8-K

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

                             -----------------------


                                    FORM 8-K
                                 CURRENT REPORT
                     Pursuant to Section 13 or 15(d) of the
                         SECURITIES EXCHANGE ACT OF 1934


                                January 23, 1996
                     Date of Report (date earliest reported)


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

            TEXAS                    0-14517                74-2294235
(State or other jurisdiction of    (Commission           (I.R.S. Employer
 incorporation or organization)    File Number)         Identification No.)



                             KERRIA PLAZA, SUITE 301
                             3700 NORTH 10TH STREET
                              MCALLEN, TEXAS 78501
               (Address of principal executive office) (Zip Code)


                                  210-631-5400
              (Registrant's telephone number, including area code)




                                 Not Applicable
          (former name or former address, if changed since last report)

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ITEM 2.   ACQUISITION OR DISPOSITION OF ASSETS.


Effective as of January 9, 1996, Texas Regional Bancshares, Inc., and First
State Bank and Trust Company, Mission, Texas, entered into an agreement under
which Texas State Bank, the principal operating subsidiary of Texas Regional
Bancshares, Inc. will acquire through merger First State Bank and Trust Company.

Also, effective as of January 9, 1996, Texas Regional Bancshares, Inc., and
The Border Bank, Hidalgo, Texas, entered into an agreement under which Texas
State will acquire through merger The Border Bank.

Under terms of the agreements, Texas State Bank will acquire the First State
Bank  and Trust Company for a total cash consideration of $79.0 million and will
acquire The Border Bank, for a total cash consideration of $20.5 million.

Both acquisitions are subject to satisfaction of a number of conditions
precedent, as set forth in the Agreements filed herewith as Exhibits.

Upon the closing of the transactions, First State Bank and Trust Company and The
Border Bank  will be merged with and into Texas State Bank.  First State Bank
and Trust Company and The Border Bank  will cease their separate existence.
Following the closing, the  bank facilities of First State Bank and Trust
Company and The Border Bank  will continue to be operated as branch bank
facilities by Texas State Bank, under the name of Texas State Bank.



Item 7.   FINANCIAL STATEMENTS AND EXHIBITS.



     (a)  Financial Statements of Business Acquired.

          The financial statements for First State Bank and Trust Company and
          The Border Bank, prepared pursuant to Regulation S-X,  are not
          available at this time.  The audited financial statements will be
          filed as soon as practicable, in accordance with Item 7(a)(4)
          of Form 8-K.

     (b)  Pro Forma Financial Information.

          Pro forma financial information for the transaction required by Item
          7(b) of Form 8-K is not available at this time.  The pro forma
          financial information will be filed as soon as practicable, in
          accordance with Item 7(a)(4) of Form 8-K.



                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.


                                   Texas Regional Bancshares, Inc.
                                   (Registrant)



                                   By:     /s/  G. E. Roney
                                           -------------------------------------
                                           Glen E. Roney
                                           Chairman of the Board, President
                                           & Chief Executive Officer


                                   Date:   January 23, 1996


                                INDEX TO EXHIBITS



Exhibit
Number                             Description
- -------                            -----------


2.1            Agreement and Plan of Reorganization between First State Bank and
               Trust Company and Texas State Bank, with schedules attached.



2.2            Agreement and Plan of Reorganization between The Border Bank and
               Texas State Bank, with schedules attached.



20             Press release announcing acquisition dated January 10, 1996

EX-2.1

                                                                     EXHIBIT 2.1


                      AGREEMENT AND PLAN OF REORGANIZATION



     This Agreement and Plan of Reorganization (hereinafter called the
"Agreement") dated as of January 9, 1996, is executed by and between Texas State
Bank, McAllen, Texas, a Texas banking association ("Texas State Bank") and First
State Bank and Trust Company, Mission, Texas, a Texas banking association
("First State Bank").  Texas State Bank is a wholly owned subsidiary of Texas
Regional Bancshares, Inc., a Texas corporation ("Texas Regional"), and Texas
Regional joins into the execution hereof for the purposes herein expressed.

     Subject to the fulfillment of the terms and conditions of this Agreement,
the undersigned shareholders of First State Bank (sometimes individually called
a "Shareholder" or collectively the "Shareholders") join into the execution
hereof for the purposes set forth in section 9.11 herein.


                              W I T N E S S E T H:

     This Agreement provides for the merger of First State Bank with and into
Texas State Bank, pursuant to the terms of this Agreement and Plan of
Reorganization.  As a result of the merger, the shareholders of First State
Bank, will receive an aggregate of $79,000,000.00 in cash (subject to adjustment
and calculated and payable as herein provided).  The aggregate consideration
shall be exchanged by Texas State Bank for all of the outstanding shares of
First State Bank capital stock, and, upon the closing of the transaction, First
State Bank will be merged with and into Texas State Bank and First State Bank
will cease its separate existence.

     As a result of the merger transaction, all rights, privileges, immunities,
powers and franchises of each of Texas State Bank and First State Bank 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 the merging associations and shall
thereafter possess all of the interests, both public and private, of each of the
merging associations, and all claims of creditors of each of First State Bank
and Texas State Bank shall survive and any liens shall be preserved unimpaired
in Texas State Bank as the surviving association.  All of the foregoing shall be
effected pursuant to and as set forth in this Agreement and in an Agreement of
Merger (the "Merger Agreement") to be executed by and among the Corporation,
First State Bank and Texas State Bank, the form of which is attached hereto as
SCHEDULE 1.1.

     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


     A.   THE MERGER.  Upon and subject to the terms and provisions hereof, at
the Effective Time, as hereafter defined, First State Bank shall be merged with
and into Texas State Bank (the "Merger"), with the effect that the separate
existence of First State Bank shall cease.  Texas State Bank and First State
Bank, shall each execute and deliver the Merger Agreement in the form attached
hereto as SCHEDULE 1.1 (the "Merger Agreement") as soon as reasonably
practicable following the execution and delivery hereof.  The Merger Agreement
shall provide for the conversion, on the Effective Date (as hereinafter
defined), of all of the outstanding shares of First State Bank capital stock
into the right to receive the Total Consideration, as hereafter defined.  At the
Effective Time of the Merger, the rights of the shareholders of First State Bank
shall, without the requirement of further action on the part of the
shareholders, immediately be converted into the right to receive cash
consideration, as herein provided, for each share of First State Bank held by
such shareholder of record as of the Effective Time and such shareholder shall
cease to be a shareholder of First State Bank and such share certificate shall
for all purposes be deemed only to represent a right to receive cash pursuant to
this Agreement and the Merger Agreement.

