
resources,  and  changing  economic or  competitive  conditions,  as well as the
negotiation of agreements  with third parties,  which could cause actual results
to differ from present  plans or  expectations,  and such  differences  could be
material.  Similarly,  forward-looking statements regarding management's present
expectations for operating results involve risks and  uncertainties  relative to
these and other factors,  such as advertising  effectiveness  and the ability to
achieve cost  reductions,  which also would cause actual  results to differ from
present plans. Such differences could be material. Management does not expect to
update such forward- looking  statements  continually as conditions  change, and
readers should consider that such statements speak only as to the date hereof.

RESULTS OF OPERATIONS

         The  Consolidated  Statements of Operations  reported herein  represent
results of operations for the years ended December 31, 1996, 1995, and 1994. The
following table summarizes key results of operations:
<TABLE>
<CAPTION>

                                                          YEAR              YEAR               YEAR
                                                          ENDED             ENDED              ENDED
                                                       DECEMBER 31,      DECEMBER 31,       DECEMBER 31,
                                                          1996              1995               1994
                                                    ----------------  ----------------     --------------
                                                              (Dollar Amounts in Thousands)

<S>                                                 <C>                <C>                 <C>
Number of Company-owned restaurants..............             67               72                 65
Number of franchised restaurants.................             28               29                 29
Weighted average annual sales per
  Company-owned restaurant.......................   $      1,494       $    1,479          $   1,600
Revenues from Company operations.................   $    104,481       $  104,816          $  97,826
Net sales from Company operations................   $    101,698       $  101,628          $  94,901
Income (loss) before taxes.......................   $     (5,051)      $    5,592          $   5,581
Net (loss) income................................   $     (3,062)      $    3,958          $   3,728
Profit margin....................................         (2.9%)             3.8%               3.8%

</TABLE>


COMPARATIVE PERFORMANCE 1996 VS 1995

         Net sales for Company-owned restaurants increased approximately $70,000
or 0.7 percent to  $101,698,000  in 1996 from  $101,628,000 in 1995. The average
number of stores  operating  throughout  1996 versus 1995 increased and weighted
average annual sales per Company-owned restaurant opened the full year increased
1.0 percent.  These  increases were offset by a decrease in same-store  sales of
2.3 percent  including a decrease in El Chico  concept  same-store  sales of 2.8
percent.  As of January 1, 1996, the Company adopted a new convention that added
new stores to the same-store sales comparison in the quarter in which they reach
their 18-month anniversary. During 1996, the Company opened two Company-owned El
Chico  restaurants,  one of which was a  replacement  store  for a store  closed
earlier in the year,  and converted two  Company-owned  El Chico  restaurants to
franchise stores. In addition, four Company-owned stores were closed.

                                                        -9-

<PAGE>



         Franchise  revenue  decreased from $2,082,000 to $1,958,000 as a result
of a decrease in the average number of stores  operating  throughout 1996 versus
1995 and a decrease in franchise  same-store sales of 2.8 percent.  During 1996,
three franchise stores were closed including one closed temporarily due to fire,
and two Company-owned  stores were converted to franchise stores.  The converted
stores are operating under special  franchise  agreements under which payment of
fees will not begin until certain sales objectives are achieved.

         Food costs  increased from 25.4 percent of sales to 26.6 percent due to
an increase in ingredient costs, primarily cheese and beef, and certain menu mix
changes. These increases were partly offset by a decline in avocado cost.

         Labor  costs  increased  from 33.1  percent  of sales to 33.2  percent.
Management  compensation  expense  increased as a percentage  of sales due to an
increase in  management  base pay. This increase was partly offset by a decrease
in hourly labor.  During 1995, the Company  eliminated  the  restaurant  cashier
position  by  changing  to  a  server-banking   system,  and  converted  certain
restaurant  employees  from  minimum wage to tipped  compensation.  Minimum wage
increased on October 1, 1996, but did not have a material effect on labor costs.

         Operating  costs  increased from 28.6 percent to 29.3 percent due to an
increase in advertising  and ongoing  insurance  expenses.  These increases were
partly offset by a decrease in preopening  amortization and a one-time insurance
class action settlement.

         Pronto Design and Supply,  Inc. ("Pronto") is a wholly owned subsidiary
in the business of designing  food-service  kitchens and  supplying  the related
equipment.  Equipment sales decreased from $908,000 in 1995 to $825,000 in 1996.
The 1995 amount included sales to a new franchise restaurant.  Equipment cost of
sales as a percentage of sales remained  basically stable at 84.8 percent versus
86.1 percent a year ago.

         General  and   administrative   costs   increased  from  $9,227,000  to
$9,421,000 as a result of increased employee costs, an increase in the number of
multi-unit  restaurant  supervisors  and  new  training  seminars  for  existing
managers. These increases were partly offset by decreased professional fees.

         Interest  expense  increased from $602,000 to $686,000,  primarily as a
result of increased  borrowings and interest rates.  Interest  income  decreased
from $78,000 to $75,000 due to a decline in average invested cash balances.

         The income tax  provision  reflects  an increase in the FICA tip credit
and higher state taxes.

COMPARATIVE PERFORMANCE 1995 VS 1994

         Net  sales for  Company-owned  restaurants  increased  7.1  percent  to
$101,628,000  in 1995 from  $94,901,000 in 1994. The increase in sales is due to
an increase in the average  number of stores  operating  throughout  1995 versus
1994. Weighted average annual sales per Company-owned  restaurant  decreased 7.6
percent and same-store  sales  decreased 2.2 percent  including a decrease in El
Chico concept  same-store  sales of 2.5 percent.  As a result of mix changes and
certain  menu  price  increases  associated  with a new menu  introduction,  the
Company's  check-average  increased  approximately  1.7 percent in 1995.  During
1995, the Company used a same-store  sales  convention that reflected new stores
beginning when they were opened for the full quarter of the prior year.

