AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM S-4
REGISTATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TEXAS REGIONAL BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 6022 74-2294235
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
TEXAS REGIONAL BANCSHARES, INC.
KERRIA PLAZA, SUITE 301
3700 NORTH 10TH STREET
MCALLEN, TEXAS 78501
(956) 631-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM A. ROGERS, JR., ESQ.
MCGINNIS, LOCHRIDGE & KILGORE, L.L.P.
1300 CAPITOL CENTER
919 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 495-6033
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Approximate date of commencement of proposed sale of the securities to the
public: Upon consummation of the merger described in this registration
statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. M ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. M ____________
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------------------------------------------
Class A Voting Common
<S> <C> <C> <C> <C>
Stock, par value $1.00/Share.......... 308,076 $29.125 $8,972,714 $2,719.00
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated in accordance with Rule 457. Price per unit represents the average
of the high and low prices reported in the NASDAQ consolidated reporting
system on December 5, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
TEXAS REGIONAL BANCSHARES, INC.
CROSS-REFERENCE SHEET
ITEM
NO. CAPTION LOCATION IN PROSPECTUS
- --------------------------------------- ---------------------------
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...... Cover Page;
Cross-reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus..... Table of Contents;
Cover Page;
Available Information
3. Risk Factors, Ratio of
Earnings to Fixed Charges and
Other Information............. Summary; Risk Factors;
Selected Financial Data
4. Terms of the Transaction...... Information About the
Transaction
5. Pro Forma Financial
Information................... Not Applicable
6. Material Contacts with the
Company Being Acquired........ Information about TB&T
Bancshares -- Description
and Development of Business
7. Additional Information
Required For Reoffering by
Persons and Parties Deemed To
Be Underwriters............... Not Applicable
8. Interests of Named Experts and
Counsel....................... Information about Texas
Regional -- Interests of
Certain Named Persons;
Experts; Legal Opinion
9. Disclosure of Commission
Position On Indemnification
for Securities Act
Liabilities................... Not Applicable
10. Information with Respect to
S-3 Registrants............... Available Information;
Incorporation of Certain
Documents by Reference;
Information About Texas
Regional
11. Incorporation of Certain
Information by Reference...... Available Information;
Incorporation of Certain
Documents by Reference
12. Information with Respect to
S-2 or S-3 Registrants........ Not Applicable
13. Incorporation of Certain
Information by Reference...... Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants............... Not Applicable
15. Information with Respect to
S-3 Companies................. Not Applicable
16. Information with Respect to
S-2 or S-3 Companies.......... Not Applicable
17. Information with Respect to
Companies Other than S-3 or
S-2 Companies................. Information About TB&T
Bancshares; Annex D
18. Information if Proxies,
Consents or Authorizations are
to be Solicited............... Summary -- The Meeting;
Summary -- Voting
19. Information if Proxies,
Consents or Authorizations are
not to be Solicited or in an
Exchange Offer................ Not Applicable
<PAGE>
PROSPECTUS/PROXY STATEMENT
SPECIAL MEETING OF THE SHAREHOLDERS OF
TB&T BANCSHARES, INC.
RELATED TO THE PROPOSED MERGER OF
TB&T BANCSHARES, INC.
WITH AND INTO TRD, INC., A WHOLLY-OWNED SUBSIDIARY OF
TEXAS REGIONAL BANCSHARES, INC.
This Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of TB&T Bancshares, Inc.,
Brownsville, Texas ("TB&T Bancshares"), a Texas corporation, for use at a
special meeting of the shareholders of TB&T Bancshares to be held at
, local time, on , 1997, at the offices of TB&T
Bancshares, Inc., 3201 Central Boulevard, Brownsville, Texas.
The special meeting has been called to permit the shareholders of TB&T
Bancshares to consider and take action on a proposal to merge TB&T Bancshares
with and into Texas Regional Delaware, Inc. (herein called "TRD"), a Delaware
corporation wholly owned by Texas Regional Bancshares, Inc. (herein called
"Texas Regional"). The merger of TB&T Bancshares with and into TRD (herein
sometimes called the "Merger") is to be effected in accordance with the
Agreement and Plan of Reorganization dated October 15, 1997 (herein referred to
as the "Agreement"), by and between TB&T Bancshares and Texas Regional. The
Agreement is attached to this Prospectus/Proxy Statement as Annex A. As part of
the proposal, TB&T Bancshares' shareholders will also consider and take action
on the proposed merger of TB&T Bancshares' wholly-owned subsidiary, Texas Bank
and Trust, with and into TRD's wholly-owned subsidiary, Texas State Bank. Texas
Regional, as the sole shareholder of TRD, has already approved the Agreement and
the merger transaction contemplated thereby.
Texas Regional has filed this Prospectus/Proxy Statement with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended, with respect to the shares of Texas Regional
Class A Voting Common Stock (the "Texas Regional Common Stock") to be issued
in connection with the Merger. As more fully described in this Prospectus/Proxy
Statement, the Agreement provides for the holders of TB&T Bancshares capital
stock, par value $1.00 per share, at the effective time of the merger, to
receive maximum aggregate merger consideration (including both shares to be
delivered at the time of closing and shares to be delivered into escrow pursuant
to the Holdback Escrow Agreement) of 308,076 shares of Texas Regional Common
Stock, less any shares attributable to cash paid in lieu of fractional shares
and less any shares attributable to shareholders exercising dissenters' rights
of appraisal. Based upon an aggregate of 1,695,775 shares of TB&T Bancshares
capital stock outstanding at the effective time of the Merger, each shareholder
of TB&T Bancshares (other than any shareholder exercising dissenters' rights)
will receive at closing 0.1522126 of a share of Texas Regional Common Stock for
each
(TEXT CONTINUED NEXT PAGE)
------------------------
THE SECURITIES OF TEXAS REGIONAL BANCSHARES, INC. OFFERED IN CONNECTION WITH
THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TB&T BANCSHARES SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY CONSIDER THE
RISKS DESCRIBED UNDER "RISK FACTORS" IN THIS PROSPECTUS/PROXY STATEMENT.
The date of this Prospectus/Proxy Statement is , 1997. This
Prospectus/Proxy Statement is first being mailed or delivered to TB&T Bancshares
shareholders on or about , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
share of TB&T Bancshares held. In addition, 0.0294605 of a share of Texas
Regional Common Stock for each share of TB&T Bancshares held shall be deposited
into escrow pursuant to the Holdback Escrow Agreement to be executed at the time
of closing in the form attached to the Agreement. The shares deposited into
escrow will be either returned to Texas Regional or distributed to the
shareholders of TB&T Bancshares based upon the disposition or other outcome of
certain claims. See "Summary -- The Agreement," "Information About the
Transaction -- Terms of The Agreement," and "Information About the
Transaction -- Joinder by Certain Shareholders."
Consummation of the Merger is subject to the receipt of required
governmental approvals, the approval of the holders of two-thirds of the
outstanding TB&T Bancshares capital stock and certain other conditions, all as
more particularly described in the Agreement and summarized in this
Prospectus/Proxy Statement. See "Summary -- The Agreement," "Information
About the Transaction -- Terms of the Agreement," "Information About the
Transaction -- Other Terms and Conditions," and Annex A. This Prospectus/Proxy
Statement also constitutes the prospectus of Texas Regional with respect to the
shares of Texas Regional Common Stock to be issued to the holders of shares of
TB&T Bancshares capital stock in the Merger including both the shares of Texas
Regional Common Stock to be distributed at closing and the shares, if any, to be
distributed to TB&T Bancshares out of the escrow account created pursuant to the
Holdback Escrow Agreement.
Texas Regional is a bank holding company based in McAllen, Texas, whose
principal operating subsidiary, Texas State Bank, operates sixteen banking
locations in the Rio Grande Valley of Texas, including its newest location in
Edinburg, Texas, expected to open for business in December 1997. The principal
office of Texas Regional is located at Kerria Plaza, Suite 301, 3700 North 10th
Street, McAllen, Texas 78501, and the company's telephone number is (956)
631-5400. TB&T Bancshares is a bank holding company based in Brownsville, Texas,
whose principal operating subsidiary, Texas Bank and Trust of Brownsville
("Texas Bank & Trust"), operates one banking location in Brownsville, Texas.
The principal office of TB&T Bancshares is located at 3201 Central Boulevard,
Brownsville, Texas 78520, and the company's telephone number is (956) 546-1771.
Texas Regional Common Stock is publicly traded in the over-the-counter
market and is quoted on the NASDAQ National Market System. On , 1997, the
last reported sale price per share of Texas Regional Common Stock was $ .
No public trading market exists for the TB&T Bancshares capital stock.
All information contained herein concerning Texas Regional, TRD and Texas
State Bank has been furnished by Texas Regional, and all information contained
herein concerning TB&T Bancshares and Texas Bank & Trust has been furnished by
TB&T Bancshares.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information................... 3
Incorporation of Certain Documents by
Reference............................. 4
Summary................................. 5
The Meeting........................... 5
Voting................................ 5
Dissenters' Rights.................... 6
The Agreement......................... 6
Reasons for the Merger................ 7
Conditions............................ 8
Texas Regional........................ 8
TB&T Bancshares....................... 10
Federal Income Tax Consequences....... 10
Accounting Treatment.................. 11
Risk Factors............................ 12
Selected Financial Data................. 14
Market Prices........................... 16
Information About the Transaction....... 16
Terms of the Agreement................ 17
Holdback Escrow....................... 18
Stock Certificates and Fractional
Shares.............................. 18
Reasons for the Merger................ 19
Operations Following the Merger....... 20
Other Terms and Conditions............ 20
Joinder by Certain Shareholders....... 21
Business Pending Consummation of the
Merger.............................. 22
PAGE
----
Amendment or Termination of the
Agreement........................... 22
Dissenters' Rights.................... 22
Federal Income Tax Consequences....... 24
Governmental Approvals................ 25
Accounting Treatment.................. 25
Description of Texas Regional's
Securities............................ 27
Comparative Rights of Shareholders...... 28
Resales of Texas Regional Common
Stock................................. 28
Information About Texas Regional........ 29
Incorporation of Certain Information
by Reference........................ 29
Interests of Certain Named Persons.... 29
Option Plans.......................... 29
Pending Transactions.................. 30
Information About TB&T Bancshares....... 30
Description and Development of
Business............................ 30
Market Prices of and Dividends Paid On
TB&T Bancshares Capital Stock....... 32
TB&T Bancshares Stock Ownership....... 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of TB&T Bancshares,
Inc. ................................. 34
Experts................................. 48
Legal Opinion........................... 48
Indemnification......................... 48
Other Matters........................... 48
AVAILABLE INFORMATION
Texas Regional has filed with the Commission a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended, for the registration of the Texas Regional Common Stock proposed to be
issued and exchanged in the Merger transaction described in this
Prospectus/Proxy Statement, including the shares to be delivered to TB&T
Bancshares shareholders at closing and shares to be distributed to TB&T
Bancshares shareholders as distributions from the escrow account created
pursuant to the Holdback Escrow Agreement attached to the Agreement. This
Prospectus/Proxy Statement was filed as part of the Registration Statement.
This Prospectus/Proxy Statement does not contain all of the information set
forth in the Registration Statement, as certain parts are permitted to be
omitted by the rules and regulations of the Commission. For further information
pertaining to Texas Regional, the Texas Regional Common Stock, and related
matters, reference is made to the Registration Statement, including the exhibits
filed as a part thereof, which may be inspected at, and copies of which may be
obtained by mail from, the Public Reference Branch of the Commission referred to
below.
Texas Regional is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and, accordingly, files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Commission's
public reference rooms located at 450 Fifth Street, N.W., Washington, D.C.
20549, and the public reference facilities in the New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Branch, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material may be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST. ANY REQUEST SHOULD BE DIRECTED TO ANN M. SEFCIK,
CONTROLLER, TEXAS REGIONAL BANCSHARES, INC., KERRIA PLAZA, SUITE 301, 3700 NORTH
10th STREET, McALLEN, TEXAS 78501 (TELEPHONE (956) 632-7609). IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
, 1998.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Texas Regional with the
Commission are incorporated herein by reference:
(1) Texas Regional's Annual Report on Form 10-K for the year ended
December 31, 1996 (Commission File No. 0-14517);
(2) Texas Regional's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997, and September 30, 1997 (Commission
File No. 0-14517);
(3) Texas Regional's Proxy Statement dated March 10, 1997, relating
to its annual meeting of shareholders held on April 14, 1997 (Commission
File No. 0-14517); and
(4) The description of the Texas Regional Common Stock contained in
Form 10, as amended by Form 10-K for the year ended December 31, 1996 and
as amended by Form 10-Q for the quarter ended September 30, 1997
(Commission File No. 0-14517).
All documents filed by Texas Regional pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date hereof and prior to the date of the meeting of the shareholders of TB&T
Bancshares herein described, are incorporated herein by reference, and shall be
deemed a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed incorporated
herein by reference, or contained in this Prospectus/Proxy Statement, shall be
deemed to be modified or superseded for purposes of this Prospectus/Proxy
Statement to the extent that a statement contained herein or in any subsequently
filed document which also is deemed to be incorporated herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed to constitute a part of this Prospectus/Proxy Statement, except as so
modified or superseded.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus/Proxy Statement,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Texas Regional, TRD, Texas State Bank, TB&T
Bancshares, Texas Bank & Trust, or their respective affiliates. This
Prospectus/Proxy Statement does not constitute an offer to sell or exchange, or
solicitation of an offer to sell or exchange, any securities other than the
Texas Regional Common Stock offered hereby, nor does it constitute an offer to
exchange or sell, or solicitation of an offer to exchange or sell, such
securities in any state or other jurisdiction to any person to whom such an
offer or solicitation would be unlawful.
Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of securities made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of Texas Regional,
TRD, Texas State Bank, TB&T Bancshares, Texas Bank & Trust, or their respective
affiliates since the date of this Prospectus/Proxy Statement.
4
<PAGE>
SUMMARY
THE MEETING.
This Prospectus/Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of TB&T Bancshares, for use at
a special meeting of the shareholders of TB&T Bancshares to be held at the time
and place set forth in the foregoing notice and at any adjournments thereof.
This Prospectus/Proxy Statement is also a prospectus for the issuance and
distribution of shares of Texas Regional Common Stock at the closing of the
Merger of TB&T Bancshares with and into TRD, a subsidiary of Texas Regional, and
for the issuance and distribution of shares of Texas Regional Common Stock from
the escrow account created pursuant to the Holdback Escrow Agreement attached to
the Agreement.
The following proposals will be considered and voted upon at the special
meeting of TB&T Bancshares shareholders:
(1) To approve, ratify, confirm and adopt the Agreement and Plan of
Reorganization dated as of October 15, 1997, by and between Texas Regional
and TB&T Bancshares (the "Agreement"), pursuant to which TB&T Bancshares
will be merged with and into TRD, and to approve the merger of TB&T
Bancshares' wholly-owned subsidiary, Texas Bank & Trust, with and into
Texas Regional's wholly-owned subsidiary, Texas State Bank; and
(2) To consider and transact such other business as may properly come
before the meeting and any adjournment thereof.
The Board of Directors of TB&T Bancshares has fixed , 1997 as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting and any adjournment thereof. As of such date, TB&T
Bancshares had 1,695,775 shares of capital stock issued and outstanding. There
is no other class of TB&T Bancshares stock authorized, issued or outstanding. As
of the date hereof, the TB&T Bancshares capital stock was held of record by
approximately 82 persons. Each share entitles the holder of record on the record
date to one vote as to the Merger and one vote as to any other proposal to be
voted on at the special meeting of TB&T Bancshares shareholders. The presence,
in person or by proxy, of the holders of a majority of the shares of TB&T
Bancshares is necessary to constitute a quorum at the meeting, and the
affirmative vote of at least two-thirds of the total outstanding shares of TB&T
Bancshares capital stock is required for approval of the merger.
The TB&T Bancshares Board of Directors has unanimously approved the merger
and all of the members of the Board of Directors and certain parties related to
members of the Board of Directors have agreed to vote their shares of TB&T
Bancshares in favor of the Merger at the special meeting of the shareholders.
See "Information about TB&T Bancshares -- TB&T Bancshares Stock Ownership."
Because shareholders holding an aggregate of 1,388,104 shares, amounting to
81.9% of the total outstanding TB&T Bancshares shares, have agreed in the
Agreement to vote their shares in favor of the merger transaction, the
transaction is expected to be approved at the special meeting of the
shareholders.
VOTING.
Proxies in the form enclosed are solicited by the TB&T Bancshares Board of
Directors. Any such proxy, if received in time for voting and not revoked, will
be voted at the meeting in accordance with the shareholder's instructions. If no
instructions are given on the proxy, the proxy will be voted in favor of the
Merger transaction. At present, TB&T Bancshares' Board of Directors knows of no
other matter to be presented at the meeting, but if other matters are properly
presented, the persons named in the proxy will vote or refrain from voting in
accordance with the recommendation of the TB&T Bancshares Board of Directors
pursuant to the discretionary authority conferred by the proxy.
Proxies will be solicited initially by mail, and may also be solicited
personally, by telephone, facsimile transmission or other means by the
directors, officers and employees of TB&T Bancshares, who shall not be
5
<PAGE>
specially compensated therefor. However, TB&T Bancshares will reimburse such
directors, officers and employees for any reasonable out-of-pocket expenses in
connection with the solicitation. Arrangements will be made with custodians,
nominees and fiduciaries for the forwarding of solicitation materials to the
beneficial owners of TB&T Bancshares capital stock held of record by such
persons. Expenses incurred in connection with the Merger, including those
attributable to the solicitation of proxies, will be paid by the party to the
Merger incurring the expense.
Any TB&T Bancshares shareholder has the right to revoke his, her or its
proxy at any time before it is voted by giving written notice of such revocation
to the Secretary of TB&T Bancshares at the address of TB&T Bancshares set forth
herein.
The close of business on , 1997, has been fixed as the
record date for the determination of shareholders entitled to notice of and to
vote at the special meeting of the shareholders of TB&T Bancshares. At that
date, there were 1,695,775 shares of capital stock, par value $1.00 per share,
of TB&T Bancshares issued and outstanding, each of which is entitled to one vote
at the special meeting. At that date there were approximately 82 holders of
record of TB&T Bancshares capital stock.
Under applicable provisions of Texas law, not less than two-thirds of the
issued and outstanding shares of capital stock of TB&T Bancshares present in
person or by proxy at a meeting of the shareholders is required for approval of
the Agreement and the transactions contemplated thereby, and such approval is
also solicited by this Prospectus/Proxy Statement and the accompanying proxy.
Execution of the proxy card by a TB&T Bancshares shareholder, if voted for the
merger and voted in accordance with those instructions, and will constitute the
approval required by Texas law. Shareholders dissenting from the merger of TB&T
Bancshares with and into TRD may be entitled to exercise dissenters' rights of
appraisal. See "Information About the Transaction -- Dissenters' Rights."
As indicated above, shareholders holding a total of 81.9% of the
outstanding shares of TB&T Bancshares capital stock have agreed to vote their
TB&T Bancshares shares in favor of the Agreement at the TB&T Bancshares
shareholders meeting. See "Information About the Transaction -- Joinder by
Certain Shareholders."
Texas Regional is the sole shareholder of TRD. Texas Regional, as the sole
shareholder of TRD, has already approved the transaction, subject to the
approval of applicable regulatory authorities.
DISSENTERS' RIGHTS.
Holders of TB&T Bancshares capital stock who timely object to the Merger,
and who otherwise comply with the provisions of the Texas Business Corporation
Act (the "TBCA") will be entitled to exercise dissenters' rights. Each step
required to exercise dissenters' rights must be taken in the precise order
prescribed by the statutes set forth in Annex B for a shareholder to perfect
his, her or its dissenters' rights of appraisal. Shareholders of TB&T Bancshares
who exercise their dissenters' rights of appraisal will only be entitled to
receive cash for their shares of TB&T Bancshares stock; they will not be
entitled to receive shares of Texas Regional stock. See "Information About the
Transaction -- Dissenters' Rights" and Annex B attached hereto.
If shareholders of TB&T Bancshares holding an aggregate of greater than 2%
of the issued and outstanding TB&T Bancshares shares exercise dissenters'
rights, Texas Regional is entitled to refuse to consummate the Merger and
terminate the transaction. See "Information About the Transaction -- Other
Terms and Conditions."
THE AGREEMENT.
The Agreement, which has been approved by the respective boards of
directors of TB&T Bancshares and Texas Regional, provides that TB&T Bancshares
will be merged with and into TRD. The summary of information relating to the
Agreement contained in this Prospectus/Proxy Statement is qualified in its
entirety by reference to the Agreement attached to this Prospectus/Proxy
Statement as Annex A, and the
6
<PAGE>
Agreement is hereby incorporated into this Prospectus/Proxy Statement by this
reference. Shareholders of TB&T Bancshares are urged to read carefully the
entire Prospectus/Proxy Statement and all attachments.
The Agreement provides that each outstanding share of capital stock of TB&T
Bancshares will be converted into and exchanged for the right to receive at
closing 0.1522126 of a share of Texas Regional Class A Voting Common stock (the
"Texas Regional Common Stock"). In addition, the Agreement provides that
0.0294605 of a share of Texas Regional Common Stock for each share of TB&T
Bancshares held shall be deposited into escrow pursuant to the Holdback Escrow
Agreement to be executed at the time of closing in the form attached to the
Agreement. The shares deposited into escrow will be either returned to Texas
Regional or distributed to the shareholders of TB&T Bancshares based upon the
disposition or other outcome of certain claims. See "Information About the
Transaction -- Terms of the Agreement," "Information About the
Transaction -- Holdback Escrow Agreement," and "Information About the
Transaction -- Federal Income Tax Consequences." Upon consummation of the
merger, TB&T Bancshares will be merged with and into TRD, and the current
shareholders of TB&T Bancshares will cease to be shareholders of TB&T Bancshares
and will be entitled to receive Texas Regional Common Stock in consideration of
their shares of TB&T Bancshares capital stock.
Texas Regional anticipates that, immediately following the merger of TB&T
Bancshares with and into TRD, TB&T Bancshares' wholly owned subsidiary, Texas
Bank & Trust, will be merged with and into TRD's wholly owned subsidiary, Texas
State Bank. As part of the resolution to approve the merger of TB&T Bancshares
with and into TRD, the TB&T Bancshares shareholders will also be asked to
consider the approval of the merger of Texas Bank & Trust with and into TRD's
subsidiary, Texas State Bank. As a result of the mergers, Texas Regional will
wholly own TRD, the resulting entity in the merger with TB&T Bancshares, and TRD
will in turn wholly own Texas State Bank, the resulting entity in the merger
with Texas Bank & Trust.
All of the directors of TB&T Bancshares and all of the directors of Texas
Regional have voted in favor of the Agreement. Members of the TB&T Bancshares
Board of Directors and executive officers of TB&T Bancshares, and their
respective affiliates, own an aggregate of 82.0% of the outstanding shares of
Brownsville Bancshares capital stock. No present director or member of
management of TB&T Bancshares has notified Texas Regional of his or her
intention to oppose any action to be taken at the special meeting of the
shareholders of TB&T Bancshares. As of the date of this Prospectus/Proxy
Statement, a total of 1,695,775 shares of capital stock of TB&T Bancshares were
issued and outstanding. The Agreement and the Merger Agreement must be approved
and adopted by the holders of at least two-thirds of the outstanding capital
stock of TB&T Bancshares. Directors and certain shareholders of TB&T Bancshares,
holding in the aggregate 1,388,104 shares of TB&T Bancshares (amounting to an
aggregate of 81.9% of the issued and outstanding capital stock of TB&T
Bancshares), have agreed, pursuant to the Agreement, to vote their shares of
TB&T Bancshares capital stock in favor of the Merger at the special meeting of
the shareholders of TB&T Bancshares.
REASONS FOR THE MERGER.
The Agreement is the result of arm's-length negotiations between
representatives of Texas Regional and TB&T Bancshares. Upon receipt of a
proposal from Texas Regional, the TB&T Bancshares Board of Directors carefully
evaluated the proposal and concluded that the proposed Merger with Texas
Regional was in the best interests of TB&T Bancshares and its shareholders for a
number of reasons.
In evaluating the Texas Regional offer, TB&T Bancshares' Board of Directors
considered other transactions in the Rio Grande Valley area of Texas, as well as
transactions in other areas of Texas and elsewhere.
Among the factors considered by the Board of Directors of TB&T Bancshares
was their limited market for TB&T Bancshares' stock. The outstanding common
stock of TB&T Bancshares is not widely held and
7
<PAGE>
there is not an active trading market. By contrast, Texas Regional's common
shares are listed on the NASDAQ National Market System and there is an active
market for its stock.
The Board of Directors of TB&T Bancshares also considered the competitive
market in which TB&T Bancshares operates. The banking industry in general and in
the Rio Grande Valley of Texas in particular is consolidating. TB&T Bancshares
competes with larger and more highly capitalized institutions. Its ability to
offer different products, compete for qualified personnel and develop a network
of branches would have required additional capital and possibly limited future
dividends. Furthermore, developing such an organization would require several
years. By merging with Texas Regional, TB&T Bancshares' shareholders would
become shareholders of an organization which is in a stronger competitive
position but which is nonetheless headquartered in the same area.
For the reasons set forth above, the TB&T Bancshares Board of Directors
believes the Merger to be in the best interests of TB&T Bancshares'
shareholders. In fact, all of the members of the TB&T Bancshares Board of
Directors have agreed in the Agreement to vote their shares of TB&T Bancshares
stock in favor of the Merger at the special meeting of the TB&T Bancshares
shareholders. THE TB&T BANCSHARES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
THE TB&T BANCSHARES SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has
authorized the consummation of the Merger subject to approval of the TB&T
Bancshares shareholders and the satisfaction of certain other conditions. See
"Information About the Transaction -- Reasons for the Merger."
CONDITIONS.
The Agreement contains numerous conditions, including the receipt of
shareholder approval as described in this Prospectus/Proxy Statement, receipt of
certain governmental approvals, and certain other conditions which must be
satisfied or waived before the merger can be consummated. See "Information
About the Transaction -- Terms of the Agreement" and "Information About the
Transaction -- Other Terms and Conditions."
Texas Regional is registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended, and, as a result, the transaction is
subject to the approval of the Federal Reserve Board. Texas Regional has applied
to the Federal Reserve Board for approval of the merger of TB&T Bancshares with
and into TRD and has applied to the Texas Banking Department for approval of the
merger of Texas Bank & Trust with and into Texas State Bank. In , the
Company was notified that its final application had been accepted for filing by
the Federal Reserve Board. Similarly, the Texas Banking Department on
, accepted for filing the application of Texas State Bank for the
merger of Texas Bank & Trust with and into Texas State Bank.
Each party's obligations under the Agreement is contingent upon the other
not having a material adverse change, prior to closing, in its condition,
financial position or business prospects. In addition, Texas Regional's
obligation to close the Merger is further contingent upon TB&T Bancshares having
a net worth at the time of closing, calculated in accordance with applicable
regulatory requirements, of not less than $3,980,000, increased by $25,000 per
month for each month elapsed during the period from September 30, 1997, until
the date of Closing. The Agreement also provides a number of other conditions to
each party's respective obligations to close the Merger transaction. For
example, Texas Regional may terminate the transaction and refuse to consummate
the Merger if shareholders holding in excess of 2% of the outstanding TB&T
Bancshares shares exercise dissenters' rights of appraisal. In addition, either
Texas Regional or TB&T Bancshares may terminate the transaction if the closing
of the Merger has not been accomplished on or before March 1, 1998. See
"Information About the Transaction -- Other Terms and Conditions."
TEXAS REGIONAL.
Texas Regional is a Texas business corporation registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended. Texas Regional
was incorporated in Texas in 1983, and commenced active operations as a bank
holding company in 1984. The address of Texas Regional's principal executive
office is Kerria Plaza, Suite 301, 3700 North 10th Street, McAllen, Texas 78501,
and its
8
<PAGE>
telephone number is (956) 631-5400. The main banking office of Texas State Bank
is at 3900 North 10th Street, McAllen, Texas 78501.
Texas Regional presently has 20,000,000 shares of Texas Regional Common
Stock authorized, of which a total of 13,110,639 shares are issued and
outstanding. In addition, there are options outstanding to acquire an aggregate
of 343,924 shares of Texas Regional Common Stock, and Texas Regional has
committed to issue up to an aggregate maximum of 985,000 shares of Texas
Regional Common Stock in connection with the pending acquisition of Brownsville
Bancshares, Inc. See "Information About Texas Regional -- Pending
Transactions." Texas Regional has authorized 10,000,000 shares of preferred
stock, but no shares of preferred stock are presently outstanding, and Texas
Regional has no present commitment to issue any shares of preferred stock. The
shares to be exchanged for shares of TB&T Bancshares capital stock as described
in the Agreement are authorized but unissued shares of Texas Regional Common
Stock.
Texas Regional Common Stock is registered with the Securities and Exchange
Commission as required by section 12 of the Securities Exchange Act of 1934 (the
"Act"). As required by the Act and regulations promulgated under the Act,
Texas Regional makes certain periodic reports to the SEC, and files financial
and other information concerning the Corporation with the SEC. Shares of Texas
Regional Common Stock are traded on the NASDAQ National Market System.
In May 1996, Texas Regional acquired, for cash, First State Bank & Trust
Co. of Mission, Texas, and its affiliate The Border Bank in Hidalgo, Texas.
These two acquisitions were funded in part by the public offering of 2,510,000
shares of Texas Regional Class A Voting Common stock, also completed in May
1996. First State Bank & Trust Co. had total assets of $353.4 million at the
time of the acquisition, and The Border Bank had total assets of $105.3 million
at that time.
At September 30, 1997, Texas Regional and its subsidiaries had consolidated
total assets of $1.3 billion, loans (net of allowance for loan losses)
outstanding of $831.4 million and total deposits of $1.2 billion. Texas
Regional's primary activity is the commercial banking business of its
wholly-owned subsidiary, Texas State Bank, in McAllen, Harlingen, Weslaco,
Mission, Rio Grande City, Hidalgo, and surrounding areas of the Rio Grande
Valley, Texas. At the present time, the only non-banking subsidiary of Texas
Regional is TSB Securities, Inc., which expects to begin providing securities
transaction services in early 1998. Texas Regional may in the future establish
other non-banking subsidiaries to provide, or may itself provide, other services
permitted of bank holding companies which cannot be provided by banks.
In October 1997, Texas Regional formed TRD, a Delaware corporation wholly
owned by Texas Regional. As of December 9, 1997, Texas Regional contributed all
of the capital stock of Texas State Bank, all of the capital stock of TSB
Securities, Inc., and certain other assets to TRD. TRD will, upon closing of the
Merger transaction, be the surviving corporation in the Merger with TB&T
Bancshares.
Also in October 1997, Texas Regional entered into an Agreement and Plan of
Reorganization for the acquisition by merger of Brownsville Bancshares, Inc.
("Brownsville Bancshares"). As of September 30, 1997, Brownsville Bancshares
had total assets of $97.4 million, total loans (net of allowance for loan
losses) of $41.6 million, and total deposits of $84.4 million. Brownsville
Bancshares is expected to be merged with and into TRD as soon as applicable
conditions, including receipt of regulatory approval, are satisfied. Texas
Regional currently expects the Brownsville Bancshares transaction to be closed
contemporaneously with the closing of the TB&T Bancshares transaction, although
neither transaction is contingent upon the closing of the other. The
shareholders of Brownsville Bancshares will receive an aggregate of
approximately 947,164 shares of Texas Regional Common Stock in exchange for
their Brownsville Bancshares shares in connection with the merger transaction
(less fractional shares and shares attributable to shareholders exercising
dissenters' rights, if any) and holders of options to acquire Brownsville
Bancshares shares will receive an aggregate of approximately 37,836 shares of
Texas Regional Common Stock in exchange for the termination and cancellation of
their Brownsville Bancshares options (less any fractional shares). Brownsville
Bancshares' wholly owned subsidiary, BNB Bancshares, Inc. will also be merged
with and into TRD, and BNB Bancshares, Inc.'s subsidiary, Brownsville National
Bank, will be merged with and into Texas State
9
<PAGE>
Bank. Brownsville National Bank operates from banking locations at 629 E.
Elizabeth Street, Brownsville, Texas, and at 3255 Boca Chica Boulevard,
Brownsville, Texas.
In November 1997, Texas Regional entered into an agreement in principle for
the acquisition by merger of Raymondville Bancorp, Inc. ("Raymondville
Bancorp"). As of September 30, 1997, Raymondville Bancorp had total assets of
$60.4 million, total loans (net of allowance for loan losses) of $25.4 million,
and total deposits of $53.5 million. If the parties successfully negotiate a
mutually acceptable definitive agreement, Raymondville Bancorp will be merged
with a newly formed subsidiary of TRD as soon as applicable conditions,
including receipt of regulatory approval, are satisfied. As part of the
agreement in principle with Raymondville, the sole shareholder of Raymondville
has agreed to bear a portion of losses related to stolen or forged money orders
deposited into certain accounts held by Raymondville's wholly owned subsidiary,
Bank of Texas; however, there can be no assurance that the losses incurred on
those accounts and related return items will not exceed the limited amount of
the shareholder's reimbursement obligation and collateral provided by the
account holder. Texas Regional currently expects the Raymondville Bancorp
transaction to be closed contemporaneously with or as soon as practicable
following the closing of the TB&T Bancshares transaction, although neither
transaction is contingent upon the closing of the other. Under the agreement in
principle, which is not binding on either Texas Regional or Raymondville, upon
closing, the sole shareholder of Raymondville Bancorp would receive an aggregate
of $9,600,000 cash in exchange for his Raymondville Bancorp shares, an affiliate
of Raymondville Bancorp would receive $100,000 in consideration of a covenant
not to compete, and Raymondville Bancorp's wholly-owned subsidiary, Bank of
Texas of Raymondville, would be merged with and into Texas State Bank. Bank of
Texas operates from two banking locations, one each in Raymondville, Texas, and
at 2000 F.M. 802 in Brownsville, Texas.
If the Merger with TB&T Bancshares, the merger with Brownsville Bancshares
and the merger with Raymondville are all consummated, as planned, Texas State
Bank will have a total of twenty-one full service banking locations in the Rio
Grande Valley of Texas.
Texas Regional's wholly owned subsidiary, TRD, will be the surviving
corporation in the Merger with TB&T Bancshares and in the merger with
Brownsville Bancshares. The officers and directors of Texas Regional and TRD are
expected to be the officers and directors of Texas Regional and TRD,
respectively, following consummation of the merger transactions. Texas Regional
intends that Texas Bank & Trust will be merged with and into Texas State Bank
following the completion of the merger of Brownsville Bancshares with and into
TRD, subject to receipt of necessary regulatory approvals. As a result, the
separate existence of Texas Bank & Trust will cease and the main office of Texas
Bank & Trust will become a branch office of Texas State Bank. Texas Regional
expects that substantially all of the personnel of TB&T Bancshares and Texas
Bank & Trust will become employees of Texas State Bank following the closing of
the Merger.
TB&T BANCSHARES.
TB&T Bancshares' operating subsidiary, Texas Bank & Trust, was chartered as
a Texas state bank in 1979, and opened for business in 1979. TB&T Bancshares,
through its ownership of Texas Bank & Trust, provides banking services for
customers in Brownsville, Texas and adjacent areas of the Rio Grande Valley. At
September 30, 1997 TB&T Bancshares had total assets of $43.8 million, loans
outstanding of $21.6 million (net of allowance for loan losses), deposits of
$39.4 million, and stockholders equity totaling $4.0 million. TB&T Bancshares is
located at 3201 Central Boulevard, Brownsville, Texas, and its telephone number
is (956) 787-9673.
FEDERAL INCOME TAX CONSEQUENCES.
Neither Texas Regional, TB&T Bancshares, nor TRD has requested a ruling
from the Internal Revenue Service ("IRS") with regard to the proposed
transaction nor do they anticipate requesting such a ruling, nor has Texas
Regional or TB&T Bancshares requested an opinion of counsel concerning the
anticipated Federal income tax consequences of the proposed transaction.
However, management of Texas Regional
10
<PAGE>
has consulted with the company's independent accountants concerning the tax
consequences of the transaction. As a result, management of Texas Regional
believes that if the transaction is consummated in accordance with the Agreement
and if certain technical requirements of the Federal income tax law are met, as
hereafter described, the Federal income tax consequences related to this
transaction should be as follows:
(a) the merger of TB&T Bancshares with and into TRD should constitute
a reorganization within the meaning of Section 368(a)(1) by application of
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code");
(b) no gain or loss should be recognized to TB&T Bancshares or TRD
upon consummation of the merger;
(c) no gain or loss should be recognized by the shareholders of TB&T
Bancshares as a result of the receipt of Texas Regional Common Stock or
upon distribution of shares of Texas Regional Common Stock from the escrow
created pursuant to the Holdback Escrow Agreement, in respect of their TB&T
Bancshares shares;
(d) the holding period of Texas Regional Common Stock received by the
TB&T Bancshares shareholders should include the period during which the
stock of TB&T Bancshares surrendered in exchange therefor has been held by
them, provided the surrendered stock of TB&T Bancshares has been held as a
capital asset in their hands.
In addition to the above described consequences, any shareholder of TB&T
Bancshares who exercises his, her or its dissenters' rights of appraisal should
be treated for Federal income tax purposes as having received the resulting cash
proceeds as a distribution in redemption of his, her or its shares of TB&T
Bancshares stock, subject to the provisions and limitations of Section 302 of
the Code. In general, if such shareholder has all of his, her or its shares of
TB&T Bancshares stock so redeemed, and such shares of TB&T Bancshares stock have
been held as a capital asset by the dissenting shareholder, such shareholder
should recognize a capital gain or loss for Federal income tax purposes upon
receipt of the cash proceeds for the value of his, her to its shares.
No information is provided with respect to the tax consequences, if any, to
the TB&T Bancshares shareholders under any local, state or foreign tax laws.
Individual TB&T Bancshares shareholders are strongly urged to consult with
their respective tax advisers in regard to the foregoing summary and the
potential Federal income tax consequences of the proposed transaction to them.
In addition, any shareholder who is not a resident of Texas should consult with
such shareholder's own tax adviser for information concerning applicable state
and local tax consequences.
For additional discussion of the Federal income tax consequences of the
transaction, see "Information About the Transaction -- Federal Income Tax
Consequences."
ACCOUNTING TREATMENT.
Texas Regional anticipates accounting for the Merger under the
pooling-of-interests method of accounting for financial reporting and for all
other purposes, and the Company has received such assurances as its deems
appropriate that the Merger will qualify for pooling-of-interests accounting
treatment, including the receipt of a letter from KPMG Peat Marwick LLP, which
will be updated as of the effective time of the Merger, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment. Nonetheless,
because the requirements for pooling-of-interests accounting are complex and
include matters outside of the control of the Company, there can be no certainty
that accounting for the transaction under that method of accounting will be
permitted. The pro forma information contained herein assumes that the
transaction will be accounted for under the pooling-of-interests method. See
"Information About the Transaction -- Accounting Treatment."
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<PAGE>
RISK FACTORS
ESCROW SHARES. An aggregate of 49,958 shares of Texas Regional Common
Stock are to be placed in escrow at closing pursuant to the Holdback Escrow
Agreement. These shares will either be returned to Texas Regional or will be
distributed to the TB&T Bancshares shareholders, based upon the outcome of
certain contingencies, all of which are outside of the control of the TB&T
Bancshares shareholders. Frank D. Yturria is to be appointed as "Special
Agent" of the TB&T Bancshares shareholders under the Holdback Escrow Agreement
and will be entitled to act for all TB&T Bancshares shareholders in making
decisions relative to the escrow, including decisions related to whether to
accept certain compromises relative to the distribution of holdback escrow
shares.
Under the Holdback Escrow Agreement, Texas Regional may require that shares
of escrow stock be returned to it in the event Texas Regional or Texas State
Bank incurs losses or damages arising directly or indirectly out of: the
activities of a named former employee of Texas Bank & Trust, identified in a
Special Report to the Board of Directors of TB&T; in connection with certain
pending litigation; in connection with a claim concerning an alleged deposit and
allegedly unauthorized transfers and withdrawals from an account at Texas Bank &
Trust; or in connection with certain missing certificates of deposit. The number
of shares deposited into escrow pursuant to the Holdback Escrow Agreement has
been fixed pursuant to the Agreement; however, there can be no certainty that
the amount of losses to Texas Regional and Texas State Bank will not exceed the
amount retained as holdback shares.
Texas Regional and the TB&T Bancshares shareholders share in the losses and
damages based on a formula set forth in the Holdback Escrow Agreement, and the
number of escrow shares to be returned to Texas Regional is based on the amount
of Texas Regional's share of losses and damages, divided by $30.025. Only
dividends accruing with respect to shares of escrow stock ultimately distributed
to TB&T Bancshares shareholders are to be distributed to TB&T Bancshares
shareholders. Any dividends related to shares returned to Texas Regional will be
returned to Texas Regional. The Holdback Escrow Agreement provides for a partial
distribution of escrow shares on the second anniversary of the execution of the
Holdback Escrow Agreement, with any shares attributable to anticipated losses
and damages to Texas Regional related to any then-pending claims to continue to
be held until resolution of the claims. See "Information About the
Transaction -- Holdback Escrow."
CONTROL. TB&T Bancshares shareholders currently control TB&T Bancshares
through their ability to elect the Board of Directors of TB&T Bancshares and
vote on various matters affecting TB&T Bancshares. The Merger will transfer
control of TB&T Bancshares from TB&T Bancshares' shareholders to Texas Regional.