     B.   CONSIDERATION.  Upon consummation of the merger, each share of First
State Bank outstanding shall be converted into the right to receive cash
consideration as herein provided.  The consideration to be paid by Texas State
Bank shall be $395 per share (the "Per Share Consideration") which consideration
shall be exchanged for each of the 200,000 outstanding shares of First State
Bank, for an aggregate consideration of $79,000,000.00 (the "Total
Consideration"), adjusted as herein provided for amounts attributable to
shareholders exercising dissenters' rights of appraisal.

          1.   An amount equal to the Per Share Consideration (adjusted as
     herein provided for amounts attributable to shareholders exercising
     dissenters' rights of appraisal) shall be paid by Texas State Bank to
     each First State Bank shareholder who has not exercised his, her or
     its dissenters' rights of appraisal upon surrender of such
     shareholder's share certificate or certificates evidencing shares of
     First State Bank stock.  Such amount shall be payable at the time of
     Closing to shareholders who have surrendered such share certificates
     at or prior to the date of Closing, by check made payable to each
     shareholder and mailed to such shareholder at the shareholder's
     address as stated on the stock transfer records of First State Bank,
     or (if an account is designated by such shareholder not less than
     twenty days prior to the date of Closing) by direct deposit or wire
     transfer into such account on the date of Closing.  Amounts payable to
     shareholders who surrender their share certificates following the date
     of Closing shall be paid within ten days following receipt of the
     shareholder's share certificate.  The stock transfer records of First
     State Bank shall for all purposes be closed as of the Effective Time,
     and no transfer of record of any of the shares of First State Bank
     capital stock shall take place thereafter.

          2.   Any amounts that would otherwise have been payable pursuant
     to section 1.2.1 or 1.2.2 to any shareholder of First State Bank who
     has exercised his, her or its dissenters' rights of appraisal pursuant
     to applicable provisions of



     law shall be retained by Texas State Bank until such shareholder
     relinquishes his, her or its right of dissent, at which time the provisions
     of section 1.2.1 and 1.2.2 shall apply, except that the date of payment for
     such shares shall be extended to not less than ten days following the date
     of relinquishment of such dissenters' rights.  In the event that a
     shareholder of First State Bank exercises his, her or its dissenters'
     rights, if such shareholder receives as consideration for his or her shares
     an amount per share in excess of the Per Share Consideration, the amount
     payable to other shareholders in consideration of the merger shall be
     adjusted as follows:  the Total Consideration shall be reduced by the full
     amount payable to the dissenting shareholder and such adjusted Total
     Consideration shall be divided by the number of shares held by shareholders
     not exercising dissenters' rights to determine the amount of Per Share
     Consideration to be paid to all such other shareholders.

          3.   Any amounts payable to shareholders who surrender their
     share certificates after the date of Closing shall not bear interest
     attributable to periods either before or after the date of Closing.

     C.   CLOSING.  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.   March 31, 1996;

          2.   The thirtieth calendar day after the date of approval by the
     Federal Reserve Board as required by Section 7.02 herein; or

          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

          4.   If the transactions contemplated by this Agreement are being
     contested in any legal proceeding and Texas State Bank, 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 State Bank, to the consummation of the
     transactions contemplated hereby; or

          5.   Such other date as the parties may select by mutual
     agreement.

The Closing shall take place at the offices of Texas State Bank, 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 June 30, 1996, this Agreement, and the Merger
Agreement if executed and delivered prior thereto, shall, at the election of
either party hereto by written notice, terminate and be of no further force or
effect.  In addition, First State Bank may terminate this Agreement and the
Merger Agreement if Texas Regional fails to file a registration statement with
the Securities and Exchange Commission, pursuant to which Texas Regional
proposes to offer for sale shares of Texas Regional capital stock with an
estimated price that will yield an aggregate of $40,000,000.00 in proceeds to
Texas Regional, within forty-five days following the date of Texas Regional's
receipt



of audited financial statements for both First State Bank and The Border Bank,
Hidalgo, Texas in each case accompanied by the unqualified report of KPMG Peat
Marwick, for fiscal years ended December 31, 1995, 1994 and 1993; PROVIDED THAT
First State Bank may exercise the right of termination in this sentence only if
such right is exercised by written notice to Texas State Bank within ten days
following expiration of such forty-five day period.  Any termination which
occurs through no fault of any of the parties to this Agreement or the Merger
Agreement shall be without liability to any of the parties hereto or to the
Merger Agreement, except for the obligation of Texas State Bank to make certain
payments required pursuant to section 5.7 hereof.  This Agreement and the Merger
Agreement may be terminated at any time prior to the Effective Date by the
mutual action of the respective Boards of Directors of First State Bank and
Texas State Bank.

     D.   EFFECTIVE DATE.  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 Merger Agreement, subject to consummation of the Closing, to become
effective as soon as practicable after the Closing Date.  The merger shall
become effective at the time specified for consummation of the merger (herein
referred to as the "Effective Time") in the order to be issued by the Texas
Banking Department.

     E.   EFFECT OF MERGER.  As a result of the merger, First State Bank's
assets and business shall be acquired by Texas State Bank, free and clear of any
and all liens, claims or encumbrances.

                                    ARTICLE 2

               REPRESENTATIONS AND WARRANTIES OF FIRST STATE BANK


     First State Bank hereby represents and warrants to Texas State Bank as
follows:

     A.   ORGANIZATION OF FIRST STATE BANK.  First State Bank 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.  First
State Bank has branch licenses and all other authority necessary to own and
operate branch bank facilities operated by First State Bank.  A list of the
branches presently operated by First State Bank, together with a list of
licenses pending for operation of additional branch facilities are included on
SCHEDULE 2.1.  True and complete copies of the Articles of Association and
Bylaws of First State Bank, as amended to date, have been delivered to Texas
State Bank, or (to the extent not previously delivered) First State Bank
covenants to deliver the same to Texas State Bank within 15 days following the
date hereof.  First State Bank (i) is duly authorized to conduct a general
banking business, in accordance with its charter, subject to the supervision of
the Texas Banking Department, the Federal Deposit Insurance Corporation 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.  Except as disclosed in SCHEDULE 2.1, and except
for trust assets held in the ordinary course of business of acting as trustee
for third parties, First State Bank has no subsidiaries or affiliates, owns no
voting securities of any other corporation, and is not a



member of any joint venture or partnership.  First State Bank is not a reporting
company under the Securities Exchange Act of 1934, as amended (the "1934 Act").