         Franchise  revenue  decreased from $2,093,000 to $2,082,000 as a result
of a decrease in the average number of stores  operating  throughout 1995 versus
1994.  This  decrease was partly  offset by an increase in franchise  same-store
sales of 0.7 percent.  During 1995, the Company purchased an El Chico restaurant
from a franchisee and opened one new franchise store.

                                                       -10-

<PAGE>



         Food costs  decreased from 25.6 percent of sales to 25.4 percent due to
a decrease in the cost of beef, avocados and beans.

         Labor costs remained  unchanged at 33.1 percent of sales.  Hourly labor
cost  decreased  as a  percentage  of  sales  as a  result  of  eliminating  the
restaurant  cashier  position by changing to a server-banking  system,  and from
converting   certain   restaurant   employees   from   minimum  wage  to  tipped
compensation. This decrease was offset by management compensation expense, which
increased as a percentage of sales as a result of lower  weighted  average sales
per restaurant.

         Operating  costs  increased  from 28.3 percent of sales to 28.6 percent
due to an increase in supplies, repair and maintenance and property taxes partly
offset by decreased laundry and insurance costs. At the end of 1994, the Company
converted from cloth napkins to paper napkins which resulted in reduced  laundry
costs, partly offset by an increase in supply costs.

         Pronto  equipment sales  increased from $832,000 to $908,000  primarily
reflecting  sales  to a  new  franchise  restaurant.  Equipment  cost  of  sales
increased as a  percentage  of sales due to a decrease in vendor  rebate  income
relative to sales.  Vendor  rebate income  includes  rebates on outside sales as
well as rebates on equipment purchases for El Chico restaurants.

         General  and   administrative   costs   increased  from  $8,967,000  to
$9,227,000 as a result of increased employee costs, an increase in the number of
multi-unit restaurant  supervisors and increased training wages. These increases
were partly offset by decreased professional fees, incentive bonuses and travel.

         Interest  expense  increased from $146,000 to $602,000,  primarily as a
result of increased  borrowings,  partly offset by a decline in interest  rates.
Interest  income  decreased  from $88,000 to $78,000 due to a decline in average
invested cash balances.

         The income tax provision  decreased as a percent of income before taxes
due to an increase in the FICA tip credit and lower state taxes.

RESTAURANT CLOSINGS

         During the second quarter of 1996 the Company incurred a special charge
of $9.4 million to provide for the impairment and exit plans of six units slated
for closing,  the  impairment of the carrying  values of three other stores that
will continue  operating as well as a write-down of certain other assets. One of
the six stores  was an older  store  that was  closed  and  replaced  with a new
prototype  which opened  during the third quarter of 1996.  The Company  entered
into  agreements  with two separate  existing  franchisees to operate two of the
impaired  stores.  The remaining  three impaired stores were closed and are held
for sale.  The effect of the  impairment  during  1996,  excluding  the replaced
store,  reduced  depreciation and amortization  expense by $452,000.  Management
reviews each restaurant  regularly to determine that expected  undiscounted cash
flows are adequate to recover the related  investment.  When expected cash flows
are inadequate, the Company writes down the asset to its fair value.

LIQUIDITY AND CAPITAL RESOURCES

         The  Company  has an  unsecured  credit  facility  with  a  $16,000,000
commitment comprised of a $15,000,000  revolving line of credit and a $1,000,000
letter of credit facility.  The line of credit matures on December 31, 1997, and
may be converted  to a term loan,  payable  quarterly on a 10-year  amortization
schedule,  and maturing on December  31,  1999.  Both the line of credit and the
term loan bear interest at the Company's option of prime rate or up to six-month
LIBOR plus .75 percent.  Both rates are subject to maintaining certain financial
covenants,  and  interest  is payable  upon  maturity  of the LIBOR  advances or
quarterly for prime rate advances.  Principally  because of the special  charge,
the  interest on the line of credit has been at LIBOR plus 1.75  percent  and/or
prime plus 0.50 percent since August 14, 1996 until

                                                       -11-

<PAGE>



certain financial results are met. In addition,  the Company has entered into an
interest rate swap on a notional balance of $5 million, under which a fixed rate
of 6.61 percent is paid against a floating rate equal to  three-month  LIBOR.  A
commitment fee of .25 percent is payable quarterly on any unused commitments. As
of December 31, 1996,  $9,730,000 was outstanding under the line of credit.  The
credit  facility  was  obtained  for  the  funding  of the  construction  of new
Company-owned restaurants,  remodeling existing restaurants, and the purchase of
the Company's headquarters facility during 1993 and has been used for repurchase
of the Company's common stock subject to certain limitations.  The Company plans
to  open  two to  four  restaurants  and  remodel  approximately  ten  El  Chico
restaurants and estimates capital  expenditures  during 1997 to be approximately
$11,000,000, which will be funded by internal operations and the existing credit
facility.

         Working capital  decreased from a deficit of $4,696,000 at December 31,
1995 to a deficit of $5,670,000 at December 31, 1996, primarily as a result of a
$1,638,000  reserve to  provide  for future  rent and lease  buyouts  related to
closed  restaurants.  Cash flows  generated from  operations of new and existing
restaurants and borrowings were offset by capital expenditures and repurchase of
common stock on the open market.

         During 1996, menu prices were increased  approximately 1.5 percent as a
result of an increase in minimum wage  effective  September 1, 1996.  Additional
menu price  adjustments to the extent permitted by competition,  changes in menu
mix or increases in minimum wage may be required to offset increased costs.