As of the effective time of the Merger, the shareholders of TB&T Bancshares will
become shareholders of Texas Regional, a much larger organization, and the
former shareholders of TB&T Bancshares will no longer have the ability to
control or influence the management policies or TB&T Bancshares' operations. As
shareholders of Texas Regional, their ability to influence the management
policies of Texas Regional will be limited due to the fact that they will hold a
relatively small percentage of the voting stock of Texas Regional.
Following consummation of the Merger, (i) all lending at the facilities
formerly operated by Texas Bank & Trust will be conducted pursuant to Texas
State Bank's policies and under the supervision of Texas State Bank's chief
lending officer; (ii) investments in securities will be managed by the
investment division of Texas State Bank in accordance with Texas State Bank's
investment policies; and (iii) all data processing will be performed by Texas
State Bank's data processing center. In general, the policies and procedures for
all banking locations, including the banking location formerly operated as Texas
Bank & Trust, will be Texas State Bank's policies and procedures.
PROFITABILITY LINKED TO BANKING ACTIVITIES. Because Texas Regional's
non-banking activities represent a very small portion of its business, the
profitability of Texas Regional will be directly attributable to the success of
its subsidiary, Texas State Bank. Texas Regional's banking activities compete
with other banking institutions on the basis of service, convenience and, to
some extent, price. Due in part to both regulatory changes and consumer demands,
banks have experienced increased competition from other financial entities
offering similar products. Competition from both bank and non-bank organizations
is expected to continue.
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<PAGE>
Texas Regional will rely on the profitability of Texas State Bank and
dividends received from Texas State Bank for payment of its operating expenses
and satisfaction of its obligations. As is the case with other similarly
situated financial institutions, the profitability of Texas State Bank, and
therefore of Texas Regional, will be subject to the fluctuating cost and
availability of money, changes in the prime lending rate, changes in economic
conditions in general and, because of the location of all of the branch
facilities, changes in economic conditions in the Texas Rio Grande Valley in
particular. In addition, Texas State Bank is subject to capital adequacy
guidelines promulgated from time to time by applicable regulatory authorities.
GEOGRAPHIC CONCENTRATION. Texas Regional's profitability is dependent on
the profitability of its subsidiary bank, Texas State Bank, which operates only
in the Rio Grande Valley of Texas. In addition to adverse changes in general
conditions in the United States, unfavorable changes in economic conditions
affecting the Rio Grande Valley, such as adverse effects of weather on
agricultural production, adverse changes in United States-Mexico relations, and
substantial Mexican peso devaluations, may have a significant adverse impact on
operations of the Company.
COMPETITION. The banking industry in the Rio Grande Valley is highly
competitive. Texas State Bank and Texas Bank & Trust compete as financial
intermediaries with other commercial banks, savings and loan associations,
credit unions, mortgage banking companies, securities brokerage companies,
consumer and commercial finance companies, insurance companies and money market
mutual funds operating in Texas and elsewhere. Many of the competitors have
substantially greater resources and lending limits than Texas State Bank has or
will have following the Merger, and in some cases these competitors offer
services that Texas State Bank does not currently provide. In addition,
non-depository institution competitors are generally not subject to the
extensive regulation applicable to Texas State Bank.
REGULATORY RESTRICTIONS AND REQUIREMENTS. Texas Regional and Texas State
Bank are subject to extensive government regulation and supervision under
various state and federal laws, rules and regulations, including rules and
regulations promulgated by the Federal Reserve Board (the "FRB") and the Texas
Banking Department (the "Banking Department"). These laws and regulations are
designed primarily to protect the Bank Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC"), depositors and borrowers, and to further
certain social policies and, consequently, may impose limitations on Texas
Regional that may not be in the best interests of the Company and its
shareholders.
Texas State Bank is subject to regulation by the Texas Department of
Banking, and is subject to regulation by its "primary federal regulator," the
Federal Reserve Board, since Texas State Bank is a Federal Reserve member bank.
For Texas Bank & Trust, the primary federal regulator is the Federal Deposit
Insurance Corporation, since Texas Bank & Trust is not a member of the Federal
Reserve System. If the transaction is consummated, the effect will be that Texas
Bank & Trust's business as merged into Texas State Bank will be subject to
regulation by the Texas Department of Banking, to which Texas Bank & Trust is
presently subject, and the Federal Reserve Board, to which it is not presently
subject.
RELIANCE ON CHIEF EXECUTIVE OFFICER. Texas Regional has experienced
substantial growth in assets and deposits during the past, particularly since
Glen E. Roney became Chairman of the Board and Chief Executive Officer of the
company in 1985. Although Mr. Roney is a substantial shareholder of the Company
and is the beneficiary of a deferred compensation arrangement with the Company
that generally requires continued service for vesting, the Company does not have
an employment agreement with Mr. Roney and the loss of the services of Mr. Roney
could have a material adverse effect on Texas Regional's business and prospects.
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SELECTED FINANCIAL DATA
The following table, except for the lines designated as pro forma,
summarizes certain consolidated historical financial data of Texas Regional, and
certain consolidated historical financial data of TB&T Bancshares. The table
also summarizes, where indicated, certain pro forma financial data for Texas
Regional, giving effect to the acquisition of TB&T Bancshares assuming that the
Merger had been effective at the beginning of 1992.
The historical data of TB&T Bancshares as of and for the years ended
December 31, 1996, is derived from the audited financial statements of TB&T
Bancshares and the historical data as of and for the years ended December 31,
1995, 1994, 1993 and 1992 are derived from the unaudited financial statements of
TB&T Bancshares. The historical data of Texas Regional as of and for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 (i) is derived from the
audited financial statements of Texas Regional, and (ii) has been adjusted to
reflect stock splits and stock dividends effected during the period. The
information presented as of and for the nine months ended September 30, 1997 and
1996, except for the lines designated as pro forma, has been derived from
unaudited historical data, and has been adjusted to reflect stock splits and
stock dividends effected during the period. The pro forma income statement
information is not necessarily indicative of the results of operations had the
proposed transaction occurred at the beginning of 1992, nor is it necessarily
indicative of the results of future operations. This information should be read
in conjunction with the historical consolidated financial statements and the
related notes included elsewhere or incorporated by reference in this
Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
TOTAL ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Texas Regional..................... $1,337,767 $1,213,120 $1,230,577 $ 646,769 $ 531,834 $ 473,263 $ 414,331
TB&T Bancshares.................... 43,838 43,045 42,752 41,101 41,561 42,267 40,711
TOTAL DEPOSITS
Texas Regional..................... 1,184,768 1,066,230 1,091,735 579,731 472,108 429,521 375,016
TB&T Bancshares.................... 39,426 38,922 38,512 37,071 37,722 38,762 37,745
LONG-TERM DEBT
Texas Regional..................... -- -- -- -- -- 1,150 2,600
TB&T Bancshares.................... -- -- -- -- -- 150 380
TOTAL SHAREHOLDERS' EQUITY
Texas Regional..................... 141,483 123,531 128,148 62,720 55,731 39,983 34,318
TB&T Bancshares.................... 3,970 3,603 3,752 3,389 2,169 1,970 1,230
NET INTEREST INCOME
Texas Regional..................... 41,915 31,657 44,978 27,540 22,941 19,197 16,861
TB&T Bancshares.................... 1,549 1,366 1,850 1,814 1,694 1,552 1,377
NET INCOME
Texas Regional..................... 15,814 11,386 16,379 8,725 7,185 6,011 4,519
TB&T Bancshares.................... 422 434 581 532 354 746 395
NET INCOME PER COMMON SHARE(1)
Texas Regional(3)
Historical....................... 1.19 1.00 1.38 0.93 0.77 0.87 0.69
Pro Forma........................ 1.19 1.01 1.40 0.96 0.78 0.95 0.72
TB&T Bancshares
Historical....................... 0.24 0.24 0.33 0.29 0.17 0.65 0.33
Equivalent Pro Forma(2).......... 0.22 0.18 0.25 0.17 0.14 0.17 0.13
CASH DIVIDENDS PER COMMON SHARE
Texas Regional(3)
Historical....................... 0.25 0.20 0.27 0.27 0.16 -- --
Pro Forma........................ 0.26 0.20 0.27 0.28 0.16 -- --
TB&T Bancshares
Historical....................... 0.12 -- -- 0.10 -- -- --
Equivalent Pro Forma(2).......... 0.05 0.04 0.05 0.05 0.03 -- --
(TABLE CONTINUED ON FOLLOWING PAGE)
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<PAGE>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
SHAREHOLDERS' EQUITY (BOOK VALUE) PER
COMMON SHARE
Texas Regional(3)
Historical....................... 10.80 9.46 9.81 6.75 6.00 5.15 4.28
Pro Forma........................ 10.84 9.51 9.86 6.88 6.03 5.25 4.27
TB&T Bancshares
Historical....................... 2.34 2.12 2.21 1.85 1.90 1.75 0.38
Equivalent Pro Forma(2).......... 1.97 1.73 1.79 1.25 1.10 0.95 0.78
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Texas Regional(3)
Historical....................... 13,308 11,345 11,840 9,341 9,052 6,279 6,068
Pro Forma........................ 13,616 11,653 12,148 9,649 9,360 6,587 6,376
TB&T Bancshares
Historical....................... 1,696 1,799 1,773 1,833 2,116 1,109 1,050
NUMBER OF COMMON SHARES OUTSTANDING
AT END OF PERIOD
Texas Regional(3)
Historical....................... 13,106 13,062 13,063 9,295 9,290 6,279 6,279
Pro Forma........................ 13,414 13,370 13,371 9,603 9,598 6,587 6,587
TB&T Bancshares
Historical....................... 1,696 1,696 1,696 1,833 1,142 1,128 1,061
</TABLE>
- ------------
(1) Net income per common share represents primary earnings per share (i.e., the
amount of earnings attributable to each share of common stock outstanding,
including common stock equivalents).
(2) TB&T Bancshares' Equivalent Pro Forma per share amounts are computed by
multiplying Texas Regional's Pro Forma amounts by the exchange ratio of
0.1816731, which exchange ratio includes both the shares to be issued at
closing of the Merger transaction, and shares to be deposited into escrow
pursuant to the Holdback Escrow Agreement.
(3) Amounts are adjusted to reflect a three-for-two stock split of the Texas
Regional Common Stock declared in July 1997, distributed in August 1997.
15
<PAGE>
MARKET PRICES
Texas Regional Common Stock is traded in the national-over-the-counter
securities market. Since 1994, it has been quoted under the symbol "TRBS" on
the NASDAQ National Market System.
The following table sets forth for the periods indicated the high and low
sales prices for Texas Regional Common Stock reported through the NASDAQ
National Market System as published in The Wall Street Journal. The prices shown
do not include retail mark-ups, mark-downs or commissions. All share values have
been rounded to the nearest 1/8th of one dollar and have been adjusted to
reflect a three-for-two stock split of the Texas Regional Common Stock declared
in July 1997, distributed in August 1997.
TEXAS REGIONAL
COMMON STOCK
--------------------
HIGH LOW
--------- ---------
1995
First Quarter........................ 8.50 7.50
Second Quarter....................... 9.67 7.83
Third Quarter........................ 11.00 9.00
Fourth Quarter....................... 12.17 10.33
1996
First Quarter........................ 15.67 11.33
Second Quarter....................... 17.33 13.33
Third Quarter........................ 19.50 15.67
Fourth Quarter....................... 23.00 18.83
1997
First Quarter........................ 24.50 21.17
Second Quarter....................... 30.25 19.00
Third Quarter........................ 31.50 24.50
Fourth Quarter (through December 5,
1997).............................. 31.50 26.00
On September 5, 1997, the business day immediately preceding the
announcement of the execution of the agreement in principle related to the
Merger, the last reported sale price for Texas Regional Common Stock was $26.25.
On October 15, 1997, the business day immediately preceding the announcement of
the execution of the definitive Agreement, the last reported sale price for
Texas Regional Common Stock was $29.75. On , 1997, the last reported
sale price for Texas Regional Common Stock was $ . There is no assurance
that these transactions, or those reflected in the table above, represent all or
a representative sample of the actual transactions which occurred or that the
high and low prices shown reflect the full ranges at which transactions occurred
during the periods indicated.
There is no active public trading market for TB&T Bancshares Common Stock,
although it is traded infrequently in private transactions. See "Information
About TB&T Bancshares -- Market Prices of and Dividends Paid On TB&T Bancshares
Stock."
INFORMATION ABOUT THE TRANSACTION
The following information relating to the Merger is not intended to be a
complete description of all information relating to the Merger and is qualified
in its entirety by reference to more detailed information contained elsewhere in
this Prospectus/Proxy Statement, including the annexes hereto and the documents
referred to herein or incorporated herein by reference. A copy of the Agreement
is included herein as Annex A, and is incorporated herein by this reference for
all purposes. The Holdback Escrow Agreement is, in turn, attached to the
Agreement as Schedule 1.7. All shareholders of TB&T Bancshares are urged to read
the Agreement and the Holdback Escrow Agreement, in their entirety.
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<PAGE>
TERMS OF THE AGREEMENT.
The Agreement provides that TB&T Bancshares will be merged with and into
TRD, and the outstanding capital stock of TB&T Bancshares will be converted into
and exchanged for the right to receive shares of Texas Regional Class A Voting
Common stock as herein described. Each TB&T Bancshares share shall be converted
into and exchanged for the right to receive at closing 0.1522126 of a share of
Texas Regional Common Stock. In addition, 0.0294605 of a share of Texas Regional
Common Stock will be deposited into escrow and held and distributed pursuant to
the Holdback Escrow Agreement. No fractional shares shall be issued, and any
individual shareholder who would otherwise be entitled to a fractional share of
Texas Regional Common Stock either as a result of the issuance of shares at
closing or the issuance of shares pursuant to the Holdback Escrow Agreement or
otherwise shall receive cash in lieu of such fractional share, equal to the
product of $30.025 multiplied by such fractional share.
On the effective date of the Merger, TB&T Bancshares will be merged with
and into TRD, and all of the capital stock of Texas Bank & Trust will then be
owned by Texas Regional. Immediately following consummation of the Merger, Texas
Bank & Trust will be merged with and into Texas State Bank, and the banking
location now operated as Texas Bank & Trust will become a branch facility of
Texas State Bank.
In the event the merger is approved and no holders of TB&T Bancshares
capital stock elect to exercise dissenters' rights of appraisal, TB&T Bancshares
shareholders will receive an aggregate of approximately 258,118 shares of Texas
Regional Common Stock at closing, and an aggregate of approximately 49,958
shares of Texas Regional Common Stock will be deposited into escrow to be held
pursuant to the Holdback Escrow Agreement. Excluding the effect of any shares
issued in connection with the merger with Brownsville Bancshares, present TB&T
Bancshares shareholders will, immediately following consummation of the merger,
own approximately 1.9% of the total outstanding Texas Regional Common Stock as a
result of their exchange of TB&T Bancshares stock, and approximately 0.4% of the
total outstanding Texas Regional Common Stock will be deposited into and held
pursuant to the Holdback Escrow Agreement.
The terms of the Agreement, including the exchange ratio and the number of
shares to be deposited into escrow pursuant to the Holdback Escrow Agreement,
are the result of negotiations between the Board of Directors and principal
executive officers of Texas Regional and the Board of Directors and principal
executive officers of TB&T Bancshares, each of whom considered many factors,
including the earnings and dividends and related trends of Texas Regional and
TB&T Bancshares, their book and estimated market values of assets, their
deposits and other liabilities, the nature and capabilities of management, their
earnings and growth capacities based on the nature of the markets in which they
operate and their projected future values and prospects as separate companies.
The TB&T Bancshares Board of Directors has reviewed and approved the
Merger, has authorized the preparation of this Prospectus/Proxy Statement and
has recommended approval by the shareholders. The Merger must be approved by the
affirmative vote of the holders of two-thirds of the outstanding capital stock
of TB&T Bancshares. Each member of the Board of Directors of TB&T Bancshares,
and certain related parties, have joined into the execution of the Agreement, to
evidence their agreement to vote for the transaction at the special meeting of
the TB&T Bancshares shareholders. The aggregate number of TB&T Bancshares shares
held by all such shareholders is 1,388,104, representing 81.9% of the issued and
outstanding capital stock of TB&T Bancshares. Since the aggregate number of
shares held by shareholders joining into this Agreement and committing to vote
their shares in favor of the Merger at the special meeting of the TB&T
Bancshares shareholders is in excess of two-thirds of the outstanding capital
stock of TB&T Bancshares, the transaction is expected to be approved by the
shareholders. No shareholder has notified TB&T Bancshares or Texas Regional that
such shareholder intends to oppose the motion to approve the Merger at the
Meeting.
Texas Regional, as the sole shareholder of TRD, has already approved the
Merger and authorized consummation of the transactions herein described, subject
to receipt of regulatory approvals and satisfaction of other conditions
described in the Agreement.
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<PAGE>
It is anticipated that the Merger will be effective as soon as practicable
following the receipt of all necessary regulatory approvals and the satisfaction
of all conditions to the consummation of the Merger. At the effective time of
the Merger, by operation of law, holders of TB&T Bancshares Common Stock (other
than those shareholders who perfect their dissenters' rights of appraisal) will
become owners of Texas Regional Common Stock and will no longer be owners of
TB&T Bancshares capital stock. After the effective time of the Merger, all
certificates for TB&T Bancshares capital stock will represent the right to
receive Texas Regional Common Stock pursuant to the Agreement, but otherwise
will be null and void after such date.
HOLDBACK ESCROW.
The Agreement provides that an aggregate of 49,958 shares of Texas Regional
Common Stock will be deposited into escrow at the time of closing and will be
held pursuant to the terms of a Holdback Escrow Agreement to be executed at the
time of closing in the form attached to the Agreement. These shares will either
be returned to Texas Regional or will be distributed to the TB&T Bancshares
shareholders, based upon the outcome of certain contingencies. Frank D. Yturria
is to be appointed as "Special Agent" of the TB&T Bancshares shareholders
under the Holdback Escrow Agreement and will be entitled to act for all TB&T
Bancshares shareholders in making decisions relative to the escrow, including
decisions related to whether to accept certain compromises relative to the
distribution of holdback escrow shares.
Under the Holdback Escrow Agreement, Texas Regional may require that shares
of escrow stock be returned to it in the event Texas Regional or Texas State
Bank incurs losses or damages arising directly or indirectly: (i) out of the
activities of a named former employee of Texas Bank & Trust, identified in a
Special Report to the Board of Directors of TB&T; (ii) in connection with
certain pending litigation; (iii) in connection with a claim concerning an
alleged deposit and allegedly unauthorized transfers and withdrawals from an
account at Texas Bank & Trust; or (iv) in connection with certain missing
certificates of deposit.
Texas Regional and the TB&T Bancshares shareholders share in the losses and
damages based on a formula set forth in the Holdback Escrow Agreement, and the
number of escrow shares to be returned to Texas Regional is based on the amount
of Texas Regional's share of losses and damages, divided by $30.025. Only
dividends accruing with respect to shares of escrow stock ultimately distributed
to TB&T Bancshares shareholders are to be distributed to TB&T Bancshares
shareholders. Any dividends related to shares returned to Texas Regional will
likewise be returned to Texas Regional. The Holdback Escrow Agreement provides
for a partial distribution of escrow shares on the second anniversary of the
execution of the Holdback Escrow Agreement, with any shares attributable to
anticipated losses and damages to Texas Regional related to any then-pending
claims to continue to be held until resolution of the claims. See "Information
About the Transaction -- Terms of the Agreement."
STOCK CERTIFICATES AND FRACTIONAL SHARES.
It is anticipated by Texas Regional that, promptly after the approval of
the Merger by the TB&T Bancshares shareholders and by applicable regulatory
authorities, transmittal forms will be sent to each shareholder of TB&T
Bancshares for use in forwarding his, her or its certificates for shares of
capital stock of TB&T Bancshares to Texas Regional. For each share surrendered
Texas Regional will deliver to the former TB&T Bancshares shareholder 0.1522126
of a share of Texas Regional Common Stock. In addition, distributions will be
made out of the escrow account created pursuant to the Holdback Escrow Agreement
only to shareholders who have delivered their certificates for shares of capital
stock of TB&T Bancshares to Texas Regional. No fractional shares shall be issued
in respect of a shareholder's shares, either as part of the initial distribution
of shares or out of the escrow account, and any shareholder who would otherwise
be entitled to a fractional share of Texas Regional Common Stock shall receive
cash in lieu of such fractional shares, equal to the product of $30.025
multiplied by such fractional share.
Texas Regional share certificates which are to be delivered at the time of
closing shall be delivered to shareholders who have theretofore surrendered
their TB&T Bancshares share certificates, either (i) by mailing the same to the
shareholder at the shareholder's address as stated in the stock transfer records
of TB&T Bancshares, or (ii) by such other arrangements as may be mutually agreed
by and between such
18
<PAGE>
former TB&T Bancshares shareholder and Texas Regional. Any Texas Regional share
certificate deliverable to a shareholder which would otherwise have been
delivered at closing, but which is not delivered at closing because such
shareholder did not surrender his, her or its TB&T Bancshares certificates until
after the effective time of the Merger, shall be mailed to the former TB&T
Bancshares shareholder within a reasonable period of time following receipt of
the shareholder's TB&T Bancshares share certificate. The stock transfer records
of TB&T Bancshares shall for all purposes be closed as of the effective time of
the Merger and no transfer of record of any of the shares of TB&T Bancshares
capital stock shall take place thereafter.
Until certificates representing capital stock of TB&T Bancshares are
surrendered, Texas Regional will set aside shares for making the deliveries, but
any dividends or other amounts payable to shareholders who surrender their share
certificates after the effective time of the Merger will not be payable until
surrender of the shareholder's share certificate, nor shall any amounts bear
interest attributable to periods either before or after the effective time of
the Merger.
After the effective date of the Merger, the TB&T Bancshares share
certificates that theretofore represented ownership of the capital stock of TB&T
Bancshares shall be converted automatically into the right to receive shares of
Texas Regional Common Stock as herein described. No dividends on TB&T Bancshares
capital stock shall accrue with respect to such shares as are held by any
shareholder, after the effective date of the merger.
SHAREHOLDERS OF TB&T BANCSHARES SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
TRANSMITTAL MATERIALS ARE RECEIVED.
REASONS FOR THE MERGER.
The Board of Directors of TB&T Bancshares has approved the Agreement as
being in the best interests of TB&T Bancshares and its shareholders, and the
Board of Directors of Texas Regional has also approved the Agreement as being in
the best interests of Texas Regional and its shareholders. If the transactions
contemplated by the Agreement are consummated, TB&T Bancshares will be merged
with and into TRD, its separate existence will cease, and present TB&T
Bancshares shareholders will become shareholders of Texas Regional. The Boards
of Directors of TB&T Bancshares and Texas Regional believe that the merger of
TB&T Bancshares with a subsidiary of Texas Regional will offer a number of
advantages.
In evaluating the Texas Regional offer, TB&T Bancshares' Board of Directors
considered other transactions in the Rio Grande Valley area of Texas, as well as
transactions in other areas of Texas and elsewhere.
Among the factors considered by the Board of Directors of TB&T Bancshares
was the limited market for TB&T Bancshares' stock. The outstanding common stock
of TB&T Bancshares is not widely held and there is not an active trading market.
By contrast, Texas Regional's common shares are listed on the NASDAQ National
Market System and there is an active market for its stock.
The Board of Directors of TB&T Bancshares also considered the competitive
market in which TB&T Bancshares operates. The banking industry in general and in
the Rio Grande Valley of Texas in particular is consolidating. TB&T Bancshares
competes with larger and more highly capitalized institutions. Its ability to
offer different products, compete for qualified personnel and develop a network
of branches would have required additional capital and possibly limited future
dividends. Furthermore, developing such an organization would require several
years. By merging with Texas Regional, TB&T Bancshares' shareholders would
become shareholders of an organization which is in a stronger competitive
position but which is nonetheless headquartered in the same area.
For the reasons set forth above, the TB&T Bancshares Board of Directors
unanimously approved the Merger and recommends approval of the transaction by
the TB&T Bancshares shareholders.
Texas Regional has long considered expansion opportunities in its market
area, and in Brownsville in particular, in order to expand to a more economical
size, to provide more effective customer service for its existing customers and
to expand the customer base for the company's services. Acquiring TB&T
19
<PAGE>
Bancshares will result in economies of scale and increase the markets served by
Texas Regional's subsidiary, Texas State Bank. It will also assist Texas State
Bank in providing the management and organizational flexibility needed to expand
in the Brownsville market.
Following arm's length negotiations between representatives of Texas
Regional and TB&T Bancshares, Texas Regional and TB&T Bancshares entered into
the Agreement on October 15, 1997. The aggregate amount to be paid to holders of
TB&T Bancshares shares and to be deposited into escrow resulted from
negotiations which considered the historical earnings and dividends of Texas
Regional and TB&T Bancshares, the earnings potential and deposit base of TB&T
Bancshares, potential growth in the Brownsville market, TB&T Bancshares' asset
quality and the effect of the Merger on the shareholders, customers and
employees of Texas Regional and TB&T Bancshares.
Subject to satisfaction of certain conditions contained in the Agreement,
TB&T Bancshares Board of Directors believes the Merger to be fair and in the
best interests of TB&T Bancshares and its shareholders. TB&T BANCSHARES BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE TB&T BANCSHARES SHAREHOLDERS VOTE FOR
APPROVAL OF THE MERGER. TB&T Bancshares has authorized consummation of the
Merger, subject to approval of the TB&T Bancshares shareholders, federal and
state bank regulators and the satisfaction of certain other conditions. See
"Information About the Transaction -- Terms of the Agreement" and
"Information About the Transaction -- Other Terms and Conditions."
OPERATIONS FOLLOWING THE MERGER.
Texas Regional and TB&T Bancshares intend that following the Merger of TB&T
Bancshares with and into TRD, Texas Bank & Trust will be merged with and into
Texas State Bank. Following the subsequent merger of Texas Bank & Trust with and
into Texas State Bank, the separate existence of Texas Bank & Trust will cease,
and Texas State Bank will continue as the surviving entity.
OTHER TERMS AND CONDITIONS.
The Agreement contains a number of terms, conditions, representations and
covenants which must be satisfied as of the effective time of the Merger
including, but not limited to, the following:
(1) If the closing shall not have been accomplished on or before
March 1, 1998, the Agreement shall, at the election of either TB&T
Bancshares or Texas Regional by written notice, be terminated and be of no
further force or affect.
(2) The transaction shall have been approved by the requisite vote of
the shareholders of TB&T Bancshares at a duly called meeting of the
shareholders.
(3) The representations and warranties of TB&T Bancshares in the
Agreement shall have been true when made, and except for changes
contemplated by the Agreement, shall be true at the effective time of the
Merger.
(4) Shareholders holding an aggregate of not greater than 2% of the
issued and outstanding shares of TB&T Bancshares shall have exercised
dissenters' rights of appraisal with respect to the transaction.
(5) Texas Regional shall have received approval of the transactions
contemplated by the Agreement including both the merger of TB&T Bancshares
with and into TRD, and the merger of Texas Bank & Trust with and into Texas
State Bank, from all necessary governmental agencies and authorities,
including the Texas Banking Department and the Federal Reserve Board, and
such approvals and transactions shall not have been contested by any
Federal or State governmental authority nor by any third party.
(6) There shall not be any litigation, investigation, inquiry or
proceeding pending or threatened in or by any court or governmental agency
or authority which might result in an action to restrain, enjoin or
prohibit consummation of the transaction or which might result in
divestiture, rescission or damages in connection with such transaction or
involving any of the assets, properties, business or
20
<PAGE>
operations of TB&T Bancshares or Texas Bank & Trust which might result in
any material adverse change in the financial condition, results of
operation, business or prospects of TB&T Bancshares or its subsidiary.
(7) Texas Regional shall have been delivered an opinion of TB&T
Bancshares' counsel as required by the Agreement.
(8) Texas Regional shall be entitled to terminate the transaction if
the results of its due diligence review are not satisfactory in all
respects to Texas Regional and no material adverse change shall have
occurred in the condition, financial position or business prospects of TB&T
Bancshares or its subsidiary.
(9) Texas Regional shall have received all consents, approvals and
estoppel certificates and other assurances as it may deem reasonably
necessary.
(10) The net worth of TB&T Bancshares, calculated in accordance with
applicable regulatory requirements, shall be not less than the sum of
$3,980,000 increased by $25,000 per month for each month elapsed during the
period from September 30, 1997 until the date of closing.
(11) TB&T Bancshares shall be satisfied that no material adverse
change shall have occurred in the condition, financial position or business
prospects of Texas Regional or Texas State Bank.
(12) Texas Regional shall not have been presented with evidence
indicating that special claims (as that term is used in the Holdback Escrow
Agreement) are likely to result in uninsured losses to Texas State Bank, as
the successor in interest to Texas Bank & Trust (without regard to any
return and cancellation of shares held pursuant to the Holdback Escrow
Agreement) in excess of $2,500,000.
Some of the foregoing are conditions to the obligation of Texas Regional to
close the Merger transaction, some are conditions to the obligation of TB&T
Bancshares to close and others are conditions to both parties' obligation to
close. Any condition to the consummation of the Merger may be waived by the
party to the Agreement entitled to the benefit of such condition.
One of the conditions to TB&T Bancshares' obligation to close the
transaction is the receipt of an opinion as to the fairness of the transaction
to TB&T Bancshares and its shareholders. Management of TB&T Bancshares has
indicated to Texas Regional that TB&T Bancshares has waived that condition.
JOINDER BY CERTAIN SHAREHOLDERS.
Certain shareholders of TB&T Bancshares have joined into the execution of
the Agreement to evidence their consent to and approval of the transaction
described in the Agreement. Each of those shareholders, who in the aggregate
hold 1,388,104 shares, or 81.9% of the total outstanding shares of TB&T
Bancshares, have represented to Texas Regional that the TB&T Bancshares common
shareholders are the only persons entitled to consent to and vote on the Merger
transaction, that such shareholder owns the number of shares of TB&T Bancshares
indicated below is his, her or its name in the Agreement, and that the
shareholder has full power and authority to enter into and perform the
Agreement. Each shareholder further agreed to recommend the transaction to other
shareholders and to vote to approve the transaction at the special meeting of
the TB&T Bancshares shareholders called to consider the Merger transaction.
Each of those shareholders is an officer, director and/or holder of 5% or
more of the outstanding capital stock of TB&T Bancshares. The named shareholders
have agreed not to sell, pledge, transfer or otherwise dispose of any shares of
TB&T Bancshares stock within 30 days prior to the effective time of the Merger,
and have agreed that, until publication of financial results covering at least
30 days of post-merger combined operations of TB&T Bancshares and Texas
Regional, such shareholders will not sell, pledge, transfer or otherwise dispose
of any shares of Texas Regional Common Stock acquired in the Merger, without
first obtaining the consent of Texas Regional. This group of shareholders has
further agreed not to sell, pledge, transfer or otherwise dispose of any shares
of Texas Regional stock acquired in the Merger except in a manner that is
consistent with any additional requirements imposed upon Texas Regional to
permit Texas Regional to account for the Merger as a pooling of interests. Each
shareholder who is a
21
<PAGE>
director or executive officer of TB&T Bancshares has further acknowledged and
agreed that such shareholder will be subject to Rule 145 promulgated by the
Securities and Exchange Commission and has agreed not to transfer any Texas
Regional stock received by such shareholder in the Merger, except in compliance
with applicable provisions of the Securities Act of 1933, the Securities and
Exchange Act of 1934 and applicable rules and regulations promulgated by the
Securities and Exchange Commission thereunder.
BUSINESS PENDING CONSUMMATION OF THE MERGER.
The Agreement imposes certain limitations on the conduct of TB&T
Bancshares' business pending consummation of the Merger. Among other things,
TB&T Bancshares must conduct its business consistent with prudent banking
practices in the same manner as conducted prior to the execution of the
Agreement. TB&T Bancshares has also agreed not to make loans in amounts in
excess of certain thresholds without the approval of Texas Regional and has
agreed not to acquire investment securities unless they meet certain parameters.
The Agreement also requires that employment agreements and certain kinds of
employee benefit plans, be terminated at or prior to the effective time of the
Merger. See Annex A.
AMENDMENT OR TERMINATION OF THE AGREEMENT.
The Agreement may be amended at any time, before or after the meeting of
the TB&T Bancshares shareholders, by an instrument in writing duly executed by
all parties to the Agreement. In addition, the Agreement may be terminated, at
the election of either Texas Regional or TB&T Bancshares, if the Merger has not
become effective on or before March 1, 1998.
DISSENTERS' RIGHTS.
By following the specific procedures set forth in the Texas Business
Corporation Act, TB&T Bancshares' shareholders have a statutory right to dissent
from the Merger. If the Merger is approved and consummated, any TB&T Bancshares
shareholder who properly perfects his, her or its dissenters' rights will be
entitled, upon consummation of the Merger, to receive an amount of cash equal to
the fair value of his, her or its shares of TB&T Bancshares common stock rather
than receiving the consideration set forth in the Agreement. The following
summary is not a complete statement of statutory dissenters' rights of
appraisal, and such summary is qualified by reference to the applicable
provisions of the Texas Business Corporation Act, which is reproduced in full in
Annex B to this Prospectus/Proxy Statement. A shareholder must complete each
step in the precise order prescribed by the statute to perfect his, her or its
dissenters' rights of appraisal.
Any shareholder who desires to dissent from the Merger shall file a written
objection to the Merger with TB&T Bancshares prior to the meeting at which the
vote on the Merger shall be taken, stating that the shareholder will exercise
his, her or its right to dissent if the Merger is effective and giving the
shareholder's address to which notice thereof shall be sent. A vote against the
Merger is not sufficient to perfect a shareholder's dissenters' rights of
appraisal. If the Merger is effected, each shareholder who sent notice to TB&T
Bancshares as described above and who did not vote in favor of the Merger will
be deemed to have dissented from the Merger (herein sometimes referred to as a
"Dissenting Shareholder"). Failure to vote against the Merger will not
constitute a waiver of the dissenters' rights of appraisal; on the other hand, a
vote in favor of the Merger will constitute such a waiver.
TRD, as the survivor in the Merger transaction, will be liable for
discharging the rights of Dissenting Shareholders and shall, within 10 days of
the effective time of the Merger, notify the Dissenting Shareholders in writing
that the Merger has been effected. Each Dissenting Shareholder so notified must,
within 10 days of the delivery of mailing of such notice, make a written demand
on TRD at Kerria Plaza, Suite 301, 3700 North 10th Street, McAllen, Texas 78501,
for payment of the fair value of the Dissenting Shareholder's shares as
estimated by the Dissenting Shareholder. Such demand shall state the number and
class of shares owned by the Dissenting Shareholder. The fair value of the
shares shall be the value thereof as of the date immediately preceding the date
of the shareholder meeting at which the Merger was approved, excluding any
appreciation or depreciation in anticipation of the Merger. Dissenting
Shareholders
22
<PAGE>
who failed to make a written demand within the 10 day period will be bound by
the Merger and lose their rights to dissent. Within 20 days after making a
demand, the Dissenting Shareholder shall submit certificates representing his,
her or its shares of TB&T Bancshares common stock to Texas Regional for notation
thereon that such demand has been made. Dissenting Shareholders who fail to
submit their certificates within such 20 day period will be bound by the Merger
and lose their rights to dissent.
Within 20 days after receipt of a Dissenting Shareholder's demand letter as
described above, TRD shall deliver or mail to the Dissenting Shareholder written
notice (i) stating that TRD accepts the amount claimed in the demand letter and
agrees to pay that amount within 90 days after the effective time of the Merger
upon surrender of the relevant certificates of TB&T Bancshares common stock duly
endorsed by the Dissenting Shareholder, or (ii) containing TRD's written
estimate of the fair value of the shares of TB&T Bancshares common stock
together with an offer to pay such amount within 90 days after the effective
time of the Merger if TRD receives notice, within 60 days after the effective
time of the Merger, stating that the Dissenting Shareholder agrees to accept
that amount and surrenders the relevant certificates of TB&T Bancshares common
stock duly endorsed by the Dissenting Shareholder. In either case, the
Dissenting Shareholder shall cease to have any ownership interest in TB&T
Bancshares or Texas Regional following payment of the agreed value.
If the Dissenting Shareholder and Texas Regional cannot agree on the fair
value of the shares within 60 days after the effective time of the Merger, the
Dissenting Shareholder or TRD may, within 60 days of the expiration of the
initial 60 day period, file a petition in any court of competent jurisdiction
requesting a finding and determination of the fair value of the Dissenting
Shareholder's shares. If no petition is filed within the appropriate time
period, then all Dissenting Shareholders who have not reached an agreement with
TRD on the value of their shares shall be bound by the Merger and lose their
rights to dissent. After a hearing concerning the petition, the court shall
determine which Dissenting Shareholders have complied with the provisions of the
Texas Business Corporation Act and have become entitled to the valuation of, and
payment for, their TB&T Bancshares shares, and shall appoint one or more
qualified appraisers to determine the value of the TB&T Bancshares shares in
question. The appraiser shall determine such value and file a report with the
court. The court shall then in its judgment determine the fair value of the
shares of TB&T Bancshares common stock, which judgment shall be binding on TRD
and on all Dissenting Shareholders receiving notice of the hearing. The court
shall direct TRD to pay such amount, together with interest thereon, beginning
91 days after the effective time of the Merger to the date of judgment, to the
Dissenting Shareholders entitled thereto. The judgment shall be payable upon the
surrender to TRD of certificates representing shares of TB&T Bancshares common
stock duly endorsed by the Dissenting Shareholders. Upon payment of the
judgment, the Dissenting Shareholders shall cease to have any interest in TB&T
Bancshares, Texas Regional, TRD or the TB&T Bancshares common stock. All court
costs and fees of the appraiser shall be allotted between the parties in a
manner that the court determines is fair.
Any Dissenting Shareholder who has made a written demand on TRD for payment
of the fair value of his, her or its TB&T Bancshares common stock shall not
thereafter be entitled to vote or exercise any other rights as a shareholder
except the statutory right of appraisal as described herein and the right to
maintain an appropriate action to obtain relief on the ground that the Merger
would be or was fraudulent. In the absence of fraud in the transaction, a
Dissenting Shareholder's statutory right to appraisal is the exclusive remedy
for the recovery of the value of his, her or its shares or money damages to the
shareholder with respect to the Merger.
Any Dissenting Shareholder who has made a written demand on TRD for payment
of the fair value of his, her or its TB&T Bancshares common stock may withdraw
such demand at any time before payment for his, her or its shares or before a
petition has been filed with an appropriate court for determination of the fair
value of such shares. If a Dissenting Shareholder withdraws his, her or its
demand or if the Dissenting Shareholder is otherwise unsuccessful in asserting
his, her or its dissenters' rights of appraisal, such Dissenting Shareholder
shall be bound by the Merger and such shareholder's status as a shareholder
shall be restored without prejudice to any corporate proceedings, dividends or
distributions which may have occurred during the interim. See Annex B.
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It is a condition to Texas Regional's obligations under the Agreement that
not more than 2% of the outstanding shares of TB&T Bancshares common stock shall
have demanded or be entitled to demand payment of the fair value of the shares
as Dissenting Shareholders. If such condition is not met, Texas Regional will be
entitled to terminate the Agreement. See "Information About the
Transaction -- Other Terms and Conditions." See also "Information About the
Transaction -- Federal Income Tax Consequences" for a description of the tax
consequences of exercising dissenters' rights.
FEDERAL INCOME TAX CONSEQUENCES.
In the opinion of KPMG Peat Marwick LLP ("KPMG"), if consummated in
accordance with the Agreement, the Merger will qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. A copy of KPMG's opinion is
included with this Prospectus/Proxy Statement as Annex C. The opinion of KPMG is
not binding on the Internal Revenue Service or the courts.
KPMG has relied upon certain assumptions and representations in issuing its
opinion, including the following:
(1) The managements of Texas Regional and TB&T Bancshares are not
aware of any plan or intention on the part of TB&T Bancshares shareholders
to sell a number of shares of Texas Regional Common Stock that will reduce
such shareholders' ownership to a number of shares having, in the
aggregate, a value of less than 50% of the fair market value of TB&T
Bancshares stock outstanding as of the Effective Date.
(2) TRD will acquire substantially all the assets of TB&T Bancshares.
(3) Following the transaction, TRD will not issue additional shares
of its stock that would result in Texas Regional losing control of TRD.
(4) Texas Regional, TRD and Texas State Bank have no plan or
intention to sell or otherwise dispose of any of the assets to be received
from TB&T Bancshares and Texas Bank & Trust, except for dispositions made
in the ordinary course of business.
In KPMG's opinion, the following federal income tax consequences to TB&T
Bancshares shareholders will result from a qualification of the Merger as a
reorganization under Section 368(a) of the Code:
(1) A TB&T Bancshares shareholder will not recognize any gain or loss
upon the exchange of his, her or its TB&T Bancshares common stock solely
for Texas Regional Common Stock.
(2) The aggregate tax basis of Texas Regional Common Stock received
by a TB&T Bancshares shareholder in the Merger will be same as the
aggregate basis of the TB&T Bancshares common stock surrendered in exchange
therefor. For purposes of allocating this aggregate basis to individual
shares of Texas Regional Common Stock received, the IRS position is that
each separate block of stock surrendered shall be treated separately. Under
this rule, for example, if a TB&T Bancshares shareholder surrenders two
blocks of TB&T Bancshares common stock in the Merger, having an adjusted
basis of $1.00 per share for the first block and $2.00 per share for the
second block, the Texas Regional Common Stock which he, she or it receives
in exchange for each share of TB&T Bancshares common stock in the first
block will have a basis of $1.00, and the Texas Regional Common Stock which
he, she or it receives in exchange for each share of TB&T Bancshares common
stock in the second block will have a basis of $2.00.