     B.   CAPITALIZATION AND OWNERSHIP.  The authorized capital stock of First
State Bank consists of 200,000 shares (the "Shares") of capital stock, par value
$20.00 per share, all of which are duly authorized, validly issued and
outstanding, fully paid, nonassessable, and are owned beneficially and of record
by the persons named in the shareholder list previously delivered by First State
Bank to Texas State Bank.  The Shares have not been issued in violation of the
preemptive rights of any stockholder.  There are no outstanding options,
warrants, conversion rights, calls or commitments of any kind obligating First
State Bank to issue, directly or indirectly, additional shares of its capital
stock, and no authorization therefor has been given.  First State Bank does not
have any outstanding commitment or obligation to repurchase, reacquire or redeem
any of its outstanding capital stock.  The undersigned common shareholders of
First State Bank have joined into the execution hereof to evidence their consent
to and written approval of the transaction on the conditions herein described,
and to evidence their agreement to vote for and support the approval of the
transaction (on the conditions herein described) at the special shareholders'
meeting to be called to consider the merger.  The undersigned own beneficially
and of record not less than 75% of the outstanding common stock of First State
Bank, and the holders of common stock of First State Bank are the only
shareholders who have the right to vote on the proposed merger of First State
Bank with and into Texas State Bank.

     C.   FINANCIAL STATEMENTS AND RECORDS.

          1.   First State Bank has delivered to Texas State Bank (i) the
audited balance sheet of First State Bank as of December 31, 1994 (the "December
31, 1994 Balance Sheet"), and the related audited statements of income, changes
in stockholders' equity and changes in financial position for the year then
ended, together with the notes thereto, accompanied by the report thereon of the
independent certified public accountant who examined such statements; and (ii)
the unaudited regulatory reports of condition of First State Bank as of December
31, 1993, 1992 and 1991, and the related unaudited statements of income and
changes in equity capital for each of the years then ended.  Except to the
extent qualified by the report of the independent accountant thereon, these
financial statements fairly present the financial position of First State Bank
as of the dates thereof and the results of its operations for the periods
indicated.  The December 31, 1994 Balance Sheet and audited financial statements
for the fiscal year then ended, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis.  To the best
knowledge of First State Bank, audits of First State Bank have been conducted in
accordance with generally accepted auditing standards.  In addition, First State
Bank has delivered to Texas State Bank its unaudited balance sheet and
regulatory report of condition as of September 30, 1995 (collectively, the
"September 30, 1995 Balance Sheet") and the related unaudited statements of
income, changes in stockholders' equity and changes in financial position for
the twelve-month period then ended.  In the opinion of the management of First
State Bank, these financial statements also fairly present the financial
position of First State Bank as of the date thereof and the results of its
operations for the period indicated and the financial records upon which such
financial statements are based have been kept in accordance with prudent banking
practices and the past practices of First State Bank.  Except as disclosed in
SCHEDULE 2.3.1, the September 30, 1995 Balance Sheet and related financial
statements for the nine-month period then ended, have been prepared in
accordance with generally accepted accounting principles, consistently applied.
The December 31, 1994 Balance Sheet and the September 30, 1995 Balance Sheet,
and the financial statements for the twelve and nine-month periods then ended,
described above are collectively referred to hereinafter as the "First State



Bank Financial Statements."  Except as set forth in SCHEDULE 2.3.1, the First
State Bank Financial Statements do not, as of the dates thereof, include any
material assets or omit to state any material liability, absolute or contingent,
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, First State Bank specifically
represents to Texas State Bank that, except as set forth in SCHEDULE 2.3.1,
First State Bank has no liabilities, either accrued, contingent or otherwise,
which, individually or in the aggregate, are material, which have not been
reflected in the First State Bank financial statements (including the September
30, 1995 Balance Sheet) or which have been incurred in the ordinary course of
business since the date of the September 30, 1995 Balance Sheet.

          2.   Except as set forth in SCHEDULE 2.3.2, since December 31, 1994,
there have not been any material changes in the financial condition, results of
operations, business or prospects of First State Bank, 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 First State Bank.

          3.   The books and records of First State Bank reflect the
transactions to which it is or was a party or by which its 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 prudent banking
principles except as otherwise disclosed in SCHEDULE 2.3.3.  As of the date
hereof and as of the Closing, all of the minute books of First State Bank are
and will be complete, accurate and current in all material respects.

          4.   Total trust assets under management by First State Bank as of
September 30, 1995, are as set forth in the September 30, 1995 Balance Sheet.
All books and records related to the trust business of First State Bank are
true, correct and complete, and all such trust business is operated in full
compliance with sound banking practices, applicable fiduciary requirements and
applicable provisions of law, including applicable provisions of the Texas
Banking Act and applicable provisions of the Texas Probate Code.  Except as set
forth in SCHEDULE 2.3.4, during the three years prior to the date hereof, First
State Bank has not experienced any material change, whether or not deemed
adverse, in the operation of its trust business.

     D.   LOANS.

          1.   All Loans included in the assets of First State Bank, and all
commitments to make Loans by First State Bank (including leasing transactions
and off balance sheet lending transactions such as letters of credit), have been
made in the ordinary course of business of First State Bank and do not present
more than the normal risk of uncollectibility or other unfavorable features,
except as disclosed in Schedule 2.4.1.

          2.   All Loans to directors, officers and beneficial owners of 5% or
more of the outstanding capital stock of First State Bank, and loans to any
person or company related to or affiliated with any such person, are listed on
Schedule 2.4.2.  The Loans listed on Schedule 2.4.2 do not present more than the
normal risk of uncollectibility or other unfavorable features.

          3.   First State Bank's reserves for loan losses have been calculated
in



accordance with all applicable rules and regulations.  In the reasonable opinion
of the management, officers and directors of First State Bank, the reserve for
loan losses shown on the September 30, 1995 Balance Sheet is adequate in all
respects to provide for all losses on loans outstanding as of the date of
September 30, 1995 Balance Sheet.

     E.   PROPERTIES.  First State Bank has good and indefeasible title to all
assets and properties, whether real or personal, tangible or intangible, which
it purports to own, including without limitation, all assets and properties
reflected on the September 30, 1995 Balance Sheet or acquired subsequent thereto
(except to the extent such assets and properties have been disposed of for fair
value in the ordinary course of business since the date of the September 30,
1995 Balance Sheet), subject to no liens, mortgages, security interests,
encumbrances, easements, title imperfections, or charges of any kind except (i)
as noted in the September 30, 1995 Balance Sheet or the notes to the First State
Bank Financial Statements, (ii) statutory liens not yet delinquent, (iii)
security interests granted incident to borrowings by First State Bank from
Federal Reserve Banks or to secure deposits of funds by federal, state or other
governmental agencies, (iv) assets held for third party trust customers in the
ordinary course of the trust business of First State Bank; and (v) 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 First State Bank.  Except as disclosed
on SCHEDULE 2.5, all improvements, buildings and structures located on real
estate owned by First State Bank, and the use by First State Bank of such real
estate, together with such improvements, buildings and structures, in the manner
heretofore and currently used by First State Bank, 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.  Except as
disclosed on SCHEDULE 2.5, all such improvements, buildings and structures
located on real estate owned by First State Bank, and all of the material,
tangible personal property owned by First State Bank, are in good operating
condition and repair, reasonable wear and tear excepted.  Listed on SCHEDULE 2.5
are all policies of title insurance covering such properties.