ACCOUNTING MATTERS

         During 1996, the Company  adopted  Financial  Accounting  Standards No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed  Of," which  requires that  long-lived  assets and certain
identifiable  intangibles  to be held  and used by an  entity  be  reviewed  for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount of an asset may not be recovered and Financial  Accounting  Standards No.
123,  "Accounting for Stock-Based  Compensation,"  which  establishes  financial
accounting and reporting standards for stock-based  employee  compensation plans
(See Footnote F and G to the Consolidated Financial  Statements).  At this time,
there  are no other  accounting  standards  to be  adopted  which  would  have a
material impact on the consolidated financial statements.

ITEM 8.           FINANCIAL STATEMENTS.

         The Financial Statements are set forth herein commencing on page F-1.


                                                       -12-

<PAGE>



                                    PART III


ITEM 9.           DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

         Not applicable.


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

         The  information  set forth under the heading  "Election of  Directors"
contained in the  definitive  Proxy  Statement  regarding the Annual  Meeting of
Shareholders  of the  Company to be held on May 8, 1997 (the  "Definitive  Proxy
Statement") sets forth certain  information with respect to the directors of the
Company, some of whom are also executive officers, and is incorporated herein by
reference.  Certain information with respect to the remaining executive officers
of the Company is set forth under the caption "Executive  Officers" in Part I of
this Report.


ITEM 11.          EXECUTIVE COMPENSATION.

         The information required by this item is incorporated by reference from
the Definitive Proxy Statement.


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT.

         The information required by this item is incorporated by reference from
the Definitive Proxy Statement.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is incorporated by reference from
the Definitive Proxy Statement.


                                     PART IV

ITEM 14.          EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM
                  10-K.

(a)  The  following  documents  are being filed as part of this Annual Report on
     Form 10-K:

     1.   Financial Statements: The Financial Statements are listed in the Index
          to Consolidated Financial Statements on Page 16 of this Report.

     2.   Exhibits.

                                                       -13-

<PAGE>



Exhibit No.                         Exhibit

3.1(1)         Restated Articles of Incorporation of the Company, as amended.

3.2(2)         Bylaws of the Company, as currently in effect.

4.1(3)         Specimen certificate evidencing Common Stock.

4.1(4)         Rights  Agreement,  dated  February  9, 1995,  by and between the
               Company and Society National Bank, as Rights Agent.

10.1(1)        Description of Executive Short-Term Bonus Plan. (a)

10.2(3)        Incentive Stock Option Plan. (a)

10.3(5)        Amendment to Stock Option Plan (formerly the Incentive Stock 
               Option Plan). (a)

10.4(6)        Amendment No. 2 to Stock Option Plan. (a)

10.5(6)        Amendment No. 3 to Stock Option Plan. (a)

10.6(5)        Form of Stock Option Agreement, as amended--Stock Option Plan.(a)

10.7           Profit Sharing Plan and Trust Agreement. (a)

10.9(5)        Lease dated May 15,  1985,  between the Company,  as lessee,  and
               Frank Cuellar and Sons,  Inc., as lessor,  as corrected  February
               25, 1986, and amended July 18, 1986.

10.10          Distribution Service Agreement dated July 11, 1996, by and 
               between The SYGMA Network and the Company.

10.11(7)       Stock Option Plan for Non-employee Directors and Form of Stock 
               Option Agreement. (a)

10.12(8)       1990 Long-Term Incentive Plan. (a)

10.14(9)       1992 Stock Option Plan. (a)

10.15(1)       Employment Agreement with Wallace A. Jones dated 
               November 10, 1994. (a)

10.16(10)      Loan Agreement between El Chico Restaurants, Inc. and Texas 
               Commerce Bank, National Association.

10.17(2)       El Chico Restaurants, Inc. 1995 Stock Plan. (a)

10.18          El Chico Restaurants, Inc. Excess Savings Plan. (a)

11             Earnings Per Share Calculations.


                                                       -14-

<PAGE>



Exhibit No. - Continued             Exhibit


21             List of Subsidiaries.

23             Consent of KPMG Peat Marwick LLP.

27             Financial Data Schedule.
----------------------


(1)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         year ended December 31, 1994, and incorporated herein by reference.

(2)      Filed as an exhibit to the Company's quarterly report on Form 10-Q for 
         the quarter ended June 30, 1996.

(3)      Filed as an exhibit to the Company's registration Statement on Form S-1
         (No.  2-83955) effective June 30, 1983, and incorporated herein by 
         reference.

(4)      Incorporated by reference from Exhibit 1 of the Company's  Registration
         Statement  on Form 8-A,  filed by the Company with the  Securities  and
         Exchange Commission on February 21, 1995.

(5)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         fiscal year ended May 29, 1987, and incorporated herein by reference.

(6)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         fiscal year ended May 28, 1990, and incorporated herein by reference.

(7)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         fiscal year ended May 30, 1988, and incorporated herein by reference.

(8)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         fiscal year ended May 27, 1991, and incorporated herein by reference.

(9)      Filed as an exhibit to the Company's annual report on Form 10-K for the
         year ended December 31, 1993, and incorporated herein by reference.

(10)     Incorporated by reference from the Company's current report on Form 8-K
         filed on August 30, 1996.

(a)      Compensation plan, benefit plan or employment contract or arrangement.



                                                       -15-

<PAGE>




                   El Chico Restaurants, Inc. and Subsidiaries

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





                                                                            Page
Consolidated Financial Statements:


     Independent Auditors' Report                                            F-1


     Consolidated Balance Sheets at December 31, 1996 and 1995               F-2


     Consolidated Statements of Operations for the years ended
          December 31, 1996, 1995, and 1994                                  F-3


     Consolidated Statements of Changes in Stockholders' Equity for
          the years ended December 31, 1996, 1995, and 1994                  F-4


     Consolidated Statements of Cash Flows for the years ended
          December 31, 1996, 1995, and 1994                                  F-5


     Notes to Consolidated Financial Statements                              F-6














All schedules have been omitted as the required  information is not  applicable,
not  required,  or the  information  is included in the  consolidated  financial
statements or notes thereto.