(3) The holding period of Texas Regional Common Stock to be received
by each TB&T Bancshares shareholder will include the period during which
the shareholder held the TB&T Bancshares common stock surrendered in
exchange therefor, provided that the TB&T Bancshares common stock is held
as a capital asset on the date of the exchange.
(4) The payment of cash in lieu of fractional shares of Texas
Regional Common Stock will be treated as if the fractional shares were
distributed as part of the exchange and then redeemed by Texas Regional.
Such cash payment will be treated as having been received as a distribution
in full payment in exchange for the stock redeemed as provided in Section
302 of the Code.
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(5) For a TB&T Bancshares shareholder who dissents from the Merger
and receives solely cash in exchange for his, her or its TB&T Bancshares
common stock, such cash will be treated as having been received by such
shareholder as a distribution in redemption of his, her or its stock,
subject to the provisions and limitations in Section 302 of the Code.
In addition, in the opinion of KPMG, the following will be the federal
income tax consequences to TB&T Bancshares shareholders as a result of the
distribution of shares held pursuant to the Holdback Escrow Agreement:
(1) Texas Regional Common Stock dividends paid into the escrow
created pursuant to the Holdback Escrow Agreement will be taxed to the TB&T
Bancshares shareholders upon payment of the dividends to the escrow. TB&T
Bancshares shareholders will be entitled to a deduction in the event the
dividends, or a portion thereof, are returned to Texas Regional.
(2) No gain or loss should be recognized by the shareholders of TB&T
Bancshares upon distribution of shares of Texas Regional Common Stock from
the escrow created pursuant to the Holdback Escrow Account.
KPMG has audited the financial statements of Texas Regional since 1987, and
has provided other financial advisory services from time to time to Texas
Regional. Total fees paid to KPMG by Texas Regional are not material to the
total revenue of KPMG.
As indicated, neither Texas Regional, nor TRD, nor TB&T Bancshares has
requested or anticipates requesting a ruling from the IRS with regard to the
federal income tax consequences of the proposed merger transaction.
THIS SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IS NOT
INTENDED TO BE A SUBSTITUTE FOR CAREFUL TAX PLANNING ON AN INDIVIDUAL BASIS. IN
ADDITION TO THE FEDERAL INCOME TAX CONSEQUENCES DISCUSSED IN THIS
PROSPECTUS/PROXY STATEMENT, CONSUMMATION OF THE MERGER MAY HAVE SIGNIFICANT
FOREIGN, STATE OR LOCAL INCOME TAX CONSEQUENCES WHICH ARE NOT DISCUSSED HEREIN.
ACCORDINGLY, EACH PERSON CONSIDERING THE MERGER IS URGED TO CONSULT SUCH
SHAREHOLDER'S PERSONAL TAX ADVISERS WITH SPECIFIC REFERENCE TO THE EFFECT OF THE
TRANSACTION ON SUCH SHAREHOLDER'S OWN PARTICULAR FACTS AND CIRCUMSTANCES.
GOVERNMENTAL APPROVALS.
Consummation of the Merger is subject to approval by the shareholders of
TB&T Bancshares, the receipt of required regulatory approvals from the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended, and the
satisfaction or waiver of other conditions as described in the Agreement. In
addition, the merger of Texas Bank & Trust with and into Texas State Bank is
subject to the approval of the Texas Banking Department. It is expected that the
Federal Reserve Board and the Texas Banking Department will approve the
respective transactions.
A formal application under the Bank Holding Company Act of 1956 was filed
with the Federal Reserve Board on , 1997. Upon receipt of Federal
Reserve Board approval, the Merger cannot be consummated until the expiration of
15 days following the date of approval, during which time the United States
Department of Justice, pursuant to the Bank Holding Company Act of 1956, may
bring an action to oppose the Merger. An application was filed with the Texas
Banking Department on , 1997, for the merger of Texas Bank & Trust
with and into Texas State Bank. Closing of the transaction is contingent upon
receipt of all such approvals.
ACCOUNTING TREATMENT.
Texas Regional anticipates accounting for the Merger under the
pooling-of-interests method of accounting for financial reporting and for all
other purposes, and the Company has received such assurances as its deems
appropriate that the Merger will qualify for pooling-of-interests accounting
treatment,
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including the receipt of a letter from KPMG, which will be updated as of the
effective time of the Merger, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment. Under this accounting method, at the
effective time of the Merger, TB&T Bancshares' assets and liabilities will be
added at their recorded book values to Texas Regional's consolidated balance
sheet, and TB&T Bancshares' shareholders' equity will be added to Texas
Regional's consolidated balance sheet. Income and other financial statements of
Texas Regional issued after consummation of the Merger will be restated
retroactively to reflect the consolidated operations of TB&T Bancshares and
Texas Regional as if the Merger had taken place prior to the periods covered by
such financial statements.
Because the requirements for pooling-of-interests accounting are complex
and include matters outside of the control of the Company, there can be no
certainty that accounting for the transaction under that method of accounting
will be permitted. The pro forma information contained herein assumes that the
transaction will be accounted for under the pooling-of-interests method.
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DESCRIPTION OF TEXAS REGIONAL'S SECURITIES
Texas Regional is authorized to issue Common Stock and preferred stock. A
total of 20,000,000 common shares and 10,000,000 preferred shares are
authorized. As of the date of this Prospectus/Proxy Statement, 13,110,639 shares
of Texas Regional Common Stock are issued and outstanding, and no preferred
shares are issued or outstanding. In addition to the shares proposed to be
issued to TB&T Bancshares shareholders in connection with the Merger, Texas
Regional has agreed to issue up to an aggregate of approximately 985,000 shares
of Texas Regional Common Stock in connection with Texas Regional's proposed
acquisition of Brownsville Bancshares, Inc. (including both shares to be issued
to Brownsville Bancshares shareholders and shares to be issued to Brownsville
Bancshares option holders) and 343,924 shares of Texas Regional Common Stock are
reserved for issuance in connection with options granted to employees under
Texas Regional's employee stock option plans. Further issuance of shares of
Texas Regional Common Stock after the effective time of the Merger would have
the effect of reducing the former TB&T Bancshares shareholders' proportionate
interest in Texas Regional.
Texas Regional shareholders do not have preemptive rights for the
acquisition of additional Texas Regional shares. Each holder of Texas Regional
Common Stock is entitled to one vote for each share held on all matters
submitted to common shareholders, including election of directors; however, the
holders of Texas Regional Common Stock do not have cumulative voting rights in
the election of directors. The Texas Regional share certificates issued to TB&T
Bancshares shareholders in connection with the Merger will bear legends
describing the fact that the Texas Regional Articles of Incorporation deny
preemptive rights and do not allow cumulative voting in the election of
directors.
Texas Regional presently has three separate stock option plans, under the
terms of which Texas Regional has granted options to purchase a total of 343,924
shares of the Class A Voting Common Stock to certain key employees for their
purchase. In 1990, Texas Regional adopted the Texas Regional Bancshares, Inc.
Employee Stock Ownership Plan (with 401(k) provisions) (the "KSOP Plan"). As
of September 30, 1997, a total of 505,078 shares of Texas Regional Common Stock
were held for the benefit of Texas Regional employees pursuant to the KSOP. It
is anticipated that any employee benefit plan of TB&T Bancshares or Texas Bank &
Trust will be terminated as of the effective time of the Merger, and employees
of TB&T Bancshares who become employees of Texas Regional and who otherwise
qualify will become participants in the Texas Regional KSOP.
Holders of Texas Regional common stock are entitled to dividends as and
when declared by the Board of Directors of Texas Regional out of legally
available funds. Texas Regional has declared the following dividends on its
common shares since January 1, 1994:
AGGREGATE DIVIDENDS
APPLICABLE TIME PERIOD DIVIDENDS PER SHARE
- ------------------------------------- ---------- ---------
January 1, 1994 to December 31,
1994............................... $1,486 $0.16
January 1, 1995 to December 31,
1995............................... 2,478 0.27
January 1, 1996 to December 31,
1996............................... 3,232 0.27
January 1, 1997 to December 9,
1997............................... 4,803 0.36
Texas Regional's Board of Directors intends to maintain its present policy of
paying regular quarterly cash dividends. However, the declaration and amount of
future dividends will depend on circumstances existing at the time, including
Texas Regional's earnings, financial condition and capital requirements, as well
as regulatory limitations and such other factors as Texas Regional's Board of
Directors deems relevant.
The principal assets and sources of income for Texas Regional consists of
its investment in Texas State Bank, which is a separate legal entity. Federal
and state banking regulations applicable to Texas Regional and Texas State Bank
require minimum levels of capital which limits the amounts available for payment
of dividends by Texas State Bank.
Texas Regional declared a 3-for-2 stock split effected as a stock dividend
to holders of record of its common stock on July 31, 1997, and distributed that
dividend during August 1997. All shares of Texas Regional Common Stock now
outstanding are, and the shares of Texas Regional Common Stock to be
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issued in the Merger will be, fully paid and nonassessable with no personal
liability attaching to the ownership thereof.
In the event of liquidation, after payment of all creditors and after
payment of the liquidation preference applicable to any then-outstanding series
of preferred shares, the holders of Texas Regional Common Stock will be entitled
to receive pro rata any assets remaining for distribution to shareholders.
Texas Regional has the authority to issue up to 10,000,000 preferred
shares, $1.00 par value per share, although no shares of preferred stock are
presently outstanding. Texas Regional's Board of Directors has the authority to
adopt resolutions establishing and designating one or more series of preferred
shares, and to issue the preferred shares with such rights, privileges and
limitations as the Board may deem appropriate, without approval of the holders
of Texas Regional Common Stock. Upon issuance, the preferred shares may have
dividend rights, liquidation preference or other rights superior to the holders
of shares of Texas Regional Common Stock.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the transactions contemplated by the Agreement, the
shareholders of TB&T Bancshares will become shareholders of Texas Regional. Both
Texas Regional and TB&T Bancshares are Texas business corporations, organized
under the Texas Business Corporation Act, and, therefore, holders of capital
stock of TB&T Bancshares and holders of Texas Regional Common Stock have similar
rights in many respects. Each shareholder is entitled to one vote for each share
held by that shareholder; each shareholder is entitled to such dividends as the
Board of Directors may declare from legally available funds; and each
shareholder is, upon liquidation, entitled to receive pro rata any assets
distributed to common shareholders.
Unlike shareholders of TB&T Bancshares, who have preemptive rights, holders
of Texas Regional Common Stock have no preemptive rights to subscribe for the
purchase of any shares of Texas Regional Common Stock which may be issued by
Texas Regional from time to time. Because the number of authorized shares of
Texas Regional Common Stock exceeds the number of issued and outstanding shares,
the Board of Directors of Texas Regional could authorize the sale of up to
5,596,285 shares of Common Stock (less the shares to be issued to TB&T
Bancshares shareholders in the TB&T Bancshares Merger, and shares to be issued
to shareholders and option holders of Brownsville Bancshares, Inc., in
connection with the Brownsville Bancshares, Inc., transaction) without further
authorization or approval from the Texas Regional shareholders. Presently, there
are no preferred shares issued and outstanding, but 10,000,000 preferred shares
are authorized for issuance. The preferred shares may be issued in one or more
series, without further authorization or approval from the Texas Regional
shareholders. Upon liquidation of Texas Regional, the holders of Common Stock
would share in proceeds of liquidation only after the liquidation preference is
paid in respect of any outstanding preferred shares. See "Description of Texas
Regional Securities."
Like TB&T Bancshares, Texas Regional is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended, and, therefore,
its activities are limited to banking, activities closely related to banking and
other activities permitted by that Act. Texas Regional in 1996 established a
subsidiary, TSB Securities, Inc., to engage in the securities brokerage
business. In addition, Texas Regional provides data processing services for
other financial institutions and may in the future provide other services in
addition to the present commercial banking business of its subsidiary, Texas
State Bank.
RESALES OF TEXAS REGIONAL COMMON STOCK
For those TB&T Bancshares shareholders who are not "affiliates" of TB&T
Bancshares, the Texas Regional Common Stock received in the Merger may be freely
traded. However, although the shares of Texas Regional Common Stock to be issued
in the proposed merger will have been registered under the Securities Act of
1933, as amended, any public reoffering or sale of such shares by any person who
is an "affiliate" of TB&T Bancshares at the time such merger is submitted to a
vote of the shareholders of TB&T Bancshares will require either (i) the further
registration under the Securities Act of the shares of
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Texas Regional Common Stock to be sold; (ii) compliance with applicable
provisions of Rules 144 and 145 promulgated under the Securities Act of 1933
(permitting sales under certain circumstances); or (iii) the availability of an
exemption from such registration. The foregoing restrictions will apply to all
"affiliates" of TB&T Bancshares and Texas Regional and stop transfer
instructions will be given to Texas Regional's transfer agent with respect to
the shares of Texas Regional Common Stock received by them. An "affiliate" is
defined for these purposes to include a "controlling person," which in this
case would mean, generally, a principal shareholder or an executive officer or
director of TB&T Bancshares and may include certain related parties.
Generally, Rules 144 and 145 would permit an affiliate to sell within any
three-month period a number of shares that does not exceed the greater of one
percent (1%) of the then outstanding shares of Texas Regional Common Stock or
the average weekly trading volume of such stock reported through the NASDAQ
National Market System during the four calendar weeks preceding such sale,
provided that Texas Regional has filed required periodic reports with the
Securities and Exchange Commission and such sales are made in normal "brokers'
transactions" or in transactions directly with a "market maker" without the
solicitation of buy orders by the brokers or such affiliates. Texas Regional
Common Stock is not listed on an exchange but is traded in the NASDAQ National
Market System over-the-counter market. If a present affiliate of TB&T Bancshares
ceases to be an affiliate for a period of at least three months, Rule 145 will
permit that person to sell his or her Texas Regional securities, without
limitation as to amount of securities to be sold, after he or she has been the
beneficial owner of the Texas Regional securities for at least two years as
determined in accordance with paragraph (d) of Rule 144.
In addition, the executive officers, directors and certain shareholders of
TB&T Bancshares have agreed not to sell, pledge, transfer or otherwise dispose
of their shares of Texas Regional Common Stock until the publication of
financial results covering at least 30 days of post-Merger combined operations
of Texas Regional and TB&T Bancshares, except with the consent of Texas
Regional, to permit Texas Regional to comply with certain requirements imposed
by the Securities and Exchange Commission and the Financial Accounting Standards
Board for Texas Regional's accounting for the Merger as a pooling-of-interests.
See "Information About the Transaction -- Joinder by Certain Shareholders."
INFORMATION ABOUT TEXAS REGIONAL
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.
Texas Regional has a class of securities registered pursuant to Section 12
of the Securities Exchange Act of 1934 (the "1934 Act"), as amended, and is a
reporting company for purposes of the 1934 Act, and has been for a period of at
least thirty-six months. For this reason, and because Texas Regional meets other
requirements provided by applicable rules and regulations governing registration
of the transaction, as promulgated by the Securities and Exchange Commission,
Texas Regional has elected to incorporate by reference certain information with
respect to the Corporation.
INTERESTS OF CERTAIN NAMED PERSONS.
No director or executive officer of Texas Regional has any material direct
or indirect financial interest in TB&T Bancshares, or the Merger, other than as
a director, executive officer or shareholder of Texas Regional. However,
McGinnis, Lochridge & Kilgore, L.L.P., has rendered an opinion concerning the
validity of the securities being offered pursuant to this Prospectus/Proxy
Statement and certain other matters. Joe M. Kilgore, a partner in the firm, is a
Director of Texas Regional and is the beneficial owner, as of September 30,
1997, of approximately 277,510 shares of Texas Regional Common Stock.
OPTION PLANS.
At a meeting of the Texas Regional Board of Directors held on December 9,
1997, the Board adopted a new incentive stock option plan and a new nonstatutory
stock option plan for the benefit of employees of the company. The total number
of shares to be issued under the Texas Regional Bancshares, Inc., 1997 Incentive
Stock Option Plan is 100,000 shares of Texas Regional Common Stock, and the
total number of
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shares to be issued under the Texas Regional Bancshares, Inc., 1997 Nonstatutory
Stock Option Plan is 125,000 shares of Texas Regional Common Stock. Both plans
were adopted subject to receipt of shareholder approval. No options have been
granted pursuant to either the 1997 Incentive Stock Option Plan or the 1997
Nonstatutory Stock Option Plan.
PENDING TRANSACTIONS.
On October 20, 1997, Texas Regional entered into an Agreement and Plan of
Reorganization for the acquisition by merger of Brownsville Bancshares, Inc.
("Brownsville Bancshares"). As of September 30, 1997, Brownsville Bancshares
had total assets of $97.4 million, total loans (net of allowance for loan
losses) of $41.6 million, and total deposits of $84.4 million. Brownsville
Bancshares is expected to be merged with and into TRD as soon as applicable
conditions, including receipt of regulatory approval, are satisfied. Texas
Regional currently expects the Brownsville Bancshares transaction to be closed
contemporaneously with the closing of the TB&T Bancshares transaction, although
neither transaction is contingent upon the closing of the other. The
shareholders of Brownsville Bancshares will receive an aggregate of
approximately 947,164 shares of Texas Regional Common Stock in exchange for
their Brownsville Bancshares shares in connection with the merger transaction,
and holders of options to acquire Brownsville Bancshares shares will receive an
aggregate of approximately 37,836 shares of Texas Regional Common Stock in
exchange for, and in consideration of the termination of, their Brownsville
Bancshares options. Brownsville Bancshares' wholly owned subsidiary, BNB
Bancshares, Inc., will also be merged with and into TRD, and BNB Bancshares,
Inc.'s subsidiary, Brownsville National Bank, will be merged with and into Texas
State Bank. Brownsville National Bank operates from two banking locations, one
each on East Elizabeth Street and Boca Chica Boulevard in Brownsville, Texas.
In November 1997, Texas Regional entered into an agreement in principle for
the acquisition by merger of Raymondville Bancorp, Inc. ("Raymondville
Bancorp"). As of September 30, 1997, Raymondville Bancorp had total assets of
$60.4 million, total loans (net of allowance for loan losses) of $25.4 million,
and total deposits of $53.5 million. If the parties successfully negotiate a
mutually acceptable definitive agreement, Raymondville Bancorp will be merged
with a newly formed subsidiary of TRD as soon as applicable conditions,
including receipt of regulatory approval, are satisfied. As part of the
agreement in principle with Raymondville, the sole shareholder of Raymondville
has agreed to bear a portion of losses related to stolen or forged money orders
deposited into certain accounts held by Raymondville's wholly owned subsidiary,
Bank of Texas; however, there can be no assurance that the losses incurred on
those accounts and related return items will not exceed the limited amount of
the shareholder's reimbursement obligation and collateral provided by the
account holder. Texas Regional currently expects the Raymondville Bancorp
transaction to be closed contemporaneously with or as soon as practicable
following the closing of the TB&T Bancshares transaction, although neither
transaction is contingent upon the closing of the other. Under the agreement in
principle, which is not binding on either Texas Regional or Raymondville, upon
closing, the sole shareholder of Raymondville Bancorp would receive an aggregate
of $9,600,000 cash in exchange for his Raymondville Bancorp shares, an affiliate
of Raymondville Bancorp would receive $100,000 in consideration of a covenant
not to compete, and Raymondville Bancorp's wholly owned subsidiary, Bank of
Texas of Raymondville, would be merged with and into Texas State Bank. Bank of
Texas operates from two banking locations, one each in Raymondville, Texas, and
at 2000 F.M. 802 in Brownsville, Texas.
If the Merger with TB&T Bancshares, the merger with Brownsville Bancshares
and the merger with Raymondville Bancorp are all consummated, as planned, Texas
State Bank will have a total of twenty-one full service banking locations in the
Rio Grande Valley of Texas.
INFORMATION ABOUT TB&T BANCSHARES
DESCRIPTION AND DEVELOPMENT OF BUSINESS.
Texas Bank & Trust was chartered as a Texas state bank, under the laws of
State of Texas, in 1979, and opened for business in 1979. TB&T Bancshares was
chartered in 1981, became a bank holding
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company upon its acquisition of Texas Bank & Trust in 1981. Substantially all of
the assets and earnings of TB&T Bancshares is derived from the ownership and
operation of Texas Bank & Trust.
Since it opened for business, TB&T Bancshares has provided retail and
commercial banking services for customers in Brownsville, Texas and adjacent
areas of the Rio Grande Valley. At September 30, 1997, TB&T Bancshares employed
approximately 31 persons. Texas Bank & Trust's banking house is located at 3201
Central Boulevard, Brownsville, Texas, and the bank has no branch locations.
TB&T Bancshares' telephone number is (956) 546-1771.
Texas Bank & Trust provides its customers with a variety of banking
services. For businesses, Texas Bank & Trust offers checking facilities,
certificates of deposit, short term loans for working capital purposes, mortgage
loans, term loans for fixed assets and expansion needs and other commercial
loans to fit the needs of its business customers. Where the borrowing needs of
customers exceed the limits of Texas Bank & Trust for any one customer it may
participate with other banks in making such loans. The services provided for
individuals by Texas Bank & Trust include checking accounts, savings accounts,
certificates of deposit and mortgage and consumer loan programs, including
installment loans for home repairs and for the purchases of consumer goods,
including automobiles, trucks and boats. Texas Bank & Trust also provides
travelers checks and money orders. Texas Bank & Trust does not provide trust
services and does not operate a trust department.
TB&T Bancshares has had transactions with its officers and directors and
affiliates of its officers and directors. Substantially all transactions have in
the recent past been in the ordinary course of business on substantially the
same terms as those prevailing for comparable transactions with others.
All employee benefit plans of TB&T Bancshares are expected to be terminated
as of the effective time of the Merger. Employees of TB&T Bancshares who become
employees of Texas Regional will be entitled to participate in employee benefit
plans offered generally by Texas Regional to its employees, and, if they meet
eligibility requirements of the Texas Regional KSOP, will become participants in
the KSOP.
As of September 30, 1997, the ratio of stockholders' equity to total assets
of TB&T Bancshares was 9.1%. This was in excess of the minimum ratio of equity
to total assets required by applicable regulatory authorities. See "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operation of TB&T Bancshares" and the TB&T Bancshares financial
statements included as Annex D to this Prospectus/Proxy Statement.
Texas Bank & Trust owns an aggregate of 1,740 shares of Texas Regional
Common Stock, which Texas Bank & Trust acquired in satisfaction of a loan held
by Texas Bank & Trust. The loan had been made by Texas Bank & Trust in the
ordinary course of its banking business.
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MARKET PRICES OF AND DIVIDENDS PAID ON TB&T BANCSHARES CAPITAL STOCK.
There is no public market for TB&T Bancshares' capital stock. The following
information is derived from the stock transfer records of TB&T Bancshares, and
from management's discussions with purchasers or sellers or others familiar with
the transactions. The chart reflects all arms-length, third party purchase and
sale transactions known to TB&T Bancshares management which have occurred during
the period of January 1, 1995 through September 30, 1997. The number of shares
and range of prices have been adjusted for stock splits and stock dividends
since the date of the relevant transaction.
RANGE OF
APPLICABLE NUMBER OF PRICES
TIME PERIOD SHARES PER SHARE
- ------------------------------------- --------- ---------
January 1 - March 31, 1995........... -- $ --
April 1 - June 30, 1995............ -- --
July 1 - September 30, 1995....... 970 1.75
October 1 - December 31, 1995........ -- --
January 1 - March 31, 1996........... -- --
April 1 - June 30, 1996............ -- --
July 1 - September 30, 1996....... 164,000 1.52-1.90*
October 1 - December 31, 1996........ 100 10.00
January 1 - March 31, 1997........... 1,000 2.00
April 1 - June 30, 1997............ -- --
July 1 - September 30, 1997....... -- --
- ------------
* A total of 137,685 shares were traded at $1.52 per share and 26,315 shares
were traded at $1.90 per share. The shares which traded at $1.52 per share
were purchased by TB&T Bancshares.
Management of TB&T Bancshares knows of no other arms-length negotiated sale
transactions. Among the latest transactions involving TB&T Bancshares capital
stock, known to management of TB&T Bancshares, was the sale of 1,000 shares of
TB&T Bancshares capital stock which occurred in March, 1997, at a price of $2.00
per share. This transaction was the most recent one known to management of TB&T
Bancshares.
TB&T Bancshares last declared a cash dividend in January, 1997, of $0.12
per share. The following chart indicates the cash dividends declared since
January 1, 1995.
APPLICABLE AGGREGATE DIVIDENDS
TIME PERIOD DIVIDENDS PER SHARE
- ------------------------------------- --------- ---------
January 1 - March 31, 1995........... $ -- $--
April 1 - June 30, 1995............ -- --
July 1 - September 30, 1995....... -- --
October 1 - December 31, 1995........ 183,000 0.11
January 1 - March 31, 1996........... -- --
April 1 - June 30, 1996............ -- --
July 1 - September 30, 1996....... -- --
October 1 - December 31, 1996........ -- --
January 1 - March 31, 1997........... 203,000 0.12
April 1 - June 30, 1997............ -- --
July 1 - September 30, 1997....... -- --
October 1 - December 9, 1997......... -- --
32
<PAGE>
TB&T BANCSHARES STOCK OWNERSHIP.
At September 30, 1997, the amount and percentage of present holdings of
TB&T Bancshares capital stock owned beneficially by persons known to management
of TB&T Bancshares to be the beneficial owners of more than 5% of the TB&T
Bancshares capital stock, and TB&T Bancshares capital stock owned beneficially
by each director, each officer, and all directors and officers as a group, were
as follows:
<TABLE>
<CAPTION>
PERCENTAGE TEXAS
OF TOTAL REGIONAL
OFFICE AT AMOUNT AND OUTSTANDING SHARES
BROWNSVILLE NATURE OF BROWNSVILLE TO BE
BANCSHARES OWNERSHIP BANCSHARES SHARES RECEIVED(4)
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Frank D. Yturria..................... Director 931,513 54.93% 169,230
and Chairman
of the Board
Dwayne Tyner, Trustee................ Director 337,987 19.93 61,403
Julius Collins....................... Director 75,325 (1) 4.44 13,684
Bob A. Austin........................ Director 28,743 1.69 5,221
James A. John........................ Director 15,636 (2) 0.92 2,840
Jim Brown............................ Director and 1,017 (3) 0.06 184
Secretary
All officers and directors as a group %
(6 persons)........................ 1,390,221 81.98 252,562
</TABLE>
- ------------
(1) Includes shares of TB&T Bancshares stock held by Mr. Collins' spouse,
.
(2) Includes shares of TB&T Bancshares stock held by Estate of Mrs. James P.
John, Mr. John's mother.
(3) Shares of TB&T Bancshares indicated are held by Mr. Brown's spouse,
.
(4) Represents the approximate number of shares of Texas Regional Common Stock
to be issued in connection with the closing of the merger transaction
described in this Prospectus / Proxy Statement, and includes both shares to
be distributed and shares to be deposited into escrow pursuant to the
Holdback Escrow Agreement.
Officers, directors and shareholders owning in excess of 5% of the capital
stock of TB&T Bancshares, who hold in the aggregate 81.9% of the oustanding TB&T
Bancshares shares, have joined into the execution of the Agreement to evidence
their consent to the transaction and their agreement to vote their shares of
TB&T Bancshares in favor of the Merger at the special meeting of the
shareholders.
As of September 30, 1997 there were approximately 82 holders of record of
TB&T Bancshares capital stock. Those holders of TB&T Bancshares capital stock
who do not exercise dissenters' rights of appraisal will become Texas Regional
shareholders upon consummation of the transaction described in this
Prospectus/Proxy Statement, and will no longer be shareholders of TB&T
Bancshares. See "Information About the Transaction -- Dissenters' Rights."
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TB&T BANCSHARES, INC.
The following discussion and analysis presents some of the more pertinent
factors affecting TB&T Bancshares at December 31, 1996 and 1995, and September
30, 1997, and the results of operations of TB&T Bancshares for the three years
ended December 31, 1996, and the nine months ended September 30, 1997 and 1996.
This discussion should be read in conjunction with the financial statements,
notes thereto and other financial information appearing elsewhere in this
Prospectus/Proxy Statement.
RESULTS OF OPERATIONS
GENERAL.
The earnings of TB&T Bancshares depend primarily on TB&T Bancshares' net
interest income (i.e., the difference between the income earned on TB&T
Bancshares' loans and investments and the interest paid on its deposits and
other borrowed funds). Among the factors affecting net interest income are the
type and volume of its deposits and other borrowed funds, and the relative
sensitivity of its interest-earning assets and its interest-bearing liabilities
to changes in market interest rates.
TB&T Bancshares' income is also affected by fees it receives from other
banking services, by its provision for loan losses and by the level of its
operating expenses. All aspects of TB&T Bancshares' operations are affected by
general market, economic, and competitive conditions.
TB&T Bancshares reported net income of $422 thousand for the nine month
period ended September 30, 1997, a decrease of $12 thousand from net income of
$434 thousand for the nine month period ended September 30, 1996. Pretax income
was $621 thousand for the nine months ended September 30, 1997, a decrease of
$35 thousand from the $656 thousand earned during the nine months ended
September 30, 1996. TB&T Bancshares had net income of $581 thousand for the year
ended December 31, 1996, $532 thousand for the year ended December 31, 1995, and
$354 thousand for the year ended December 31, 1994.
Changes occurring in the major components of TB&T Bancshares' income
statements for such periods are discussed below.
NET INTEREST INCOME.
Net interest income is the primary source of income for TB&T Bancshares and
represents the amount by which interest generated by earning assets exceeds the
cost of funds, primarily interest paid to TB&T Bancshares' depositors on
interest-earning accounts. Taxable-equivalent net interest income was $1.6
million for the nine months ended September 30, 1997, a 13.63% increase from
taxable-equivalent net interest income of $1.4 million for the nine months ended
September 30, 1996. Average rates earned on interest-earning assets increased to
8.54% as of September 30, 1997 from 8.06% as of September 30, 1996. Average
loans of $21.6 million for the nine months ended September 30, 1997 increased
10.34% over average loans of $19.6 million for the same period in 1996. Average
interest-bearing deposits for the nine months ended September 30, 1997 were
$30.2 million, a small increase over average interest-bearing deposits of $30.1
million for the same period in 1996.
Taxable-equivalent net interest income for the year ended December 31, 1996
was $1.9 million, an increase of 2.37% over taxable-equivalent net interest
income of $1.8 million for the same period in 1995. Average loans of $19.9
million for the year ended December 31, 1996 increased 9.52% over average loans
of $18.1 million for the same period in 1995. Average interest-bearing deposits
for the year ended December 31, 1996 were $30.0 million, an increase of 1.19%
over average interest-bearing deposits of $29.6 million for the same period in
1995.
Taxable-equivalent net interest income was $1.8 million for the year ended
December 31, 1995, a 7.14% increase over taxable-equivalent net interest income
of $1.7 million for 1994. Average loans of $18.1 million for the year ended
December 31, 1995 increased 13.88% over average loans of $15.9 million for the
same period in 1994. Average interest-bearing deposits for the year ended
December 31, 1995 were $29.6
34
<PAGE>
million, a decrease of 7.87% from average interest-bearing deposits of $32.2
million for the same period in 1994.
The net yield on interest-earning assets increased 51 basis points for the
nine months ended September 30, 1997 compared to September 30, 1996. The net
yield increased primarily due to a recovery of interest on a previously
charged-off real estate loan and a slight increase in interest-earning assets.
The net yield on interest-earning assets decreased by 7 basis points for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
During this period yields on interest-earning assets declined by 4 basis points
while rates on interest-bearing liabilities increased by 17 basis points.
35
<PAGE>
The following table sets forth for the periods indicated an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities. The rates earned and paid on each major type of
asset and liability account are set forth beside the average level in the
account for the period.
NINE MONTH FINANCIAL SUMMARY
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
Taxable-Equivalent Basis(1) BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
Assets
Interest-Earning Assets
Loans
<S> <C> <C> <C> <C> <C> <C>
Commercial.......................... $ 8,369 $ 630 10.06% $ 6,664 $ 513 10.28%
Real Estate......................... 10,956 870 10.62 10,682 791 9.89
Consumer............................ 2,310 259 14.99 2,261 245 14.47
-------- --------- -------- ---------
Total Loans.................... 21,635 1,759 10.87 19,607 1,549 10.55
-------- --------- -------- ---------
Investment Securities
Taxable............................. 17,387 754 5.80 18,388 762 5.54
Tax-Exempt.......................... 486 27 7.43 285 16 7.50
-------- --------- -------- ---------
Total Investment Securities.... 17,873 781 5.84 18,673 778 5.57
-------- --------- -------- ---------
Federal Funds Sold...................... 664 27 5.44 883 35 5.29
-------- --------- -------- ---------
Total Interest-Earnings
Assets....................... 40,172 2,567 8.54 39,163 2,362 8.06
-------- --------- -------- ---------
Cash and Due from Banks................. 1,665 1,667
Premises and Equipment, Net............. 1,372 1,483
Other Assets............................ 527 502
Allowance for Loan Losses............... (487) (500)
-------- --------
Total Assets................... $ 43,249 $ 42,315
======== ========
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities
Savings............................. $ 3,876 87 3.00 $ 3,985 89 2.98
Money Market & NOW Accounts......... 7,555 198 3.50 8,000 200 3.34
Time................................ 17,421 667 5.12 16,872 650 5.15
Other Time-IRA's.................... 1,397 56 5.36 1,254 49 5.22
-------- --------- -------- ---------
Total Interest-Bearing
Deposits..................... 30,249 1,008 4.46 30,111 988 4.38
-------- --------- -------- ---------
Federal Funds Purchased................. 10 -- -- -- -- --
Notes Payable & Subordinated
Debentures............................ -- -- -- -- 2 --
-------- --------- -------- ---------
Total Interest-Bearing
Liabilities.................. 30,259 1,008 4.45 30,111 990 4.39
-------- --------- -------- ---------
Demand Deposits......................... 8,791 8,360
Other Liabilities....................... 413 323
-------- --------
Total Liabilities.............. 39,463 38,794
-------- --------
Shareholders' Equity.................... 3,786 3,521
-------- --------
Total Liabilities and
Shareholders' Equity......... $ 43,249 $ 42,315
======== ========
Net Interest Income..................... $ 1,559 $ 1,372
========= =========
Net Yield on Interest-Earning Assets.... 5.19% 4.68%
======= =======
</TABLE>
- ------------
(1) For analytical purposes, income from tax-exempt assets, primarily securities
issued by state and local governments or authorities, is adjusted by an
increment which equates tax-exempt income to interest from taxable assets
(assuming a 34% effective federal income tax rate).
36
<PAGE>
THREE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ --------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE
Taxable-Equivalent Basis(1) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
-------- --------- ------- -------- --------- ------- -------- ---------
(DOLLARS IN THOUSANDS)
Assets
Interest-Earning Assets
Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.......................... $6,836 $ 698 10.21% $ 5,959 $ 591 9.92% $ 4,912 $ 461
Real Estate......................... 10,768 1,063 9.87 9,805 1,023 10.43 8,909 858
Consumer............................ 2,258 329 14.57 2,372 342 14.42 2,104 306
-------- --------- -------- --------- -------- ---------
Total Loans.................... 19,862 2,090 10.52 18,136 1,956 10.79 15,925 1,625
-------- --------- -------- --------- -------- ---------
Investment Securities
Taxable............................. 18,142 1,007 5.55 18,769 1,060 5.65 22,644 1,168
Tax-Exempt.......................... 313 23 7.35 45 3 6.67 -- --
-------- --------- -------- --------- -------- ---------
Total Investment Securities.... 18,455 1,030 5.58 18,814 1,063 5.65 22,644 1,168
-------- --------- -------- --------- -------- ---------
Federal Funds Sold...................... 911 49 5.38 812 46 5.67 526 21
-------- --------- -------- --------- -------- ---------
Total Interest-Earnings
Assets....................... 39,228 3,169 8.08 37,762 3,065 8.12 39,095 2,814
-------- --------- -------- --------- -------- ---------
Cash and Due from Banks................. 1,638 1,606 1,738
Premises and Equipment, Net............. 1,470 1,388 1,324
Other Assets............................ 503 506 607
Allowance for Loan Losses............... (497) (503 ) (501 )
-------- -------- --------
Total Assets................... $42,342 $40,759 $42,263
======== ======== ========
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities
Savings............................. $3,956 119 3.01 $ 4,447 125 2.81 $ 5,053 143
Money Market & NOW Accounts......... 7,923 265 3.34 8,497 266 3.13 10,053 284
Time................................ 16,862 860 5.10 15,448 812 5.26 15,457 656
Other Time-IRA's.................... 1,247 65 5.21 1,187 18 1.52 1,507 --
Public Funds........................ -- -- -- 57 -- -- 98 --
-------- --------- -------- --------- -------- ---------
Total Interest-Bearing
Deposits..................... 29,988 1,309 4.37 29,636 1,221 4.12 32,168 1,083
-------- --------- -------- --------- -------- ---------
Federal Funds Purchased................. -- -- -- 51 3 5.88 47 2
-------- --------- -------- --------- -------- ---------
Notes Payable & Subordinated
Debentures............................ -- 2 -- 58 26 NM 1,027 35
-------- --------- -------- --------- -------- ---------
Total Interest-Bearing
Liabilities.................. 29,988 1,311 4.37 29,745 1,250 4.20 33.242 1,120
-------- --------- -------- --------- -------- ---------
Demand Deposits......................... 8,431 7,511 6,837
Other Liabilities....................... 358 351 98
-------- -------- --------
Total Liabilities.............. 38,777 37,607 40,177
-------- -------- --------
Shareholders' Equity.................... 3,565 3,152 2,086
-------- -------- --------
Total Liabilities and
Shareholders' Equity......... $42,342 $40,759 $42,263
======== ======== ========
Net interest income..................... $ 1,858 $ 1,815 $ 1,694
========= ========= =========
Net Yield on Interest-Earning Assets.... 4.74% 4.81%
======= =======
</TABLE>
YIELD/
Taxable-Equivalent Basis(1) RATE
-------
Assets
Interest-Earning Assets
Loans
Commercial.......................... 9.39%
Real Estate......................... 9.63
Consumer............................ 14.54
Total Loans.................... 10.20
Investment Securities
Taxable............................. 5.16
Tax-Exempt.......................... --
Total Investment Securities.... 5.16
Federal Funds Sold...................... 3.99
Total Interest-Earnings
Assets....................... 7.20
Cash and Due from Banks.................
Premises and Equipment, Net.............
Other Assets............................
Allowance for Loan Losses...............
Total Assets...................
Liabilities and Shareholders' Equity
Interest-Bearing Liabilities
Savings............................. 2.83
Money Market & NOW Accounts......... 2.83
Time................................ 4.24
Other Time-IRA's.................... --
Public Funds........................ --
Total Interest-Bearing
Deposits..................... 3.37
Federal Funds Purchased................. 4.26
Notes Payable & Subordinated
Debentures............................ 3.41
Total Interest-Bearing
Liabilities.................. 3.37
Demand Deposits.........................
Other Liabilities.......................
Total Liabilities..............
Shareholders' Equity....................
Total Liabilities and
Shareholders' Equity.........
Net interest income.....................
Net Yield on Interest-Earning Assets.... 4.33%
=======
- ------------
(1) For analytical purposes, income from tax-exempt assets, primarily
securities issued by state and local governments or authorities, is
adjusted by an increment which equates tax-exempt income to interest from
taxable assets (assuming a 34% effective federal income tax rate).
NM -- Not meaningful
37
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and rate.
DUE TO CHANGE IN
Taxable-Equivalent Basis(1) ---------------------------
Nine Months Ended September 30, NET RATE/
1997 Compared to 1996 CHANGE VOLUME RATE VOLUME
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Interest Income
Loans, including Fees........... $ 210 $ 160 $ 47 $ 3
Investment Securities
Taxable.................... (8 ) (41 ) 36 (3 )
Tax-Exempt................. 11 11 -- --
Federal Funds Sold.............. (8 ) (9 ) 1 --
------ ------ ------ ------
Total Interest
Income............. 205 121 84 --
------ ------ ------ ------
Interest Expense
Deposits........................ 20 5 18 (3 )
Notes Payable & Subordinated
Debentures.................... (2 ) -- -- (2 )
------ ------ ------ ------
Total Interest
Expense............ 18 5 18 (5 )
------ ------ ------ ------
Net Interest Income Before Allocation
of Rate/Volume..................... 187 116 66 5
Allocation of Rate/Volume............ -- 2 3 (5 )
------ ------ ------ ------
Changes in Net Interest Income....... $ 187 $ 118 $ 69 $--
====== ====== ====== ======
DUE TO CHANGE IN
Taxable-Equivalent Basis(1) ---------------------------
Year Ended December 31, NET RATE/
1996 Compared to 1995 CHANGE VOLUME RATE VOLUME
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Interest Income
Loans, including Fees........... $ 134 $ 186 $ (49) $ (3 )
Investment Securities
Taxable......................... (53 ) (35 ) (19) 1
Tax-Exempt...................... 20 18 0 2
Federal Funds Sold.............. 3 6 (2) (1 )
------ ------ ------ ------
Total Interest
Income............. 104 175 (70) (1 )
------ ------ ------ ------
Interest Expense
Deposits........................ 88 15 74 (1 )
Federal Funds Purchased......... (3 ) (3 ) -- --
Notes Payable & Subordinated
Debentures.................... (24 ) (24 ) -- --
------ ------ ------ ------
Total Interest
Expense............ 61 (12 ) 74 (1 )
------ ------ ------ ------
Net Interest Income Before Allocation
of Rate/Volume..................... 43 187 (144) --
Allocation of Rate/Volume............ -- -- -- --
------ ------ ------ ------
Changes in Net Interest Income....... $ 43 $ 187 $ (144) $--
====== ====== ====== ======
- ------------
(1) For analytical purposes, income from tax-exempt assets, primarily securities
issued by state and local governments or authorities, is adjusted by an
increment which equates tax-exempt income to interest from taxable assets
(assuming a 34% effective federal income tax rate).