     F.   ENVIRONMENTAL MATTERS.  Neither any Environmental Hazards nor any
Hazardous Materials Contamination exist on any real property owned by First
State Bank (including any owned by and used in connection with the business of
First State Bank and any foreclosed properties owned by First State Bank), or on
any real property used by the Bank in connection with the business of First
State Bank 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."  Included on SCHEDULE 2.6 is a list of any environmental survey or
report related to any of the Real Property, true, correct and complete copies of
which have been provided to Texas State Bank.  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, 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.

     G.   LITIGATION.  Except as set forth in SCHEDULE 2.7, no claims have been
asserted and no relief has been sought against First State Bank 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 First State Bank.
First State Bank has complied with, and is presently in compliance with, all
laws and regulations pertaining to consumer credit and truth in lending.  The
management of First State Bank is not aware of any material violation by First
State Bank of any of the foregoing.  Except as set forth in SCHEDULE 2.7, First
State Bank is 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 First State Bank have been duly
obtained and are in full force and effect, and there are no proceedings pending
or, to First State Bank's 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.

     H.   TAXES.  First State Bank has 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 First State Bank is not delinquent in the payment of any taxes shown
on such returns or reports.  Except as disclosed on SCHEDULE 2.8, First State
Bank has no examination pending by the Internal Revenue Service, the Texas
Comptroller of Public Accounts, or any other taxing authority, nor has First
State Bank been notified of any proposed examination.  Except as noted in
SCHEDULE 2.8, there are included in the September 30, 1995 Balance Sheet, or
reflected in the Notes to the First State Bank Financial Statements, reserves
adequate in the reasonable opinion of management for the payment of all accrued
but unpaid federal, state and local taxes of First State Bank, including all
income, franchise, ad valorem and other taxes, and all interest and penalties,
whether or not disputed, for the ten-month period ended October 31, 1995, for
the year ended December 31, 1994, and for all fiscal years prior thereto.  First
State Bank has not 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 or
any federal tax, nor is First State Bank 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 First State
Bank.  First State Bank has not filed a consent pursuant to Section 341(f) of
the Internal Revenue Code or otherwise.

     I.   CONTRACTS.  Except as set forth in SCHEDULE 2.9, First State Bank is
not 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 $100,000 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 $500,000 in any one transaction and $2,000,000
in the aggregate; (vii) agreements to which any director, officer or holder of
5% or more of the outstanding capital stock of First State Bank, or any 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.  Except as set forth on SCHEDULE 2.9, First State Bank is
not 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 First State Bank,
(a) under any outstanding indenture, mortgage, contract, lease or other
agreement to which First State Bank is a party or by which First State Bank is
bound; (b) under any provision of the Articles of Incorporation or Bylaws of
First State Bank which might result in a material adverse effect on the
financial condition, results of operations, business or prospects of First State
Bank; or (c) under any agreement with federal or state regulatory authorities.
First State Bank does not have outstanding 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.

     J.   APPROVALS; VALIDITY OF AGREEMENT.  The Board of Directors of First
State Bank has approved the form, terms and provisions of this Agreement and the
transactions contemplated hereby.  Holders of voting Common Stock of First State
Bank are the only persons with the power to consider and vote upon the
transactions herein described.  Shareholders of First State Bank joining into
the execution hereof as provided below in the aggregate hold beneficially and of
record not less than 75% of the outstanding shares of First State Bank voting
Common Stock, and all such Shareholders have approved this Agreement and the
transactions contemplated hereby on the conditions herein described.  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, the execution, delivery and performance of this Agreement
and the Merger Agreement and the consummation of the merger contemplated herein
and therein, 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
First State Bank may be subject; (ii) any contract, agreement or instrument to
which First State Bank is a party or pursuant to which First State Bank is
bound; or (iii) the Articles of Incorporation or Bylaws of First State Bank.
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, no consent or approval or other action by any party
under any contract to which First State Bank is subject is required for the
execution, delivery and performance of this Agreement and consummation of the
transactions herein described, except where the failure to obtain such consent
would not have a material adverse effect on First State Bank.  The execution,
delivery and performance of this Agreement



and the Merger Agreement and the consummation of the transactions herein and
therein described 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 First State Bank or upon any of the stock of First State Bank.
This Agreement constitutes the legal, valid and binding obligation of First
State Bank, enforceable against First State Bank 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.

     K.   INSURANCE.  First State Bank has insurance coverage with reputable
insurers in amounts, types and risks insured as set forth in SCHEDULE 2.11.
First State Bank's accounts are insured by the Federal Deposit Insurance
Corporation ("FDIC") to the extent permitted by law, and First State Bank has
paid all premiums required to be paid and is in compliance with the applicable
regulations of the FDIC.

     L.   ABSENCE OF ADVERSE AGREEMENTS.  Except as set forth in SCHEDULE 2.12,
First State Bank is not a party to any agreement or instrument, nor is First
State Bank 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 First State Bank.

     M.   ABSENCE OF CERTAIN CHANGES.  Except as set forth in SCHEDULE 2.13,
since December 31, 1994, First State Bank has not (i) issued or sold any of its
capital stock 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 First State Bank);
(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 September 30, 1995 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
cancelled any debts or claims, or waived any rights; (viii) except for salary
increases to employees in the ordinary course of business not exceeding 5% of
prior year's compensation, 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 or 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) except for
salary



increases to employees in the ordinary course of business not exceeding 5% of
prior year's compensation, 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
First State Bank; or (xiv) entered into any transaction outside the ordinary
course of business except as expressly contemplated by this Agreement.  Since
June 30, 1995, there has been no material adverse change in First State Bank.

     N.   AGREEMENTS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS.  The name of
each director and executive officer of First State Bank, and the name of each
holder of five percent (5%) or more of the outstanding capital stock of First
State Bank, 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 2.14.  Except as set
forth in SCHEDULE 2.14, 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 First State Bank.  Other than
loan transactions, which are scheduled on SCHEDULE 2.4.2, all transactions with
directors, executive officers, 5% stockholders and affiliates are fully and
appropriately summarized in SCHEDULE 2.14.  Except as described in SCHEDULE
2.14, none of the transactions have been outside of the ordinary course of
business, and, except as set forth in SCHEDULE 2.14, First State Bank now has no
commitments, written or oral, to lend any funds to any such person.

     O.   AFFILIATED CORPORATIONS.  Except as set forth in SCHEDULE 2.15, First
State Bank 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 First State Bank or for the shareholders of First State Bank.