                                                       -16-

<PAGE>






                          INDEPENDENT AUDITORS' REPORT




Board of Directors and Stockholders
El Chico Restaurants, Inc.:


         We have  audited  the  consolidated  financial  statements  of El Chico
Restaurants,  Inc. and subsidiaries as listed in the accompanying  index.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly,  in all material  respects,  the financial  position of El Chico
Restaurants,  Inc. and  subsidiaries  as of December 31, 1996 and 1995,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.




                                           KPMG Peat Marwick LLP



Dallas, Texas
February 6, 1997



                                                        F-1

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
               (In Thousands of Dollars, Expect Par Value Amounts)

<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                              -------------------------------
                                                                                  1996              1995
                                                                              ------------      -------------
      ASSETS

CURRENT ASSETS:
<S>                                                                                <C>                <C>    
  Cash and cash equivalents                                                        $   216            $   266
  Accounts receivable                                                                1,154                979
  Income tax receivable                                                                 --                 66
  Inventories                                                                          976              1,100
  Prepaid expenses and other                                                         1,330              1,346
  Deferred income taxes (Note I)                                                       824                 71
                                                                              ------------      -------------
              Total current assets                                                   4,500              3,828

PROPERTY AND EQUIPMENT, NET (Note B)                                                40,535             46,209
OTHER ASSETS AND DEFERRED COSTS                                                        681              1,002
DEFERRED INCOME TAXES (Note I)                                                       1,946                 --
                                                                              ------------      -------------
              TOTAL ASSETS                                                         $47,662            $51,039
                                                                              ============      =============
</TABLE>


      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

CURRENT LIABILITIES:
<S>                                                                              <C>                <C>      
  Current maturities of long-term debt (Note D)                                  $      27          $      25
  Trade accounts payable                                                             4,459              4,384
  Accrued liabilities (Note C)                                                       5,114              4,115
  Income taxes payable                                                                 570                 --
                                                                              ------------      -------------
              Total current liabilities                                             10,170              8,524

LONG-TERM DEBT, less current maturities (Note D)                                     9,765              8,435
OTHER LONG-TERM LIABILITIES                                                          1,442              1,240
DEFERRED INCOME TAXES (Note I)                                                          --                343

COMMITMENTS AND CONTINGENCIES (Note E)

STOCKHOLDERS' EQUITY (Note F):
  Preferred stock - authorized 1,000,000 shares
    of $.10 par value; none issued                                                      --                 --
  Common stock - authorized 10,000,000 shares of $.10 par value;
    issued 4,750,142 and 4,746,975 shares in 1996 and 1995, respectively               475                475
  Additional paid-in capital                                                        15,925             15,895
  Retained earnings                                                                 18,876             21,938
  Unamortized value of restricted stock issued                                         (37)               (59)
                                                                              ------------      -------------
                                                                                    35,239             38,249
   Less treasury stock - at cost 1,057,760 and 651,744 shares in
      1996 and 1995, respectively                                                   (8,954)            (5,752)
                                                                              ------------      -------------
              Total stockholders' equity                                            26,285             32,497
                                                                              ------------      -------------
              TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $47,662            $51,039
                                                                              ============      =============
</TABLE>



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

                                                        F-2

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (In Thousands of Dollars, Except per Share Amounts)


<TABLE>
<CAPTION>


                                                                     Year Ended December 31,
                                                       ---------------------------------------------------
                                                              1996              1995              1994
                                                       ---------------      ------------       -----------
Revenues:
<S>                                                     <C>               <C>               <C>           
  Sales from Company-owned restaurants                  $   101,698       $   101,628       $       94,901
  Equipment sales                                                  825               908               832
  Franchise revenues                                             1,958             2,082             2,093
                                                               104,481           104,618            97,826
                                                       ---------------   ---------------   ---------------
Costs and expenses:
  Restaurant cost of sales - food and beverage                  27,016            25,772            24,273
  Restaurant cost of sales - labor                              33,725            33,637            31,435
  Restaurant operating expenses                                 29,794            29,084            26,881
  Cost of equipment sales                                          700               782               590
  General and administrative                                     9,468             9,227             8,967
  Special Charge (Note G)                                        9,421                --                --
  (Gain) loss on sale or disposition of assets (Note H)         (1,203)               --                41
  Interest expense                                                 686               602               146
  Interest income                                                  (75)              (78)              (88)
                                                       ---------------   ---------------   ---------------
                                                               109,532            99,026            92,245
                                                       ---------------   ---------------   ---------------
            Income (loss) before income taxes                   (5,051)            5,592             5,581
Income tax provision (benefit) (Note I)                         (1,989)            1,634             1,853
                                                       ---------------   ---------------   ---------------
            NET EARNINGS (LOSS)                         $       (3,062)   $        3,958    $        3,728
                                                       ===============   ===============   ===============
Net earnings (loss) per common share                    $        (0.79)   $         0.98    $         0.88
                                                       ===============   ===============   ===============
Weighted average number of shares and share
  equivalents outstanding                                    3,892,461         4,046,489         4,260,292
                                                       ===============   ===============   ===============
</TABLE>










  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                                        F-3

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                            (In Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                                Unamortized
                                                                   Additional                    Value of
                                               Common Stock         Paid-In      Retained       Restricted     Treasury
                                           Shares        Amount     Capital      Earnings       Stock Issue     Stock       Total

<S>                                       <C>             <C>       <C>           <C>               <C>        <C>          <C>    
Balances at December 31, 1993             4,719,973       $472      $14,263       $14,252           $(67)      $(4,076)     $24,844