38
<PAGE>
DUE TO CHANGE IN
Taxable-Equivalent Basis(1) ---------------------------
Year Ended December 31, NET RATE/
1995 Compared to 1994 CHANGE VOLUME RATE VOLUME
------ ------ ------ ------
(DOLLARS IN THOUSANDS)
Interest Income
Loans, Including Fees........... $ 331 $ 226 $ 94 $ 11
Investment Securities
Taxable.................... (108 ) (200 ) 111 (19 )
Tax Exempt................. 3 3 -- --
Federal Funds Sold.............. 25 11 9 5
------ ------ ------ ------
Total Interest
Income............. 251 40 214 (3 )
------ ------ ------ ------
Interest Expense
Deposits........................ 138 (85 ) 241 (18 )
Federal Funds Purchased......... 1 -- 1 --
Notes Payable & Subordinated
Debentures.................... (9 ) (9 ) -- --
------ ------ ------ ------
Total Interest
Expense............ 130 (94 ) 242 (18 )
------ ------ ------ ------
Net Interest Income Before Allocation
of Rate/Volume..................... 121 134 (28) 15
Allocation of Rate/Volume............ -- 4 11 (15 )
------ ------ ------ ------
Changes in Net Interest Income....... $ 121 $ 138 $ (17) $--
====== ====== ====== ======
- ------------
(1) For analytical purposes, income from tax-exempt assets, primarily securities
issued by state and local governments or authorities, is adjusted by an
increment which equates tax-exempt income to interest from taxable assets
(assuming a 34% effective federal income tax rate).
Changes in interest income and interest expense can result from variances
in both volume and rate. TB&T Bancshares has an asset and liability management
strategy designed to provide a proper balance between rate sensitive assets and
rate sensitive liabilities to attempt to maximize interest margins, and to
provide adequate liquidity for anticipated needs.
PROVISION FOR LOAN LOSSES.
TB&T Bancshares' allowance for loan losses is established through charges
to operating income in the form of the provision for loan losses. Actual loan
losses or recoveries of loan losses are charged or credited directly to the
allowance for loan losses.
TB&T Bancshares recorded no provision for loan losses for the nine months
ended September 30, 1997 nor for the nine months ended September 30, 1996. The
allowance for loan losses expressed as a percentage of outstanding loans was
2.16% and 2.41% at September 30, 1997 and September 30, 1996, respectively. TB&T
Bancshares recorded no provision for loan losses for the years ended December
31, 1996, 1995, and 1994. TB&T Bancshares' allowance for loan losses as a
percentage of outstanding loans was 2.40% at December 31, 1996, 2.75% at
December 31, 1995, and 3.01% at December 31, 1994.
NONINTEREST INCOME.
Noninterest income, which includes all service charges and fees, decreased
27.0% to $233 thousand for the nine months ended September 30, 1997 from $319
thousand for the nine months ended September 30, 1996. The change was primarily
due to the decrease in service charges on deposit accounts and other operating
income. Noninterest income increased to $390 thousand for the year ended
December 31, 1996, a 21.88% increase from $320 thousand for the year ended
December 31, 1995. The increase was mainly due to increased regular service
charges and other operating income. The increase in other operating income
during 1996 resulted from a gain recorded as the result of the sale of land
originally purchased for expansion.
39
<PAGE>
Noninterest income decreased 6.71% to $320 thousand for the year ended
December 31, 1995 from $343 thousand for the year ended December 31, 1994. The
decrease was due to decreased other service charges and other operating income.
NONINTEREST EXPENSE.
Noninterest expense included expenses which TB&T Bancshares incurs in the
course of operations such as employee compensation and benefits, occupancy
expense, data processing charges, communication expense, professional fees,
advertising, supplies, and depreciation and amortization of furniture and
equipment. These expenses increased $132 thousand or 12.83% for the nine months
ended September 30, 1997 compared to the nine months ended September 30, 1996.
The primary reason for the increase in other noninterest expense for the nine
months ended September 30, 1997 compared to the same period of 1996 was the
payment of various claims in connection with an alleged misappropriation of
funds by an employee. Management believes any further losses will be reimbursed
by TB&T Bancshares' insurance carrier.
Noninterest expenses were $1.4 million in 1996, 1995, and 1994. During
1995, TB&T Bancshares installed an in-house computer to process transactions
which were previously processed by an independent data processing company. As a
result, salaries and employee benefits and equipment expense have experienced an
increase while other noninterest expenses have decreased.
FEDERAL INCOME TAXES.
TB&T Bancshares' provision for income taxes was $199 thousand and $222
thousand for the nine month periods ended September 30, 1997 and 1996,
respectively.
TB&T Bancshares' provision for income taxes was $289 thousand for year end
1996, $219 thousand for year end 1995 and $241 thousand for year end 1994.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
CAPITAL RESOURCES.
The Federal Reserve, the Federal Deposit Insurance Corporation ("FDIC")
and the Texas Department of Banking have adopted risk-based and leverage capital
measures to assist in the assessment of the capital adequacy of the holding
companies and banks they regulate. The Federal Reserve regulations apply to TB&T
Bancshares and the FDIC regulations apply to Texas Bank & Trust of Brownsville
("the Bank"). Although there are differences between these regulations, in
general the Federal Reserve and the FDIC regulations employ uniform capital
ratios and consistent capital frameworks. The principal objectives of the
risk-based measures are to: (i) make regulatory capital requirements more
sensitive to differences in risk profiles among financial institutions; (ii)
factor off-balance-sheet exposures into the assessment of capital adequacy;
(iii) minimize disincentives to holding liquid, low-risk assets; and (iv)
achieve greater consistency in the evaluation of the capital adequacy of
financial institutions.
The risk-based capital guidelines include both a definition of capital and
a framework for calculating risk-weighted assets by assigning assets and
off-balance-sheet items to broad risk categories. The financial institution's
risk-based capital ratio is calculated by dividing its qualifying capital (the
numerator of the ratio) by its risk-weighted assets (the denominator).
The risk-based capital ratio focuses principally on broad categories of
credit risk and, effective as of January 1997, market risk. The risk-based ratio
does not, however, incorporate other factors that can affect a bank's financial
condition. These factors include overall interest rate exposure, liquidity,
funding risks, the effectiveness of loan and investment policies, and
management's ability to monitor and control financial and operating risks.
The financial institution's qualifying total capital consists of two types
of capital components: "core capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital). Certain assets
are deducted from a financial institution's capital for the purpose of
calculating the risk-based capital ratio.
40
<PAGE>
Assets and credit equivalent amounts of off-balance-sheet items are
assigned to one of four risk categories, according to certain criteria. The
aggregate dollar value of the amount in each category is then multiplied by the
risk weight associated with that category. The resulting weighted values from
each of the risk categories are added together, and this sum is the financial
institution's total risk-weighted assets that comprise the denominator of the
risk-based capital ratio. Assets deducted from a bank's capital in determining
the numerator of the risk-based capital ratio are not included as part of the
financial institution's risk-weighted assets.
Risk weights for off-balance-sheet items are determined by a two-step
process. First, the "credit equivalent amount" of off-balance-sheet items is
determined, in most cases by multiplying the off-balance-sheet items by a credit
conversion factor. Second, in most cases, the credit equivalent amount is
assigned to the appropriate risk category according to designated criteria.
Financial institutions are required to maintain a minimum risk-based
capital ratio of total capital (after deductions) to risk-weighted assets of 8%.
In general, 50% of this ratio must consist of Tier 1 capital. Certain
restrictions and limitations also apply regarding the calculation of Tier 1
capital. Tier 2 capital elements that are not used as part of Tier 1 capital
generally will qualify for inclusion in a financial institution's capital base
up to a maximum of 100% of the financial institution's Tier 1 capital. At
September 30, 1997 TB&T Bancshares' Tier 1 risk-based capital ratio was 12.39%
with a total risk-based capital ratio of 13.64% and the Bank's Tier 1 risk-based
capital ratio was 12.42% and its total risk-based capital ratio was 13.67%. At
year end 1996, TB&T Bancshares' Tier 1 capital ratio was 13.12% and its total
risk-based capital ratio was 14.37%, and the Bank's Tier 1 capital ratio was
12.43% and its total risk-based capital ratio was 13.68%. At year end 1995, TB&T
Bancshares' Tier 1 capital ratio was 12.44% and its total risk-based capital
ratio was 13.69%, and the Bank's Tier 1 capital ratio was 11.88% and its total
risk-based capital ratio was 13.13%.
In addition, the Federal Reserve and the FDIC have promulgated capital
leverage guidelines designed to supplement the risk-based capital guidelines.
The principal objective of the leverage ratio is to address the extent to which
a financial institution could leverage its equity capital base. The Federal
Reserve and the FDIC require their regulated institutions to meet a minimum
leverage capital requirement of Tier 1 capital to total assets of not less than
3% for an institution that is not anticipating or experiencing significant
growth and is highly rated (i.e., a composite examination rating of 1 on a scale
of 1 to 5). Institutions that the Federal Reserve and the FDIC determine are
anticipating or experiencing significant growth or that are not highly rated
must meet a minimum leverage ratio of 3% plus an additional cushion of at least
100 to 200 basis points.
TB&T Bancshares' leverage ratio was 8.84% at year end 1996 and 8.13% at
year end 1995. At September 30, 1997 the leverage ratio was 9.10%. The Bank's
leverage ratio was 8.38% at year end 1996 and 7.76% at year end 1995. At
September 30, 1997 the Bank's leverage ratio was 9.12%.
LIQUIDITY.
TB&T Bancshares' asset and liability management policy is intended to
maintain adequate liquidity and thereby enhance its ability to raise funds to
support asset growth, meet deposit withdrawals and lending needs, maintain
reserve requirements, and otherwise sustain operations. TB&T Bancshares
accomplishes this through management of the maturities of its interest-earning
assets and interest-bearing liabilities. Liquidity is monitored and overall
interest rate risk is assessed through reports showing both sensitivity ratios
and existing dollar "gap" data. TB&T Bancshares believes its present position
to be adequate to meet its current and future liquidity needs.
The liquidity of TB&T Bancshares is maintained in the form of readily
marketable investment securities, demand deposits with commercial banks, vault
cash and federal funds sold. While the minimum liquidity requirement for banks
is determined by federal bank regulatory agencies as a percentage of deposit
liabilities, TB&T Bancshares' management monitors liquidity requirements as
warranted by interest rate trends, changes in the economy and the scheduled
maturity and interest rate sensitivity of the investment and loan portfolio,
deposits and anticipated loan fundings. In addition to the liquidity provided by
the
41
<PAGE>
foregoing, TB&T Bancshares has correspondent relationships with other
institutions with available secured lines of credit to purchase overnight funds
should additional liquidity be needed. These lines are subject to restrictions
such as the financial strength of TB&T Bancshares and the lender's ability to
facilitate credit.
On March 1, 1994, TB&T Bancshares adopted the provisions of FAS 115. At
September 30, 1997, TB&T Bancshares' investment portfolio totaled $16.5 million
of which $10 thousand are classified as available for sale.
Average noninterest-bearing demand deposits were $8.8 million for the nine
months ended September 30, 1997, an increase of $431 thousand over the average
balance for the same period in 1996. Average interest-bearing deposits were
$30.2 million for the nine months ended September 30, 1997 compared to $30.1
million for the same period in 1996.
Average noninterest-bearing demand deposits were $8.4 million, $7.5 million
and $6.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Average interest-bearing deposits for the same years were $30.0
million, $29.6 million and $32.2 million, respectively.
Net cash generated by operating activities was $424 thousand for the nine
months ended September 30, 1997 and $636 thousand for the same period in 1996.
Proceeds from sales, principal paydowns, and maturities of investment securities
were $4.0 million and $2.7 million for the same periods. TB&T Bancshares
utilized these funds to originate loans and purchase investment securities. TB&T
Bancshares purchased investment securities of $3.0 million and $4.0 million
during the nine months ended September 30, 1997 and 1996, respectively.
Net cash generated by operating activities was $616 thousand, $1.0 million
and $935 thousand for the years 1996, 1995, and 1994, respectively. Proceeds
from sales, principal paydowns, and maturities of investment securities were
$5.5 million, $8.4 million and $9.6 million for the same periods. TB&T
Bancshares utilized these funds to originate loans and purchase investment
securities. TB&T Bancshares purchased investment securities of $5.8 million,
$4.2 million and $8.8 million in 1996, 1995, and 1994, respectively.
Loan originations and advances net of repayments amounted to $1.8 million
for the nine months ended September 30, 1997 and $1.1 million for the nine
months ended September 30, 1996. Loan originations and advances net of
repayments amounted to $1.2 million, $2.4 million and $1.9 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
Funds utilized for the purchase of bank premises and equipment were $6
thousand and $253 thousand for the nine months ended September 30, 1997 and
1996, respectively. Funds utilized for the purchase of bank premises and
equipment were $261 thousand, $319 thousand and $12 thousand during 1996, 1995
and 1994, respectively.
INTEREST RATE SENSITIVITY.
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of certain
assets and liabilities. Interest rate risk arises when an earning asset matures
or when its rate of interest changes in a time frame different from that of the
supporting interest-bearing liability. One way to reduce the risk of significant
adverse effects on net interest income of market rate fluctuations is to
minimize the difference between rate sensitive assets and liabilities, referred
to as "gap," by maintaining a similar interest rate sensitivity position of
the assets and liabilities within a particular time frame.
Maintaining an equilibrium between rate sensitive assets and liabilities
will reduce some of the risk associated with diverse changes in market rates,
but it will not guarantee a stable net interest spread because yields and rates
may change simultaneously and by different amounts. These changes in market
spreads could materially affect the overall net interest spread even if assets
and liabilities were perfectly matched. If more assets than liabilities reprice
within the given period, an asset sensitive position or "positive gap" is
created. During a positive gap, a decline in market rates will have a negative
impact on net interest income. Alternatively, where more liabilities than assets
reprice in a given period, a liability sensitive position or
42
<PAGE>
"negative gap" is created (rate sensitivity ratio is less than 100%) and a
decline in interest rates will have a positive impact on net interest income.
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------
1-3 4-6 7-12 AFTER
INTEREST RATE SENSITIVITY ANALYSIS MONTHS MONTHS MONTHS ONE YEAR TOTAL
------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans................................ $ 9,143 $ 1,976 $ 2,678 $ 8,253 $22,050
Investment Securities
Available for Sale.............. 10 -- -- -- 10
Held to Maturity................ 3,732 598 3,352 8,797 16,479
Federal Funds Sold................... 2,052 -- -- -- 2,052
------- -------- -------- -------- -------
Total Interest-Earning Assets........ 14,937 2,574 6,030 17,050 40,591
------- -------- -------- -------- -------
Interest-Bearing Deposits
Savings Accounts................ 3,919 -- -- -- 3,919
Money Market & NOW.............. 7,010 -- -- -- 7,010
Certificates of Deposit......... 4,359 9,113 5,850 427 19,749
------- -------- -------- -------- -------
Total Interest-Bearing Liabilities... 15,288 9,113 5,850 427 30,678
------- -------- -------- -------- -------
Rate Sensitivity GAP................. $ (351) $ (6,539) $ 180 $16,623 $ 9,913
======= ======== ======== ======== =======
Cumulative Rate Sensitivity GAP(1)... $ (351) $ (6,890) $ (6,710) $ 9,913
======= ======== ======== ========
Ratio of Cumulative Rate Sensitivity
GAP to Total Assets................ -0.80% -15.72% -15.31%
======= ======== ========
Ratio of Cumulative Rate Sensitive
Interest-Earning Assets to
Cumulative Rate Sensitive
Interest-Bearing Liabilities....... 97.7:1 71.8:1 77.8:1
======= ======== ========
</TABLE>
- ------------
(1) Rate sensitive interest-earning assets less rate sensitive interest-bearing
liabilities.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis. These prepayments may have significant effects on
TB&T Bancshares' net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of TB&T Bancshares'
exposure to changes in interest rates.
INVESTMENT SECURITIES.
The following table represents the maturities, amortized cost, estimated
market value, and weighted average yields of securities at September 30, 1997:
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE AFTER
ONE YEAR YEAR THROUGH YEARS THROUGH TEN
OR LESS FIVE YEARS TEN YEARS YEARS AMORTIZED COST
-------------- -------------- -------------- -------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Securities -- Available for Sale
U.S. Government Agencies......... $ 10 9.00 % $-- -- % $-- -- % $-- -- % $ 10 9.00%
Securities -- Held to Maturity
U.S. Treasury.................... 3,298 5.58 2,198 5.63 -- -- -- -- 5,496 5.60
U.S. Government Agencies......... 3,621 5.74 6,058 6.04 282 6.12 393 6.13 10,354 5.94
Mortgage-Backed.................. -- -- 89 5.34 -- -- -- -- 89 5.34
State and Political
Subdivisions................... -- -- 160 4.53 380 5.18 -- -- 540 4.99
------ ------ ------ ------ -------
Total Investment Securities.......... $6,929 5.68 % $8,505 5.91 % $ 662 5.58 % $ 393 6.13 % $16,489 5.80%
====== ====== ====== ====== =======
</TABLE>
ESTIMATED
MARKET
VALUE
---------
Securities -- Available for Sale
U.S. Government Agencies......... $ 10
Securities -- Held to Maturity
U.S. Treasury.................... 5,498
U.S. Government Agencies......... 10,347
Mortgage-Backed.................. 88
State and Political
Subdivisions................... 545
---------
Total Investment Securities.......... $16,488
=========
43
<PAGE>
LOANS.
The following table classifies the Bank's loans according to type as of the
dates shown:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
LOAN PORTFOLIO COMPOSITION 1997 1996 1995 1994
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Loan Portfolio Composition
Commercial........................... $ 8,985 $ 7,609 $ 6,334 $ 5,248
------------- ------------ ------------ ------------
Real Estate
<S> <C> <C> <C> <C>
Construction.................... 1,097 1,544 1,131 624
Commercial Mortgage............. 5,272 4,618 4,972 4,617
Agricultural Mortgage........... 56 65 146 180
1-4 Family Mortgage............. 4,437 4,242 4,206 3,964
------------- ------------ ------------ ------------
Total Real Estate.................... 10,862 10,469 10,455 9,385
------------- ------------ ------------ ------------
Consumer............................. 2,203 2,220 2,373 2,343
------------- ------------ ------------ ------------
Total Loans..................... $22,050 $ 20,298 $ 19,162 $ 16,976
============= ============ ============ ============
</TABLE>
The contractual maturity schedule of the loan portfolio at September 30,
1997 is presented in the following table:
FIXED FLOATING
RATE RATE TOTAL
--------- -------- ---------
(DOLLARS IN THOUSANDS)
Due in Three Months or Less.......... $ 2,750 $ 1,733 $ 4,483
Due in Over Three to Six Months...... 1,976 982 2,958
Due in Over Six to Twelve Months..... 2,678 1,611 4,289
Due in Over Twelve Months............ 8,253 2,067 10,320
--------- -------- ---------
Total........................... $ 15,657 $ 6,393 $ 22,050
========= ======== =========
At September 30, 1997, total loans net of unearned income and allowance for
possible loan losses exceeded year end 1996 figures by $1.8 million or 9.13%.
Total loans net of unearned income and allowance for possible loan losses
increased $1.2 million or 6.31% to $19.8 million for the year ended December 31,
1996 compared to $18.6 million at December 31, 1995.
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS.
The provision for loan losses represents a determination by TB&T
Bancshares' management of the amount necessary to be charged to operating income
and transferred to the allowance for loan losses to maintain a level which it
considers adequate in relation to the risk of future losses inherent in the loan
portfolio. It is TB&T Bancshares' policy to provide for exposure to losses of
specifically identified credits, and a general allowance for the remainder of
the loan portfolio, and, while it is also TB&T Bancshares' policy to charge off
in the current period those loans in which a loss is deemed to exist, risks of
future losses also exist which cannot be quantified precisely or attributed to
particular loans or classes of loans.
In assessing the adequacy of its allowance for loan losses, management
relies predominantly on its ongoing review of the loan portfolio, which is
undertaken both to ascertain whether there are probable losses which must be
charged off and to assess the risk characteristics of individually significant
loans and of the portfolio in aggregate. This review takes into consideration
the judgments of the responsible lending officers, the Chief Executive Officer,
and the Board of Directors, and also those of bank regulatory agencies that
review the loan portfolio as part of their regular examinations of TB&T
Bancshares.
In evaluating the allowance for loan losses, management also considers TB&T
Bancshares' loan loss experience, the amount of past due and nonperforming
loans, current and anticipated economic conditions, changes in lending and
collection procedures, changes in loan volumes and the quality of TB&T
Bancshares' loan review system.
44
<PAGE>
The allowance for loan losses at September 30, 1997 was $477 thousand,
compared to $487 thousand at December 31, 1996, $527 thousand at December 31,
1995, and $511 thousand at December 31, 1994. Although additional losses may
occur, management believes the allowance for loan losses to be adequate as of
the dates presented.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
ALLOWANCE FOR LOAN LOSS ACTIVITY 1997 1996 1995 1994
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at Beginning of Year......... $ 487 $ 527 $ 511 $ 489
Provision for Loan Losses............ -- -- -- --
Charge-Offs
Commercial...................... 3 50 44 24
Agricultural.................... -- -- -- --
Real Estate..................... -- -- 27 --
Consumer........................ 17 24 15 8
------------- ------------ ------------ ------------
Total Charge-Offs.................... 20 74 86 32
------------- ------------ ------------ ------------
Recoveries
Commercial...................... 9 23 89 36
Agricultural.................... -- -- -- --
Real Estate..................... -- 3 3 9
Consumer........................ 1 8 10 9
------------- ------------ ------------ ------------
Total Recoveries..................... 10 34 102 54
------------- ------------ ------------ ------------
Net Charge-Offs (Recoveries)......... 10 40 (16) (22)
------------- ------------ ------------ ------------
Balance at End of Period............. $ 477 $ 487 $ 527 $ 511
============= ============ ============ ============
Ratio of Allowance for Loan Losses
to Loans Outstanding,
net of Unearned Discount........... 2.16% 2.40% 2.75% 3.01%
Ratio of Allowance for Loan Losses
to Nonperforming Assets............ 131.04 92.94 112.13 81.89
Ratio of Net Charge-Offs to Average
Total Loans Outstanding, Net of
Unearned Discount.................. 0.05 0.20 -0.08 -0.13
45
<PAGE>
NONACCRUAL, PAST DUE AND RENEGOTIATED LOANS.
The following is an analysis of nonperforming assets as of the dates shown:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Nonaccrual Loans..................... $ 177 $ 348 $ 320 $ 474
Renegotiated Loans................... -- -- -- --
------------- ------------ ------------ ------------
Nonperforming Loans............. 177 348 320 474
Foreclosed Assets.................... 187 176 150 150
------------- ------------ ------------ ------------
Total Nonperforming Assets...... 364 524 470 624
Accruing Loans 90 Days or More Past
Due................................ 338 347 1 9
------------- ------------ ------------ ------------
Total Nonperforming Assets and
Accruing Loans 90 Days or More Past
Due................................ $ 702 $ 871 $ 471 $ 633
============= ============ ============ ============
Nonperforming Loans as a % of Total
Loans.............................. 0.80% 1.71% 1.67% 2.79%
Nonperforming Assets as a % of Total
Loans and Foreclosed Assets........ 1.64 2.56 2.43 3.64
Nonperforming Assets as a % of Total
Assets............................. 0.83 1.23 1.14 1.50
Nonperforming Assets Plus Accruing
Loans 90 Days or More Past Due as a
% of Total Loans and Foreclosed
Assets............................. 3.16 4.25 2.44 3.70
</TABLE>
The accrual of interest on a loan is discontinued when, in the opinion of
management (based upon such criteria as default in payment, asset deterioration,
decline in cash flow, recurring operating loss, declining sales, bankruptcy and
other financial conditions which could result in default), the borrower's
financial condition is such that the collection of interest is doubtful. At
September 30, 1997 loans totaling $177 thousand, or 0.80% of the total net loans
outstanding, were on nonaccrual basis and, therefore, no income was being
recognized. As of year end 1996, loans totaling $348 thousand, or 1.71% of total
net loans outstanding, were on a nonaccrual basis and, therefore, no income was
being recognized. Management believes the risks of collection of the principal
amounts of these loans not to be significant.
Placing a loan on nonaccrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings with respect to
that particular loan. Second, it eliminates future interest earnings with
respect to that particular loan. Interest on such loans is not recognized until
all of the principal is collected or until the loan is returned to a performing
status.
Nonaccrual loans decreased by $198 thousand to $177 thousand at September
30, 1997, from $375 thousand at September 30, 1996. For the years ended December
31, 1996, 1995 and 1994, total nonaccrual, past due greater than 90 days and
renegotiated loans were $695 thousand, $321 thousand and $483 thousand,
respectively.
46
<PAGE>
DEPOSITS.
The average balances and average rates paid by category of deposit at the
dates shown below are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------------- --------------- ---------------
AVERAGE AVERAGE AVERAGE
TOTAL DEPOSITS BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
Demand Deposits...................... $ 8,791 $ 8,431 $ 7,511
------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Savings.............................. 3,876 3.00% 3,956 3.01% 4,447 2.81%
Money Market & NOW................... 7,555 3.50 7,923 3.34 8,497 3.13
Time Deposits
Commercial & Individual......... 18,818 5.14 18,109 5.11 16,692 4.97
------- ------- -------
Total Interest-Bearing Deposits...... 30,249 4.46 29,988 4.37 29,636 4.12
------- ------- -------
Total Deposits.................. $39,040 $38,419 $37,147
======= ======= =======
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at September 30, 1997 and December 31, 1996 and 1995 including
public funds, are shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Due in Three Months or Less.......... $ 2,914 $4,169 $4,812
Due in Over Three to Six Months...... 3,348 1,907 1,200
Due in Over Six to Twelve Months..... 1,508 1,403 897
Due in Over Twelve Months............ 224 124 --
------------- ------------ ------------
Total........................... $ 7,994 $7,603 $6,909
============= ============ ============
</TABLE>
Based upon the location of TB&T Bancshares with regard to the international
boundary with Mexico, foreign deposits from Mexican sources represent a major
source of funding. The following table presents foreign deposits, primarily from
Mexican sources, at September 30, 1997 and December 31, 1996.
SEPTEMBER 30, DECEMBER 31,
FOREIGN DEPOSITS 1997 1996
------------- ------------
Demand Deposits......................... $ 226 $ 156
------------- ------------
Interest-Bearing Deposits
Savings............................ 185 190
Money Market and NOW............... 2,171 2,422
Time Deposits under $100,000....... 1,676 1,668
Time Deposits over $100,000........ 3,388 3,184
------------- ------------
Total Interest-Bearing
Deposits.................... 7,420 7,464
------------- ------------
Total Foreign Deposits........ $ 7,646 $7,620
============
-------------
Percentage of Total Deposits............ 19.4% 19.8%
============= ============
Weighted Average Rate on Foreign
Deposits.............................. 4.72% 4.32%
============= ============
47
<PAGE>
RETURN ON EQUITY AND ASSETS.
The return on equity and return on assets for the periods shown below are
as follows:
FOR THE
NINE MONTHS FOR THE YEAR ENDED
ENDED ----------------------------
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------- ------------ ------------
Return on Average Assets........... 1.30% 1.37% 1.31%
Return on Average Equity........... 14.90 16.30 16.88
Average Equity to Average Assets
Ratio............................ 8.75 8.42 7.73
EXPERTS
The consolidated financial statements of Texas Regional as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996 have been incorporated herein and in the Registration Statement in
reliance of the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein and in the Registration Statement,
and upon the authority of said firm as experts in accounting and auditing. KPMG
has served as Texas Regional's independent auditors continuously since 1987.
The consolidated financial statements of TB&T Bancshares as of and for the
years ended December 31, 1996 and 1995 and for each of the years in the
three-year period ended December 31, 1996 have been included herein and in the
Registration Statement in reliance upon the report by Long, Chilton, Payte &
Hardin, LLP, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.
LEGAL OPINION
McGinnis, Lochridge & Kilgore, L.L.P., has rendered an opinion concerning
the validity of the securities being offered pursuant to this Prospectus/Proxy
Statement and certain other matters. Joe M. Kilgore, a partner in the firm, is a
Director of Texas Regional and is the beneficial owner, as of September 30,
1997, of approximately 277,510 shares of Texas Regional Common Stock. Ford &
Ferraro, L.L.P., counsel to TB&T Bancshares, is expected to render a legal
opinion as to certain matters in connection with the closing of the Merger.
INDEMNIFICATION
Texas Regional's Bylaws include provisions authorizing Texas Regional to
indemnify its officers, directors, employees and agents to the full extent
permitted by law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling Texas Regional, Texas Regional has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
OTHER MATTERS
TB&T Bancshares' Board of Directors does not know of any matter to be
presented at the Special Meeting of the Shareholders of TB&T Bancshares other
than those set forth above. If any other matters are properly brought before the
meeting or any adjournment thereof, the enclosed proxy will be voted in
accordance with the recommendation of the TB&T Bancshares Board of Directors
unless an appropriate indication is made on the proxy. See "Summary -- The
Meeting."
48
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter called the
"Agreement"), dated as of October 15, 1997, is executed by and between Texas
Regional Bancshares, Inc., McAllen, Texas, a Texas corporation ("Texas
Regional") and TB&T Bancshares, Inc., a Texas corporation ("TB&T Bancshares").
Texas Regional operates a commercial banking business in Texas through its
wholly owned subsidiary, Texas State Bank, a Texas state banking association
("Texas State Bank"). Texas Regional has formed a new wholly-owned Delaware
subsidiary corporation, Texas Regional Delaware, Inc. ("TRD"), for purposes of
facilitating the transaction herein described. TB&T Bancshares operates a
commercial banking business in Texas through its wholly owned subsidiary, Texas
Bank & Trust Company of Brownsville ("TB&T"). As used in this Agreement, any
reference to the subsidiaries of TB&T Bancshares includes any and all direct or
indirect subsidiaries of TB&T Bancshares, including specifically but without
limitation TB&T.
The undersigned shareholders of TB&T Bancshares (the "Majority
Shareholders") join into the execution hereof for the limited purpose of
evidencing their consent to and approval of the transaction herein described and
to confirm that each has agreed to vote for the transaction at the TB&T
Bancshares shareholders' meeting and each has agreed to support and recommend
the transaction to the other shareholders of TB&T Bancshares.
WITNESSETH:
This Agreement provides for the merger of TB&T Bancshares with and into
TRD, a newly formed wholly-owned subsidiary of Texas Regional, pursuant to the
terms of this Agreement and Plan of Reorganization. As a result of the merger,
the shareholders of TB&T Bancshares (other than any shareholder exercising
dissenters' rights of appraisal) will receive shares of Texas Regional Class A
Voting Common Stock in exchange for their shares of TB&T Bancshares common
stock. Upon the closing of the transaction, it is anticipated that (i) TB&T
Bancshares shall be merged with and into TRD, and will cease its separate
existence, and (ii) TB&T will be merged with and into Texas State Bank and TB&T
will cease its separate existence.
As a result of the merger of TB&T Bancshares with and into TRD, all rights,
privileges, immunities, powers and franchises of each of TRD and TB&T Bancshares
shall be merged into TRD as the surviving corporation. Without any other action,
at the Effective Time, TRD shall be vested with all property, real, personal and
mixed, of the merging corporations and shall thereafter possess all of the
interests, both public and private, of each of the merging corporations and all
claims of creditors of each of TRD and TB&T Bancshares shall survive and any
liens shall be preserved unimpaired in TRD as the surviving corporation. All of
the foregoing shall be effected to and as set forth in this Agreement and in a
Certificate of Merger (the "Certificate of Merger") to be executed by and
among TRD and TB&T Bancshares, in the form required by applicable provisions of
the Delaware General Corporation Law.
In addition, at or immediately following the Effective Time of the merger
of TB&T Bancshares with and into TRD, TB&T will be merged with and into Texas
State Bank, and all rights, privileges, immunities, powers and franchises of
each of Texas State Bank and TB&T shall be merged into Texas State Bank as the
surviving banking association. Without any other action, at the Effective Time,
Texas State Bank shall be vested with all property, real, personal and mixed, of
TB&T and Texas State Bank and shall thereafter possess all of the interests,
both public and private, of each of TB&T and Texas State Bank, and all claims of
creditors of each of Texas State Bank and TB&T shall survive and any liens shall
be preserved unimpaired in Texas State Bank as the surviving banking
association. All of the foregoing shall be effected pursuant to and as set forth
in an Agreement of Merger to be executed by and among Texas State Bank and TB&T.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
PLAN OF MERGER
1.1. THE MERGER. Upon and subject to the terms and provisions hereof, at
the Effective Time, as hereafter defined, TB&T Bancshares shall be merged with
and into TRD (the "Merger"). The effect of the Merger is that the separate
existence of TB&T Bancshares shall cease. Following approval of such merger
transaction by applicable regulatory authorities and the shareholders of TB&T
Bancshares, and the fulfillment of other conditions precedent to such merger
transaction as herein described, TRD and TB&T Bancshares shall each execute and
deliver the Certificate of Merger, in the form required by the Delaware General
Corporation Law, for filing with the Secretary of State of Delaware. At the
Effective Time of the Merger, the rights of the shareholders of TB&T Bancshares
shall, without the requirement of further action on the part of the
shareholders, immediately be converted into the right to receive shares of Texas
Regional Class A Voting Common Stock as herein provided, and each such
shareholder shall cease to be a shareholder of TB&T Bancshares and his, her or
its share certificate shall for all purposes be deemed only to represent a right
to receive shares of Texas Regional Class A Voting Common Stock pursuant to this
Agreement.
1.2. CONSIDERATION TO TB&T BANCSHARES SHAREHOLDERS.
1.2.1. At the Effective Time (as hereinafter defined), all of the
outstanding shares of TB&T Bancshares capital stock shall be converted into the
right to receive Texas Regional Class A Voting Common Stock as hereafter
described. At the Effective Time, the shares of TB&T Bancshares capital stock
held by each shareholder (other than any shareholder validly exercising his or
her dissenters' rights of appraisal) shall be automatically converted without
any further action on the part of the holder thereof, into:
0.1522126 of a share of Texas Regional Class A Voting Common
Stock for each share of TB&T Bancshares held (all such shares being
collectively herein called the "Closing Shares"), to be distributed
to the shareholders of TB&T Bancshares upon the Closing, as herein
described; plus
0.0294605 of a share of Texas Regional Class A Voting Common
Stock for each share of TB&T Bancshares held (all such shares being
collectively herein called the "Holdback Escrow Shares"), to be
deposited into the escrow created pursuant to the Holdback Escrow
Agreement hereinafter described, to be either distributed to the
shareholders of TB&T Bancshares as therein described, or returned to
Texas Regional for cancellation upon the occurrence of certain
conditions as therein provided. The Holdback Escrow Shares shall be
held pursuant to the Holdback Escrow Agreement in the form of SCHEDULE
1.7, to be executed and entered into effective as of the time of
Closing.
Fractional shares shall not be issued, and any amount attributable to fractional
shares shall be paid in cash in an amount equal to the product of $30.025
multiplied by the fraction of a Texas Regional share that would otherwise have
been issued. Amounts payable in respect of shareholders exercising dissenters'
rights shall be payable by the surviving corporation in the merger transaction
in such amounts and at such times as such payments are required pursuant to
applicable provisions of law respecting the exercise of dissenters' rights. The
aggregate number of shares of Texas Regional Class A Voting Common Stock to be
delivered to the shareholders of TB&T Bancshares in exchange for their shares of
TB&T Bancshares and as Holdback Escrow Shares to be held and distributed by the
escrow agent named in the Holdback Escrow Agreement shall be an aggregate of
308,076 shares (which, based on $30.025 per share, totals an aggregate of
$9,250,000), less any shares attributable to fractional shares, less any shares
attributable to shareholders that have exercised dissenters' rights in
connection with the transactions.
1.2.2. Certificates evidencing the Closing Shares to which each
shareholder becomes entitled shall be delivered by Texas Regional to each TB&T
Bancshares shareholder upon surrender of such shareholder's
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share certificate or certificates evidencing shares of TB&T Bancshares stock.
Texas Regional share certificates for the Closing Shares to which such TB&T
Bancshares shareholders are entitled shall be delivered at the time of Closing
to those TB&T Bancshares shareholders who have surrendered their TB&T Bancshares
share certificates at or prior to the date of Closing, either (i) by mailing the
same to the shareholder at the shareholder's address as stated on the stock
transfer records of TB&T Bancshares, or (ii) by such other arrangements as may
be mutually agreed by and between such former TB&T Bancshares shareholder and
Texas Regional. Any delivery of Texas Regional share certificates representing
Closing Shares to shareholders who surrender their TB&T Bancshares share
certificates following the date of Closing shall be mailed to the former TB&T
Bancshares shareholder within a reasonable period of time following receipt of
the shareholder's TB&T Bancshares share certificate. The stock transfer records
of TB&T Bancshares shall for all purposes be closed as of the Effective Time,
and no transfer of record of any of the shares of TB&T Bancshares capital stock
shall take place thereafter. The share certificates for Holdback Escrow Shares
to which former TB&T Bancshares shareholders become entitled shall be delivered,
if such TB&T Bancshares has theretofore delivered his or her TB&T Bancshares
certificate to be cancelled, as and when required by the terms of the Holdback
Escrow Agreement. Any share certificates for Holdback Escrow Shares to which a
former TB&T Bancshares shareholder has become entitled, but which shareholder
has not yet at that time delivered his or her TB&T Bancshares certificate to be
cancelled, shall be retained by Texas Regional until a reasonable period of time
following the receipt of such shareholder's TB&T Bancshares share certificate,
as with the certificate representing Closing Shares to which such shareholder
thus becomes entitled.
1.2.3. Any Texas Regional share certificate that would otherwise have been
delivered pursuant to section 1.2.2 to any shareholder of TB&T Bancshares who
has exercised his, her or its dissenters' rights of appraisal pursuant to
applicable provisions of law shall be retained by Texas Regional until the
earlier of (i) such time as the shareholder relinquishes his, her or its right
of dissent, at which time the provisions of section 1.2.3 shall apply, except
that the time for delivery of such Texas Regional share certificate shall be
extended to a reasonable period of time following the date of relinquishment of
such dissenters' rights; or (ii) the time of settlement or judicial or other
resolution of such shareholder's dissenters' rights action, at which time Texas
Regional's obligation to issue or deliver shares to such shareholder shall cease
and be of no further force or effect.
1.2.4. Any dividends or other amounts payable to shareholders who
surrender their share certificates after the date of Closing shall not be
payable until surrender of the shareholder's TB&T Bancshares share certificate,
nor shall any such amounts bear interest attributable to periods either before
or after the date of Closing.
1.3. CLOSING. Each of TB&T Bancshares and Texas Regional will use
reasonable efforts to close the transactions herein described on or before
January 10, 1998, provided that the conditions to closing as herein described
have been met in a timely manner to permit closing by such date. The closing
("Closing") of the transactions contemplated by this Agreement shall be
effected on the latest of the following dates, or as promptly thereafter as
reasonably practicable (the "Closing Date"):
1.3.1. January 10, 1998;
1.3.2. The thirtieth calendar day after the date of approval by the
Federal Reserve Board as required by Section 7.02 herein; or
1.3.3. Such date as may be prescribed by the Federal Reserve Board,
the Texas Banking Department or by any other federal or state agency or
authority pursuant to an applicable federal or state law, order, rule or
regulation, prior to which consummation of the transactions provided herein
may not be effected; or
1.3.4. If the transactions contemplated by this Agreement are being
contested in any legal proceeding and Texas Regional, pursuant to Section
7.02 hereof, has elected to contest the same, then the date that such legal
proceeding has been brought to a conclusion favorable, in the judgment of
Texas Regional, to the consummation of the transactions contemplated
hereby; or
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1.3.5. Such other date as TB&T Bancshares and Texas Regional may
select by mutual agreement.
The Closing shall take place at the offices of Texas Regional, Kerria Plaza,
Suite 301, 3700 N. Tenth Street, McAllen, Texas, on the Closing Date, or at such
other place as shall be mutually agreeable. If such Closing shall not have been
accomplished on or before March 1, 1998, this Agreement shall, at the election
of either TB&T Bancshares or Texas Regional by written notice, terminate and be
of no further force or effect. Any termination which occurs through no fault of
TB&T Bancshares or Texas Regional shall be without liability to any of the
parties hereto. This Agreement may be terminated at any time prior to the
Effective Time by the mutual action of the respective Boards of Directors of
TB&T Bancshares and Texas Regional.