     P.   REGULATORY MATTERS AND EXAMINATION REPORTS.  Except as disclosed on
SCHEDULE 2.16, First State Bank has no formal or informal agreements,
arrangements or understandings with the Federal Reserve Board, the Federal
Deposit Insurance Corporation, the Texas Department of Banking, or any other
regulatory authority (collectively, the "Regulatory Authorities"), nor does
First State Bank have any examination pending by any applicable Regulatory
Authorities nor has First State Bank been notified of any proposed examination
by any Regulatory Authorities.  To the extent permitted by law, First State Bank
has provided to Texas State Bank (or, to the extent not previously delivered,
First State Bank covenants to deliver within 15 days to Texas State Bank)
complete and correct copies of (i) all examination reports by Regulatory
Authorities forwarded to First State Bank during the calendar years 1993, 1994,
1995 and to date 1996; (ii) any correspondence between First State Bank and such
agencies during such periods, and (iii) any agreements, arrangements or
understandings between First State Bank and such agencies, including any
agreements, arrangements or understandings arising out of or related to any such
examinations.

     Q.   COMPLIANCE WITH APPLICABLE LAW.  Except as disclosed on SCHEDULE 2.17,
First State Bank and the conduct of its business (including the conduct of its
trust 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 First State Bank, which violation
might



result in any material adverse change in the condition, business, prospects,
properties or assets of First State Bank.

     R.   DISCLOSURE.  Except to the extent qualified by one of the Schedules to
this Agreement, neither the financial statements nor any representation or
warranty contained herein, nor any information delivered or to be delivered by
First State Bank 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.

     S.   FINDERS.  First State Bank 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 3

               REPRESENTATIONS AND WARRANTIES OF TEXAS STATE BANK

     Texas State Bank and Texas Regional each, jointly and severally, represent
and warrant to First State Bank as follows:

     A.   ORGANIZATION.  Texas State Bank is a banking association 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 State Bank is wholly owned by Texas Regional Bancshares, Inc.
("Texas Regional"), a Texas business corporation duly registered with the
Federal Reserve Board as a bank holding company under the Bank Holding Company
Act of 1956, as amended.

     B.   APPROVALS; VALIDITY OF AGREEMENT.  The Board of Directors of Texas
State Bank has approved the form, terms and provisions of this Agreement and the
transactions contemplated hereby.  Texas Regional is the only shareholder of
Texas State Bank with the power to consider and vote upon the transactions
herein described, and Texas Regional has approved this Agreement and the
transactions contemplated hereby on the conditions herein described.  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, the execution, delivery and performance of this Agreement
and the Merger Agreement and the consummation of the merger contemplated herein
and therein, 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
Texas State Bank may be subject; (ii) any contract, agreement or instrument to
which Texas State Bank is a party or pursuant to which Texas State Bank is
bound; or (iii) the Articles of Incorporation or Bylaws of Texas State Bank.
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, no consent or approval or other action by any party
under any contract to which Texas State Bank is subject is required for the
execution, delivery and performance of this Agreement and consummation of the
transactions herein described, except where the failure to obtain such consent
would not have a material adverse effect on Texas State Bank.  The execution,
delivery and performance of this Agreement and the Merger



Agreement and the consummation of the transactions herein and therein described
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 Texas State Bank or upon any of the stock of Texas State Bank.  This
Agreement constitutes the legal, valid and binding obligation of Texas State
Bank, enforceable against Texas State Bank 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.  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.

     C.   ORDERS AND DECREES.  Provided required approval is obtained from
applicable regulatory authorities, including the Federal Reserve Board and the
Texas Department of Banking, the execution, delivery and performance by Texas
State Bank 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
State Bank may be subject, (ii) the Articles of Incorporation or Bylaws of Texas
State Bank, or (iii) any contract or agreement to which Texas State Bank is a
party or by which it is bound.

     D.   FINDERS.  Texas State Bank 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.  Without limiting the generality of the foregoing, Texas State Bank
specifically represents that it has not been approached by (nor does it have any
agreements with) Service Asset Management Company of Dallas, or any person that
has asserted to Texas State Bank that he or she is acting on behalf of Service
Asset Management Company of Dallas.

     E.   SEC REPORTS AND NASDAQ COMPLIANCE.  Since January 1, 1995, Texas
Regional has made all filings (the "SEC Reports") required to be made by it
under the Securities Act of 1933 (the "Securities Act"), the Securities Exchange
Act of 1934 (the "Exchange Act") and the securities laws of any state, and any
rules and regulations promulgated thereunder.  The SEC Reports, when filed,
complied in all material respects with all applicable requirements of the
Securities Act, the Exchange Act and other requirements of law.  None of the SEC
Reports, at the time of filing, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light of the
circumstances in which they were made.  Texas Regional will deliver or make
accessible to the First State Bank true, accurate and complete copies of the SEC
Reports, as amended, which were filed with the SEC since January 1, 1995, and as
in effect as of the date hereof.  Texas Regional has taken all necessary actions
to ensure its continued inclusion in, and the continued eligibility of the Texas
Regional Class A Voting Common Stock for trading on the NASDAQ Stock Market
under all currently effective and currently proposed inclusion requirements.

     F.   FINANCIAL STATEMENTS.  Each of the balance sheets included in the SEC
Reports (including any related notes and schedules) fairly presents in all
material respects the consolidated financial position of Texas Regional as of
its date, and each of the other financial statements included in the SEC Reports
(including any related notes and schedules) fairly presents in all material
respects the consolidated results of operations or other information




therein of Texas Regional for the periods or as of the dates therein set forth
in accordance with generally accepted accounting principles, consistently
applied during the periods involved.

     G.   CHANGES SINCE JUNE 30, 1995.  Since June 30, 1995, there has been no
material adverse change in Texas State Bank.


                                    ARTICLE 4

                                 INDEMNIFICATION

     A.   INDEMNIFICATION.

          1.   First State Bank hereby agrees to indemnify, defend and hold
harmless Texas State Bank and Texas Regional, and their respective officers,
directors, employees, agents and attorneys from and against any and all losses,
claims, damages, expenses or liabilities to which 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 First State Bank in this Agreement or in the
performance hereof; (ii) any misleading or untrue statement of a material fact
by or on behalf of First State Bank, or any omission of a material fact
necessary in order to make any statements made, in light of the circumstances
under which they were not misleading, including any such statement as is made in
the context of solicitation by First State Bank of proxies for approval of the
transactions described in this Agreement by the shareholders of First State
Bank; and (iii) any irregularity or improper procedure in connection with the
solicitation of proxies and obtaining shareholder approval for the transaction
described in this Agreement.