Net earnings                                     --         --           --         3,728             --            --        3,728
Issuance of common stock under
 stock bonus plan, net                           --         --           71            --            (57)          (11)           3
Issuance of common stock pursuant
 to stock option plan                        23,667          2          249            --             --            --          251
Amortization of restricted stock issue           --         --           --            --             56            --           56
                                          ---------       -----     --------      --------          ------      -------     --------
Balances at December 31, 1994             4,743,640        474       14,583        17,980            (68)       (4,087)      28,882

Net earnings                                     --         --           --         3,958             --            --        3,958
Purchase of treasury stock                       --         --           --            --             --        (2,174)      (2,174)
Issuance of common stock under
 stock bonus plan, net                           --         --           52            --            (53)            9            8
Issuance of common stock pursuant
 to stock option plan                         3,335          1        1,260            --             --           500        1,761
Amortization of restricted stock issue           --         --           --            --             62            --           62
                                          ---------       -----     --------      --------          ------      -------     --------
Balances at December 31, 1995             4,746,975        475       15,895        21,938            (59)       (5,752)      32,497


Net loss                                         --         --           --        (3,062)            --            --       (3,062)
Purchase of treasury stock                       --         --           --            --             --        (3,208)      (3,208)
Issuance of common stock under
  stock bonus plan, net                          --         --           16            --            (40)            6          (18)
Issuance of common stock pursuant
  to stock option plan                        3,167         --           14            --             --            --           14
Amortization of restricted stock issue           --         --           --            --             62            --           62
                                       ------------   --------   ----------    ----------   ------------   -----------   ----------
Balances at December 31, 1996             4,750,142       $475      $15,925       $18,876           $(37)      $(8,954)     $26,285
                                       ============   ========   ==========    ==========   ============   ===========   ==========
</TABLE>












  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                                        F-4

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                              Year Ended December 31,
                                                                   ---------------------------------------------
                                                                         1996            1995            1994
                                                                       ---------       ---------       ---------
Cash flows from operating activities:
<S>                                                                 <C>              <C>             <C>        
  Net (loss) earnings                                               $     (3,062)    $     3,958     $     3,728
  Adjustments to reconcile net earnings (loss) to
    net cash provided by operating activities:
       Special Charge                                                      9,421              --              --
       Depreciation and amortization of property and equipment             5,315           5,107           4,831
       Amortization of deferred costs                                        697           1,333           1,257
       (Gain) loss on sale or disposition of assets                       (1,203)             --              41
       Deferred income taxes                                              (3,042)             23             419
       Increase in accounts receivable                                      (175)           (127)           (155)
       Decrease (increase) in income tax receivable                           66             (66)            792
       Decrease in inventories                                               124              89             120
       Decrease (increase) in prepaid expenses and other                      16            (103)           (385)
       Increase in other assets and deferred costs                          (401)         (1,242)         (1,133)
       Increase (decrease) in trade accounts payable and accrued
           liabilities                                                      (822)            376            (353)
       Increase (decrease) in income taxes payable                           570            (173)            173
       Increase in other long-term liabilities                               202             314             254
       Other                                                                 238             412             125
         Net cash provided by operating activities                         7,944           9,901           9,714
                                                                   -------------    ------------    ------------

Cash flows from investing activities:
  Proceeds from sale of property and equipment                             1,445              --           1,449
  Purchases of property and equipment                                     (7,595)        (13,015)        (13,784)
         Net cash used in investing activities                            (6,150)        (13,015)        (12,335)
                                                                   -------------    ------------    ------------

Cash flows from financing activities:
  Borrowings of long-term debt                                             1,355           2,925           2,250
  Repayment of long-term debt                                                (23)            (20)            (18)
  Purchase of treasury stock                                              (3,208)         (2,174)             --
  Proceeds from note receivable                                               --             245              --
  Issuance of common stock                                                    32           1,677             273
                                                                   -------------    ------------    ------------
         Net cash (used in) provided by financing activities              (1,844)          2,653           2,505
                                                                   -------------    ------------    ------------
         NET DECREASE IN CASH                                                (50)           (461)           (116)

Cash and cash equivalents at beginning of year                               266             727             843
                                                                   -------------    ------------    ------------
Cash and cash equivalents at end of year                            $        216     $       266     $       727
                                                                   =============    ============    ============

Supplemental  disclosures  of cash flow  information:  Cash paid during the year
     for:
       Interest (net of amount capitalized)                         $        593     $       551     $        99
                                                                   =============    ============    ============
       Income taxes                                                 $        477     $     1,911     $     1,010
                                                                   =============    ============    ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                                        F-5

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1995, and 1994


NOTE A - SUMMARY OF ACCOUNTING POLICIES

     A summary of the significant accounting policies applied in the preparation
     of the accompanying consolidated financial statements follows:

     Principles of Consolidation

     The  consolidated  financial  statements  include the  accounts of El Chico
     Restaurants,  Inc. and its  subsidiaries  (the  Company).  All  significant
     intercompany accounts and transactions have been eliminated.

     Cash Equivalents

     The Company considers all highly liquid debt instruments  purchased with an
     original maturity of three months or less to be cash equivalents.

     Inventories

     Inventories,  which consist  primarily of food products,  are stated at the
     lower of cost or market.  Cost is determined using the first-in,  first-out
     method.

     Property and Equipment

     Property and equipment are recorded at cost.  Depreciation and amortization
     are  provided in amounts  sufficient  to amortize  the cost of  depreciable
     assets to  operations  over their  estimated  service  lives of three to 30
     years.   Leasehold  improvements  are  amortized  over  the  lives  of  the
     respective  leases,  including  renewal periods when the Company intends to
     exercise  renewal  options,  or the  service  lives  of  the  improvements,
     whichever is shorter.  The straight-line method of depreciation is followed
     for  substantially  all  assets for  financial  reporting  purposes,  while
     accelerated methods are used for tax purposes.

     Interest is capitalized with the construction of new restaurants as part of
     the asset to which it relates.  Interest  capitalized during 1996, 1995 and
     1994 was not material.