1.4. EFFECTIVE TIME. The parties hereto agree to take, on or prior to the
Closing Date, all such action, and to execute and deliver all such instruments
and documents, as may be necessary or advisable, on the advice of counsel, to
cause the Certificate of Merger, to become effective on the Closing Date. The
merger shall become effective (herein referred to as the "Effective Time")
upon issuance of a Certificate of Merger by the Office of Secretary of State of
Delaware, pursuant to which TB&T Bancshares is merged with and into TRD.
1.5. EFFECT OF MERGER. As a result of the merger, TB&T Bancshares's
assets and business, including ownership of all of the capital stock of TB&T,
shall be acquired by TRD, free and clear of any and all liens, claims or
encumbrances.
1.6. BANK MERGER. TB&T Bancshares shall take, in advance of the Effective
Time, any action requested by Texas Regional to facilitate the merger
immediately following the Effective Time (or as soon thereafter as practicable)
of TB&T with and into Texas State Bank, including execution and delivery of an
Agreement of Merger, any requested certificates of officers, and such other
documents as may be required to cause such merger to become effective in a
timely manner.
1.7. HOLDBACK ESCROW AGREEMENT. At the time of Closing, Texas Regional
and TB&T Bancshares shall execute and deliver the Holdback Escrow Agreement in
the form attached to this Agreement as SCHEDULE 1.7, pursuant to which the
Holdback Escrow Shares shall be held and distributed. The escrow relationship
created by the Holdback Escrow Agreement is being established for the purposes
therein described, primarily to indemnify (or partially indemnify) Texas
Regional and its subsidiaries from losses related to pending claims more
specifically described in the Holdback Escrow Agreement (herein sometimes
referred to as the "Special Claims", which term shall have the meaning
assigned to it in the Holdback Escrow Agreement).
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TB&T BANCSHARES
TB&T Bancshares represents and warrants to, and covenants and agrees with,
Texas Regional as follows:
2.1. ORGANIZATION AND OPERATION OF TB&T BANCSHARES. TB&T Bancshares is a
Texas corporation, duly organized, validly existing and in good standing under
the laws of the state of Texas, and has full power and authority (including all
licenses, franchises, permits and other governmental authorizations which are
legally required) to own its properties and to engage in the business and
activities now conducted by it, including its direct ownership of TB&T. TB&T
Bancshares is duly registered as a bank holding company with the Federal Reserve
Board and is operated in compliance with applicable Federal Reserve Board
regulations. True and complete copies of the Articles of Incorporation and
Bylaws of TB&T Bancshares as amended to date, have been delivered to Texas
Regional. TB&T Bancshares is not a reporting company under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The only business of TB&T
Bancshares is its ownership and operation of its subsidiary, TB&T. TB&T
Bancshares has no liabilities, liquidated or unliquidated, fixed or contingent,
and has no assets other than its ownership of all of the capital stock of TB&T.
Without limiting the generality of the foregoing, TB&T Bancshares is
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not a member of any joint venture or partnership and TB&T Bancshares does not
own the securities of any other entity other than as herein described.
2.2. ORGANIZATION AND OPERATION OF TB&T. TB&T is a Texas state banking
association, duly organized and existing under the laws of the State of Texas,
and has full power and authority (including all licenses, franchises, permits
and other governmental authorizations which are legally required) to own its
properties and to engage in the business and activities now conducted by it,
including both its commercial banking business and its trust business. TB&T is
in good standing under the laws of the state of Texas. TB&T operates only out of
its main bank facility and has no branch facilities, nor does TB&T have any
application pending for operation of a branch facility. True and complete copies
of the Articles of Association and Bylaws of TB&T, as amended to date, have been
delivered to Texas Regional. TB&T (i) is duly authorized to conduct a general
banking business, in accordance with its charter, subject to the supervision of
the Texas Department of Banking and other applicable regulatory authorities;
(ii) is an insured bank as defined in the Federal Deposit Insurance Act; and
(iii) has full power and authority (including all licenses, franchises, permits
and other governmental authorizations which are legally required) to engage in
the business and activities now conducted by it. To the best knowledge and
belief of TB&T Bancshares, all books and records related to the business of TB&T
are true, correct and complete. TB&T's banking and other business activities are
in full compliance with sound banking practices and applicable provisions of
law, including the Texas Banking Code, the Federal Deposit Insurance Act, the
Federal Reserve Act and applicable regulations. Except as disclosed in SCHEDULE
2.2, TB&T has no subsidiaries or affiliates, owns no voting securities of any
other corporation, and is not a member of any joint venture or partnership.
2.3. CAPITALIZATION AND OWNERSHIP. The authorized capital stock of TB&T
Bancshares consists of 2,000,000 shares of common stock, par value $1.00 per
share, of which a total of 1,695,775 shares (the "Shares") are outstanding,
all of which have been validly issued and outstanding, are fully paid,
nonassessable, and are owned beneficially and of record by the persons named in
the shareholder list previously delivered by TB&T Bancshares to Texas Regional.
The Shares have not been issued in violation of the preemptive rights of any
stockholder. The authorized capital stock of TB&T consists of 100,000 shares of
capital stock, par value $7.50 per share, all of which are duly authorized,
validly issued and outstanding, fully paid, nonassessable, and are owned
beneficially and of record by TB&T Bancshares. There are no outstanding options,
warrants, conversion rights, calls or commitments of any kind obligating TB&T
Bancshares or TB&T to issue, directly or indirectly, additional shares of
capital stock, and no authorization therefor has been given. Neither TB&T
Bancshares nor TB&T has any outstanding commitment or obligation to repurchase,
reacquire or redeem any of its outstanding capital stock.
2.4. FINANCIAL STATEMENTS AND RECORDS.
2.4.1. TB&T Bancshares has delivered to Texas Regional (i) the compiled
consolidated balance sheet of TB&T Bancshares and its subsidiaries as of
December 31, 1996, 1995 and 1994 (the "Balance Sheet"), and the related
compiled consolidated statements of income, changes in stockholders' equity and
changes in financial position for the years then ended, as compiled by the
independent accountant of TB&T Bancshares, accompanied by the compilation report
thereon of the independent certified public accountant who compiled such
statements. Except to the extent qualified by the report of the independent
accountant thereon, and except for certain disclosures omitted therefrom as
described or disclosed in the independent accountant's report, these financial
statements fairly present the financial position of TB&T Bancshares and its
subsidiaries as of the dates thereof and the results of its operations for the
periods indicated in conformity with generally accepted accounting principles
applied on a consistent basis. To the best knowledge of TB&T Bancshares, except
as qualified by the independent accountant's compilation report referred to
herein, the compiled consolidated financial statements of TB&T Bancshares and
its subsidiaries have been prepared in accordance with generally accepted
accounting principles. In addition, TB&T Bancshares has delivered to Texas
Regional its unaudited parent company only balance sheets and regulatory reports
of condition of TB&T Bancshares as of September 30, 1997, and its unaudited bank
only balance sheets and regulatory reports of condition of TB&T as of September
30, 1997 (collectively, such balance sheets are
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hereafter sometimes called the "TB&T Bancshares Balance Sheet" and the "TB&T
Balance Sheet", respectively) and the related unaudited statements of income,
changes in stockholders' equity and changes in financial position for the
nine-month period then ended. In the opinion of the management of TB&T
Bancshares, these financial statements also fairly present the financial
position of TB&T Bancshares and TB&T as of the date thereof and the results of
their respective operations for the period indicated in conformity with
generally accepted accounting principles applied on a consistent basis. All of
the financial statements described in this paragraph are collectively referred
to hereinafter as the "TB&T Bancshares Financial Statements." Except as
described in SCHEDULE 2.4.1, the TB&T Bancshares Financial Statements do not, as
of the dates thereof, include any material assets or omit to state any material
liability, absolute or contingent, or other fact, the inclusion or omission of
which renders such financial statements, in light of the circumstances under
which they were made, materially misleading. Without limiting the generality of
the foregoing, except as described in SCHEDULE 2.4.1, TB&T Bancshares
specifically represents to Texas Regional that TB&T Bancshares and its
subsidiaries have no liabilities, either accrued, contingent or otherwise,
which, individually or in the aggregate, are material, which have not been
reflected in the TB&T Bancshares Financial Statements (including the TB&T
Bancshares Balance Sheet and the TB&T Balance Sheet) or which have been incurred
in the ordinary course of business since the date of the TB&T Bancshares Balance
Sheet and the TB&T Balance Sheet. As of the time of Closing, any material
liabilities, accrued, contingent or otherwise, which have been incurred since
June 30, 1997, will have been fully disclosed to Texas Regional.
2.4.2. To the best knowledge and belief of TB&T Bancshares, except as
described in SCHEDULE 2.4.1, within the past five (5) years there have not been
any material changes in the financial condition, results of operations, business
or prospects of TB&T Bancshares and its subsidiaries, other than changes in the
ordinary course of business, none of which individually or in the aggregate has
been materially adverse, nor have there been any other events or conditions of
any character which have individually or in the aggregate materially and
adversely affected the financial condition, results of operations, business or
prospects of TB&T Bancshares or its subsidiaries.
2.4.3. The books and records of TB&T Bancshares and its subsidiaries
reflect the transactions to which they are or were a party or by which their
properties are or were bound, and, to the extent applicable, such books and
records are and have been properly kept and maintained in accordance with the
law and with generally accepted accounting principles consistently applied. As
of the date hereof and as of the Closing, all of the minute books of TB&T
Bancshares and its subsidiaries are and will be complete, accurate and current.
2.4.4. TB&T and TB&T Bancshares have no trust business.
2.5. LOANS.
2.5.1. All loans included in the assets of TB&T Bancshares and its
subsidiaries, including specifically TB&T, and all commitments to make loans
(which includes leasing transactions and off balance sheet lending transactions
such as letters of credit and which constitutes all of the lending business of
TB&T Bancshares), have been made in the ordinary course of business of TB&T
Bancshares and, other than those loans that have been identified on the problem
loan list delivered to Texas Regional prior to or contemporaneously with the
execution hereof (which problem loan list has been marked for identification by
Texas Regional and TB&T Bancshares), such loans do not present more than the
normal risk of uncollectibility or other unfavorable features. TB&T Bancshares
will provide an updated problem loan list at the time of Closing.
2.5.2. All loans to directors, officers and beneficial owners of 5% or
more of the outstanding capital stock of TB&T Bancshares and loans to any person
or company related to or affiliated with any such person, are listed on the
related party transaction list provided to Texas Regional by TB&T Bancshares
(and marked for identification by Texas Regional and TB&T Bancshares), which
listing is herein called the "Related Party Transaction List". The loans
listed on the Related Party Transaction List do not present more than the normal
risk of uncollectibility or other unfavorable features.
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2.5.3. The reserves for loan losses of TB&T (which constitute the total
reserves of TB&T Bancshares) have been calculated in accordance with all
applicable rules and regulations. In the reasonable opinion of the management,
officers and directors of TB&T Bancshares, the reserve for loan losses shown on
the TB&T Bancshares Balance Sheet is adequate in all respects to provide for all
losses on loans outstanding as of the date of the TB&T Bancshares Balance Sheet.
2.6. PROPERTIES. Subject to reservations and exceptions shown on title
opinions or title policies delivered to Texas Regional (and marked for
identification by Texas Regional and TB&T Bancshares), TB&T Bancshares and its
subsidiaries, including TB&T, have good and marketable title to all assets and
properties, whether real or personal, tangible or intangible, which they purport
to own, including without limitation, all assets and properties reflected on the
TB&T Bancshares Balance Sheet or acquired subsequent thereto (except to the
extent such assets and properties have been disposed of in the ordinary course
of business since the date of the TB&T Bancshares Balance Sheet), subject to no
liens, mortgages, security interests, encumbrances, easements, title
imperfections, or charges of any kind except (i) as noted in the TB&T Bancshares
Balance Sheet or the notes to the TB&T Bancshares Financial Statements, (ii)
statutory liens not yet delinquent, (iii) security interests granted incident to
borrowings by TB&T from Federal Reserve Banks or to secure deposits of funds by
federal, state or other governmental agencies, and (iv) minor defects and
irregularities in title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held and such liens, mortgages,
security interests, encumbrances and charges as are not, in the aggregate,
material to the assets and properties of TB&T Bancshares. All improvements,
buildings and structures located on real estate owned by TB&T Bancshares and its
subsidiaries, and the use by TB&T Bancshares and its subsidiaries of such real
estate, together with such improvements, buildings and structures, in the manner
heretofore and currently used by TB&T Bancshares and its subsidiaries, conform
in all material respects to applicable federal, state and local laws and
regulations (including applicable environmental laws and regulations), zoning
and building ordinances and health and safety ordinances, and such real estate
is zoned for the various purposes for which such real estate is currently being
used. All such improvements, buildings and structures located on real estate
owned by TB&T Bancshares and its subsidiaries, and all of the material, tangible
personal property owned by TB&T Bancshares and its subsidiaries, are in good
operating condition and repair, reasonable wear and tear excepted. Listed on
SCHEDULE 2.6 are all policies of title insurance covering such properties.
2.7. ENVIRONMENTAL MATTERS. To the best knowledge and belief of TB&T
Bancshares, neither any Environmental Hazards nor any Hazardous Materials
Contamination exist on any real property owned or used by TB&T Bancshares and
its subsidiaries, including TB&T (including any owned by and used in connection
with the business of TB&T and any foreclosed properties owned by TB&T), or on
any real property used by TB&T in connection with the business of TB&T or on any
adjacent property, as a result of any Environmental Hazards on or emanating from
the Real Property. The real properties described in the preceding sentence are
sometimes collectively referred to as the "Real Property." As used in this
Agreement, the term "Environmental Hazards" shall mean (i) any "hazardous
waste" as defined by the Resource Conservation and Recovery Act of 1976 (42
U.S.C. Section 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (ii) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder; (iii) any toxic substance regulated by the
Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), as amended from
time to time, and regulations promulgated thereunder; (iv) gasoline, diesel fuel
or other petroleum hydrocarbons; (v) asbestos and asbestos containing materials,
in any form, whether friable or non-friable; (vi) polychlorinated biphenyls;
(vii) radon gas; (viii) any solid waste or petroleum waste; and (ix) any other
substance which any governmental authority requires special handling or
notification of any federal, state or local governmental entity in its
collection, storage, treatment, or disposal or which is identified or classified
to be hazardous or toxic under applicable state or federal law or regulation or
the common law, or any other applicable laws. As used in this Agreement, the
term "Hazardous Materials Contamination" shall mean the contamination of the
improvements, facilities, soil, groundwater, air or other elements on or of the
Real Property by Hazardous Materials, or the contamination of the buildings,
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facilities, soil, groundwater, air or other elements on or of any other property
as a result of Hazardous Materials at any time before the date of this Agreement
emanating from the Real Property.
2.8. LITIGATION. Except as specifically disclosed in the Holdback Escrow
Agreement and the related Special Report to the Board of Directors of TB&T
Bancshares referred to therein (which Special Report has been marked for
identification by Texas Regional and TB&T Bancshares), no claims have been
asserted and no relief has been sought against TB&T Bancshares or any of its
subsidiaries, including TB&T, in any pending litigation or governmental
proceedings or otherwise which might result in a judgment, decree or order
having a material adverse effect on the financial condition, results of
operations, business or prospects of TB&T Bancshares or any of its subsidiaries.
To the best knowledge and belief of TB&T Bancshares, TB&T Bancshares and its
subsidiaries have complied with, and are presently in compliance with, all laws
and regulations pertaining to consumer credit and truth in lending. The
management of TB&T Bancshares and its subsidiaries is not aware of any material
violation by TB&T Bancshares or any subsidiary of TB&T Bancshares of any of the
foregoing. To the best knowledge and belief of TB&T Bancshares, TB&T Bancshares
and its subsidiaries are in substantial compliance with all other laws, all
rules and regulations of governmental agencies and authorities and any
judgments, orders or decrees which by their terms apply to any of them. All
permits, concessions, grants, franchises, licenses and other governmental
authorizations and approvals necessary for the conduct of the business of TB&T
Bancshares and its subsidiaries have been duly obtained and are in full force
and effect, and there are no proceedings pending or, to TB&T Bancshares' and its
subsidiaries' knowledge, threatened which may result in the revocation,
cancellation, suspension or adverse modification of any thereof. The
consummation of the transactions contemplated hereby will not result in any such
revocation, cancellation, suspension or modification.
2.9. TAXES. TB&T Bancshares and its subsidiaries have filed with the
appropriate governmental agencies all federal, state and local income,
franchise, excise, real and personal property and other tax returns and reports
which are required to be filed, and neither TB&T Bancshares nor any subsidiary
of TB&T Bancshares is delinquent in the payment of any taxes shown on such
returns or reports. TB&T Bancshares has no examination pending by the Internal
Revenue Service, the Texas Comptroller of Public Accounts, or any other taxing
authority, nor has TB&T Bancshares been notified of any proposed examination.
There are included in the TB&T Bancshares Balance Sheet, or reflected in the
Notes to the TB&T Bancshares Financial Statements, reserves adequate in the
reasonable opinion of management for the payment of all accrued but unpaid
federal, state and local taxes of TB&T Bancshares and its subsidiaries,
including all income, franchise, ad valorem and other taxes, and all interest
and penalties, whether or not disputed, for the nine-month period ended
September 30, 1997, for the year ended December 31, 1996, and for all fiscal
years prior thereto. Neither TB&T Bancshares nor any subsidiary of TB&T
Bancshares has executed or filed with the Internal Revenue Service, the
Comptroller of Public Accounts of the State of Texas or any other taxing
authority any agreement extending the period for assessment and collection of
any tax, nor is TB&T Bancshares nor any subsidiary a party to any action or
proceeding by any governmental authority for assessment or collection of taxes,
nor has any claim for assessment or collection of taxes been asserted against
any of them. Neither TB&T Bancshares nor any of its subsidiaries has filed a
consent pursuant to Section 341(f) of the Internal Revenue Code or otherwise.
2.10. CONTRACTS. Except as set forth in SCHEDULE 2.10, neither TB&T
Bancshares nor any subsidiary thereof is a party to or bound by any written or
oral (i) employment contracts (including without limitation any collective
bargaining contracts or union agreements); (ii) commission, bonus, deferred
compensation, profit-sharing, life insurance, health insurance, salary
continuation, severance pay, pension or retirement plans or arrangements whether
or not legally binding and whether or not funded; (iii) material leases or
licenses with respect to any property, real or personal, whether as landlord,
tenant, licensor or licensee; (iv) contracts or commitments for capital
expenditures in excess of $10,000 for any one project; (v) contracts or options
to purchase or sell any real or personal property otherwise than in the ordinary
course of business or pursuant to this Agreement; (vi) agreements or instruments
relating to any commitments to loan money or to extend credit, except for
commitments to extend credit in the ordinary course of business in amounts of
less than $400,000 in any one transaction and $400,000 in the aggregate; (vii)
agreements to which any director, officer or holder of 5% or more of the
outstanding capital stock of TB&T Bancshares, or any
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person or company related to or affiliated with any such person, is a party;
(viii) contracts relating to the purchase or sale of financial or other futures,
or put or call options relating to cash, securities or any commodities
whatsoever; or (ix) material contracts, other than the foregoing, not made in
the ordinary course of business. TB&T Bancshares and its subsidiaries have in
all material respects performed all obligations required to be performed by them
to date. Neither TB&T Bancshares nor any of its subsidiaries is in default, and
no event has occurred which, with notice or the lapse of time or action by a
third party, could result in a default by TB&T Bancshares or any of its
subsidiaries, (a) under any outstanding indenture, mortgage, contract, lease or
other agreement to which it is a party or by which it is bound; (b) under any
provision of its Articles of Incorporation or Bylaws or other organizational
documents which might result in a material adverse effect on the financial
condition, results of operations, business or prospects of TB&T Bancshares and
its subsidiaries; or (c) under any agreement with federal or state regulatory
authorities. TB&T Bancshares and its subsidiaries have not granted any power of
attorney, except routine powers of attorney relating to representation before
governmental agencies or given in connection with qualification to conduct
business in another jurisdiction.
2.11. APPROVALS; VALIDITY OF AGREEMENT. The Board of Directors of TB&T
Bancshares has approved the form, terms and provisions of this Agreement and the
transactions contemplated hereby. Shareholders holding voting common stock of
TB&T Bancshares are the only shareholders with the power to consider and vote
upon the transactions herein described, including the right to vote on the
proposed merger of TB&T Bancshares with and into TRD. The undersigned common
shareholders of TB&T Bancshares (as defined above, the "Majority
Shareholders") have joined into the execution hereof to evidence their consent
to and written approval of the transaction herein described, and to evidence
their agreement to vote for and support the approval of the transaction at the
special shareholders' meeting to be called to consider the merger. The Majority
Shareholders own beneficially and of record not less than 81.98% of the
outstanding common stock of TB&T Bancshares. Provided required approval is
obtained as and to the extent required from applicable regulatory authorities,
including the Federal Reserve Board and the Texas Banking Department, to the
best knowledge, information and belief, after due inquiry, of TB&T Bancshares,
the execution, delivery and performance of this Agreement and the consummation
of the merger contemplated herein, and the merger of TB&T with and into Texas
State Bank, will not conflict with, result in the breach of, constitute a
default under or accelerate the performance provided by, (i) the terms of any
law, order, rule or regulation of any governmental agency or authority or any
judgment, order or decree of any court or other governmental agency to which
TB&T Bancshares or any subsidiary thereof may be subject; (ii) any contract,
agreement or instrument to which TB&T Bancshares or any subsidiary thereof is a
party or pursuant to which TB&T Bancshares or any subsidiary is bound; or (iii)
the Articles of Incorporation or Bylaws of TB&T Bancshares or the Articles of
Association or Bylaws of TB&T. Provided required approval is obtained (as and to
the extent required) from applicable regulatory authorities, including the
Federal Reserve Board and the Texas Banking Department, and provided that the
shareholders of TB&T Bancshares vote to approve the merger of TB&T Bancshares
with and into TRD, no consent or approval or other action by any party
(including specifically but without limitation any party to a contract to which
TB&T Bancshares or TB&T is subject) is required for the execution, delivery and
performance of this Agreement and consummation of the transaction herein
described or for the merger of TB&T with and into Texas State Bank, as herein
contemplated. The execution, delivery and performance of this Agreement and the
consummation of the transactions herein described, and the merger of TB&T with
and into Texas State Bank, will not constitute an event which with the lapse of
time or action by a third party could result in a default under any of the
foregoing or result in the creation of any lien, charge or encumbrance upon any
of the assets or properties of TB&T Bancshares or its subsidiaries or upon any
of the stock of TB&T Bancshares or its subsidiaries. This Agreement constitutes
the legal, valid and binding obligation of TB&T Bancshares, enforceable against
TB&T Bancshares in accordance with its terms, except as the same may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
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2.12. INSURANCE. TB&T Bancshares and its subsidiaries have insurance
coverage with reputable insurers in amounts, types and risks insured as set
forth in SCHEDULE 2.12. TB&T's accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent permitted by law, and TB&T has
paid all premiums required to be paid and is in compliance with the applicable
regulations of the FDIC.
2.13. ABSENCE OF ADVERSE AGREEMENTS. Neither TB&T Bancshares nor any
subsidiary thereof is a party to any agreement or instrument, nor is TB&T
Bancshares or any subsidiary subject to any judgment, order, decree, rule or
regulation of any court or other governmental agency or authority which
materially and adversely affects or in the future may materially and adversely
affect the financial condition, results of operations, business or prospects of
TB&T Bancshares or any subsidiary of TB&T Bancshares.
2.14. ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE 2.14,
since December 31, 1994, TB&T Bancshares and its subsidiaries have not (i)
issued or sold any capital stock of TB&T Bancshares or any of its subsidiaries,
or any corporate debt obligations (except certificates of deposit, letters of
credit, cashier's checks, acknowledgments of indebtedness incident to borrowings
from the Federal Reserve Bank and other documents and instruments issued in the
ordinary course of banking business of TB&T); (ii) granted any options for the
purchase of its capital stock; (iii) declared or set aside or paid any dividend
or other distribution in respect of its capital stock, or directly or
indirectly, purchased, redeemed or otherwise acquired any shares of such stock;
(iv) incurred or assumed any obligations or liabilities (absolute or
contingent), except obligations or liabilities incurred in the ordinary course
of business, or mortgaged, pledged or subjected to lien or encumbrances (other
than statutory liens not yet delinquent) any of its assets or properties; (v)
discharged or satisfied any lien or encumbrance or paid any obligation or
liability (absolute or contingent), other than current liabilities included in
the TB&T Bancshares Balance Sheet, current liabilities incurred since the date
thereof in the ordinary course of business and liabilities incurred in carrying
out the transactions contemplated by this Agreement; (vi) sold, exchanged or
otherwise disposed of any of its capital assets other than in the ordinary
course of business; (vii) forgiven or canceled any debts or claims, or waived
any rights; (viii) made any general wage or salary increase, entered into any
employment contract with any officer or salaried employee or instituted any
employee welfare, bonus, stock option, profit-sharing, retirement or similar
plan or arrangement; (ix) suffered any damage, destruction or loss, whether or
not covered by insurance, materially and adversely affecting its business,
property of assets or waived any rights of value which in the aggregate are
material; (x) except in the ordinary course of business, entered into or agreed
to enter into any agreement or arrangement granting any preferential rights to
purchase any of its assets, properties or rights or requiring the consent of any
party to the transfer and assignment of any such assets, properties or rights;
(xi) made any material change in the conduct of its business, whether entered
into or made in the ordinary course of business or otherwise; (xii) granted to
any director or officer, or any employee, any increase in compensation in any
form in excess of the amount thereof in effect as of December 31, 1994 or any
severance or termination pay, or entered into any written employment agreement,
trust, fund or other arrangement for the benefit of any such director, officer
or employee, whether or not legally binding; (xiii) suffered any loss of
officers, employees, suppliers or customers that materially and adversely
affects the business, operations or prospects of TB&T Bancshares or any of its
subsidiaries; or (xiv) entered into any transaction outside the ordinary course
of business except as expressly contemplated by this Agreement. Since June 30,
1997, there has been no material adverse change in TB&T Bancshares or TB&T.
2.15. AGREEMENTS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS. The name of
each director and executive officer of TB&T Bancshares and each of its
subsidiaries, and the name of each holder of five percent (5%) or more of the
outstanding capital stock of TB&T Bancshares, together with the name of each
"affiliate" of each of such persons, as such term is defined in the rules and
regulations under the Securities Act of 1933, as amended (the "1933 Act"), is
listed in SCHEDULE 2.15. Except as set forth on the Related Party Transaction
List, no such director, executive officer, stockholder or associate has during
the period from January 1, 1994 to the date of this Agreement been a party to
any transaction with TB&T Bancshares or any subsidiary (including TB&T). All
transactions with directors, executive officers, 5% stockholders and affiliates
are fully and appropriately summarized on the Related Party Transaction List.
None of the transactions have been outside of the ordinary course of business,
and, except as set forth on the Related
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Party Transaction List, neither TB&T Bancshares nor any subsidiary thereof has
any commitments, written or oral, to lend any funds to any such person.
2.16. AFFILIATED CORPORATIONS. TB&T Bancshares knows of no arrangement
whereby the stock of any corporation is or has been held in trust (whether
express, constructive, resulting or otherwise) for the benefit of TB&T
Bancshares or for the shareholders of TB&T Bancshares.
2.17. REGULATORY MATTERS AND EXAMINATION REPORTS. Neither TB&T Bancshares
nor any of its subsidiaries has any formal or informal agreements, arrangements
or understandings with the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Texas Banking Department, or any other regulatory authority
(collectively, the "Regulatory Authorities"), nor does TB&T Bancshares or any
subsidiary have any examination pending by any applicable Regulatory Authorities
nor has TB&T Bancshares or any subsidiary been notified of any proposed
examination by any Regulatory Authorities. To the extent permitted by law, TB&T
Bancshares has provided to Texas Regional complete and correct copies of (i) all
examination reports by Regulatory Authorities forwarded to TB&T Bancshares or
any subsidiary thereof during the calendar years 1994, 1995, 1996 and to date
1997; (ii) any correspondence between TB&T Bancshares (or any subsidiary of TB&T
Bancshares) and such agencies during such periods, and (iii) any agreements,
arrangements or understandings between TB&T Bancshares (or any subsidiary of
TB&T Bancshares) and such agencies, including any agreements, arrangements or
understandings arising out of or related to any such examinations.
2.18. COMPLIANCE WITH APPLICABLE LAW. To the best knowledge and belief of
TB&T Bancshares, TB&T Bancshares and its subsidiaries and the conduct of their
respective business are not in violation of any applicable law, statute, order,
rule or regulation promulgated by, or judgment entered by, any federal, state,
or local court or governmental authority relating to the operation, conduct or
ownership of the business and property of TB&T Bancshares or any subsidiary,
which violation might result in any material adverse change in the condition,
business, prospects, properties or assets of TB&T Bancshares or its
subsidiaries.
2.19. DISCLOSURE. Neither the financial statements nor any representation
or warranty contained herein, nor any information delivered or to be delivered
by TB&T Bancshares pursuant to this Agreement, contains or shall contain an
untrue statement of a material fact, nor do the financial statements,
representations, warranties and other information omit to state, nor will they
omit to state, any material fact necessary in order to make the statements made
not misleading.
2.20. FINDERS. Neither TB&T Bancshares nor any subsidiary has engaged or
directly or indirectly obligated itself to anyone acting as a broker, finder, or
in any other similar capacity in connection with the transactions contemplated
by this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TEXAS REGIONAL
Texas Regional represents and warrants to, and covenants and agrees with,
TB&T Bancshares as follows:
3.1. ORGANIZATION. Texas Regional is a business corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas with all necessary power to carry on its business as it is now being
conducted. Texas Regional is duly registered with the Federal Reserve Board as a
bank holding company under the Bank Holding Company Act of 1956, as amended. TRD
is a business corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with all necessary power to carry on its
business as it is now being conducted.
3.2. APPROVALS. The Board of Directors of Texas Regional has approved
this Agreement and the transactions contemplated hereby. Texas Regional is a
reporting company under the Securities and Exchange Act of 1934, as amended (the
"1934 Act"), and the rules and regulations promulgated thereunder.
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3.3. ORDERS AND DECREES. Provided required approval is obtained from
applicable regulatory authorities, including the Federal Reserve Board and the
Texas Banking Department, the execution, delivery and performance by Texas
Regional of this Agreement and of the obligations imposed upon it hereunder will
not violate any provision of, or result in any breach of, (i) any law, order,
rule or regulation of any governmental agency or authority or any judgment,
order or decree of any court or governmental agency to which Texas Regional may
be subject, (ii) the Articles of Incorporation or Bylaws of Texas Regional, or
(iii) any contract or agreement to which Texas Regional is a party or by which
it is bound.
3.4. FINDERS. Texas Regional has not engaged and is not directly or
indirectly obligated to anyone acting as a broker, finder, or in any other
similar capacity in connection with the transactions contemplated by this
Agreement.
ARTICLE 4
INDEMNIFICATION
4.1. TB&T BANCSHARES AGREEMENT TO INDEMNIFY. TB&T Bancshares hereby
agrees to indemnify, defend and hold harmless Texas Regional and Texas State
Bank, and their respective officers, directors, employees, agents and attorneys
from and against any and all losses, claims, damages, expenses or liabilities to
which Texas Regional or Texas State Bank may become subject (including any
arising as a result of the consummation of the transaction described in this
Agreement and any arising under the Securities Act of 1933 or the Securities
Exchange Act of 1934, or any rule, order or regulation pursuant thereto),
arising out of or based upon:
(i) breach of a representation, warranty, covenant or agreement of
TB&T Bancshares in this Agreement or any breach in the performance hereof;
(ii) any misleading or untrue statement of a material fact by or on
behalf of TB&T Bancshares or any subsidiary thereof, or any omission of a
material fact necessary in order to make any statements made by or on
behalf of TB&T Bancshares, in light of the circumstances under which they
were made, not misleading, including any such statement or omission in the
context of solicitation by TB&T Bancshares of proxies for approval of the
transactions described in this Agreement by the shareholders of TB&T
Bancshares;
(iii) any irregularity or improper procedure in connection with the
solicitation of proxies and obtaining shareholder approval for the
transaction described in this Agreement; and
(iv) any disclosure by any officer, director, shareholder or present
or former employee of TB&T Bancshares or any subsidiary thereof of any
confidential information related to TB&T Bancshares or any subsidiary or
their respective business (including confidential customer information).
4.2. INDEMNIFICATION BY TEXAS REGIONAL. Texas Regional hereby agrees to
indemnify, defend and hold harmless TB&T Bancshares and its officers, directors,
employees, agents and attorneys from and against any and all losses, claims,
damages, expenses or liabilities to which TB&T Bancshares may become subject
(including any arising as a result of the consummation of the transaction
described in this Agreement and any arising under the Securities Act of 1933 or
the Securities Exchange Act of 1934, or any rule, order or regulation pursuant
thereto), arising out of or based upon:
(i) breach of a representation, warranty, covenant or agreement of
Texas Regional in this Agreement or in the performance hereof; and
(ii) any misleading or untrue statement of a material fact by or on
behalf of Texas Regional, or any omission of a material fact necessary in
order to make any statements made by or on behalf of Texas Regional, in
light of the circumstances under which they were made, not misleading.
4.3. EXTENSION TO OTHER PARTIES. Each of Texas Regional and TB&T
Bancshares (to the extent of an indemnification obligation hereunder, herein
referred to as the "Indemnifying Party") will indemnify the other and each of
such other party's directors, officers and each person who "controls" such
other party within the meaning of such term as used in Section 15 of the 1933
Act (such persons being herein called the
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"Indemnified Parties") and will defend and hold the Indemnified Parties
harmless from and against any and all losses, claims, damages, expenses, or
liabilities to which the Indemnified Parties may become subject under the common
law or otherwise insofar as:
4.3.1. such losses, claims, damages, expenses, liabilities or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any communications to
shareholders, or any application or statement filed pursuant to this
Agreement or arising out of or based upon the omission or alleged omission
to state therein a material fact necessary in order to make the statement
therein, in the light of the circumstances in which they were made, not
misleading, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished by the party
against whom indemnification is sought hereunder for use therein; and
4.3.2. such losses, claims, damages, expenses, or liabilities are
incurred by the Indemnified Parties (or are losses, claims, damages,
expenses or liabilities with respect to which the Indemnified Parties
become subject), under the common law or otherwise, arising out of or in
any way attributable to the breach of any warranty or representation made
by such party herein or pursuant to the terms hereof, or the failure of
such party to perform any covenant or obligation contained in this
Agreement.
4.4. LEGAL AND OTHER COSTS. The indemnification obligations contained
herein shall expressly include the obligation of the Indemnifying Party to
reimburse the Indemnified Party for any legal or other expenses (including
counsel fees) reasonably incurred by them in connection with investigating or
defending against any and all such losses, claims, damages, expenses,
liabilities or actions whether or not resulting in any liability.
4.5. NOTICES AND PARTICIPATION RIGHTS. The Indemnified Parties shall,
within twenty (20) days after the receipt by them of any notice of any claim or
of the commencement of any litigation in respect of which indemnity may be
sought hereunder, notify the Indemnifying Party thereof. The omission to notify
the Indemnifying Party of any such claim or litigation shall relieve the
Indemnifying Party from any liability which it may have under the indemnity
agreement contained herein, but shall not relieve the Indemnifying Party from
any other liability which it may have to the Indemnified Parties, other than
that raised in any such claim or litigation explicitly or by reasonable
implication or that which may estop the Indemnifying Party from raising and
effecting some defense it might otherwise have raised had such notice been
properly given. If any such litigation shall be brought against the Indemnified
Parties and if the Indemnified Parties shall notify the Indemnifying Party of
the commencement thereof, the Indemnifying Party shall be entitled, unless in
the opinion of counsel to the Indemnified Party there exist issues as to which
the interests of the Indemnified and Indemnifying Parties are adverse, to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense, but such defense shall be conducted by counsel
satisfactory to the Indemnified Parties.
4.6. SURVIVAL AND ARBITRATION. The indemnity agreement contained in this
Article 4 shall survive any investigation made by or on behalf of any
Indemnified Party but shall not survive the closing of the transactions
described in this Agreement. In the event of any disputed claim for
indemnification under this Article 4, the claim shall be submitted to binding
arbitration by the party or parties claiming indemnification and the party or
parties against whom the indemnification obligation is claimed, each of whom
shall select a qualified, commercial arbitrator. The two arbitrators so selected
shall in turn select a third arbitrator who shall sit with the two arbitrators
selected by the parties as an arbitration panel. The arbitrators shall in each
case be qualified in arbitrating matters such as the disputed claim for
indemnification, and they shall arbitrate the dispute in accordance with
applicable rules of the American Arbitration Association. Any ruling rendered by
the arbitrators shall be final, binding and conclusive.
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ARTICLE 5
SPECIAL COVENANTS
5.1. STOCKHOLDER APPROVAL BY TB&T BANCSHARES. Subsequent to the execution
and delivery of this Agreement, the Board of Directors of TB&T Bancshares agrees
to cause TB&T Bancshares to submit this Agreement and the merger transaction
herein described to the stockholders of TB&T Bancshares, for their authorization
and approval, in accordance with applicable provisions of law. The Board of
Directors of TB&T Bancshares agrees to recommend this Agreement and the
transactions contemplated thereby to the TB&T Bancshares stockholders. This
Agreement and the proposed merger of TB&T with and into Texas State Bank have
already been approved by the Board of Directors of TB&T Bancshares as the sole
shareholder of TB&T.
5.2. PERIODIC REPORTS AND PROXY STATEMENT INFORMATION. TB&T Bancshares
agrees to provide any and all information as may be required by Texas Regional
for purposes of (i) preparation of any periodic report, including reports on
Forms 8-K, 10-Q and 10-K required by applicable Securities and Exchange
Commission ("SEC") regulations to be filed with the SEC, (ii) preparation of a
registration statement for the registration of the Texas Regional Class A Voting
Common Stock to be issued in the connection with the transaction herein
described, (iii) communications with shareholders of Texas Regional pending the
Closing, and (iv) preparation of the proxy statement related to obtaining the
approval by TB&T Bancshares shareholders of the transaction herein described
(collectively, the "TB&T Bancshares Information"). TB&T Bancshares hereby
represents and warrants that the TB&T Bancshares Information shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
5.3. ACCESS. From and after the date of this Agreement, TB&T Bancshares
shall afford to the officers, attorneys, accountants and other authorized
representatives of Texas Regional full and free access to the properties, books,
contracts, commitments and records of TB&T Bancshares and its subsidiaries,
including TB&T, at all reasonable times during business hours, and such
representatives of Texas Regional shall be furnished with true and complete
copies of the same and with all other information concerning the affairs of TB&T
Bancshares and its subsidiaries as such representatives may reasonably request.
5.4. ENVIRONMENTAL INSPECTION. TB&T Bancshares expressly agrees to supply
Texas Regional with historical and operational information regarding the real
properties owned or operated by, or used in connection with the operation of the
business of, TB&T Bancshares and its subsidiaries, including TB&T, and any
premises heretofore used in connection with the operation of such business, and
any other properties included in the Real Property, including (but not limited
to) any environmental tests or surveys made of such properties. TB&T Bancshares
agrees to cooperate (and to cause its subsidiaries to cooperate) with any
reasonable request of Texas Regional related to site assessment or site review
related to any environmental matter or investigation, including making available
such personnel of TB&T Bancshares and TB&T as Texas Regional may reasonably
request. At Texas Regional's discretion, Texas Regional may arrange for one or
more independent contractors to conduct tests of the Real Property and any other
premises now or heretofore used in connection with the business of TB&T
Bancshares and its subsidiaries in order to identify any presence of, or present
or past release or threatened release of, any waste materials or any chemical
substances, including, without limitation, any Environmental Hazards. Any such
test may be done at any time, or from time to time, upon reasonable notice and
under reasonable conditions, which do not impede the performance of the tests.
Such tests may include both above and below ground testing for environmental
damages or the presence of Environmental Hazards or Hazardous Material
Contamination or such other tests as Texas Regional may deem reasonably
necessary. Any and all costs of third parties associated with obtaining such
information shall be borne by Texas Regional. In the event Texas Regional
arranges for and causes such tests to be conducted, and if such tests indicate
the presence of Hazardous Material Contamination, Texas Regional shall be
entitled to terminate this Agreement by written notice to TB&T Bancshares
without further liability or obligation.
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5.5. ACTION BY TB&T BANCSHARES PRIOR TO CLOSING.
5.5.1. From and after the date of this Agreement until the Closing Date,
TB&T Bancshares will (and TB&T Bancshares will cause its subsidiaries, including
TB&T, to):
(i) carry on its business in accordance with prudent banking
practices and in substantially the same manner as it is presently
conducted;
(ii) maintain and keep its properties in as good repair and condition
as at present, except for depreciation due to ordinary wear and tear and
damage due to casualty, and not make or commit to make any capital
expenditure outside of the ordinary course of business and not make or
commit to make any capital expenditure (whether or not in the ordinary
course of business) in excess of $10,000 in any single transaction and
$25,000 in the aggregate;
(iii) maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(iv) use its best efforts to perform all of its obligations under
contracts, leases and documents relating to or affecting its assets,
properties and business;
(v) use its best efforts to maintain and preserve its business
organization intact, to retain its present officers and employees and to
maintain its relationships with customers;
(vi) use its best efforts to fully comply with and perform all
obligations and duties imposed upon it by all federal and state laws and
all rules, regulations and orders imposed by federal or state governmental
authorities;
(vii) use its best efforts to maintain its books of account and
records in the usual, regular and orderly manner consistent with generally
accepted accounting principles and practices, consistently applied, and
prudent banking practices;
(viii) not issue or sell any additional shares of its stock or
securities convertible into shares of such stock or options or other
commitments for the issuance of shares of such stock or securities;
(ix) not increase in any manner the compensation of any of its
directors, officers or employees, or pay or agree to pay any pension or
retirement allowance not required by an existing plan or agreement, to any
such persons, or commit itself to any pension, retirement or profit-sharing
plan or arrangement or employment agreement for the benefit of any officer,
employee or other person;
(x) not declare or pay any dividend or make any stock split or
purchase or otherwise acquire for value any of its shares;
(xi) not issue (without the prior consent of Texas Regional)
commitments for the future funding of loans at a fixed rate other than the
then prevailing market at the date of funding; and
(xii) not engage in any business practice which deviates in any
material respect from its customary practices during the last eighteen
months immediately preceding the date hereof.