          2.   Texas State Bank and Texas Regional hereby agree, jointly and
severally, to indemnify, defend and hold harmless First State Bank and its
officers, directors, employees, agents and attorneys from and against any and
all losses, claims, damages, expenses or liabilities to which First 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 Texas State Bank 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 State Bank, or any omission of a material fact
necessary in order to make any statements made, in light of the circumstances
under which they were not misleading, including any such statement as is made in
the context of the sale by Texas Regional of common stock, the proceeds of which
are in part expected to be used to fund the payment of the Total Consideration
by Texas State Bank.

          3.   Each of Texas State Bank and First State Bank (to the extent of
an indemnification obligation hereunder, herein referred to as the "Indemnifying
Party") will indemnify the other parties hereto 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 "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:

               a.   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

               b.   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.   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.

          5.   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.

          6.   The indemnity agreement contained in this Article shall survive
any investigation made by or on behalf of any Indemnified Party.



                                    ARTICLE 5

                                SPECIAL COVENANTS

     A.   STOCKHOLDER APPROVAL BY FIRST STATE BANK.  Subsequent to the execution
and delivery of this Agreement, (i) the Board of Directors of First State Bank
has agreed to cause First State Bank to submit this Agreement and the Merger
Agreement to the stockholders of First State Bank, for their authorization and
approval, by written consent or otherwise, in accordance with applicable
provisions of law.  Subject to the terms and conditions of this Agreement, the
Board of Directors of First State Bank has agreed to recommend this Agreement,
the Merger Agreement and the transactions contemplated thereby to the First
State Bank stockholders.

     B.   FINANCING ARRANGEMENTS BY TEXAS REGIONAL.  Subsequent to the execution
and delivery of this Agreement, Texas Regional agrees to commence the
preparation of a registration statement to be filed pursuant to the Securities
Act of 1933, to effect the registration of the public offering of shares of the
Class A Common Stock of Texas Regional, with the expectation that the proceeds
of such offering would be used in part to fund the Total Consideration.  Texas
State Bank shall provide First State Bank with copies of any registration
statement and any amendment thereto.  Texas Regional and Texas State Bank shall
not be under any obligation to take any action that would cause such
registration statement to be declared effective, or to accept the proposed terms
of any underwriters in connection with the sale of such shares, that are not
acceptable to Texas Regional and Texas State Bank, it being acknowledged and
agreed by First State Bank that any determination as to the acceptability of the
pricing and other terms of any such financing arrangements are in the sole
discretion of Texas Regional and Texas State Bank.

     C.   PROSPECTUS AND PROXY STATEMENT INFORMATION.

          1.   First State Bank agrees to provide any and all information as may
be reasonably required by Texas Regional for purposes of preparation of any
prospectus to be included in any registration statement to effect the
registration of the offering of Texas Regional shares, for purposes of
communications with shareholders of Texas Regional pending the Closing and for
purposes of the proxy statement related to obtaining the approval by First State
Bank shareholders of the transaction herein described (collectively, the "First
State Information").  Without limiting the generality of the foregoing, First
State Bank specifically covenants (i) to cause its financial statements as of
December 31, 1995 and 1993, and the related statements of income, changes in
stockholders' equity and changes in financial position for the year then ended,
together with the notes thereto, to be prepared in accordance with generally
accepted accounting principles and examined by a firm of independent certified
public accountants reasonably acceptable to Texas State Bank and Texas Regional
and (ii) to deliver such financial statements (together with the unqualified
opinion of the auditors with respect thereto and accompanied by such
accountant's consent to use of such financial statements in the registrations
statement herein described) to Texas State Bank and Texas Regional.  First State
Bank hereby agrees that, upon delivery to Texas State Bank, the First State
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.

          2.   Texas State Bank agrees to provide any and all information as may
be reasonably required by First State Bank for purposes of communications with
shareholders of First State Bank pending the Closing and for purposes of the
proxy statement related to obtaining



the approval by First State Bank shareholders of the transaction herein
described (collectively, the "Texas State Information").  Texas State Bank
hereby agrees that, upon delivery to First State Bank, the Texas State
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.

     D.   ACCESS.  From and after the date of this Agreement, First State Bank
shall afford to the officers, attorneys, accountants and other authorized
representatives of Texas State Bank full and free access to the properties,
books, contracts, commitments and records of First State Bank at all reasonable
times during business hours, and such representatives of Texas State Bank shall
be furnished with true and complete copies of the same and with all other
information concerning the affairs of First State Bank as such representatives
may reasonably request.  Any such information treated as confidential by First
State Bank shall be kept confidential by the representatives of Texas State Bank
(and shall be used by them only in connection with this Agreement and the
transactions contemplated hereby) except to the extent that (i) it was already
known to such representatives when received, (ii) it hereafter becomes lawfully
obtainable from other sources, or (iii) it is disclosed by Texas State Bank in
any document filed with the Securities and Exchange Commission, the Federal
Reserve Board or any other governmental agency or authority.  In the event the
transactions contemplated by this Agreement and the Merger Agreement are not
consummated, Texas State Bank agrees to return to First State Bank any
confidential information delivered by First State Bank to Texas State Bank
pursuant to this Section.

     E.   ENVIRONMENTAL INSPECTION.  First State Bank expressly agrees to supply
Texas State Bank with historical and operational information regarding the real
properties owned or operated by, or used in connection with the operation of the
business of, First State Bank, and any premises heretofore used in connection
with the operation of the business of First State Bank, and any other properties
included in the Real Property, including (but not limited to) any environmental
tests or surveys made of such properties.  First State Bank agrees to cooperate
with any reasonable request of Texas State Bank related to site assessment or
site review related to any environmental matter or investigation, including the
making available of such personnel of First State Bank as Texas State Bank may
reasonably request.  At Texas State Bank's discretion, Texas State Bank 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 First State Bank 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 State Bank may deem reasonably
necessary.  Any and all costs of third parties associated with obtaining such
information shall be borne equally by Texas State Bank and First State Bank.  In
the event such tests indicate the presence of Hazardous Material Contamination,
the parties shall endeavor to obtain a reasonably reliable estimate of the cost
of remediating or removing such Hazardous Material Contamination prior to the
Closing.  In the event that such estimated cost is less than $25,000, First
State Bank shall accrue the cost thereof as an expense prior to Closing for
purposes of calculating the minimum net worth required at Closing, in which
event the parties shall proceed to Closing on the terms and conditions described
in this Agreement.  In the event that such estimated cost exceeds an aggregate
of $25,000, Texas State Bank may elect to either (i) proceed with the
transaction on



the terms and conditions herein provided, without modification, in which event
the parties shall perform their respective obligations as herein provided,
without modification; or (ii) proceed with the Closing on the terms and
conditions herein provided, on the further condition that First State Bank
either fully remediate and remove the Hazardous Material Contamination prior to
Closing or (at Texas State Bank's option) accrue the full cost thereof as an
expense prior to Closing for purpose of calculating the minimum net worth
required at Closing, and in either of such events First State Bank shall be
entitled to acquiesce in such remediation and removal (or if Texas State Bank
has so elected, the accrual of the cost thereof), or First State Bank shall be
entitled to unilaterally terminate this Agreement.  In the event that the cost
of remediation exceeds $25,000, or if the parties are unable to obtain a
reasonably reliable estimate of the remediation and removal cost prior to
Closing, Texas State Bank shall be entitled to exercise the options set forth in
the preceding sentence, or to terminate this Agreement without further
liability.