     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

     The Company  adopted the  provisions  of SFAS No. 121,  Accounting  for the
     Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed
     Of, on January 1, 1996. This Statement  requires that long-lived assets and
     certain identifiable intangibles be reviewed for impairment whenever events
     or changes in  circumstances  indicate that the carrying amount of an asset
     may not be  recoverable.  Recoverability  of  assets to be held and used is
     measured by a comparison  of the carrying  amount of an asset to future net
     cash  flows  expected  to be  generated  by the asset.  If such  assets are
     considered to be impaired,  the  impairment to be recognized is measured by
     the amount by which the carrying  amount of the assets exceed the estimated
     fair value of the  assets.  Assets to be  disposed  of are  reported at the
     lower of the carrying amount or estimated fair value less costs to sell.

                                                        F-6

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



     Preopening Costs

     Restaurant preopening costs,  comprised primarily of the cost of hiring and
     training restaurant employees, are amortized over the initial twelve months
     of a restaurant's operations.

     Franchise Fee Revenue

     Franchise  fee  revenue  is  recognized  when  all  material   services  or
     conditions  relating  to the sale  have  been  substantially  performed  or
     satisfied by the Company, but no sooner than the commencement of operations
     by the  franchisee.  Franchise  revenues  for each period  presented in the
     consolidated statement of operations relate substantially to royalties paid
     by franchisees.

     Income Taxes

     The Company accounts for income taxes using the asset and liability method.
     Under the asset and liability  method,  deferred tax assets and liabilities
     are recognized for the future tax consequences  attributable to differences
     between the financial  statement  carrying  amounts of existing  assets and
     liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
     liabilities  are  measured  using  enacted  tax rates  expected to apply to
     taxable  income  in the  years in which  those  temporary  differences  are
     expected to be recovered or settled.  The effect on deferred tax assets and
     liabilities  of a change in tax rates is recognized in income in the period
     that includes the enactment date.

     Earnings Per Common Share

     Earnings  per  common  share are based on the  weighted  average  number of
     shares  and  common  share  equivalents   outstanding  during  each  period
     determined   using  the  treasury   stock  method.   Primary  common  share
     equivalents are determined  based on the average market price exceeding the
     exercise  price of the stock  options  while fully  diluted are  determined
     based on the higher of the average or the ending market price exceeding the
     exercise price of the stock options.

     Stock Option Plan

     Prior to January 1, 1996,  the Company  accounted for its stock option plan
     in accordance  with the provisions of Accounting  Principles  Board ("APB")
     Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  and related
     interpretations.  As such,  compensation  expense  would be recorded on the
     date of grant only if the  current  market  price of the  underlying  stock
     exceeded the exercise  price.  On January 1, 1996, the Company adopted SFAS
     No. 123, Accounting for Stock-Based Compensation, which permits entities to
     recognize  as  expense  over  the  vesting  period  the  fair  value of all
     stock-based awards on the date of grant.  Alternatively,  SFAS No. 123 also
     allows  entities to continue to apply the  provisions of APB Opinion No. 25
     and  provide  pro  forma  net  income  and pro  forma  earnings  per  share
     disclosures  for employee stock option grants made in 1995 and future years
     as if the fair-value-based method defined in SFAS No. 123 has been applied.
     The Company has elected to continue to apply the  provisions of APB Opinion
     No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

                                                        F-7

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

Use of Estimates

     Management  of the Company has made a number of estimates  and  assumptions
     relating to the reporting of assets, liabilities, revenues and expenses and
     the  disclosure  of  contingent  assets and  liabilities  to prepare  these
     consolidated  financial  statements in conformity  with generally  accepted
     accounting principles. Actual results could differ from those estimates.


NOTE B - PROPERTY AND EQUIPMENT

     Property and equipment consists of:
<TABLE>
<CAPTION>

                                                                December 31,
                                                      --------------------------------
                                                          1996                1995
                                                      ------------        ------------
                                                               (In Thousands)                                                      
<S>                                                        <C>                 <C>    
Land                                                       $ 7,125             $ 7,732
Buildings and improvements                                  16,918              16,136
Leasehold improvements                                      24,230              27,878
Equipment, furniture and fixtures                           18,777              17,871
Construction in progress                                       492                 438
                                                      ------------        ------------
                                                            67,542              70,055
   Less accumulated depreciation
       and amortization                                    (27,007)            (23,846)
                                                      ------------        ------------
                                                           $40,535             $46,209
                                                      ============        ============
</TABLE>


NOTE C - ACCRUED LIABILITIES

     Accrued liabilities consist of:
<TABLE>
<CAPTION>

                                                                December 31,
                                                      --------------------------------
                                                              1996                1995
                                                      ------------       -------------
                                                               (In Thousands)                                                      
<S>                                                         <C>                 <C>   
Compensation and related taxes                              $1,119              $1,689
Special charge                                               1,638                  --
Taxes, other than income and payroll                           979                 838
Insurance claims and administration                            607                 750
Rent                                                           232                 353
Other                                                          539                 485
                                                      ------------       -------------
                                                            $5,114              $4,115
                                                      ============       =============
</TABLE>



                                                        F-8

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE D - LONG-TERM DEBT

     Long-term debt consists of:
<TABLE>
<CAPTION>

                                                                            December 31,
                                                                   -------------------------------
                                                                           1996               1995
                                                                   ------------      -------------
                                                                           (In Thousands)                                        
<S>                                                                      <C>                <C>   
Note payable to a bank under credit facility (see below)                 $9,730             $8,375
Other                                                                        62                 85
                                                                   ------------      -------------
                                                                          9,792              8,460
   Less current maturities                                                  (27)               (25)
                                                                   ------------      -------------
                                                                         $9,765             $8,435
                                                                   ============      =============
</TABLE>