5.5.2. Without limiting the foregoing, between the date hereof and the
date of Closing, TB&T Bancshares specifically covenants and agrees that TB&T
Bancshares will not incur (and will not permit its subsidiaries to incur) any
indebtedness other than deposit liabilities owed to deposit customers in the
ordinary course of business and trade accounts payable incurred in the ordinary
course of business. TB&T Bancshares will not incur (and will not permit its
subsidiaries to incur) significant expenses outside of the ordinary course of
business. In addition, neither TB&T Bancshares nor any subsidiary of TB&T
Bancshares will increase expenses in any material way (either individually or in
the aggregate), nor will TB&T Bancshares nor any subsidiary of TB&T Bancshares
make any changes in its capital structure.
5.5.3. Provided that seeking such approvals is in accordance with
applicable banking law and regulations, TB&T Bancshares covenants that neither
it nor any of its subsidiaries will make a fully collateralized loan, nor commit
to make a fully collateralized loan, in excess of $400,000 to any one borrower
or in any one transaction without the prior approval of Texas Regional, and
neither it nor any of
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its subsidiaries will make any other loan, nor commit to make any other loan, in
excess of $50,000 to any one borrower or in any one transaction without the
prior consent of Texas Regional.
5.5.4. Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, TB&T Bancshares covenants
that neither it nor any of its subsidiaries will sell or otherwise dispose of
any of their real or personal property without the prior written consent of
Texas Regional.
5.5.5. Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, TB&T Bancshares specifically
covenants and agrees neither it nor any of its subsidiaries will acquire any
United States Treasury or government agency bonds, or municipal securities, or
make other investments in securities, with fixed rates or with maturities of
greater than three years from the date of investment. In addition, TB&T
Bancshares covenants and agrees that neither it nor any of its subsidiaries will
enter into any forward commitment to acquire any such securities.
5.5.6. From and after the date of this Agreement until the Closing Date,
TB&T Bancshares will not, and will not permit any of its subsidiaries to, (i)
permit any change to be made in the Articles of Incorporation or Bylaws of TB&T
Bancshares or any subsidiary thereof, or (ii) take any action described in
Section 2.10 herein, without the prior written consent of Texas Regional.
5.6. TERMINATION OF EMPLOYMENT ARRANGEMENTS. At or prior to Closing, TB&T
Bancshares will terminate (without liability or penalty to TB&T Bancshares, any
subsidiary of TB&T Bancshares, Texas Regional, any subsidiary of Texas Regional,
or any other person or entity) any existing employee severance, deferred
compensation and incentive compensation agreements or arrangements, and any
other contracts with employees, and shall terminate, in a manner acceptable to
Texas Regional, any other employee benefit plans, including any employee stock
ownership plan.
5.7. CONTEMPORANEOUS TRANSACTION. The parties hereto acknowledge that,
contemporaneously with the transaction herein described, Texas Regional is
acquiring additional banking organizations, including specifically but without
limitation Brownsville Bancshares, Inc. and its subsidiary, Brownsville National
Bank, and the parties acknowledge and agree that any filings with regulatory
authorities, filings with the Securities and Exchange Commission, proxy
statements, financial information and other business activities in connection
with the transaction herein described may include information related to such
other pending acquisition(s). Notwithstanding that such other pending
acquisition(s) may be proceeding on the same timetable as the transaction herein
described, Texas Regional's obligations hereunder are not contingent upon the
closing of such other pending acquisition(s).
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF TEXAS REGIONAL
In addition to any other condition herein described as a condition to the
obligations of Texas Regional under this Agreement, the obligations of Texas
Regional under this Agreement are subject, in the discretion of Texas Regional,
to the satisfaction at or prior to the Closing Date of each of the following
conditions:
6.1. COMPLIANCE WITH REPRESENTATIONS. The representations and warranties
made by TB&T Bancshares in this Agreement shall have been true when made and,
except for changes as contemplated herein, shall be true at the Closing Date
with the same force and effect as if such representations and warranties were
made at and as of the Closing Date, and TB&T Bancshares shall have performed or
complied with all covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing. Texas Regional
shall have been furnished with a certificate, signed by the President of TB&T
Bancshares in his capacity as such and dated the Closing Date, and a
certificate, signed by the President of TB&T Bancshares in his capacity as such
and dated the Closing Date, in each case to the foregoing effect.
6.2. STOCKHOLDER APPROVAL. The shareholders of TB&T Bancshares shall have
approved the transaction at a duly called meeting of the shareholders and TB&T
Bancshares shall have delivered to Texas Regional a certificate signed by the
President and Secretary of TB&T Bancshares in his or her capacity as
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such, confirming the approval of this transaction by the requisite vote of the
shareholders of TB&T Bancshares.
6.3. DISSENTERS. Shareholders holding an aggregate of not greater than 2%
of the issued and outstanding shares of TB&T Bancshares shall have exercised
dissenters' rights of appraisal with respect to the transaction, excluding for
these purposes shareholders who have subsequently abandoned (including
abandonment as a result of a failure to comply with applicable procedures) their
dissenters' rights of appraisal.
6.4. REGULATORY APPROVALS. Texas Regional shall have received approval of
the transactions contemplated by this Agreement including the merger of TB&T
Bancshares with and into TRD, and the merger of TB&T with and into Texas State
Bank, from all necessary governmental agencies and authorities, including the
Texas Banking Department and the Federal Reserve Board, and such approvals and
transactions contemplated hereby shall not have been contested by any federal or
state governmental authority nor by any other third party by formal proceeding.
It is understood that, if any contest as aforesaid is brought by formal
proceedings, Texas Regional may, but shall not be obligated to, answer and
defend such contest.
6.5. LITIGATION. On the Closing Date, there shall not be any litigation,
investigation, inquiry or proceeding pending or threatened in or by any court or
governmental agency or authority which might result in action to restrain,
enjoin or prohibit consummation of the transaction contemplated by this
Agreement or which might result in divestiture, rescission or damages in
connection with such transactions or involving any of the assets, properties,
business or operations of TB&T Bancshares or any of its subsidiaries which might
result in any material adverse change in the financial condition, results of
operations, business or prospects of TB&T Bancshares or any of its subsidiaries.
Texas Regional shall have been furnished with a certificate, dated the Closing
Date and signed by the President of TB&T Bancshares and each of its
subsidiaries, to the effect that no such litigation, investigation, inquiry or
proceeding is pending, or, to the best of his or her knowledge, threatened.
6.6. OPINION OF COUNSEL. Prior to closing, TB&T Bancshares shall deliver
to Texas Regional the opinion of TB&T Bancshares's counsel, in form and content
satisfactory to Texas Regional, to the effect that
(i) TB&T Bancshares is a duly organized, validly existing and in good
standing as a corporation under the laws of the state of Texas, is
registered as a bank holding company under applicable regulations and
requirements of the Federal Reserve Board, and has full power and authority
to carry on its business as presently conducted;
(ii) the authorized capital stock of TB&T Bancshares consists of
2,000,000 shares of capital stock, par value of $1.00 per share, of which a
total of 1,695,775 shares are issued and outstanding, and that those shares
which are issued and outstanding have been validly issued, are fully paid
and nonassessable, and there are no options, warrants, conversion or other
rights, agreements or commitments of any kind obligating TB&T Bancshares to
issue or sell any shares of its capital stock of any class, or securities
convertible into or exchangeable for any such shares are outstanding, and
no authorization therefor has been given;
(iii) TB&T is a duly organized, validly existing and in good standing
as a banking association under the laws of the State of Texas, and has full
power and authority to carry on its business as presently conducted;
(iv) the authorized capital stock of TB&T consists of 100,000 shares
of capital stock, par value of $7.50 per share, of which all 100,000 shares
are validly issued, fully paid, nonassessable, and owned beneficially and
of record by TB&T Bancshares and no options, warrants, conversion or other
rights, agreements or commitments of any kind obligating TB&T to issue or
sell any shares of its capital stock of any class, or securities
convertible into or exchangeable for any such shares, are outstanding, and
no authorization therefor has been given;
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(v) this Agreement has been duly authorized by all necessary
corporate action on the part of TB&T Bancshares, its directors and
shareholders, and this Agreement constitutes the valid and binding
obligation of TB&T Bancshares enforceable in accordance with its terms
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the rights of
creditors generally;
(vi) this Agreement and the consummation of the transaction herein
described do not and will not violate, conflict with or constitute a breach
of any term, condition, or provision of the Articles of Incorporation or
Bylaws of TB&T Bancshares, the Articles of Association or Bylaws of TB&T,
or, to the best knowledge and belief of such counsel, any agreement or
instrument to which TB&T Bancshares or TB&T is a party or is bound, or any
law, regulation, judgment or order binding on any of them; and
(vii) the merger of TB&T with and into Texas State bank has been duly
authorized by all necessary corporate action on the part of TB&T, its
directors and shareholders, and the consummation of the merger of TB&T with
and into Texas State Bank will not violate, conflict with or constitute a
breach of any term, condition, or provision of the Articles of Association
or Bylaws TB&T, or, to the best knowledge and belief of such counsel, any
agreement or instrument to which TB&T Bancshares or TB&T is a party or is
bound, or any law, regulation, judgment or order binding on any of them.
6.7. DUE DILIGENCE REVIEW; NO MATERIAL ADVERSE CHANGE. Texas Regional and
its employees, agents, attorneys, accountants and other representatives shall be
entitled to review and monitor the assets, liabilities, business and prospects
of TB&T Bancshares and its subsidiaries during the period from the date hereof
to the time of Closing. Texas Regional shall be entitled to terminate this
transaction at its sole option and at any time prior to Closing if the results
of such review reflect a material adverse change in the condition, financial
position or business prospects of TB&T Bancshares or any of its subsidiaries.
6.8. CONSENTS, APPROVALS AND ESTOPPEL CERTIFICATES. Texas Regional shall
have received all such consents, approvals, estoppel certificates and other
assurances, in each case in form and content reasonably satisfactory to Texas
Regional, from any party to an agreement with TB&T Bancshares or any of its
subsidiaries, or by which TB&T Bancshares or any of its subsidiaries is bound as
a result of an order of any authority, or pursuant to any other legal
requirement. Without limiting the generality of the foregoing, Texas Regional
shall have received consents and estoppel certificates from each landlord of
TB&T Bancshares or any subsidiary of TB&T Bancshares and from each tenant of any
of them, consenting (if Texas Regional deems such consent necessary) to the
transfer by operation of law of any outstanding lease or rental agreement,
attesting to the validity of each lease to which TB&T Bancshares or any
subsidiary is a party, the fact that no default exists (or which could with the
passage of time or notice could exist) under the lease, and providing for such
other matters as may be deemed advisable to Texas Regional.
6.9. NET WORTH OF TB&T BANCSHARES AND TB&T. The net worth of TB&T
Bancshares, calculated in accordance with applicable regulatory requirements,
shall be not less than the sum of $3,980,000, increased by $25,000 per month for
each month elapsed during the period from September 30, 1997, until the date of
Closing. The net worth of TB&T, calculated in accordance with applicable
regulatory requirements, shall be not less than the sum of $3,980,000, increased
by $25,000 per month for each month elapsed during the period from September 30,
1997, until the date of Closing.
6.10. FAIRNESS OPINION. Texas Regional shall have received a fairness
opinion, in form and content acceptable to Texas Regional in its sole
discretion, and rendered by a firm acceptable to Texas Regional in its sole
discretion, as to the fairness of the transaction to Texas Regional and the
shareholders of Texas Regional.
6.11. DECLARATION OF EFFECTIVENESS OF REGISTRATION STATEMENT. The SEC
shall have declared effective the registration statement for registration of the
transaction pursuant to which shares of Texas Regional Class A Voting Common
Stock are to be issued to shareholders of TB&T Bancshares as herein described,
and there shall be no order or action pending or threatened to withdraw such
declaration or to prohibit or otherwise restrict the issuance of such shares,
and any and all such actions as Texas Regional may deem
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necessary or advisable shall have been taken to cause the qualification or
registration, by notification or otherwise, of the transaction or the shares in
any state in which such qualification or registration is deemed necessary by
Texas Regional.
6.12. POOLING OF INTERESTS. Texas Regional shall have received such
assurances as it deems necessary, proper or advisable that the transactions
herein described (including specifically but without limitation the merger of
TB&T Bancshares with and into Texas Regional, and the merger of TB&T with and
into Texas State Bank) will be accounted for as pooling of interests under
generally accepted accounting principles.
6.13. RESOLUTION OF CERTAIN PENDING CLAIMS. Texas Regional shall not have
been presented with evidence indicating that Special Claims are likely to result
in uninsured losses to Texas State Bank, as the successor in interest to Texas
Bank & Trust (without regard to any reimbursement received as a result of return
and cancellation of Holdback Escrow Shares), in excess of an aggregate of
$1,500,000.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF TB&T BANCSHARES
The obligations of TB&T Bancshares under this Agreement are subject, in the
discretion of TB&T Bancshares, to the satisfaction at or prior to the Closing
Date, of each of the following conditions:
7.1. COMPLIANCE WITH REPRESENTATIONS. The representations and warranties
made by Texas Regional in this Agreement shall have been true when made and,
except as may otherwise be contemplated or permitted herein, shall be true as of
the Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date, and Texas Regional shall
have performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
TB&T Bancshares shall have been furnished with a certificate dated the Closing
Date, signed by the President of Texas Regional, in his capacity as such, to the
foregoing effect.
7.2. STOCKHOLDER APPROVAL. The shareholders of TB&T Bancshares shall have
approved the transaction at a duly called meeting of the shareholders.
7.3. REGULATORY APPROVALS. Texas Regional shall have received approval of
the transactions contemplated by this Agreement, including the merger of TB&T
Bancshares with and into TRD, and the merger of TB&T with and into Texas State
Bank, from all necessary governmental agencies and authorities, including the
Texas Banking Department and the Federal Reserve Board, and such approvals and
transactions contemplated hereby shall not have been contested by any federal or
state governmental authority nor by any other third party by formal proceeding.
It is understood that, if any contest as aforesaid is brought by formal
proceedings, TB&T Bancshares may, but shall not be obligated to, answer and
defend such contest.
7.4. LITIGATION. On the Closing Date, there shall not be any litigation,
investigation, inquiry or proceeding pending or threatened in or by any court or
governmental agency or authority which might result in action to restrain,
enjoin or prohibit consummation of the transactions contemplated by this
Agreement or which might result in divestiture, rescission or damages in
connection with such transactions and TB&T Bancshares shall have been furnished
with a certificate, dated the Closing Date and signed by the President of Texas
Regional, in his capacity as such, to the effect that no litigation,
investigation, inquiry or proceeding is pending, or, to the best of his
knowledge, threatened.
7.5. DECLARATION OF EFFECTIVENESS OF REGISTRATION STATEMENT. The SEC
shall have declared effective the registration statement for registration of the
transaction pursuant to which shares of Texas Regional Class A Voting Common
Stock are to be issued to shareholders of TB&T Bancshares as herein described,
and there shall be no order or action pending or threatened to withdraw such
declaration or to prohibit or otherwise restrict the issuance of such shares,
and any and all such actions as Texas Regional may deem necessary or advisable
shall have been taken to cause the qualification or registration, by
notification or
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otherwise, of the transaction or the shares in any state in which such
qualification or registration is deemed necessary by Texas Regional.
7.6. OPINION OF COUNSEL. Prior to closing, Texas Regional shall deliver
to TB&T Bancshares the opinion of Texas Regional's counsel, in form and content
satisfactory to Texas Regional, to the effect that:
(i) Texas Regional is a duly organized, validly existing and in good
standing as a corporation under the laws of the state of Texas, is
registered as a bank holding company under applicable regulations and
requirements of the Federal Reserve Board, and has full power and authority
to carry on its business as presently conducted;
(ii) the authorized capital stock of Texas Regional consists of
20,000,000 shares of capital stock, par value of $1.00 per share, and that
the shares to be issued in connection with the Merger transaction, when
issued, will be validly issued, fully paid and nonassessable;
(iii) Texas State Bank is a duly organized, validly existing and in
good standing as a banking association under the laws of the State of
Texas, and has full power and authority to carry on its business as
presently conducted;
(iv) this Agreement has been duly authorized by all necessary
corporate action on the part of Texas Regional, and its directors, and this
Agreement constitutes the valid and binding obligation of Texas Regional,
enforceable in accordance with its terms except as the same may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting the rights of creditors generally; and
(v) this Agreement and the consummation of the transaction herein
described do not and will not violate, conflict with or constitute a breach
of any term, condition, or provision of the Articles of Incorporation or
Bylaws of Texas Regional, the Articles of Association or Bylaws of Texas
State Bank, or, to the best knowledge and belief of such counsel, any
agreement or instrument to which Texas Regional or Texas State Bank is a
party or is bound, or any law, regulation, judgment or order binding on any
of them.
ARTICLE 8
CLOSING OBLIGATIONS
8.1. TEXAS REGIONAL OBLIGATIONS. At the Closing, Texas Regional shall
deliver the following:
8.1.1. Articles of Merger, in the form required to be delivered for
filing with the Secretary of State of Delaware, pursuant to applicable
provisions of the Delaware General Corporation Law, providing for the
merger of TB&T Bancshares with and into TRD.
8.1.2. Officer's Certificate, including an incumbency certification
and further certifying as to the existence and good standing of Texas
Regional, the accuracy of all representations and warranties of Texas
Regional, the approval by the Board of Directors of the Texas Regional, and
Texas Regional as the sole shareholder of TRD, of resolutions authorizing
and approving the merger transaction.
8.1.3. Delivery of share certificates to shareholders of TB&T
Bancshares who have tendered their TB&T Bancshares share certificates, as
required by section 1.2, and delivery of a share certificate to the escrow
agent appointed to hold the Holdback Escrow Shares pursuant to the Holdback
Escrow Agreement.
8.1.4. An opinion of Texas Regional's counsel in form and substance
required by this Agreement and otherwise acceptable to TB&T Bancshares; and
8.1.5. The Holdback Escrow Agreement and such other documents,
certificates, and other items as may be required to be delivered by Texas
Regional pursuant to the terms of this Agreement or as may be reasonably
requested by TB&T Bancshares to effectuate the transaction herein
described.
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8.2. TB&T BANCSHARES OBLIGATIONS. At the Closing, TB&T Bancshares shall
deliver the following to Texas Regional:
8.2.1. Articles of Merger, in the form required to be delivered for
filing with the Secretary of State of Delaware, pursuant to applicable
provisions of the Delaware General Corporation Law, providing for the
merger of TB&T Bancshares with and into TRD.
8.2.2. Officer's Certificates of TB&T Bancshares and TB&T, including
an incumbency certification in each case, and further certifying as to the
existence and good standing of each entity, the accuracy of all
representations and warranties of TB&T Bancshares, the approval by the
Board of Directors of each of TB&T Bancshares and TB&T, and by the
shareholders of TB&T Bancshares, and by TB&T Bancshares as the sole
shareholder of TB&T, in each case authorizing and approving the
transaction.
8.2.3. Certificates of Existence and Good Standing of each of TB&T
Bancshares (issued by the Secretary of State of Texas) and TB&T (issued by
the Texas Department of Banking) in each case dated as of a date not more
than three days prior to the Closing;
8.2.4. Certificate of Good Standing of each of TB&T Bancshares
(issued by the Texas Comptroller of Public Accounts) and TB&T (issued by
the Texas Comptroller of Public Accounts), in each case dated as of a date
not more than three days prior to the Closing;
8.2.5. Certificates of adoption of appropriate resolutions,
Certificates of Merger, Articles of Merger and other documents as may be
required by Texas Regional to effect the merger of TB&T with and into Texas
State Bank;
8.2.6. An opinion of TB&T Bancshares's counsel in form and substance
required by this Agreement and otherwise acceptable to Texas Regional; and
8.2.7. The Holdback Escrow Agreement and such other documents,
certificates, and other items as may be required to be delivered by TB&T
Bancshares pursuant to the terms of this Agreement or as may be reasonably
requested by Texas Regional to effectuate the transaction herein described.
ARTICLE 9
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATION AND WARRANTIES. The representations and
warranties contained in this Agreement shall survive any investigation of the
parties hereto, but shall not survive the Closing of the transaction
contemplated hereby except as specifically provided in this section 9.1. The
only representations and warranties which will survive the closing are the
representations and warranties contained in sections 9.11 and 9.12 of this
Agreement.
9.2. BROKERS. Texas Regional and TB&T Bancshares agree that no third
party has in any way brought the parties together or been instrumental in the
making of this Agreement. Each of Texas Regional and TB&T Bancshares agrees to
indemnify the other against any claim by any third person for any commission,
brokerage or finder's fee, or other payment with respect to this Agreement, the
merger of TB&T with and into Texas State Bank, or the transactions contemplated
hereby and thereby based on any alleged agreement or understanding between such
party and any third person, whether express or implied from the actions of such
party.
9.3. EXPENSES. Whether or not the transactions provided for herein are
consummated, each party to this Agreement will pay its respective expenses
incurred in connection with the preparation and performance of this Agreement,
except that, in the event that the transactions herein described are not
consummated, other than as a result of a default by TB&T Bancshares or any
Majority Shareholder, and other than a termination by Texas Regional as a result
of a breach of a representation, warranty or covenant made by TB&T Bancshares
pursuant to this Agreement, Texas Regional shall pay additional required audit
expense of TB&T Bancshares, in an amount not to exceed $25,000.00, related to
the audit of the financial statements of TB&T and its subsidiaries.
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9.4. NOTICES. Any notice given hereunder shall be in writing and shall be
deemed delivered on the earlier of actual receipt or the time of deposit in the
United States mail, by registered or certified mail, return receipt requested,
postage prepaid, addressed to the party to whom such notice is to be sent at the
following addresses:
If to Texas Regional or to Texas State Bank, then to:
Texas Regional Bancshares, Inc.
3700 N. 10th Street, Suite 301
McAllen, Texas 78501
Attention: Mr. Glen E. Roney
Chairman of the Board
with a copy to:
William A. Rogers, Jr.
McGinnis, Lochridge & Kilgore, L.L.P.
1300 Capitol Center
919 Congress Avenue
Austin, Texas 78701
If to TB&T Bancshares, TB&T or the Majority Shareholders, then to:
TB&T Bancshares, Inc.
P.O. Box 5210
Brownsville, Texas 78523
Attention: Frank D. Yturria
Chairman of the Board
with a copy to:
Rollins M. Koppel
Koppel, Ezell, Powers & Kimball, L.L.P.
312 East Van Buren
Harlingen, Texas 78551
9.5. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective successors and assigns, and, to
the extent required by Section 4.03, the directors, officers and Majority
Shareholders, but shall not be assigned by any party without the prior written
consent of the other party.
9.6. ARTICLE AND OTHER HEADINGS. Article and other headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.7. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all prior arrangements, understandings, agreements or covenants between the
parties. This Agreement may only be modified by an instrument in writing
executed by both Texas Regional and TB&T Bancshares.
9.8. WAIVERS. Texas Regional or TB&T Bancshares may, by an instrument in
writing, extend the time for or waive the performance of any of the obligations
of the other or waive compliance with any of the covenants or conditions
contained in this Agreement.
9.9. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas applicable to contracts made and to be performed therein.
9.10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts shall together constitute but one and the same instrument.
9.11. JOINDER BY SHAREHOLDERS OF TB&T BANCSHARES. Each of the undersigned
who executes this Agreement as a shareholder of TB&T Bancshares (defined herein
as Majority Shareholders) hereby join
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into the execution of this Agreement to evidence their consent to and approval
of the transaction herein described. Each of the undersigned Majority
Shareholders represents to Texas Regional (i) that the Majority Shareholders in
the aggregate constitute the holders of not less than 81.98% of the shares of
the outstanding common stock of TB&T Bancshares, Inc.; (ii) that the
shareholders of TB&T Bancshares common stock are the only persons entitled to
consider and vote on the transaction described in this Agreement and Plan of
Reorganization; (iii) that he, she or it owns the number of shares of TB&T
Bancshares as indicated below his, her or its name below; (iv) that the
undersigned Majority Shareholder has the full power and authority to enter into
and perform this Agreement; and (v) that Texas Regional is relying upon the
covenants and agreements contained in this paragraph in executing and entering
into the Agreement and Plan of Reorganization. The undersigned Majority
Shareholders specifically hereby agree to recommend this transaction to other
shareholders of TB&T Bancshares and to vote to approve of the transaction at the
shareholder meeting called to consider and vote upon the merger transaction
herein described. The representations and warranties of the Majority
Shareholders contained in this section 9.11 shall survive the closing of the
transaction described in this Agreement.
9.12. JOINDER BY CERTAIN SHAREHOLDERS. In addition, the following
shareholders of TB&T Bancshares:
Frank D. Yturria, James John, Bob A. Austin, Julius Collins and Dwayne
Tyner (individually and as trustee)
(collectively, the "Affiliate Shareholders"), all of whom are officers,
directors or shareholders owning in excess of 10% of the outstanding capital
stock of TB&T Bancshares, have joined into the execution of this Agreement to
acknowledge and agree to the following:
a. The undersigned Affiliate Shareholders acknowledge that Texas
Regional's offer to acquire TB&T Bancshares on the terms and conditions
described in this Agreement is predicated upon the transactions being
accounted for as pooling of interests for generally accepted accounting
purposes.
b. It is a requirement of pooling of interests accounting that the
affiliates of the companies being merged agree to certain restrictions on
their stock. Each of the undersigned Affiliate Shareholders is an affiliate
of TB&T Bancshares for purposes of these rules.
c. Each of the undersigned Affiliate Shareholders agrees that he will
not sell, pledge, transfer or otherwise dispose of any shares of TB&T
Bancshares stock within thirty (30) days prior to the Effective Time. Each
Affiliate Shareholder further agrees that until publication of financial
results covering at least 30 days of post-merger combined operations of
TB&T Bancshares and Texas Regional, he will not sell, pledge, transfer or
otherwise dispose of any shares of Texas Regional stock to be acquired by
him in the merger transaction, unless such Affiliate Shareholder first
obtains the consent of Texas Regional. The undersigned further agrees that
he will not sell, pledge, transfer or otherwise dispose of any shares of
Texas Regional stock acquired by him in the merger transaction except in a
manner that is consistent with any additional requirements for Texas
Regional accounting for the merger as a pooling of interests, including
without limitation any requirements imposed by applicable provisions of the
Securities Act of 1933, the Securities Exchange Act of 1934 and rules and
regulations promulgated thereunder. Each Affiliate Shareholder agrees that
a restrictive legend to the foregoing effect may be placed on any
certificate evidencing shares of Texas Regional stock to be issued in
connection with the merger transaction. Texas Regional will remove the
restrictive legend from any certificates evidencing shares subject hereto
promptly following the expiration of the transfer restrictions described in
this paragraph.
d. Each Affiliate Shareholder further acknowledges and agrees that he
will be subject to Rule 145 promulgated by the SEC under the Securities Act
of 1933, and he agrees not to transfer any Texas Regional stock received by
him in the Merger except in compliance with applicable provisions of the
Securities Act, the Securities Exchange Act and applicable rules and
regulations promulgated thereunder.
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The obligations of the Affiliate Shareholders described in this paragraph
shall survive the closing of the transactions described in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
TEXAS REGIONAL BANCSHARES, INC.
ATTEST: By: /s/G E Roney
/s/Nancy Schultz Glen E. Roney,
Secretary Chairman of the Board
TB&T BANCSHARES, INC.
ATTEST: By: /s/Frank D. Yturria
/s/James O. Brown Frank D. Yturria
Secretary Chairman of the Board
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JOINDER BY SHAREHOLDERS OF TB&T BANCSHARES
/s/Bob A. Austin /s/Dwayne Tyner
Bob A. Austin Dwayne Tyner, Trustee
Number of Shares: 28,743 Number of shares: 337,987
/s/Julius Collins /s/Frank D. Yturria
Julius Collins Frank D. Yturria
Number of shares: 74,325 Number of shares: 931,413
/s/James A. John
James A. John
Number of shares: 15,636
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SCHEDULE 1.7
HOLDBACK ESCROW AGREEMENT
This Holdback Escrow Agreement (the "Holdback Escrow Agreement") is made
and entered into as of the day of , 199 by and between Texas
Regional Bancshares, Inc., a Texas corporation ("Texas Regional"), TB&T
Bancshares, Inc. ("TB&T Bancshares"), and Texas State Bank ("Escrow Agent").
Glen E. Roney joins into the execution hereof to evidence his agreement to
accept appointment as "Special Agent" for Texas Regional, and Frank D. Yturria
joins into the execution hereof to evidence his agreement to accept appointment
as "Special Agent" for the shareholders of TB&T Bancshares listed on Exhibit A
(herein sometimes called the "TB&T Bancshares shareholders"). Texas Regional
may at any time appoint a substitute for Glen E. Roney as Special Agent for
Texas Regional, which appointment shall be effective upon delivery of notice
thereof to both the Escrow Agent and the Special Agent for the TB&T Bancshares
shareholders. The TB&T Bancshares shareholders may, by action of a majority in
interest of the TB&T Bancshares shareholders, at any time appoint a substitute
for Frank D. Yturria as Special Agent for the TB&T Bancshares shareholders,
which appointment shall be effective upon delivery of notice thereof to both the
Escrow Agent and Texas Regional.
WHEREAS, Texas Regional and TB&T Bancshares have entered into an Agreement
and Plan of Reorganization pursuant to which TB&T Bancshares is, of even date
herewith, being merged with and into Texas Regional Delaware, Inc., a Delaware
corporation wholly-owned by Texas Regional; and
WHEREAS, the Agreement and Plan of Reorganization by and between Texas
Regional and TB&T Bancshares provides for the escrow of a portion of the shares
of Texas Regional Bancshares, Inc. Class A Voting Common Stock, and dividends on
such shares (or at the election of individual shareholders of TB&T Bancshares,
certain other assets) in the event that Texas Regional and its subsidiaries
sustain certain losses more particularly described herein;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements contained in the Agreement and Plan of Reorganization, effective as
of immediately prior to the merger of TB&T Bancshares with and into Texas
Regional Delaware, Inc., Texas Regional, TB&T Bancshares and the Escrow Agent
hereby agree as follows:
1. ESCROW SHARES. Of even date herewith, Texas Regional is depositing
into escrow with the Escrow Agent, as required by the terms of the Agreement and
Plan of Reorganization, an aggregate of
shares of Texas Regional Class A Voting Common Stock (the "Escrow Stock"). At
all times during which any shares of Escrow Stock are held pursuant to this
Holdback Escrow Agreement, the TB&T Bancshares shareholders shall be treated as
the beneficial owners of the Escrow Stock, and as the beneficial owners of any
dividends thereon and any other proceeds thereof, in each case subject to the
rights of Texas Regional under this Holdback Escrow Agreement to require that
such shares of Escrow Stock (and any related dividends or other proceeds
thereof) be returned to Texas Regional in payment of Losses and Damages (as
herein defined) attributable to one or more Special Claims (as herein defined).
Each TB&T Bancshares shareholder shall be entitled to vote his or her allocated
shares of Escrow Stock in any action requiring a vote of the shareholders of
Texas Regional, unless and until such time as any of such shares of Escrow Stock
are actually distributed to Texas Regional in valid payment of Losses and
Damages attributable to a Special Claim.
2. SPECIAL CLAIMS. Texas Regional shall be entitled to require that
Escrow Stock be distributed to Texas Regional pursuant to this Holdback Escrow
Agreement, in the event that Texas Regional or any subsidiary of Texas Regional
(including Texas State Bank) is required to pay any amount of Losses and Damages
arising out of or directly or indirectly related to any of the following:
a. Any liability or obligation (including any incurred in the defense
of any claim) which arises out of the activities of Paula G. Gonzalez, a
former employee of TB&T, identified in a Special Report
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to the Board of Directors of TB&T dated April 15, 1997, a copy of which has
been provided to Texas Regional and marked for identification by Texas
Regional and TB&T Bancshares;
b. Any liability or obligation (including any incurred in the defense
of any claim) which arises in connection with a lawsuit filed as Cause
Number 97-06-04585-E and currently pending in the 357th District Court of
Cameron County, Texas, styled RAFAEL POZOS, SR. V. TEXAS BANK & TRUST AND
PAULA G. GONZALEZ;
c. Any liability or obligation (including any incurred in the defense
of any claim) which arises out of a claim by Rebecca Vera relating to an
alleged deposit and allegedly unauthorized transfers and withdrawals from
Ms. Vera's account, including those described in a demand letter written to
TB&T on behalf of Ms. Vera, dated May 23, 1997, a copy of which has been
provided to Texas Regional and marked for identification by Texas Regional
and TB&T Bancshares; and
d. Any liability or obligation (including any incurred in the defense
of any claim) which arises out of certain unaccounted for Certificates of
Deposit bearing the numbers indicated in the Missing Certificates of
Deposit Schedule, a copy of which has been provided to Texas Regional and
marked for identification by Texas Regional and TB&T Bancshares.
The foregoing are herein collectively referred to as the "Special
Claims." For purposes hereof, the term "Losses and Damages" shall mean any
and all amounts which are paid to claimants as a result of liquidation of
judgments or settlements and all out-of-pocket expenses, including, but not
necessarily limited to, reasonable attorney's fees, investigation costs,
accounting costs, court costs and other expenses. The fees and costs included
within Losses and Damages specifically includes the amounts of attorney's fees
and expenses of the counsel selected by the Special Agent for the TB&T
Bancshares shareholders and the counsel selected by the Special Agent for Texas
Regional pursuant to section 9 hereof.
3. DISTRIBUTION PROCEDURE. In the event Texas Regional, or its
subsidiaries, including specifically but without limitation, Texas Regional
Delaware, Inc. and Texas State Bank, in each case as successor-in-interest to
the mergers, respectively, with TB&T Bancshares and Texas Bank and Trust of
Brownsville, sustain Losses and Damages arising out of or related to Special
Claims, such Losses and Damages shall be paid as follows:
a. Until such time as aggregate Losses and Damages paid by return to
Texas Regional of Escrow Stock held pursuant to this Holdback Escrow
Agreement exceed $500,000.00, an amount equal to 90% of such Losses and
Damages shall be paid to Texas Regional by return of Escrow Stock to Texas
Regional.
b. In the event the aggregate amount of Losses and Damages paid by
distribution to Texas Regional of Escrow Stock held pursuant to this
Holdback Escrow Agreement are in excess of $500,000.00, an amount equal to
50% of each Special Claim thereafter paid shall be paid to Texas Regional
by return of Escrow Stock to Texas Regional from shares held pursuant to
this Holdback Escrow Agreement, until either this Holdback Escrow Agreement
is terminated or all of the Escrow Stock held pursuant to this Holdback
Escrow Agreement has been returned.
c. Nothing in this Holdback Escrow Agreement shall require any
officer, director, TB&T Bancshares shareholder or other person to pay any
Special Claim, other than by return or other distribution of Escrow Stock
held by pursuant to this Holdback Escrow Agreement.
The number of shares of Escrow Stock returned shall equal the amount of the
Losses and Damages being paid by return of Escrow Stock, divided by $30.025. In
the event of any return of Escrow Stock to Texas Regional pursuant to this
Holdback Escrow Agreement, such Escrow Stock shall be canceled as if never
issued.
4. DIVIDENDS OR OTHER PROCEEDS. In the event of any declaration of
dividends or other proceeds payable with respect to the Escrow Stock held
pursuant to this Holdback Escrow Agreement, such dividends and other proceeds
shall be retained in escrow pursuant to this Holdback Escrow Agreement, in an
interest bearing account or accounts, until such time as the shares of Escrow
Stock with respect to which
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such dividends or other proceeds were paid are either (i) returned to Texas
Regional in satisfaction of one or more Special Claims, in which event the
dividends, other proceeds and the earnings thereon shall be canceled as if never
paid or accrued; or (ii) distributed to the TB&T Bancshares shareholders listed
in Exhibit A, at which time the dividends or other proceeds attributable to
shares distributed to TB&T Bancshares shareholders and the earnings attributable
to such distributed dividends or other proceeds shall likewise be distributed to
the TB&T Bancshares shareholders.
5. TERMINATION. The escrow arrangement herein described shall be
terminated, and any Escrow Stock and undisbursed dividends and other proceeds
and any earnings then remaining in the escrow account shall be distributed to
the TB&T Bancshares shareholders listed in Exhibit A, in the percentages
indicated in Exhibit A on the date upon which all Special Claims have been fully
and completely resolved, in the joint discretion of the Special Agent on behalf
of Texas Regional and the Special Agent on behalf of the TB&T Bancshares
shareholders.
This Holdback Escrow Agreement shall automatically terminate upon the
return or distribution of all of the assets held in accordance with the terms
hereof, or if not sooner terminated shall automatically terminate and all such
assets shall be returned or distributed to the beneficiaries entitled thereto,
upon the expiration of twenty-one years following the date of execution hereof.
6. SPECIAL SECOND ANNIVERSARY DISTRIBUTION. If the Special Agents have
not jointly agreed that all Special Claims have been fully and completely
resolved on or prior to the second anniversary of the date of execution hereof,
the escrow relationship created by this Holdback Escrow Agreement shall continue
until the date that all Special Claims are fully and finally resolved; provided,
however, that the only Escrow Stock held pursuant to this Holdback Escrow
Agreement subsequent to the second anniversary of the date of execution hereof
shall be an amount reasonably determined by joint decision of the Special Agent
for Texas Regional and the Special Agent for the TB&T Bancshares shareholders,
to approximate the amount of Losses and Damages reasonably anticipated to arise
out of any Special Claims pending or threatened as of the second anniversary,
which amount shall continue to be held pursuant to this Holdback Escrow
Agreement on behalf of the shareholders listed in Exhibit A until the final
resolution of all such pending Special Claims. Any Escrow Stock (and all
dividends and other proceeds, and earnings thereon, with respect to such shares
of Escrow Stock) held pursuant to this Holdback Escrow Agreement in excess of
such agreed amount shall be distributed to the former TB&T Bancshares
shareholders as their respective interests may appear according to the records
kept by the Escrow Agent pursuant to section 7 hereof.
7. RECORDKEEPING; PROPORTIONATE FUNDING. The Escrow Agent shall maintain
appropriate records indicating, initially, the number of shares of Escrow Stock
allocated to the account of each TB&T Bancshares shareholder and, thereafter,
the reduction in number of shares of Escrow Stock as a result of distributions
to Texas Regional in payment of Special Claims and any reduction as a result of
distribution of Escrow Stock to the TB&T Bancshares shareholder. Any Special
Claim paid to Texas Regional pursuant to this Holdback Escrow Agreement shall be
funded by the Escrow Agent on a pro rata basis from all TB&T Bancshares
shareholder accounts held pursuant to this Holdback Escrow Agreement so that, as
nearly as possible, the Special Claims shall be funded from accounts maintained
by the Escrow Agent for the TB&T Bancshares shareholders in the percentages
indicated in Exhibit A. The Escrow Agent shall likewise maintain records
indicating the dividends and other proceeds allocated to each shareholder, any
earnings thereon, and any reductions resulting from distributions of Escrow
Stock to Texas Regional in payment of Losses and Damages and any distributions
of Escrow Stock to TB&T Bancshares shareholders in accordance with this Holdback
Escrow Agreement. Not less often than annually, the Escrow Agent shall provide a
report to the Special Agent for the TB&T Bancshares shareholders of the number
of shares of Escrow Stock and the amount of dividends and other proceeds, and
earnings on dividends, held for the benefit of each former TB&T Bancshares
shareholder.
8. JOINT ACTION OF SPECIAL AGENTS. Notwithstanding anything herein to the
contrary, no Escrow Stock, accumulated dividends or other proceeds or other
assets shall be distributed to Texas Regional under or pursuant to this Holdback
Escrow Agreement, in payment of Losses and Damages or otherwise, unless such
distribution is either (a) approved by Frank D. Yturria or his successor as
Special Agent on behalf of
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the shareholders of TB&T Bancshares; or (b) determined by binding arbitration as
herein provided to be a proper and lawful disbursement of such assets from the
escrow. Notwithstanding anything herein to the contrary, no Escrow Stock,
accumulated dividends or other proceeds or other assets shall be distributed to
the TB&T Bancshares shareholders under or pursuant to this Holdback Escrow
Agreement, unless such distribution is either (a) approved by Glen E. Roney or
his successor as Special Agent on behalf of Texas Regional; or (b) determined by
binding arbitration as herein provided to be a proper and lawful disbursement of
such assets from the escrow.