     F.   ACTION BY FIRST STATE BANK PRIOR TO CLOSING.

          1.   From and after the date of this Agreement until the Closing Date,
except as may be specifically provided for in Schedule 5.6, First State Bank
will:

          (i) carry on its business in accordance with reasonably 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 of
     First State Bank and not make or commit to make any capital
     expenditure (whether or not in the ordinary course of business of
     First State Bank) in excess of $200,000 individually or $400,000 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) perform all 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 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) maintain its books of account and records in the usual,
     regular and orderly manner consistent with accounting practices during
     prior periods;

          (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) except for salary increases to employees in the ordinary
     course of business not exceeding 5% of prior year's compensation, not
     increase in any manner the compensation of any of its directors,
     officers or employees, except in accordance with customary practices,
     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 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.

          2.   Without limiting the foregoing, except for expenses reasonably
incurred in connection with the Closing of the transaction herein described (all
of which will be incurred or fully accrued by First State Bank prior to
Closing), between the date hereof and the date of Closing, First State Bank
specifically covenants and agrees that First State Bank will not 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) or significant expenses outside of the ordinary course of
business of First State Bank, nor will First State Bank increase expenses in any
material way (either individually or in the aggregate), nor will First State
Bank make any changes in its capital structure, in each case without the prior
written consent of Texas State Bank.

          3.   Provided that seeking such approvals is in accordance with
applicable banking law and regulations, First State Bank will not make a fully
collateralized loan, nor will First State Bank commit to make a fully
collateralized loan, in excess of $1,000,000 to any one borrower or in any one
transaction without the prior approval of Texas State Bank, and First State Bank
shall not make any other loan, nor shall First State Bank commit to make any
other loan, in excess of $200,000 to any one borrower or in any one transaction
without the prior consent of Texas State Bank.

          4.   Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, First State Bank will not
sell or otherwise dispose of any of the Bank's real or personal property with a
fair market value in excess of $100,000 without the prior written consent of
Texas State Bank.

          5.   Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, First State Bank specifically
covenants and agrees not to 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, First State Bank shall not enter into any forward
commitment to acquire any such securities.



          6.   From and after the date of this Agreement until the Closing Date,
without the prior written consent of Texas State Bank, First State Bank (i) will
not permit any change to be made in its charter or Bylaws; (ii) will not take
any action following the date hereof that would have required that the action,
or any document, instrument or other information related thereto, be included on
SCHEDULE 2.9 had such action been taken prior to the date hereof; (iii) will in
all material respects perform all obligations required to be performed by it;
(iv) will not default, or allow any event to occur which, with notice or lapse
of time or action by a third party could result in a default, under any
outstanding indenture, mortgage, contract, lease or other agreement to which
First State Bank is a party or by which it is bound, or under any provision of
the Articles of Association or Bylaws of First State Bank which might have a
material adverse effect, or under any agreement with federal or state regulatory
authorities; or (v) will not grant any power of attorney.

          7.   As of the time of Closing, any material liabilities, accrued,
contingent or otherwise, which have been incurred since the date of the
September 30, 1995 Balance Sheet will have been fully disclosed to Texas State
Bank, except that First State Bank shall not be required to disclose, pursuant
to this section, (i) deposit liabilities and (ii) other liabilities of less than
$50,000 incurred in the ordinary course of business.

     G.   TERMINATION FEE.  As part of the consideration to First State Bank,
Texas State Bank hereby agrees that, if the transaction described in this
Agreement shall fail to close as a result of Texas State Bank exercising its
right to terminate for failure of a condition specified in section 6.4
(Regulatory Approvals), section 6.7 (Due Diligence Review; No Material Adverse
Change), section 6.11 (Fairness Opinion), or section 6.14 (Financing) hereof, or
as a result of a breach by Texas State Bank of its obligations hereunder, or if
either party exercises its right to terminate as a result of the transaction
failing to close prior to June 30, 1996 (as herein provided), in each case for
any reason other than an intentional misrepresentation or other default by First
State Bank hereunder, Texas State Bank shall pay to First State Bank a
termination fee in the amount of $65,000.00.

                                    ARTICLE 6

                  CONDITIONS TO OBLIGATIONS OF TEXAS STATE BANK

     In addition to any other condition herein described as a condition to the
obligations of Texas State Bank under this Agreement, the obligations of Texas
State Bank under this Agreement and the Merger Agreement are subject, in the
discretion of Texas State Bank, to the satisfaction at or prior to the Closing
Date of each of the following conditions:

     A.   COMPLIANCE WITH REPRESENTATIONS.  The representations and warranties
made by First State Bank 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 First State Bank shall have performed or
complied with all covenants and conditions required by this Agreement or the
Merger Agreement to be performed or complied with by it prior to or at the
Closing.  Texas State Bank shall have been furnished with a certificate, signed
by the President of First State Bank in his capacity as such and dated the
Closing Date, and a certificate, signed by the Cashier of First State Bank in
his capacity as such and dated the Closing Date, to the foregoing effect.



     B.   STOCKHOLDER APPROVAL.  First State Bank shall have delivered to Texas
State Bank a certificate signed by the Cashier of First State Bank in his
capacity as such, confirming the approval of this transaction by the requisite
vote of First State Bank's shareholders.

     C.   DISSENTERS.  Holders of an aggregate of not greater than 2.5% of the
issued and outstanding shares of First State Bank shall have exercised
dissenters' rights of appraisal with respect to the transactions, excluding for
these purposes holders of shares who have subsequently abandoned (including
abandonment as a result of a failure to comply with applicable procedures) their
dissenters' rights of appraisal.  Texas State Bank shall have been furnished
with a certificate, dated the Closing Date and signed by the President of First
State Bank, in his capacity as such, to the effect that no dissenters' rights
action or proceeding is pending, or, to the best of his knowledge, threatened,
or (if any such proceeding or action is pending or threatened) stating the
relevant details of each such action or proceeding.