     The Company has an unsecured credit facility with a $16,000,000  commitment
     comprised of a $15,000,000 revolving line of credit and a $1,000,000 letter
     of credit  facility.  The line of credit  matures on December 31, 1997, and
     may  be  converted  to  a  term  loan,   payable  quarterly  on  a  10-year
     amortization  schedule,  and maturing on December 31, 1999, and accordingly
     has been classified as non-current in the accompanying  balance sheet. Both
     the line of credit and the term loan bear interest at the Company's  option
     of prime rate or up to  six-month  LIBOR plus .75  percent.  Both rates are
     subject to maintaining certain financial covenants, and interest is payable
     upon maturity of the LIBOR  advances or quarterly for prime rate  advances.
     Principally  because of the  special  charge,  the  interest on the line of
     credit has been at LIBOR plus 1.75  percent  and/or prime plus 0.50 percent
     since August 14, 1996 until certain financial results are met. In addition,
     the  Company  has  entered  into an  interest  rate swap  (not for  trading
     purposes,  but to manage well  defined  interest  rate risks) on a notional
     balance of $5  million,  under  which a fixed rate of 6.61  percent is paid
     against a floating rate equal to three-month LIBOR. A commitment fee of .25
     percent is payable quarterly on any unused commitments.

     As of December 31, 1996, the line of credit bore interest as follows:


$5,000,000       8.34%        LIBOR plus 1.75 percent plus 1.06 (SWAP)
 4,000,000       7.28%        LIBOR plus 1.75 percent
   730,000       8.75%        Prime plus 0.5 percent
-----------
$9,730,000
===========

     Scheduled  maturities  of  long-term  debt as of  December  31, 1996 are as
follows (in thousands):


Fiscal Year
1997                                   $    27
1998                                     1,001
1999                                     8,764
                                        $9,792
                                   ===========


                                                        F-9

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE E - COMMITMENTS AND CONTINGENCIES

     The Company  leases land,  buildings  and  equipment  under  noncancellable
     operating leases expiring at various dates through 2010. The following is a
     schedule of minimum rental payments under such leases (in thousands):


1997                           3,622
1998                           3,027
1999                           2,748
2000                           2,247
2001                           1,890
Thereafter                     6,288
                             $19,822
                        ============

     Most land and building  lease  agreements  provide for  contingent  rentals
     based  on  sales.  Rental  expense  for  all  leases  was  as  follows  (in
     thousands):


                                         Year Ended December 31,
                           ---------------------------------------------------
                               1996                1995               1994
                           -------------       ------------       ------------
Minimum rentals                   $3,487             $3,262             $2,805
Contingent rentals                   368                510                645
                                  $3,855             $3,772             $3,450
                           =============       ============       ============

    The  Company is a  defendant  in various  lawsuits  arising in the  ordinary
    course  of its  business.  The  majority  of  these  suits  are  covered  by
    insurance. In the opinion of management,  none of these lawsuits will have a
    material  adverse  effect,  individually  or  in  the  aggregate,  upon  the
    Company's financial position or results of operations.




                                                       F-10

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE F - STOCKHOLDERS' EQUITY

    On May 2, 1996, the  shareholders  approved the El Chico  Restaurants,  Inc.
    1995 Stock Plan ("the 1995 Plan"),  which replaced and canceled all previous
    shares and  options  available  for grant and  reserved  400,000  shares for
    future grant.  As of December 31, 1996 there were 207,062  shares  available
    for grant and options  covering  366,609 were  exercisable at prices ranging
    from $3.16 to $12.13.
    Transactions during 1996, 1995, and 1994 were as follows:


                                                                     Weighted
                                                                     Average
                                                  Shares          Exercise Price
                                              ------------        --------------


Options outstanding at December 31, 1993           825,670        $       9.23
   Granted                                         260,000               12.08
   Exercised                                       (23,667)               7.77
   Forfeited                                      (342,001)               9.62
                                              ------------        --------------

Options outstanding at December 31, 1994           720,002               10.12
   Granted                                          98,500               10.46
   Exercised                                      (170,001)               9.50
   Forfeited                                       (10,000)              11.00

Options outstanding at December 31, 1995           638,501               10.33
   Granted                                         219,225                9.62
   Exercised                                        (3,167)               3.35
   Forfeited                                       (75,000)               9.99
Options outstanding at December 31, 1996           779,559        $      10.19
                                              ============        ==============


     The per share  weighted-average  fair value of stock options granted during
     1996 and 1995 was  $4.56  and  $4.90 on the date of grant  using  the Black
     Scholes   option-pricing   model   with  the   following   weighted-average
     assumptions: risk-free interest rate of 6.5 percent, an expected life of 10
     years,  no expected  dividend yield,  volatility rate of 19 percent,  and a
     forfeiture rate of 57.5 percent based upon historic data.

     The Company  applies APB  Opinion  No. 25 in  accounting  for its Plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the financial statements.  Had the Company determined  compensation cost
     based  on the  fair  value at the  grant  date for its 1996 and 1995  stock
     options under SFAS No. 123, there would have been no material impact on the
     consolidated  financial  statements.  The  compensation  cost  for  options
     granted  prior to January 1, 1995 is not  considered  as it is not required
     under SFAS No. 123.

                                                       F-11

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE F - STOCKHOLDERS' EQUITY - Continued

     In February  1995, the Company's  Board of Directors  adopted a Shareholder
     Rights Plan pursuant to which purchase rights (the "Rights") were issued to
     holders  of its  common  stock at the rate of one Right  for each  share of
     common stock.  The Rights will trade with the Company's  common stock until
     exercisable.  The Rights  become  exercisable  ten days after any person or
     group acquires 20 percent or more of the Company's outstanding common stock
     or  announces  a  tender  offer  for 30  percent  or more of the  Company's
     outstanding  common  stock.  The Rights  thereafter  entitle  the holder to
     purchase one one-thousandth of a share of Preferred Stock for $48.00,  and,
     under certain  circumstances,  would be modified to entitle certain holders
     to purchase additional Common Stock of the Company having a market value of
     two times the $48.00  exercise  price of the Right,  or to purchase  common
     stock of an acquiring company having a market value of two times the $48.00
     exercise price of the Right. The Rights expire on December 31, 2004 and may
     be  redeemed  by  the  Company  for  one  cent  per  Right  under   certain
     circumstances.