9. ACCESS TO INFORMATION; APPOINTMENT OF COUNSEL. During the term of this
Holdback Escrow Agreement, the TB&T Bancshares shareholders shall have complete
access to all information relating to the Special Claims, and the progress of
Texas Regional in resolving any Special Claims. The TB&T Bancshares
shareholders, acting by and through the Special Agent for the TB&T Bancshares
shareholders, and Texas Regional, acting by and through the Special Agent for
Texas Regional, shall each be entitled to select an attorney to participate, in
an "of counsel" capacity, in any judicial proceeding related to a Special
Claim. The attorneys' fees, costs and expenses of any such counsel selected by
the Special Agent for the TB&T Bancshares shareholders and any such counsel
selected by the Special Agent for Texas Regional shall be paid as part of the
Losses and Damages reimbursed pursuant to this Holdback Escrow Agreement.
10. RELIANCE ON SPECIAL AGENT AND NOTICES. Each TB&T Bancshares
shareholder shall be deemed for all purposes to have appointed Frank D. Yturria
or his successor as Special Agent on behalf of the TB&T Bancshares shareholders
to act as agent on their behalf with respect to any notices, receipts or other
acts, including settlement of any dispute or other matter arising out of this
Holdback Escrow Agreement, and Texas Regional and any other party shall be
entitled to rely upon the acts of such Special Agent in taking any action
hereunder. Texas Regional shall be deemed for all purposes to have appointed
Glen E. Roney or his successor as Special Agent on behalf of Texas Regional to
act as agent on its behalf with respect to any notices, receipts or other acts,
including settlement of any dispute or other matter arising out of this Holdback
Escrow Agreement, and the TB&T Bancshares shareholders and any other party shall
be entitled to rely upon the acts of such Special Agent in taking any action
hereunder.
Any notice required or permitted to be given hereunder shall be in writing
and shall be deemed delivered upon deposit of the same into the care and custody
of the United States Postal Services, by registered or certified mail, return
receipt requested, addressed to the party to whom such notice is to be given, as
follows:
If to TB&T Bancshares shareholders
or to the Special Agent for the
TB&T Bancshares shareholders:
Frank D. Yturria, Special Agent
3201 Central Boulevard, Suite 200
Brownsville, Texas 78520
with a copy to:
Rollins M. Koppel
Koppel, Ezell, Powers & Kimball, L.L.P.
312 East Van Buren
Harlingen, Texas 78551
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<PAGE>
If to Texas Regional or to the
Special Agent for Texas Regional:
Glen E. Roney, Special Agent
Kerria Plaza, Suite 301
5700 North Tenth Street
McAllen, Texas 78501
with a copy to:
William A. Rogers, Jr.
McGinnis, Lochridge & Kilgore, L.L.P.
919 Congress Avenue, Suite 1300
Austin, Texas 78701
11. DISPUTE RESOLUTION. Any dispute as to the propriety of a
distribution, determination of the Losses and Damages attributable to a Special
Claim, or the determination of whether a claim is in fact a Special Claim for
purposes of this Holdback Escrow Agreement, or any other dispute arising under
the terms of this Holdback Escrow Agreement, if not resolved to the satisfaction
of both the Special Agent for the TB&T Bancshares shareholders and the Special
Agent for Texas Regional, shall be submitted to binding arbitration for
resolution. Each of the Special Agent for the TB&T Bancshares shareholders and
the Special Agent for Texas Regional shall select a qualified, commercial
arbitrator. The two arbitrators so selected shall in turn select a third
arbitrator who shall sit with the two arbitrators selected by the parties as an
arbitration panel. The arbitrators shall in each case be qualified in
arbitrating matters such as the dispute in controversy, and they shall arbitrate
the dispute in accordance with applicable rules of the American Arbitration
Association. Any ruling rendered by the arbitrators shall be final, binding and
conclusive.
13. MISCELLANEOUS. This Holdback Escrow Agreement shall be construed by
and governed in accordance with the laws of the State of Texas.
This Holdback Escrow Agreement may be executed in one or more counterparts
each of which shall be deemed to be an original, but all of which together shall
constitute but one and the same instrument.
This Holdback Escrow Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective successors and assigns, but may
not be assigned by any party without the prior written consent of the Special
Agent for Texas Regional and the Special Agent for the TB&T Bancshares
shareholders.
If any provision hereof is found to be illegal, invalid or unenforceable,
the illegality, invalidity or unenforceability of such provision shall not be
construed to affect the remainder of this Holdback Escrow Agreement, and the
illegal, invalid or unenforceable provision shall be reformed by a court of
competent jurisdiction in such a manner as to be legal, valid and enforceable.
Headings contained herein have been inserted for convenience of reference
only and shall not be deemed to construe or interpret any part of this Holdback
Escrow Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their hands, or those of their
duly authorized officers, to be affixed as of the date first written above.
Texas Regional Bancshares, Inc.
By:____________________________
GLEN E. RONEY,
CHAIRMAN OF THE BOARD
TB&T Bancshares, Inc.
By:____________________________
FRANK D. YTURRIA,
CHAIRMAN OF THE BOARD
ACCEPTED AND AGREED TO
for the limited purposes of
accepting appointment as Special Agents
as herein provided
_______________________________________
GLEN E. RONEY
_______________________________________
FRANK D. YTURRIA
The undersigned agrees to act as Escrow Agent for all interested parties
pursuant to this Agreement without any fees or other charges, except for
reimbursement of actual reasonable expenses, and without any liability on its
part except for fraud or gross negligence.
TEXAS STATE BANK TRUST DEPARTMENT
By:______________________________
CARROLL W. STURGIS, JR.
SENIOR VICE PRESIDENT & SENIOR TRUST OFFICER
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SCHEDULE 2.2
None.
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<PAGE>
SCHEDULE 2.4.1
Special Claims as identified and described in the Holdback Escrow Agreement
attached hereto as Schedule 1.7, including specifically those described in the
Special Report to the Board of Directors of TB&T Bancshares and the Supplemental
Report and counsel's letter referred to therein (which documents have been
marked for identification by Texas Regional and TB&T Bancshares)
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<PAGE>
SCHEDULE 2.10
Life, AD&D and Health Insurance for employees under policy number 49,293
and 54,050 issued by Jefferson-Pilot Insurance Company
Lease Agreement dated December 28, 1994, between Texas Bank and Trust as
lessor and Frank D. Yturria, as lessee, as modified by Rental Lease Agreement
dated September 23, 1997
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<PAGE>
SCHEDULE 2.12
TEXAS BANK & TRUST/TB&T BANCSHARES, INC.
SCHEDULE OF INSURANCE
BANKING HOUSE INSURANCE POLICIES
FIDELITY BOND:
Executive Risk Specialty Insurance Co.
Policy Number: 751-054560-96
Policy Period: 12/11/96 to 10/01/97
extended to 1/31/98
DIRECTORS & OFFICERS LIABILITY INSURANCE:
Executive Risk Specialty Insurance Co.
Policy Number: 751-031201-96
Policy Period: 01-18-97 to 10/01/97
extended to 1/31/98
KIDNAP AND RANSOM COVERAGE:
Lloyd's, London
Policy Number: Under Binder #TBT
(Former Policy Number
Auth Ref. 96 B00624, Cert. SCAR 6819)
Policy Period: 10/01/97 to 10/01/98
FINANCIAL INSTITUTION PACKAGE POLICY:
Fidelity & Deposit Company of Maryland
Policy Number: FIP 0005190 01
Policy Period: 08/01/97 to 08/01/98
COMMERCIAL CASTROPHE LIABILITY POLICY:
Fidelity & Deposit Company of Maryland
Policy Number: CCL 0001573-05
Policy Period: 08/01/97 to 08/01/98
WORKERS COMPENSATION AND EMPLOYERS LIAB INS POLICY:
Fidelity & Deposit Company of Maryland
Policy Number: WCP 0009669 00
Policy Period: 08/0l/97 to 08/01/98
COMMERCIAL AUTO COVERAGE:
Fidelity & Deposit Company of Maryland
Policy Number: CAP 0008536 02
Policy Period: 08/01/97 to 08/01/98
OTHER REAL ESTATE OWNED INSURANCE POLICY:
Fidelity & Deposit Ins. Companies
Policy Number: PCP 0003737-01
Policy Period: 08/01/97 to 08/01/98
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<PAGE>
SCHEDULE 2.15
Bob A. Austin
Julius Collins
James A. John
Dwayne Tyner, Trustee
Frank D. Yturria
James O. Brown
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ANNEX B
PROVISIONS OF TEXAS BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11 of this
Act may exercise that right to dissent only by complying with the following
procedures:
(l)(a) With respect to proposed corporate action that is submitted to
a vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the
case of action other than a merger, and the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten
(10) days after the date the action is effected, mail to each shareholder
of record as of the effective date of the action notice of the fact and
date of the action and that the shareholder may exercise the shareholder's
right to dissent from the action. The notice shall be accompanied by a cow
of this Article and any articles or documents filed by the corporation with
the Secretary of State to effect the action. If the shareholder shall not
have consented to the taking of the action, the shareholder may, within
twenty (20) days after the mailing of the notice, make written demand on
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, of a demand for payment made by a dissenting shareholder in accordance
with Subsection (1) of this Section, the corporation (foreign or domestic)
or other entity shall deliver or mail to the shareholder a written notice
that shall either set out that the corporation (foreign or domestic) or
other entity accepts the amount claimed in the demand and agrees to pay
that amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
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<PAGE>
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the, date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
shares of which they are charged with the duty of valuing, and they shall make a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, (foreign or
domestic) or other entity, as the case may be, of duly endorsed certificates for
those shares. Upon payment of the judgment, the dissenting shareholders shall
cease to have any interest in those shares or in the corporation. The court
shall allow the appraisers a reasonable fee as court costs, and all court costs
shall be allotted between the parties in the manner that the court determines to
be fair and equitable.
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E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action. If
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
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<PAGE>
ANNEX C
TAX OPINION
December 5, 1997
Texas Regional Bancshares, Inc.
3700 North 10th Street
P.O. Box 5910
McAllen, Texas 78502
TB&T Bancshares, Inc.
P.O. Box 5210
Brownsville, Texas 78523
Re: Texas Regional Bancshares, Inc.: Acquisition of
TB&T Bancshares, Inc.
Dear Sir or Madam:
You have requested the opinion of KPMG Peat Marwick LLP ("KPMG") as to
certain Federal income tax consequences to Texas Regional Bancshares, Inc.,
Texas Regional Delaware, Inc., Texas State Bank, TB&T Bancshares, Inc., Texas
Bank and Trust of Brownsville and the shareholders of TB&T Bancshares, Inc. with
respect to the proposed transaction described below. Our opinion is based solely
upon information provided to us in an "Agreement and Plan of Reorganization"
dated October 15, 1997 ("the Agreement") with respect to the two mergers
described below and information and representations provided to us as set forth
in the sections of this letter entitled "FACTS," "PROPOSED TRANSACTION" and
"REPRESENTATIONS."
You have advised us that your statements provide an accurate and complete
description of the facts and circumstances concerning the transaction, and we
have made no independent inquiry into them. In addition, we have made certain
assumptions with respect to the facts herein. Any variance or omission in the
facts and circumstances, assumptions or representations set forth below may
adversely affect the views stated herein. We have reviewed no other legal
documents other than the Agreement which are necessary to effectuate the
transaction. We assume that all steps will be properly effectuated under the
applicable laws of the states of Texas and Delaware, and are consistent with the
information submitted to us.
Further, in rendering our opinion, we are relying upon the Internal Revenue
Code of 1986 and Treasury Department regulations thereunder, as amended and in
effect on the date hereof, and Revenue Rulings, Revenue Procedures and reported
judicial decisions as they existed on the date of this opinion letter. Each of
the foregoing is subject to change or modification by subsequent legislation, or
regulatory, administrative or judicial decisions. Any such change could also
have an effect on the validity of the conclusions set forth herein retroactively
or prospectively. Further, the opinion which is rendered should be considered
together with various risks set forth in the "CAVEAT" section of this letter.
Unless requested otherwise, we undertake no responsibility to update our opinion
in the event of any subsequent change in the foregoing.
FACTS
Texas Regional Bancshares, Inc. ("Texas Regional") is a Texas corporation
that is a bank holding company. Texas Regional is the common parent of an
affiliated group of corporations that file a consolidated federal income tax
return. The authorized capital of Texas Regional consists of 20 million shares
of Class A Voting Common Stock, par value $1.00 per share, of which 13,110,639
are issued and
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outstanding. Texas Regional also has authorized 10 million shares of preferred
stock, none of which are issued or outstanding.
Texas Regional Delaware, Inc. ("TRD") was incorporated in Delaware on
October 1, 1997, as a wholly-owned subsidiary of Texas Regional for the purpose
of facilitating the proposed transaction herein described. The authorized
capital of TRD consists of 3,000 shares of common stock of which 3,000 are
issued and outstanding.
Texas State Bank ("Texas State Bank") is a Texas state banking
association and at the time of the merger, will be a wholly-owned subsidiary of
TRD. The authorized capital of Texas State Bank consists of 9 million shares of
common stock of which 9 million were issued and outstanding as of October 15,
1997.
TB&T Bancshares, Inc. ("TB&T Bancshares") is a Texas corporation that is
a bank holding company. The authorized capital of TB&T Bancshares consists of
2,000,000 shares of $1.00 par value common stock of which 1,695,775 shares are
issued and outstanding.
Texas Bank and Trust of Brownsville ("Texas Bank & Trust") is a Texas
state banking association engaged in the commercial banking business in Texas.
Texas Bank & Trust is a wholly-owned subsidiary of TB&T Bancshares. The
authorized capital of Texas Bank & Trust consists of 100,000 shares of $7.50 par
value common stock, all of which are issued and outstanding.
The respective managements of Texas Regional and TB&T Bancshares believe
that a combination of their respective businesses will enable both companies to
grow and operate more efficiently.
PROPOSED TRANSACTION
In order to accomplish the aforementioned goals, the following transaction
has been proposed:
(1) TB&T Bancshares will merge with and into TRD with TRD surviving,
pursuant to the applicable laws of the states of Delaware and Texas. As a
result of the merger, the shares of TB&T Bancshares common stock (other
than any shareholder validly exercising dissenters' rights of appraisal)
shall be automatically converted into 0.1522126 of a share of Texas
Regional Class A Voting Common Stock ("Texas Regional Common Stock") for
each share of TB&T Bancshares common stock. In addition, for each share of
TB&T Bancshares common stock outstanding, 0.0294605 of a share of Texas
Regional Common Stock will be deposited into an escrow to be either
distributed to the shareholders of TB&T Bancshares or returned to Texas
Regional for cancellation upon the occurrence of certain conditions.
Fractional shares shall not be issued and any amount attributable to
fractional shares shall be paid in cash. Amounts payable in respect of
shareholders exercising dissenters' rights of appraisal shall be payable by
TRD.
(2) As stated above, Texas Regional will transfer shares of its
common stock to an escrow agent pursuant to the Holdback Escrow Agreement
("the Escrow Agreement"). The TB&T Bancshares shareholders will have the
right to vote such shares. The reason for the escrow arrangement is to
provide for a purchase price adjustment in the event that Texas Regional or
any subsidiary of Texas Regional (including Texas State Bank) is required
to pay any amount of losses or damages arising from certain claims against
TB&T Bancshares or Texas Bank & Trust.
(3) Concurrently with or immediately after the merger of TB&T
Bancshares into TRD, Texas Bank & Trust will merge with and into Texas
State Bank, with Texas State Bank surviving, pursuant to the applicable
laws of the state of Texas.
REPRESENTATIONS
In connection with the proposed transaction, the following representations
have been made:
(a) The fair market value of the Texas Regional Common Stock to be
received by the TB&T Bancshares shareholders will in each instance be
approximately equal to the fair market value of the TB&T Bancshares common
stock to be surrendered in exchange therefor.
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(b) The managements of TB&T Bancshares and Texas Regional are not
aware of any plan or intention on the part of the TB&T Bancshares
shareholders to sell or otherwise dispose of a number of shares of Texas
Regional Common Stock to be received in the proposed transaction that will
reduce such shareholders' ownership to a number of shares having, in the
aggregate, a value of less than 50 percent of the fair market value of the
TB&T Bancshares common stock outstanding as of the effective date of the
proposed transaction. Sales, redemptions, and other dispositions of TB&T
Bancshares common stock (including payment of cash to dissenters and
exchanges for cash in lieu of fractional shares of Texas Regional Common
Stock) will be considered in determining whether there is a 50 percent
continuing interest through stock ownership as of the effective date of the
proposed transaction.
(c) TRD will acquire at least 90 percent of the fair market value of
the net assets and at least 70 percent of the fair market value of the
gross assets held by TB&T Bancshares immediately prior to the transaction.
For purposes of this representation, amounts paid by TB&T Bancshares or TRD
to dissenters, amounts paid by TB&T Bancshares to shareholders who receive
cash or other property, assets of TB&T Bancshares used to pay its
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by TB&T Bancshares immediately preceding
the transaction will be included as assets of TB&T Bancshares immediately
prior to the transaction.
(d) Prior to the transaction, Texas Regional will be in control of
TRD within the meaning of 368(c).1
(e) Following the transaction, TRD will not issue additional shares
of its stock that would result in Texas Regional losing control of TRD
within the meaning of 368(c).
(f) The merger of TB&T Bancshares into TRD will qualify as a
statutory merger under the applicable laws of the states of Delaware and
Texas, and the merger of Texas Bank & Trust into Texas State Bank will
qualify as a statutory merger under the applicable laws of the state of
Texas.
(g) Texas Regional, TRD and Texas State Bank have no plan or
intention to sell or otherwise dispose of any of the assets to be received
from TB&T Bancshares and Texas Bank & Trust, except for dispositions made
in the ordinary course of business.
(h) Following the proposed transaction, Texas Regional, TRD and Texas
State Bank will continue to conduct the banking businesses of Texas Bank &
Trust in a substantially unchanged manner.
(i) The liabilities of TB&T Bancshares and Texas Bank & Trust to be
assumed by TRD and Texas State Bank, respectively, and the liabilities to
which the transferred assets of TB&T Bancshares and Texas Bank & Trust are
subject were incurred by TB&T Bancshares and Texas Bank & Trust in the
ordinary course of their businesses, in each instance.
(j) There is no intercorporate indebtedness existing between (i) any
of TB&T Bancshares or Texas Bank & Trust and (ii) any of Texas Regional,
TRD or Texas State Bank that was issued, acquired, settled or will be
settled at a discount.
(k) Texas Regional, TB&T Bancshares, TRD, Texas Bank & Trust, Texas
State Bank and their respective shareholders will pay their own expenses,
if any, incurred in or arising out of the proposed transaction.
(l) None of the parties to the proposed transaction are "investment
companies" as defined in Section 368(a)(2)(F)(iii) and (iv).
(m) The fair market value and the adjusted basis of the assets of
TB&T Bancshares to be transferred to TRD will each exceed the sum of
liabilities to be assumed by TRD plus the amount of liabilities to which
the assets to be transferred are subject.
- ------------------
1All references to "Section" or "" will be to the Internal Revenue Code of
1986, as amended, unless otherwise noted.
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<PAGE>
(n) The fair market value and adjusted basis of the assets of Texas
Bank & Trust to be transferred to Texas State Bank will each exceed the sum
of liabilities to be assumed by Texas State Bank plus the amount of
liabilities to which the assets to be transferred are subject.
(o) The payment of cash in lieu of fractional shares of Texas
Regional Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Texas Regional of issuing fractional shares and does not
represent separately bargained for consideration. The total cash
consideration that will be paid in the transaction to the TB&T Bancshares
shareholders instead of issuing fractional shares of Texas Regional Common
Stock will not exceed one percent of the total consideration that will be
given in the transaction to the TB&T Bancshares shareholders in exchange
for their shares of TB&T Bancshares common stock and no one shareholder
will receive, in the aggregate, cash in lieu of more than a fractional
share of Texas Regional Common Stock.
(p) Texas Regional has no plan or intention to redeem or otherwise
reacquire its stock to be issued in the proposed transaction.
(q) Texas Regional has no plan or intention to liquidate TRD; to
merge TRD with and into another corporation; to sell or otherwise dispose
of the stock of TRD; or to cause TRD to sell or otherwise dispose of any of
the assets of TB&T Bancshares acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers described
in 368(a)(2)(C).
(r) Texas Regional and TRD have no plan or intention to sell or
otherwise dispose of the stock of Texas State Bank or to liquidate Texas
State Bank.
(s) No stock of TRD will be issued in the proposed transaction.
(t) Compensation to be paid to shareholder-employees of TB&T
Bancshares or Texas Bank & Trust after the proposed transaction will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services. No part of
such compensation will be in consideration for their TB&T Bancshares stock.
(u) The Texas Regional Common Stock to be placed in escrow by Texas
Regional will be legally issued and outstanding pursuant to state law and
will appear as issued and outstanding on the balance sheet of Texas
Regional.
(v) All dividends paid on the escrowed stock will be escrowed in
accordance with the Escrow Agreement.
(w) All voting rights of the escrowed stock will be exercisable by
the TB&T Bancshares shareholders or on behalf of the TB&T Bancshares
shareholders by their authorized agents.
(x) No shares of escrowed stock are subject to restrictions requiring
their return to Texas Regional because of death, failure to continue
employment or similar restrictions.
(y) All of the escrowed stock will be released from escrow within two
years of the date of consummation of the transaction unless there are
unresolved claims specified in the Escrow Agreement. If on the second
anniversary of the date of execution of the Escrow Agreement there is an
unresolved claim, the amount of stock held in escrow shall be an amount
reasonably determined to approximate the amount of losses and damages
reasonably anticipated to arise out of any claims pending or threatened as
of the second anniversary.
(z) At least 50 percent of the total number of shares of the Texas
Regional Common Stock issued initially to the shareholders of TB&T
Bancshares will not be subject to the escrow agreement.
(aa) The return of any escrowed shares will not be triggered by an
event the occurrence or nonoccurrence of which is within the control of the
shareholders.
(bb) The return of any escrowed shares will not be triggered by the
payment of additional tax or reduction in tax paid as a result of an IRS
audit of TB&T Bancshares or its shareholders either (i) with respect to the
reorganization transaction in which such stock will be issued or (ii) when
the
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reorganization transaction in which the escrowed stock will be issued
involves persons related within the meaning of 267(c)(4).
(cc) The mechanism for the calculation of the number of shares of
escrowed stock to be returned, if any, is objective and reasonably
ascertainable.
(dd) The reason for the escrow arrangement is to provide for a
purchase price adjustment in the event that Texas Regional or any
subsidiary of Texas Regional (including Texas State Bank) is required to
pay any amount of losses or damages arising from certain claims against
TB&T Bancshares or Texas Bank & Trust.
ISSUE
Whether (i) the proposed merger of TB&T Bancshares with and into TRD and
(ii) the proposed merger of Texas Bank & Trust with and into Texas State Bank
will each qualify as a reorganization within the meaning of 368(a)(1) and, if
so, what are the federal income tax consequences to Texas Regional, TRD, Texas
State Bank, Texas Bank & Trust, TB&T Bancshares and its shareholders.
OPINION
Based on the facts and representations set forth above and the Agreement,
it is our view that the federal income tax consequences of the proposed mergers
are as follows:
(1) Provided that the merger of TB&T Bancshares with and into TRD
qualifies as a statutory merger under the applicable laws of the states of
Delaware and Texas, such merger involving the acquisition by TRD of
substantially all of the assets of TB&T Bancshares in exchange for Texas
Regional Common Stock and the assumption by TRD of the liabilities of TB&T
Bancshares will constitute a reorganization within the meaning of
368(a)(1)(A) and 368(a)(2)(D). For this purpose, "substantially all"
means at least ninety percent of the fair market value of the net assets
and at least seventy percent of the fair market value of the gross assets
of TB&T Bancshares. Texas Regional, TB&T Bancshares, and Texas Bank & Trust
will each be a "party to a reorganization" within the meaning of 368(b).
(2) Provided that the merger of Texas Bank & Trust with and into
Texas State Bank qualifies as a statutory merger under the applicable laws
of the state of Texas, such merger will constitute a reorganization within
the meaning of 368(a)(1) and Texas Bank & Trust and Texas State Bank will
each be a "party to a reorganization" within the meaning of 368(b).
(3) No gain or loss will be recognized by the shareholders of TB&T
Bancshares upon receipt of solely Texas Regional Common Stock in exchange
for TB&T Bancshares common stock (including any fractional share interests
to which they may be entitled) as described above or upon distribution of
shares of Texas Regional Common Stock from the escrow pursuant to the
Escrow Agreement (Section 354(a)(1)).
(4) The basis of the Texas Regional Common Stock to be received by
the shareholders of TB&T Bancshares (including any fractional share
interests to which they may be entitled and including the shares subject to
the Escrow Agreement) will be the same as the basis of the TB&T Bancshares
common stock surrendered in exchange therefor (Section 358(a)(1)).
(5) The holding period of the Texas Regional Common Stock to be
received by the shareholders of TB&T Bancshares (including any fractional
share interests to which they may be entitled) will include the period
during which the TB&T Bancshares common stock surrendered in exchange
therefor was held, provided that the TB&T Bancshares common stock was held
as a capital asset on the date of the exchange (Section 1223(1)).
(6) The payment of cash to TB&T Bancshares shareholders in lieu of
fractional shares of Texas Regional Common Stock will be treated for
federal income tax purposes as if the fractional shares were distributed as
part of the exchange and then were redeemed by Texas Regional. The cash
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payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in 302(a) (Rev. Rul.
66-365, 1966-2 C.B. 116, and Rev. Proc. 77-41, 1977-2 C.B. 574). As
provided in 1001, gain or loss will be realized and recognized to such
shareholders measured by the difference between the redemption price and
the adjusted basis of the Texas Regional Common Stock surrendered as
determined under 1012.
(7) Where cash is received by a dissenting TB&T Bancshares
shareholder in exchange for his, her or its TB&T Bancshares common stock,
as described above, such cash will be treated as having been received by
such shareholder as a distribution in redemption of his, her or its TB&T
Bancshares common stock subject to the provisions and limitations of 302.
(8) No gain or loss will be recognized by TB&T Bancshares upon the
transfer of substantially all of its assets to TRD in exchange for Texas
Regional Common Stock and the assumption by TRD of all the liabilities of
TB&T Bancshares (Sections 361 and 357(a)).
(9) No gain or loss will be recognized by Texas Bank & Trust upon the
transfer of its assets to Texas State Bank in constructive exchange for
Texas State Bank common stock and the assumption by Texas State Bank of all
the liabilities of Texas Bank & Trust (Sections 361 and 357(a)).
(10) No gain or loss will be recognized by either Texas Regional or
TRD upon the acquisition by TRD of substantially all of the assets of TB&T
Bancshares in exchange for Texas Regional Common Stock and the assumption
by TRD of the liabilities of TB&T Bancshares (Treas. Reg. section 1.1032-2
and Rev. Rul. 57-278, 1957-1 C.B. 124).
(11) No gain or loss will be recognized by Texas State Bank on the
receipt by Texas State Bank of the assets of Texas Bank & Trust in
constructive exchange for shares of Texas State Bank stock (Section
1032(a)).
(12) The basis of the assets of TB&T Bancshares and Texas Bank &
Trust acquired by TRD and Texas State Bank, respectively, will be the same
as the basis of such assets in the hands of TB&T Bancshares and Texas Bank
& Trust immediately prior to the exchange (Section 362(b)).
(13) Texas Regional Common Stock dividends paid into the escrow
created pursuant to the Escrow Agreement will be taxed to the TB&T
Bancshares shareholders upon payment of the dividends to the escrow. TB&T
Bancshares shareholders will be entitled to a deduction in the event the
dividends, or a portion thereof are returned to Texas Regional (or TRD),
pursuant to the Escrow Agreement.
CAVEAT
No opinions are provided with respect to issues not specifically set forth
in the "OPINION" section of this letter. No inference should be drawn
regarding any matter not specifically opined upon. Our opinion has not been
requested and none is expressed with respect to any foreign, state or local tax
consequences to TB&T Bancshares or its shareholders, Texas Regional or its
shareholders, Texas Bank & Trust, TRD or Texas State Bank including, but not
limited to, income, franchise, sales, use, excise or transfer taxes which may be
significant.
Our conclusions with respect to the subject transaction are based upon the
assumption that the stock consideration received by the shareholders of TB&T
Bancshares in exchange for their TB&T Bancshares stock consists solely of Texas
Regional Class A Voting Common Stock (other than payments for fractional shares
and payments to dissenters), and no views are expressed with respect to the
subject transaction if consideration other than Texas Regional Common Stock is
issued to the shareholders of TB&T Bancshares in exchange for their shares.
This opinion letter sets forth our views based on the completeness and
accuracy of the above stated facts and any assumptions that were included. If
any of the foregoing is not entirely complete or accurate, it is imperative that
we be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the
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Internal Revenue Code of 1986, as amended, the regulations thereunder, and
judicial and administrative interpretations thereof, which are subject to change
or modification by subsequent legislative, regulatory, administrative, or
judicial decisions. Any such changes could also have an effect on the validity
of our opinion. This opinion is not binding on the Internal Revenue Service, any
other tax authority, or any court. No assurance can be given that a position
different than that expressed herein will not be asserted by a tax authority and
sustained by a court.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
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ANNEX D
TB&T BANCSHARES, INC. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
YEARS ENDED DECEMBER 31, 1996, 1995 AND
1994
Independent Auditor's Report............ D-2
Consolidated Balance Sheets............. D-3
Consolidated Statements Of Income....... D-4
Consolidated Statements Of Changes In
Shareholders' Equity.................. D-5
Consolidated Statements Of Cash Flows... D-6
Notes To Consolidated Financial
Statements............................ D-7
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
1996
Consolidated Balance Sheets
(Unaudited)............................. D-19
Consolidated Statements of Income
(Unaudited)............................. D-20
Consolidated Statements of Shareholders'
Equity (Unaudited)...................... D-21
Consolidated Statements of Cash Flows
(Unaudited)............................. D-22
Notes to Unaudited Consolidated
Financial Statements.................... D-23
D-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
TB & T Bancshares, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of TB & T
Bancshares, Inc. (a Texas corporation) and its subsidiary, Texas Bank and Trust,
as of December 31, 1996, and the related statements of income, changes in
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TB & T
Bancshares, Inc. and its subsidiary at December 31, 1996 and the consolidated
results of their operations and their consolidated cash flows for the year then
ended in conformity with generally accepted accounting principles.
As discussed in Notes H and K to the financial statements, the Company is
the defendant in a lawsuit and has received threats of potential litigation
arising from allegations of misappropriation of funds by one of the Company's
former employees. Preliminary hearings and discovery proceedings are in
progress. The ultimate outcome of this litigation cannot presently be
determined, but management is of the opinion that it will not have a material
impact on the Company's financial position. Accordingly, no provision for any
liability that may result has been made in the financial statements.
/s/ LONG, CHILTON, PAYTE & HARDIN
LONG, CHILTON, PAYTE & HARDIN, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Harlingen, Texas
November 7, 1997
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<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1996 1995
--------- ---------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
ASSETS
Cash and due from banks.............. $ 1,596 $ 1,963
Federal funds sold................... 1,905 1,250
--------- ---------
Total cash and cash
equivalents.................... 3,501 3,213
Securities available for sale........ 689 2,381
Securities held to maturity
(estimated market value of
$16,770,000
and $14,840,000 at December 31,
1996 and 1995, respectively)....... 16,804 14,861
Loans, net of unearned discount of
$284,000 and $261,000 at December
31,
1996 and 1995, respectively........ 20,298 19,162
Less allowance for loan losses....... (487) (527)
--------- ---------
Net loans....................... 19,811 18,635
Premises and equipment, net.......... 1,417 1,525
Accrued interest receivable.......... 354 336
Other real estate.................... 150 150
Other assets......................... 26 --
--------- ---------
Total Assets.................... $ 42,752 $ 41,101
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand -- noninterest bearing... $ 8,932 $ 8,163
Savings......................... 3,872 3,952
Money market and NOW accounts... 7,849 7,923
Time deposits................... 17,859 17,033
--------- ---------
Total deposits 38,512 37,071
Accounts payable and accrued
liabilities........................ 488 641
--------- ---------
Total liabilities.......... 39,000 37,712
Commitments and Contingencies........ -- --
Shareholders' equity
Common stock -- $1.00 par value,
5,000,000 shares authorized;
issued
and outstanding, 1,695,775 at
December 31, 1996 and 1,833,460
at December 31, 1995.......... 1,696 1,833
Paid-in capital................. 812 884
Retained earnings............... 1,243 662
Unrealized gain (loss) on
securities available for
sale........................... 1 10
--------- ---------
Total Shareholders'
Equity.................. 3,752 3,389
--------- ---------
Total Liabilities and
Shareholders' Equity.... $ 42,752 $ 41,101
========= =========
The accompanying notes are an integral part of these financial statements.
D-3
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
Interest income
Loans, including fees........... $ 2,090 $ 1,956 $ 1,625
Investment securities...........
Taxable.................... 1,007 1,060 1,168
Tax-exempt................. 15 2 --
Federal funds sold.............. 49 46 21
--------- ----------- -----------
Total interest income...... 3,161 3,064 2,814
Interest expense
Deposits........................ 1,309 1,221 1,083
Federal funds purchased and
securities sold under
repurchase agreements......... -- 3 2
Notes payable and subordinated
debentures.................... 2 26 35
--------- ----------- -----------
Total interest expense..... 1,311 1,250 1,120
Net interest income.................. 1,850 1,814 1,694
Provision for loan losses............ -- -- --
--------- ----------- -----------
Net interest income after
provision for loan losses..... 1,850 1,814 1,694
Noninterest income
Service charges on deposit
accounts...................... 270 261 262
Other service charges........... 38 39 46
Net investment securities gains
(losses)...................... -- -- --
Other operating income.......... 82 20 35
--------- ----------- -----------
Total noninterest income... 390 320 343
Noninterest expense
Salaries and employee
benefits...................... 748 710 724
Net occupancy expense........... 173 145 139
Equipment expense............... 116 81 63
Other real estate (income)
expense, net.................. (16) (15) --
Other noninterest expense....... 349 462 516
--------- ----------- -----------
Total noninterest
expense................. 1,370 1,383 1,442
--------- ----------- -----------
Income before income tax expense..... 870 751 595
Income tax expense................... 289 219 241
--------- ----------- -----------
Net income...................... $ 581 $ 532 $ 354
========= =========== ===========
Primary earnings per common share
Net income...................... $ .33 $ .29 $ .17
Weighted average number of
common shares outstanding
(in thousands)................ 1,773 1,833 2,116
The accompanying notes are an integral part of these financial statements.
D-4
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
RETAINED SECURITIES TOTAL
COMMON PAID-IN EARNINGS TREASURY AVAILABLE SHAREHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK FOR SALE EQUITY
------ -------- -------- -------- ----------- --------------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1993 --
<S> <C> <C> <C> <C> <C> <C>
unaudited.......................... $1,128 $ 886 $ (41) $ (3) $-- $1,970
Net income for 1994............. -- -- 354 -- -- 354
Changes in unrealized losses on
securities available for sale
net of deferred tax........... -- -- -- -- (171) (171)
Common stock issued............. 15 -- -- -- -- 15
Treasury stock cancelled........ (1 ) (2) -- 3 -- --
------ -------- -------- -------- ----------- --------------
Balance at December 31, 1994 --
unaudited.......................... 1,142 884 313 -- (171) 2,168
Net income for 1995............. -- -- 532 -- -- 532
Changes in unrealized losses on
securities available for sale
net of deferred tax........... -- -- -- -- 181 181
Common stock issued............. 691 -- -- -- -- 691
Dividends declared.............. -- -- (183) -- -- (183)
------ -------- -------- -------- ----------- --------------
Balance at December 31, 1995 --
unaudited.......................... 1,833 884 662 -- 10 3,389
Net income for 1996............. -- -- 581 -- -- 581
Changes in unrealized losses on
securities available for sale
net of deferred tax........... -- -- -- -- (9) (9)
Treasury stock purchased........ -- -- -- (209) -- (209)
Treasury stock cancelled........ (137 ) (72) -- 209 -- --
------ -------- -------- -------- ----------- --------------
Balance at December 31, 1996......... $1,696 $ 812 $1,243 $-- $ 1 $3,752
====== ======== ======== ======== =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
D-5
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income...................... $ 581 $ 532 $ 354
Adjustments to reconcile net
income to net cash provided by
operating activities..........
Depreciation, amortization
and accretion, net...... 121 125 320
(Gain) loss on sales of
premises and
equipment............... (70) -- --
(Increase) decrease in
accrued interest
receivable
and other assets........ (46) 119 429
Increase (decrease) in
accounts payable and
accrued liabilities..... 30 231 (168)
--------- ----------- -----------
Net cash provided by operating
activities......................... 616 1,007 935
Cash flows from investing activities
Proceeds from maturing
securities available for
sale.......................... 1,671 4,449 9,171
Purchases of securities
available for sale............ -- (899) (3,619)
Proceeds from maturing
securities held to maturity... 3,861 3,985 476
Purchases of securities held to
maturity...................... (5,803) (3,316) (5,174)
Loan originations and advances
(net)......................... (1,199) (2,367) (1,865)
Recoveries of charged-off
loans......................... 34 102 54
Proceeds from sale of premises
and equipment................. 320 -- --
Purchases of premises and
equipment..................... (261) (319) (12)
--------- ----------- -----------
Net cash provided (used) by investing
activities......................... (1,377) 1,635 (969)
Cash flows from financing
activities.........................
Net increase (decrease) in
demand, savings, money market
checking and savings deposit
accounts...................... 615 (1,466) (169)
Net increase (decrease) in time
deposits...................... 826 815 (872)
Net increase (decrease) in
federal funds purchased....... -- (475) 475
Principal payments on
debentures.................... -- (277) (22)
Principal payment on notes
payable....................... -- -- (150)
Proceeds from sale of common
stock......................... -- -- 15
Purchase of treasury stock...... (209) -- --
Cash dividends paid on common
stock......................... (183) -- --
--------- ----------- -----------
Net cash provided (used) by financing
activities......................... 1,049 (1,403) (723)
--------- ----------- -----------
Increase (decrease) in cash and cash
equivalents........................ 288 1,239 (757)
Cash and cash equivalents at
beginning of year.................. 3,213 1,974 2,731
--------- ----------- -----------
Cash and cash equivalents at end of
year............................... $ 3,501 $ 3,213 $ 1,974
========= =========== ===========
Supplemental disclosures of cash
information
Interest paid................... $ 1,298 $ 1,230 $ 1,122
Income taxes paid............... 208 8 2
Supplemental schedule of noncash
investing and
financing activities...............
Foreclosure and
repossession in partial
satisfaction
of loan receivable...... 78 20 17
Common stock issued in lieu
of payment on
debentures.............. -- 691 --
The accompanying notes are an integral part of these financial statements.
D-6
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
TB & T Bancshares, Inc. (the "Parent") is a bank holding company
regulated by the Federal Reserve System. The Parent owns 100 percent of the
stock of Texas Bank & Trust (the "Subsidiary"). The Subsidiary is a state
chartered bank and is subject to the rules and regulations of the Texas
Department of Banking and is a member of the Federal Deposit Insurance
Corporation ("FDIC"). The Subsidiary grants agri-business, commercial,
consumer, residential and real estate loans to customers primarily in the Rio
Grande Valley of Texas. Although the Subsidiary has a diversified loan
portfolio, a substantial portion of the collateral securing its portfolio is
represented by real estate as further depicted in note D.
The accounting and reporting policies of TB & T Bancshares, Inc. and
Subsidiary (collectively, the "Company") conform to generally accepted
accounting principles and to prevailing practices within the banking industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of the more significant accounting policies follows:
FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of TB & T
Bancshares, Inc. and its wholly owned subsidiary, Texas Bank & Trust (the
"Bank"). All significant intercompany accounts and transactions have been
eliminated in consolidation. Investments in the subsidiary are accounted for on
the equity method in the Parent's financial statements.
INVESTMENT SECURITIES
At acquisition, a bank is required to classify debt and equity securities
into one of three categories: held to maturity, trading or available for sale.
At each reporting date, the appropriateness of the classification is reassessed.
Investments in debt securities are classified as held to maturity and measured
at amortized cost in the statement of financial position only if management has
the positive intent and ability to hold those securities to maturity. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and measured at fair value in the statement of
financial position with unrealized holding gains and losses included in net
income. Investments not classified as held to maturity nor trading are
classified as available for sale and measured at fair value in the statement of
financial position with unrealized holding gains and losses reported in a
separate component of shareholders' equity until realized. At December 31, 1996
and 1995, no securities were classified as trading. The Company has only limited
involvement with derivative financial instruments and does not use them for
trading purposes.
Gains and losses on the sale of trading and available for sale securities
are determined using the specific-identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period from acquisition to the earlier of maturity or call date.
D-7
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
LOANS
Loans are stated at the principal amount outstanding, net of unearned
discount. Interest income on discounted loans is recognized on the
sum-of-months-digits method which approximates the interest method, while
interest income on other loans is calculated using applicable interest rates and
the daily amount of outstanding principal.
NONPERFORMING ASSETS
Nonperforming assets are comprised of (a) loans for which the accrual of
interest has been discontinued, (b) loans for which the interest rate has been
reduced to less than originally contracted rates due to a serious weakening in
the borrower's financial condition and (c) other assets which consist of real
estate and other property which have been acquired in lieu of loan balances due
and which are awaiting disposition.
A loan is generally placed on nonaccrual status when principal or interest
is past due 90 days or more, and the loan is not both well-secured and in the
process of collection. A loan is also placed on nonaccrual status immediately
if, in the opinion of management, full collection of principal or interest is
unlikely. At the time a loan is placed on nonaccrual status, interest previously
recognized but uncollected is reversed and charged against current income.