NOTE G - SPECIAL CHARGE

     During the second quarter of 1996 the Company  incurred a special charge of
     $9.4  million to  provide  for the  impairment  and exit plans of six units
     slated for closing,  the  impairment of the carrying  values of three other
     stores that will  continue  operating  as well as a  write-down  of certain
     other  assets.  One of the six stores is an older store that was closed and
     replaced  with a new  prototype  which opened  during the third  quarter of
     1996.  The Company  entered  into  agreements  with two  separate  existing
     franchisees  to operate two of the impaired  stores.  The  remaining  three
     impaired  stores  were  closed  and are held for  sale.  The  effect of the
     impairment during 1996,  excluding the replaced store, reduced depreciation
     and amortization  expense by $452,000.  Management  reviews each restaurant
     regularly to determine that expected  undiscounted  cash flows are adequate
     to recover the related investment. When expected cash flows are inadequate,
     the Company writes down the asset to its recoverable value.


NOTE H - SALE OR DISPOSITION OF ASSETS

     During 1996,  the Company sold three  parcels of real estate  including two
     stores  previously  leased  to two  franchisees  which  were  sold to those
     franchisees and the sale of a vacant, underdeveloped piece of land adjacent
     to a franchise store resulting in gains of $1,203,000.  During 1994,  asset
     values for two restaurants were written-down  $220,000 as future operations
     were not  expected to provide  sufficient  cash flow to recover the related
     investments.  In addition, during 1994, the Company closed six restaurants.
     One restaurant was sold resulting in a gain of $439,000,  one was closed at
     a loss of  $202,000,  one was closed with minimal  costs and the  remaining
     three closings were provided for in 1993.


                                                       F-12

<PAGE>



                   El Chico Restaurants, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE I - INCOME TAXES

     The provision for income taxes consists of the following (in thousands):


                                     Year Ended December 31,
                      ------------------------------------------------------
                           1996                1995                1994
                      --------------      --------------      --------------
Expense (Benefit)
Federal:
   Current                      $934              $1,536              $1,258
   Deferred                   (3,042)                 23                 419
State                            119                  75                 176
                             ($1,989)             $1,634              $1,853
                      ==============      ==============      ==============

    The types of temporary  differences  between the tax and financial reporting
    bases of assets and  liabilities  that give rise to the deferred  income tax
    assets  (liabilities)  and their  related  tax  effects  are as follows  (in
    thousands):


                                                     December 31,
                                              ---------------------------
                                                 1996            1995
                                              ----------      -----------
Deferred tax assets:
   Special charge (Note G)                        $3,026              $--
   FICA tip credit                                   252               --
   Insurance reserves                                235              362
   Deferred compensation                             161              125
   Provision for restaurant closings                  65               65
   Other                                             119               12
                                              ----------      -----------
       Total deferred tax assets                   3,858              564
                                              ----------      -----------

Deferred tax liabilities:
   Property and equipment                         (1,073)            (747)
   Restaurant preopening costs                       (15)             (89)
                                              ----------      -----------
      Total deferred tax liabilities              (1,088)            (836)
                                              ----------      -----------
      Net deferred tax asset (liability)          $2,770            ($272)
                                              ==========      ===========

    The Company  believes  that the deferred tax assets at December  31,1996 and
    1995 will be  realized  based upon  historical  levels of income and through
    reversals of existing taxable temporary  differences during the carryforward
    period.

    The Company's  effective  income tax rate differs from the expected  federal
    statutory income tax rate as a result of the following:


<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                                --------------------------------------------------------
                                                    1996                   1995                 1994
                                                -------------          ------------          -----------
<S>                                                <C>                    <C>                  <C>  
Expected income tax provision                      (34.0%)                34.0%                34.0%
State income taxes                                   1.7                   0.5                  3.3
FICA tip and TJTC tax credits                       (7.0)                 (5.9)                (5.1)
Other                                               (0.1)                  0.6                  1.0
   Income tax provision                            (39.4%)                29.2%                33.2%
                                                =============          ============          ===========
</TABLE>


                                                       F-13

<PAGE>

                                   SIGNATURES


       Pursuant  to the  requirements  of Section 13 or 15(d) 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:

                                            EL CHICO RESTAURANTS, INC.


                                            By:  /s/ Wallace A. Jones
                                               ----------------------
                                               Wallace A. Jones, President and
                                               Chief Executive Officer
Date:  March 26, 1997


       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.


SIGNATURE                    TITLE                                  DATE
---------                    -----                                  ----
/s/ Wallace A. Jones       President and Chief Executive Officer  March 26, 1997
-------------------------  (Principal Executive Officer)
Wallace A. Jones                       

/s/ Lawrence E. White      Executive Vice President and Chief     March 26, 1997
-------------------------  Financial Officer (Principal Financial
Lawrence E. White          and Accounting Officer)
                                       
/s/ Grahame N. Clark, Jr.  Director                               March 26, 1997
-------------------------
Grahame N. Clark, Jr.

/s/ Jack D. Knox           Director                               March 26, 1997
--------------------------
Jack D. Knox

/s/ Joseph V. Mariner, Jr. Director                               March 26, 1997
--------------------------
Joseph V. Mariner, Jr.

/s/ Joseph S. Thomson      Chairman of the Board                  March 26, 1997
--------------------------
Joseph S. Thomson