Subsequent interest payments received on nonaccrual loans are either applied
against principal or reported as income, depending upon management's assessment
of the ultimate collectibility of principal.
Real estate and other assets acquired in lieu of loan balances due are
recorded at the lesser of cost basis or estimated fair value less estimated
closing costs. Valuation losses are charged to the allowance for loan losses on
foreclosure. Write-downs of real estate and other assets are charged to
noninterest expense if the estimated fair value subsequently declines below its
carrying value. Realized gains and losses on sales of other real estate are
included in noninterest expense.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, ("Statement 114"), "Accounting by Creditors for
Impairment of a Loan" and the amendment thereof, Statement of Financial
Accounting Standards No. 118, ("Statement 118") "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures." Under Statement 114,
a loan is considered impaired when, based upon current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Statement 114 requires
that an impaired loan be valued utilizing (i) the present value of expected
future cash flows discounted at the effective interest rate of the loan, (ii)
the fair value of the underlying collateral, or (iii) the observable market
price of the loan. Statement 118 amended Statement 114 by expanding the related
disclosure requirements and permitting use of existing methods for recognizing
interest income on impaired loans.
Loans which were restructured prior to the adoption of Statement 114 and
which are performing in accordance with the renegotiated terms are not required
to be reported as impaired. Loans restructured subsequent to the adoption of
Statement 114 are required to be reported as impaired in the year of
restructuring. Thereafter, such loans can be removed from the impaired loan
disclosure if the loans were paying a market rate of interest at the time of
restructuring and are performing in accordance with their renegotiated terms.
For loans covered by this statement, the Company makes an assessment for
impairment when and while such loans are on nonaccrual or when the loan has been
restructured. When a loan with unique risk characteristics has been identified
as being impaired, the amount of impairment will be measured by the Bank using
discounted cash flows, except when it is determined that the sole (remaining)
source of repayment for the loan is the operation or liquidation of the
underlying collateral. In such case, the current
D-8
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
fair value of the collateral, reduced by costs to sell, will be used in place of
discounted cash flows. At the time a loan is placed on nonaccrual status,
interest previously recognized but uncollected is reversed and charged against
current income. Subsequent interest payments received on nonaccrual loans are
either applied against principal or reported as income, depending upon
management's assessment of the ultimate collectibility of principal.
The adoption of Statement 114 and Statement 118 did not have a material
effect on the Company's financial position or results of operations.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by a charge to operations
(provision for loan losses). Actual loan losses or recoveries are charged or
credited directly to this allowance. Management analyzes the loan portfolio to
determine the adequacy of the allowance for loan losses and the appropriate
provision required to maintain an adequate allowance. In assessing the adequacy
of the allowance, management reviews the size, quality and risks of loans in the
portfolio and considers factors such as specific known risks, past experiences,
the status and amount of nonperforming assets and economic conditions. A
specific percentage is allocated to total loans in good standing and additional
amounts are added for individual loans considered to have specific loss
potential. Loans identified as losses are charged-off. In addition, the loan and
discount committee of the Bank reviews the assessment of management in
determining the adequacy of the Bank's allowance for loan losses. Based on total
allocations, the provision is recorded to maintain the allowance at a level
deemed appropriate by management. While management uses available information to
recognize losses on loans, there can be no assurance that future additions to
the allowance will not be necessary.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, net of accumulated depreciation.
Depreciable assets are depreciated over their estimated useful lives. For
financial reporting, depreciation is computed using the straight-line method; in
computing federal income tax, both the straight-line and accelerated methods are
used. Maintenance and repairs which do not extend the life of premises and
equipment are charged to noninterest expense.
INCOME TAX
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes. The Company files a consolidated federal income tax
return.
EARNINGS PER COMMON SHARE COMPUTATIONS
Primary earnings per common share are computed by dividing net income by
the weighted average number of common stock and common stock equivalents
outstanding during the year. During 1994 and 1995, outstanding debentures are
treated as common stock equivalents
Fully diluted earnings per share is substantially the same as primary
earnings per share for the Company.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold. Generally, federal
funds are purchased and sold for one-day periods.
D-9
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, ("Statement 121") "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", on January 1,
1996. Statement 121 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 fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations or liquidity.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No, 125, ("Statement 125") "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." Statement 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996 and is to be applied prospectively. Statement 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of Statement
125 will have a material impact on the Company's financial position, results of
operations, or liquidity.
NOTE B -- RESERVE REQUIREMENTS
Cash of approximately $50 thousand at December 31, 1996 and 1995, was
maintained to satisfy regulatory reserve requirements.
NOTE C -- INVESTMENT SECURITIES
The amortized cost and estimated market value of investments in securities
available for sale at December 31, 1996 and December 31, 1995 follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury....................... $ 600 $ 1 $-- $ 601
U. S. Government Agencies............ -- -- -- --
Mortgage-backed...................... 87 1 -- 88
States and political subdivisions.... -- -- -- --
Other................................ -- -- -- --
--------- ---------- ---------- ---------
Total........................... $ 687 $ 2 $-- $ 689
========= ========== ========== =========
</TABLE>
D-10
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1995 (UNAUDITED)
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U. S. Treasury....................... $ 1,153 $ 6 $-- $ 1,159
U. S. Government Agencies............ 1,104 8 -- 1,112
Mortgage-backed...................... 108 2 -- 110
--------- ---------- ---------- ---------
Total........................... $ 2,365 $ 16 $-- $ 2,381
========= ========== ========== =========
The amortized cost and estimated market value of investments in securities
held to maturity at December 31, 1996 and December 31, 1995 follows:
1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
U. S. Treasury....................... $ 6,693 $-- $ 4 $ 6,689
U. S. Government Agencies............ 9,662 -- 31 9,631
States and political subdivisions.... 449 1 -- 450
--------- ---------- ---------- ---------
Total........................... $16,804 $ 1 $ 35 $16,770
========= ========== ========== =========
1995 (UNAUDITED)
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
U. S. Treasury....................... $ 4,199 $ 7 $-- $ 4,206
U. S. Government Agencies............ 10,562 -- 30 10,532
States and political subdivisions.... 100 2 -- 102
--------- ---------- ---------- ---------
Total........................... $14,861 $ 9 $ 30 $14,840
========= ========== ========== =========
The amortized cost and estimated market value of debt securities at
December 31, 1996, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
SECURITIES
------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------- ----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Due in one year or less.............. $ 687 $ 689 $ 5,971 $ 5,981
Due after one year through five
years.............................. -- -- 9,794 9,757
Due after five years through ten
years.............................. -- -- 289 291
Due after ten years.................. -- -- 750 741
--------- --------- --------- ---------
Total........................... $ 687 $ 689 $16,804 $16,770
========= ========= ========= =========
</TABLE>
Net unrealized holding gains of $1.9 thousand and $15.8 thousand at
December 31, 1996 and 1995, respectively, on securities available for sale are
included as a separate component of shareholders' equity for each respective
year.
D-11
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
There were no sales of securities in 1996 and 1995.
Investment securities having a carrying value of $1.2 million at December
31, 1996 and $1.7 million at December 31, 1995 were pledged to secure the
federal reserve treasury tax and loan deposits and to secure federal fund lines.
NOTE D -- LOANS AND ALLOWANCE FOR LOAN LOSSES
An analysis of loans at December 31, 1996 and December 31, 1995 follows:
1996 1995
--------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Commercial........................... $ 7,609 $ 6,334
Real estate.......................... 10,469 10,455
Consumer............................. 2,220 2,373
--------- -----------
Total........................... $ 20,298 $19,162
========= ===========
In the ordinary course of business, the Company's subsidiary bank makes
loans to its officers and directors, including entities related to those
individuals. These loans are made on substantially the same terms and conditions
as those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectibility or present other
unfavorable features. The balance of loans made to officers and directors,
including loans made to entities related to those individuals, amounted to $934
thousand and $715 thousand at December 31, 1996 and 1995, respectively.
A summary of the transactions in the allowance for loan losses for years
ended December 31, 1996, 1995 and 1994 follows:
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Balance at beginning of year......... $ 527 $ 511 $ 489
Provision charged to expense......... -- -- --
Recovery of amounts previously
charged to allowance............... 34 102 54
Losses charged to allowance.......... 74 86 32
--------- ----------- -----------
Balance at end of year.......... $ 487 $ 527 $ 511
========= =========== ===========
Nonaccrual loans were $348 thousand, $320 thousand and $474 thousand at
December 31, 1996, 1995 and 1994, respectively. If interest on these nonaccrual
loans had been accrued at the original contractual rates, interest income would
have been increased by approximately $33 thousand, $30 thousand and $45 thousand
for the years ended December 31, 1996, 1995 and 1994, respectively.
D-12
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE E -- PREMISES AND EQUIPMENT
A summary of premises and equipment and related accumulated depreciation
and amortization as of December 31, 1996 and December 31, 1995 follows:
ESTIMATED
USEFUL LIVES 1996 1995
------------ --------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Land................................. $ 438 $ 438
Buildings and leasehold
improvements....................... 2-40 years 1,184 1,184
Furniture and equipment.............. 3-10 years 924 978
--------- -----------
Subtotal........................ 2,546 2,600
Less accumulated depreciation and
amortization....................... (1,129) (1,075)
--------- -----------
Total........................... $ 1,417 $ 1,525
========= ===========
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 was approximately $114 thousand, $90 thousand and $60
thousand, respectively.
NOTE F -- TIME DEPOSITS
Time deposits of $100,000 or more totaled $7.6 million and $6.9 million at
December 31, 1996 and 1995, respectively. Interest expense for the years ended
December 31, 1996, 1995 and 1994 on time deposits of $100,000 or more was
approximately $390 thousand, $336 thousand and $236 thousand.
NOTE G -- INCOME TAX
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994 consisted of the following:
1996 1995 1994
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Current income tax expense......... $ 256 $ 106 $ 1
Deferred income tax expense........ 33 113 240
----------- ----------- -----------
Total income tax expense...... $ 289 $ 219 $ 241
=========== =========== ===========
Following is a reconciliation between the amount of reported income tax
expense for the years ended December 31, 1996, 1995 and 1994 and the amount
computed by multiplying the income before tax by the federal statutory tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate................ $ 296 34 % $ 255 34 % $ 202 34 %
(Reductions) additions
Tax-exempt interest............. (5 ) -- (1 ) -- -- --
Other -- net......................... (2 ) -- (35 ) (5 ) 39 6
------ ---- ------ ---- ------ ----
Total income tax expense........ $ 289 34 % $ 219 29 % $ 241 40 %
====== ==== ====== ==== ====== ====
</TABLE>
D-13
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
The net deferred tax liability included with accounts payable and accrued
expenses in the accompanying consolidated balance sheets is comprised of the
following deferred tax assets and liabilities as of December 31, 1996 and
December 31, 1995.
1996 1995
--------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Deferred tax liability
Premises and equipment............. $ 93 $ 57
Allowance for loan losses.......... 44 44
Unrealized gain on securities
available for sale................ 1 5
Other.............................. 120 114
--------- -----------
Total deferred tax
liability................... 258 220
--------- -----------
Deferred tax asset
Accrued expenses................... 46 61
--------- -----------
Total deferred tax assets
before valuation
allowance................... 46 61
Valuation allowance..................... -- --
--------- -----------
Total deferred tax assets less
valuation allowance......... 46 61
--------- -----------
Net deferred tax liability......... $ 212 $ 159
========= ===========
For the years ended December 31, 1996 and December 31, 1995, the deferred
tax liability results primarily from the use of accelerated methods of
depreciation of equipment for tax purposes, from differences in the bad debts
written-off for financial statement purposes and the amount allowed under tax
law, and accrued interest income recognized for book purposes but not for tax
purposes for both years ended December 31, 1996 and 1995, respectively. The
deferred tax asset for both years results primarily from accrued expenses
deducted for book purposes but not for tax purposes.
A valuation allowance was not considered necessary by the Bank at December
31, 1996 or 1995.
NOTE H -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various
transactions which, in accordance with generally accepted accounting principles,
are not included on the consolidated balance sheets. These transactions are
referred to as "off-balance sheet commitments." The Company enters into these
transactions to meet the financing needs of its customers. These transactions
include commitments to extend credit and letters of credit which involve
elements of credit risk in excess of the amounts recognized in the consolidated
balance sheets. The Company attempts to minimize its exposure to loss under
these commitments by subjecting them to the same credit approval and monitoring
procedures as its other credit facilities.
The Company enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will be
available for working capital purposes, for capital expenditures and to ensure
access to funds at specified terms and conditions. Substantially, all of the
Company's commitments to extend credit are contingent on customers maintaining
specific credit standards at the time of loan funding. Management assesses the
credit risk associated with certain commitments to extend credit in determining
the level of the allowance for possible loan losses.
Letters of credit are written for conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The
Company's policies generally require that letters of credit arrangements contain
security and debt covenants similar to those contained in loan agreements.
D-14
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
At December 31, 1996, the Company had outstanding commitments to extend
credit of approximately $818 thousand which included standby letters of credit
of approximately $36 thousand. Management does not anticipate any losses as a
result of these commitments.
The Company has been named as a defendant in various legal proceedings and
has received threats of potential litigation arising from allegations of
misappropriation of funds by one of the Company's former employees. The
Company's attorneys have just begun the discovery process related to these
proceedings and the amount of loss, if any, that the Company could sustain is
not presently determinable. In addition to the known and threatened litigation,
the Company has paid claims on various losses subsequent to year end, the
majority of which have been reimbursed by the Company's insurance carrier. It is
not possible at this time to estimate the amount of additional claims, if any,
that may arise as a result of the alleged misappropriations. As a result of
these uncertainties, no adjustment has been made to the accompanying financial
statements at December 31, 1996.
NOTE I -- OTHER NONINTEREST EXPENSE
Other noninterest expense for the years ended December 31, 1996, 1995 and
1994 consisted of the following:
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Advertising and public relations..... $ 18 $ 19 $ 18
Data processing...................... 4 116 125
Director fees........................ 75 68 47
Franchise tax........................ 14 9 7
Insurance............................ 78 78 99
FDIC insurance....................... (10) 23 96
Legal and professional............... 33 26 21
Postage, delivery and freight........ 40 37 37
Stationery and supplies.............. 47 41 36
Telephone............................ 11 11 10
Other losses......................... 20 17 10
Miscellaneous expense................ 19 17 10
--------- ----------- -----------
Total........................... $ 349 $ 462 $ 516
========= =========== ===========
NOTE J -- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as
D-15
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
defined). Management believes that the Bank meets all capital adequacy
requirements to which it is subject at December 31, 1996.
At December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category. The Bank's actual capital amounts and ratios
are also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
--------------- -------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
December 31, 1996
Total capital
<S> <C> <C> <C> <C> <C> <C>
(To risk weighted assets)..... $3,912 13.68% $2,287 8.0% $2,859 10.0 %
Tier I Capital
(To risk weighted assets)..... 3,555 12.43 1,144 4.0 1,715 6.0
Tier I Capital
(To average assets)........... 3,555 8.38 1,697 4.0 2,121 5.0
December 31, 1995
Total capital
(To risk weighted assets)..... 3,566 13.13 2,378 8.0 2,972 10.0
Tier I Capital
(To risk weighted assets)..... 3,227 11.88 1,189 4.0 1,783 6.0
Tier I Capital
(To average assets)........... 3,227 7.76 1,663 4.0 2,079 5.0
</TABLE>
NOTE K -- SUBSEQUENT EVENTS
In October 1997, the Company entered into an agreement and plan of
reorganization with Texas Regional Bancshares, Inc. whereby the shareholders of
the Company will exchange their stock, subject to the terms of the merger
agreement and related holdback agreement, for stock in Texas Regional
Bancshares, Inc. Upon consummation of the transaction, the Company will be
merged in an anticipated pooling of interest. Completion of the transaction is
also subject to shareholder and regulatory approval.
The terms of the holdback escrow agreement provide for the deposit of $1.5
million worth of shares of Texas Regional Bancshares, Inc. into escrow pending
the resolution of certain uncertainties discussed in note H. Losses sustained as
a result of these uncertainties will be charged back against the escrow fund in
accordance with the holdback escrow agreement. As a result, the total amount of
Texas Regional Bancshares, Inc. stock and related dividends to be ultimately
distributed to the shareholders of T B & T Bancshares, Inc. may be reduced.
D-16
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
NOTE L -- T B & T BANCSHARES, INC. (PARENT ONLY) CONDENSED FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
DECEMBER 31,
1996 1995
--------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Assets
Cash in subsidiary bank.............. $ 330 $ 1
Investment in consolidated
subsidiary......................... 3,558 3,237
Other assets......................... 4 452
--------- -----------
Total assets.................... $ 3,892 $ 3,690
========= ===========
Liabilities
Accounts payable and accrued
liabilities........................ $ 140 $ 118
Dividends payable.................... -- 183
--------- -----------
Total liabilities............... 140 301
Commitments and Contingencies........ -- --
Shareholders' equity................. 3,752 3,389
--------- -----------
Total liabilities and
shareholders' equity........... $ 3,892 $ 3,690
========= ===========
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Income
Dividends received from
subsidiary bank............... $ 205 $ 330 $ 145
Other income.................... 72 -- 1
--------- ----------- -----------
Total income............... 277 330 146
Expense
Interest expense................ 2 25 35
Director fees................... 3 -- --
Franchise tax................... 5 3 2
--------- ----------- -----------
Total expense.............. 10 28 37
Income (loss) before income tax
expense and equity in undistributed
net income of subsidiary........... 267 302 109
Income tax (expense) benefit......... (16) 47 --
--------- ----------- -----------
Income (loss) before equity in
undistributed income of
subsidiary......................... 251 349 109
Equity in undistributed net income of
subsidiary......................... 330 183 245
--------- ----------- -----------
Net income...................... $ 581 $ 532 $ 354
========= =========== ===========
D-17
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash flows from operating activities
Net income...................... $ 581 $ 532 $ 354
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
Gain on sale of land....... (72) -- --
Undistributed net income of
subsidiary.............. (330) (183) (245)
(Increase) decrease in
other assets............ 448 (372) 232
Increase (decrease) in
income taxes payable.... 22 118 --
Increase (decrease) in
accounts payable and
accrued liabilities..... -- -- (4)
--------- ----------- -----------
Net cash provided by (used in)
operating activities.......... 649 95 337
--------- ----------- -----------
Cash flows from investing activities
Purchase of land................ (249) -- --
Sale of land.................... 321 -- --
--------- ----------- -----------
Net cash provided by (used
in) investing
activities.............. 72 -- --
--------- ----------- -----------
Cash flows from financing activities
Repayment of note payable....... -- -- (150)
Repayment of debentures......... -- (277) (22)
Purchase of treasury stock...... (209) -- --
Cash dividends paid on common
stock......................... (183) -- --
Proceeds from issuance of common
stock......................... -- -- 15
--------- ----------- -----------
Net cash provided by (used
in) financing
activities.............. (392) (277) (157)
--------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents................... 329 (182) 180
Cash and cash equivalents at
beginning of year.................. 1 183 3
--------- ----------- -----------
Cash and cash equivalents at end of
year............................... $ 330 $ 1 $ 183
========= =========== ===========
Supplemental disclosures of cash flow
information
Interest paid................... $ 2 $ 25 $ 35
Income taxes paid............... 208 8 2
Supplemental disclosure of noncash
investing and
financing activities...............
Common stock issued in lieu
of payment on
on debentures........... -- 691 --
D-18
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30,
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
ASSETS
Cash and due from banks.............. $ 1,822 $ 2,136
Federal funds sold................... 2,052 650
--------- ---------
Total cash and cash
equivalents.................... 3,874 2,786
Securities available for sale........ 10 1,845
Securities held to maturity
(estimated market value of
$16,477,000
and $16,526,000 at September 30,
1997 and 1996, respectively)....... 16,479 16,694
Loans, net of unearned discount of
$250,000 and $246,000 at
September 30, 1997 and 1996,
respectively....................... 22,050 20,258
Less allowance for loan losses....... (477) (489)
--------- ---------
Net loans....................... 21,573 19,769
Premises and equipment, net.......... 1,328 1,442
Accrued interest receivable.......... 387 357
Other real estate.................... 150 150
Other assets......................... 37 2
--------- ---------
$ 43,838 $ 43,045
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Demand.......................... $ 8,748 $ 8,940
Savings......................... 3,919 3,975
Money market and NOW accounts... 7,010 7,852
Time deposits................... 19,749 18,155
--------- ---------
Total deposits............. 39,426 38,922
Accounts payable and accrued
liabilities........................ 442 520
--------- ---------
Total liabilities............... 39,868 39,442
Commitments and Contingencies........ -- --
Shareholders' equity
Common stock -- Class A; $1.00
par value, 5,000,000 shares
authorized; issued and
outstanding, 1,695,775 at
September 30, 1997 and
1,695,755 at September 30,
1996........................... 1,696 1,696
Paid-in capital................. 812 812
Retained earnings............... 1,462 1,096
Unrealized gain (loss) on
securities available for
sale........................... -- (1)
--------- ---------
Total shareholders'
equity.................. 3,970 3,603
--------- ---------
$ 43,838 $ 43,045
========= =========
The accompanying notes are an integral part of the financial statements.
D-19
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS EXCEPT PER
SHARE AMOUNTS)
Interest income
Loans, including fees........... $ 1,759 $ 1,549
Investment securities...........
Taxable.................... 754 762
Tax-exempt................. 17 10
Federal funds sold.............. 27 35
--------- ---------
Total interest income...... 2,557 2,356
Interest expense
Deposits........................ 1,008 988
Notes payable................... -- 2
--------- ---------
Total interest expense..... 1,008 990
Net interest income.................. 1,549 1,366
Provision for loan losses............ -- --
--------- ---------
Net interest income after
provision for loan losses...... 1,549 1,366
Noninterest income
Service charges on deposit
accounts....................... 190 203
Other service charges........... 41 37
Other operating income.......... 2 79
--------- ---------
Total noninterest income... 233 319
Noninterest expense
Salaries and employee
benefits....................... 597 556
Net occupancy expense........... 122 130
Equipment expense............... 55 47
Other real estate (income)
expense, net................... (4) (10)
Other noninterest expense....... 391 306
--------- ---------
Total noninterest
expense................. 1,161 1,029
Income before income tax expense..... 621 656
Income tax expense................... 199 222
--------- ---------
Net income........................... $ 422 $ 434
========= =========
Primary earnings per common share
Net income...................... $ .24 $ .24
Weighted average number of
common shares
outstanding (in thousands).... 1,696 1,799
The accompanying notes are an integral part of the financial statements.
D-20
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES TOTAL
COMMON PAID-IN RETAINED TREASURY AVAILABLE SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK FOR SALE EQUITY
------ ------- --------- -------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ $1,833 $ 884 $ 662 $-- $ 10 $3,389
Net income for 1996................ -- -- 581 -- -- 581
Changes in unrealized gain (loss)
on securities available for sale
net of deferred tax.............. -- -- -- -- (9) (9)
Treasury stock purchased........... -- -- -- (209) -- (209)
Treasury stock cancelled........... (137 ) (72) -- 209 -- --
------ ------- --------- -------- ----------- --------------
Balance at December 31, 1996............ 1,696 812 1,243 -- 1 3,752
Net income for the nine months
ended September 30, 1997......... -- -- 422 -- -- 422
Changes in unrealized gain (loss)
on securities available for sale
net of deferred tax.............. -- -- -- -- (1) (1)
Dividends paid..................... -- -- (203) -- -- (203)
------ ------- --------- -------- ----------- --------------
Balance at September 30, 1997........... $1,696 $ 812 $ 1,462 $-- $-- $3,970
====== ======= ========= ======== =========== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
D-21
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
--------- ---------
(DOLLARS IN
THOUSANDS)
Cash flows from operating activities
Net income...................... $ 422 $ 434
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation, amortization
and accretion, net...... 92 93
Gain on sales of premises
and equipment........... -- 70
(Increase) decrease in
accrued interest
receivable and other
assets.................. (44) (23)
Increase (decrease) in
accounts payable and
accrued liabilities..... (46) 62
--------- ---------
Net cash provided by operating
activities......................... 424 636
Cash flows from investing activities
Proceeds from maturing
securities available for
sale........................... 677 515
Purchases of securities
available for sale............. -- --
Proceeds from maturing
securities held to maturity.... 3,321 2,160
Purchases of securities held to
maturity....................... (2,994) (3,993)
Loan originations and advances
(net).......................... (1,770) (1,148)
Recoveries of charged-off
loans.......................... 10 27
Proceeds from sale of premises
and equipment.................. -- 320
Purchases of premises and
equipment...................... (6) (253)
--------- ---------
Net cash used in investing
activities......................... (762) (2,372)
Cash flows from financing activities
Net increase (decrease) in
demand, savings, money market
checking and savings deposit
accounts....................... (976) 729
Net increase in time deposits... 1,890 1,122
Principal payment on notes
payable........................ -- (150)
Purchase of treasury stock...... -- (209)
Cash dividends paid on common
stock.......................... (203) (183)
--------- ---------
Net cash provided by financing
activities......................... 711 1,309
Increase (decrease) in cash and cash
equivalents........................ 373 (427)
Cash and cash equivalents at
beginning of year.................. 3,501 3,213
--------- ---------
Cash and cash equivalents at end of
quarter............................ $ 3,874 $ 2,786
========= =========
Supplemental disclosures of cash
information
Interest paid................... $ 1,001 $ 991
Income taxes paid............... 325 181
Supplemental schedule of noncash
investing and financing activities
Foreclosure and repossession in
partial satisfaction of loan
receivable..................... 61 48
The accompanying notes are an integral part of these financial statements.
D-22
<PAGE>
TB & T BANCSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying compiled consolidated financial statements do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, the compiled consolidated financial
statements furnished reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods. All such adjustments were of a normal and recurring nature. The
consolidated financial statements include TB & T Bancshares, Inc. and Subsidiary
(the "Company"). Intercompany balances and transactions have been eliminated.
NOTE B -- INCOME TAX
Deferred income tax assets and liabilities are computed for differences
between the financial statements and the tax basis of assets and liabilities
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
assets to the amount that will more likely than not be realized. Income tax
expense is the current tax payable or refundable for the period plus or minus
the net change in the deferred tax assets and liabilities.
NOTE C -- COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in various legal proceedings and
has received threats of potential litigation arising from allegations of
misappropriation of funds by one of the Company's former employees. The
Company's attorneys have just begun the discovery process related to these
proceedings and the amount of loss, if any, that the Company could sustain is
not presently determinable. In addition to the known and threatened litigation,
the Company has paid claims on various losses during the nine month period ended
September 30, 1997, the majority of which have been reimbursed by the Company's
insurance carrier. It is not possible at this time to estimate the amount of
additional claims, if any, that may arise as a result of the alleged
misappropriations. As a result of these uncertainties, no adjustment has been
made to the accompanying financial statements at September 30, 1997.
NOTE D -- SUBSEQUENT EVENTS
In October 1997, the Company entered into an agreement and plan of
reorganization with Texas Regional Bancshares, Inc. whereby the shareholders of
the Company will exchange their stock, subject to the terms of the merger
agreement and related holdback agreement, for stock in Texas Regional
Bancshares, Inc. Upon consummation of the transaction, the Company will be
merged in an anticipated pooling of interest. Completion of the transaction is
also subject to shareholder and regulatory approval.
The terms of the holdback escrow agreement provide for the deposit of $1.5
million worth of shares of Texas Regional Bancshares, Inc. into escrow pending
the resolution of certain uncertainties discussed in note C. Losses sustained as
a result of these uncertainties will be charged back against the escrow fund in
accordance with the holdback escrow agreement. As a result, the total amount of
Texas Regional Bancshares, Inc. stock and related dividends to be ultimately
distributed to the shareholders of TB & T Bancshares, Inc. and Subsidiary may be
reduced.
D-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02A(16) and 2.02-1 of the Texas Business Corporation Act grants
to each corporation organized thereunder the power to indemnify its directors
and officers against liability, and to purchase and maintain liability insurance
for those persons as, and to the extent, permitted by Article 2.02-1 of the
Texas Business Corporation Act. In addition, reference is hereby made to Article
V of the Bylaws of the Registrant.
The general effect of Articles 2.02.A.(16) and 2.02-1 of the Texas Business
Corporation Act, and Article V of the Bylaws of Texas Regional is that the
person may be indemnified only if it is determined that the person conducted
himself in good faith, reasonably believed that the conduct was in the
corporation's best interests (or not opposed to its best interests), and in the
case of criminal proceeding he had no reasonable cause to believe the conduct
was unlawful. In any case, a person may not be indemnified if the basis for
liability was a personal benefit improperly received by the person or if the
person is found liable to the corporation. The indemnification may generally
include judgments, penalties, fines, settlements and reasonable expenses
incurred. Unless the indemnification has been made mandatory in the Articles of
Incorporation or Bylaws of the company, a determination of indemnification must
be made by a majority vote of quorum of directors who at the time are not named
defendants or respondents, or (if such a quorum can not be obtained) by a
committee of the board composed of two or more directors who are not named
defendants or respondents, or by special legal counsel selected in accordance
with prescribed procedures, or by shareholders in a vote that excludes shares
held by directors. Management of Texas Regional is taking the position that the
indemnification under Art. 2.02-1.B has been made mandatory by Article V of
Texas Regional's bylaws. In addition Article 2.02-1 provides that the
corporation shall indemnify a director or officer against reasonable expenses
incurred by him in connection with a proceeding in which he is or was a
defendant or respondent because he is or was a director or officer in which he
has been wholly successful in his defense.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. EXHIBITS:
(Note: Certain Exhibits are omitted as permitted by S-K Item 601, since
registrant has elected under Form S-4 to provide information concerning
registrant at a level prescribed by Forms S-2 or S-3 and such omitted Exhibits
are not required by Form S-2 or S-3.)
2 -- Agreement and Plan of Reorganization
dated as of October 15, 1997, by and
between Texas Regional Bancshares,
Inc. and TB&T Bancshares, Inc.
(included as Annex A to the
Prospectus/Proxy Statement).
* 5 -- Opinion of McGinnis, Lochridge &
Kilgore, L.L.P.
8 -- Opinion of KPMG Peat Marwick LLP
(included as Annex C to the
Prospectus/Proxy Statement).
** 10(a) -- Texas Regional Bancshares, Inc., 1997
Incentive Stock Option Plan
** 10(b) -- Texas Regional Bancshares, Inc., 1997
Nonstatutory Stock Option Plan
23(a) -- Consent of McGinnis, Lochridge &
Kilgore, L.L.P. (included in their
opinion filed as Exhibit 5).
* 23(b) -- Consent of Long, Chilton, Payte &
Hardin, LLP.
* 23(c) -- Consent of KPMG Peat Marwick LLP.
* 99(a) -- Form of Proxy (TB&T Bancshares, Inc.
shareholders meeting).
* 99(b) -- Notice of Special Meeting of the
Shareholders of TB&T Bancshares, Inc.
-------------------
* Filed herewith.
** To be filed supplementally.
II-1
<PAGE>
b. FINANCIAL STATEMENT SCHEDULES:
Not applicable.
c. REPORT, OPINION OR APPRAISAL:
Not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bonefide offering thereof.
The undersigned Registrant undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given, the
latest annual report to security holders that is incorporated by reference in
the prospectus and furnished pursuant to and meeting the requirements of Rule
14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c) the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
II-2
<PAGE>
The registrant undertakes that every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel, the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MCALLEN, STATE OF TEXAS,
ON DECEMBER 10, 1997.
TEXAS REGIONAL BANCSHARES, INC.
By: _______/s/__G. E. RONEY___________
GLEN E. RONEY,
CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------------- ------------------
/s/G. E. RONEY Chairman of the Board, President December 10, 1997
GLEN E. RONEY and Director (Principal
Executive Officer)
/s/GEORGE R. CARRUTHERS Chief Financial Officer December 10, 1997
GEORGE R. CARRUTHERS (Principal Financial Officer)
/s/ANN SEFCIK Controller (Principal December 10, 1997
ANN SEFCIK Accounting Officer)
/s/MORRIS ATLAS Director December 10, 1997
MORRIS ATLAS
/s/FRANK N. BOGGUS Director December 10, 1997
FRANK N. BOGGUS
/s/ROBERT G. FARRIS Director December 10, 1997
ROBERT G. FARRIS
/s/JOE M. KILGORE Director December 10, 1997
JOE M. KILGORE
II-4
<PAGE>
/s/C. KENNETH LANDRUM, M.D. Director December 10, 1997
C. KENNETH LANDRUM, M.D.
/s/JULIE G. UHLHORN Director December 10, 1997
JULIE G. UHLHORN
/s/PAUL G. VEALE, SR. Director December 10, 1997
PAUL G. VEALE, SR.
/s/JACK WHETSEL Director December 10, 1997
JACK WHETSEL
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
(Note: Certain Exhibits are omitted as permitted by S-K Item 601, since
registrant has elected under Form S-4 to provide information concerning
registrant at a level prescribed by Forms S-2 or S-3 and such omitted Exhibits
are not required by Form S-2 or S-3.)
2 -- Agreement and Plan of Reorganization
dated as of October 15, 1997, by and
between Texas Regional Bancshares,
Inc. and TB&T Bancshares, Inc.
(included as Annex A to the
Prospectus/Proxy Statement).
* 5 -- Opinion of McGinnis, Lochridge &
Kilgore, L.L.P.
8 -- Opinion of KPMG Peat Marwick LLP
(included as Annex C to the
Prospectus/Proxy Statement).
** 10(a) -- Texas Regional Bancshares, Inc., 1997
Incentive Stock Option Plan
** 10(b) -- Texas Regional Bancshares, Inc., 1997
Nonstatutory Stock Option Plan
23(a) -- Consent of McGinnis, Lochridge &
Kilgore, L.L.P. (included in their
opinion filed as Exhibit 5).
* 23(b) -- Consent of Long, Chilton, Payte &
Hardin, LLP.
* 23(c) -- Consent of KPMG Peat Marwick LLP.
* 99(a) -- Form of Proxy (TB&T Bancshares, Inc.
shareholders meeting).
* 99(b) -- Notice of Special Meeting of the
Shareholders of TB&T Bancshares, Inc.
-------------------
* Filed herewith.
** To be filed supplementally.
EXHIBIT 5
MCGINNIS, LOCHRIDGE & KILGORE, L.L.P.
919 CONGRESS AVENUE, SUITE 1300
AUSTIN, TEXAS 78701
December 9, 1997
Texas Regional Bancshares, Inc.
Kerria Plaza, Suite 301
3700 North 10th Street
McAllen, Texas 78502
RE: Issuance of up to 308,076 shares of
Class A Voting Common Stock of
Texas Regional Bancshares, Inc.
Gentlemen:
We have acted as counsel for Texas Regional Bancshares, Inc. (the
"Corporation"), a Texas corporation, in connection with a proposed
registration by the Corporation with the Securities and Exchange Commission on a
Form S-4 Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended, of up to 308,076 shares of the Class A
Voting Common Stock of Texas Regional Bancshares, Inc. (the "Stock"), to the
shareholders of TB&T Bancshares, Inc. in exchange for all of the outstanding
capital stock of TB&T Bancshares, Inc. in such merger transaction. Such Stock is
to be issued in connection with the proposed merger of Texas Regional Delaware,
Inc., a corporation wholly owned by the Corporation, with TB&T Bancshares, Inc.
Before rendering this opinion, we have examined such corporate and other
documents, and such questions of law, as we have considered necessary and
appropriate for the purposes of this opinion, and have relied, as to factual
matters, on certificates and other statements of officers of the Corporation and
others. Based upon the foregoing, we are of the opinion that the shares of Stock
of the Corporation which will be issued in connection with the merger described
in the Registration Statement will, upon consummation of the merger and issuance
and delivery of such shares of Stock to the TB&T Bancshares, Inc., shareholders,
be validly issued, fully paid and nonassessable; provided, however, that any
such shares of Stock as are held in escrow pursuant to the Holdback Escrow
Agreement described in the Registration Statement will be subject to the terms
and provisions of that agreement.
We hereby consent to the use of our name in the Registration Statement and
the filing of this opinion as an exhibit to the Registration Statement, but we
do not thereby admit that we are within the class of persons whose consent is
required under the terms of the Securities Act of 1933, as amended.
Very truly yours,
McGINNIS, LOCHRIDGE & KILGORE, L.L.P.
By: /s/__WILLIAM A. ROGERS, JR._______
William A. Rogers, Jr., Partner
EXHIBIT 23(B)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
TB&T Bancshares, Inc.
We consent to the use of our report herein and to the reference to our firm
under the caption "Experts" in this Prospectus.
/s/ LONG, CHILTON, PAYTE & HARDIN
LONG, CHILTON, PAYTE & HARDIN, LLP
CERTIFIED PUBLIC ACCOUNTANTS
Harlingen, Texas
December 9, 1997
EXHIBIT 23(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Texas Regional Bancshares, Inc.
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the headings "Experts" and "Federal Income
Tax Consequences" in the registration statement and prospectus/proxy statement.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Houston, Texas
December 9, 1997
EXHIBIT 99(A)
FRONT SIDE OF PROXY
TB&T BANCSHARES, INC.
SPECIAL MEETING OF SHAREHOLDERS -- , 1997
PROXY SOLICATED BY BOARD OF DIRECTORS
The undersigned hereby appoints , and
, and each of them, proxies, with full power of
substitution, to vote in the manner indicated on the reverse side hereof on
proposal (1) and in their discretion on such other business as may properly come
before the meeting, any and all of my (our) shares of record of TB&T Bancshares,
Inc., Capital Stock, at the special meeting of shareholders to be held
, 1997, at ,
, Texas, and at all adjournments of the meeting.
The merger must be approved by the vote of two-thirds of the shareholders of
TB&T Bancshares, Inc. Execution of this Proxy, if voted FOR the merger
transaction, will constitute the approval required by Texas law.
Dated , 1997
SIGNATURES
SIGNATURE(S) SHOULD AGREE WITH THE
NAME(S) TO THE LEFT
BACK SIDE OF PROXY
(CONTINUED FROM FRONT)
(Please mark date, sign and return in the enclosed envelope)
Unless otherwise specified, proxies will be voted FOR proposal (1).
The Board of Directors recommends a vote FOR proposal (1).
(1) Approval of the agreement to merge TB&T Bancshares, Inc., with and into
Texas Regional Delaware, Inc., a wholly-owned subsidiary of Texas Regional
Bancshares, Inc., for consideration to consist of 0.1522126 shares of Texas
Regional Class A Voting Common Stock for each share of TB&T Bancshares,
Inc., capital stock to be delivered upon closing as described in the
Agreement and Plan of Reorganization, and an additional 0.0294605 of a
share of Texas Regional Class A Voting Common Stock to be deposited into
escrow pursuant to a Holdback Escrow Agreement and distributed as described
therein, and the related approval of the merger of TB&T Bancshares, Inc.'s
wholly owned subsidiary, Texas Bank and Trust, with and into Texas
Regional's wholly owned subsidiary, Texas State Bank.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR THE BOARD OF DIRECTORS' RECOMMENDATIONS. THIS PROXY
ALSO CONFERS DISCRETIONARY AUTHORITY TO VOTE ON OTHER MATTERS PROPERLY BROUGHT
BEFORE THE MEETING.
(PLEASE SIGN ON OTHER SIDE)
EXHIBIT 99(B)
TB&T BANCSHARES, INC.
3201 CENTRAL BOULEVARD
BROWNSVILLE, TEXAS 78520
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1997
Notice is hereby given that a special meeting of the Shareholders of TB&T
Bancshares, Inc., Brownsville, Texas ("TB&T Bancshares") will be held at the
offices of TB&T Bancshares, 3201 Central Boulevard, Brownsville, Texas, on
, 1997 at , local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization (the "Agreement"), dated as of
October 15, 1997, between TB&T Bancshares, Inc., a Texas corporation
("TB&T Bancshares"), and Texas Regional Bancshares, Inc., a Texas
corporation ("Texas Regional") providing for the merger (the "Merger")
of TB&T Bancshares with and into Texas Regional Delaware, Inc., a Delaware
corporation that is a wholly-owned subsidiary of Texas Regional (herein
referred to as "TRD"). As a result of the merger, TB&T Bancshares would
become a subsidiary of Texas Regional, the shareholders of TB&T Bancshares
would be entitled to receive 0.1522126 of a share of Texas Regional Class A
Voting Common Stock for each share of TB&T Bancshares capital stock then
held by them, and an additional 0.0294605 of a share of Texas Regional
Common Stock would be deposited into escrow pursuant to a Holdback Escrow
Agreement to be executed at the time of closing in the form attached to the
Agreement, all as more fully described in the accompanying Prospectus/Proxy
Statement and in the Agreement, a copy of which is annexed to the
Prospectus/Proxy Statement as Annex A. At the meeting, the shareholders
will also consider and vote on approval of the merger of TB&T Bancshares'
subsidiary, Texas Bank and Trust, with and into TRD's subsidiary, Texas
State Bank.
2. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board of Directors of TB&T Bancshares has fixed the close of business
on , 1997 as the record date for the determination of
shareholders entitled to notice of and to vote at the special meeting or at any
adjournment thereof.
DATED: , 1997 BY ORDER OF THE BOARD OF DIRECTORS
President
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY
AT YOUR EARLIEST CONVENIENCE. THE ENCLOSED ENVELOPE MAY BE USED FOR THAT
PURPOSE. IF YOU ATTEND THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY
AND VOTE IN PERSON.