     D.   REGULATORY APPROVALS.  The parties hereto and to the Merger Agreement
shall have received approval of the transactions contemplated by this Agreement
and the Merger Agreement from all necessary governmental agencies and
authorities, including the Texas Department of Banking 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 State Bank may, but shall not
be obligated to, answer and defend such contest.

     E.   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 the Merger 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 First State Bank which might
result in any material adverse change in the financial condition, results of
operations, business or prospects of First State Bank.  Texas State Bank shall
have been furnished with a certificate, dated the Closing Date and signed by the
President of First State Bank, in his capacity as such, to the effect that no
such litigation, investigation, inquiry or proceeding is pending, or, to the
best of his knowledge, threatened.

     F.   OPINION OF COUNSEL.  Prior to closing, First State Bank shall deliver
to Texas State Bank the opinion of First State Bank's counsel, in form and
content satisfactory to Texas State Bank, to the effect that (i) First State
Bank is duly organized, validly existing and in good standing as a banking
association under the laws of the state of Texas, and First State Bank has full
power and authority to carry on its business as presently conducted; (ii) the
authorized capital stock of First State Bank consists of 200,000 shares of
capital stock, par value of $20.00 per share, of which all 200,000 shares are
validly issued, fully paid and nonassessable, and no options, warrants,
conversion or other rights, agreements or commitments of any kind obligating
First State Bank 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) this Agreement
and Plan of Reorganization and the Merger Agreement have been duly authorized by
all necessary corporate action on the part of First State Bank, its directors
and shareholders, and this Agreement and the Merger Agreement constitute valid
and binding obligations of First State Bank enforceable in accordance with their
respective 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 (iv) 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 Association or Bylaws of First State
Bank, or, to the best knowledge and belief of such counsel, any agreement or
instrument to which First State Bank is a party or is bound, or, to the best
knowledge and belief of such counsel, any law, regulation, judgment or order
binding on First State Bank.

     G.   DUE DILIGENCE REVIEW; NO MATERIAL ADVERSE CHANGE.  Texas State Bank
and its employees, agents, attorneys, accountants and other representatives
shall be entitled to review and monitor the assets, liabilities, business and
prospects of First State Bank during the period from the date hereof to the time
of Closing.  Texas State Bank shall be entitled to terminate this transaction at
its sole option (i) at any time within ninety (90) days following the date
hereof if the results of such review are not satisfactory in all respects to
Texas State Bank; or (ii) at any time prior to closing if any material adverse
change shall have occurred in the condition, financial position or business
prospects of First State Bank.

     H.   CONSENTS, APPROVALS AND ESTOPPEL CERTIFICATES.  Texas State Bank shall
have received all such consents, approvals, estoppel certificates and other
assurances, in each case in form and content reasonably satisfactory to Texas
State Bank, from any party to an agreement with First State Bank or by which
First State Bank is bound as a result of an order of any authority, or pursuant
to any other legal requirement, which agreement, order or other requirement
requires consent, approval or other assurance in order that the Closing of the
transaction herein described will not constitute an event of default or create a
right of termination or result in any other material adverse event thereunder.
Without limiting the generality of the foregoing, Texas State Bank shall have
received consents and estoppel certificates from each landlord of First State
Bank and from each tenant of First State Bank, consenting (if Texas State Bank
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 First State Bank is a party, the fact that no default exists (or which
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 State Bank.

     I.   NET WORTH OF FIRST STATE BANK.  The net worth of First State Bank,
calculated in accordance with regulatory requirements of the Texas Department of
Banking, shall be not less than the sum of $62,000,000, increased by $700,000
per month for each month elapsed during the period from March 31, 1996, until
the date of closing.  In the event that the Closing is not consummated prior to
April 1, 1996, and provided that the net worth of First State Bank (calculated
in accordance with regulatory requirements of the Texas Department of Banking)
is not less than $62,000,000 as of March 31, 1996, First State Bank shall be
permitted to pay dividends to its shareholders prior to Closing in an amount up
to an aggregate of 60% of the net income of First State Bank from April 1, 1996,
to the end of the month next preceding the date of Closing.

     J.   CONTEMPORANEOUS TRANSACTION.  Contemporaneously with the closing of
the transaction herein described, The Border Bank of Hidalgo, Texas, shall be
merged with and into Texas State Bank pursuant to the terms and conditions of,
and as described in, the Agreement and Plan of Reorganization by and between
Texas State Bank and The Border Bank dated of even date herewith.

     K.   FAIRNESS OPINION.  Texas State Bank shall have received a fairness
opinion, in



form and content acceptable to Texas State Bank and Texas Regional in their sole
discretion, and rendered by a firm acceptable to Texas State Bank and Texas
Regional in their sole discretion, as to the fairness of the transaction to
Texas State Bank, Texas Regional and the shareholders of Texas Regional, and
such opinion shall not have been withdrawn prior to Closing.

     L.   TERMINATION OF DATA PROCESSING ARRANGEMENTS.  First State Bank shall
have exercised its right to terminate its data processing services contract with
Electronic Data Systems, Inc., on terms and upon conditions reasonably
acceptable to Texas State Bank.

     M.   COVENANT NOT TO COMPETE.  Elliott Bottom shall have entered into a
covenant not to compete with Texas State Bank on terms and conditions acceptable
to Texas State Bank, which shall provide that Elliott Bottom shall not engage,
directly or indirectly, in the commercial banking business in Hidalgo, Cameron,
Starr or Willacy Counties, Texas for a period of three (3) years following the
date of Closing, provided that such obligation not to compete with Texas State
Bank shall terminate immediately in the event of a change of control of a
majority of the outstanding capital stock of Texas State Bank or Texas Regional
Bancshares, Inc.

     N.   FINANCING.  Texas Regional shall have successfully completed and
closed a duly registered public offering of shares of its Class A Voting Common
stock, at prices and on terms and conditions acceptable to Texas Regional in its
sole discretion, which has yielded cash proceeds to Texas Regional of not less
than $40,000,000.00.

                                    ARTICLE 7

                  CONDITIONS TO OBLIGATIONS OF FIRST STATE BANK

     The obligations of First State Bank under this Agreement and the Merger
Agreement are subject, in the discretion of First State Bank, to the
satisfaction at or prior to the Closing Date, of each of the following
conditions:

     A.   COMPLIANCE WITH REPRESENTATIONS.  The representations and warranties
made by Texas State Bank and 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 State Bank and Texas Regional shall have performed or complied with all
covenants and conditions required by this Agreement or the Merger Agreement to
be performed or complied with by them prior to or at the Closing.  First State
Bank shall have been furnished with a certificate dated the Closing Date, signed
by the Chairman of Texas Regional and by the President of Texas State Bank, in
each case in his capacity as such, to the foregoing effect.

     B.   DISSENTERS.  Holders of an aggregate of not greater than 2.5% of the
issued and outstanding shares of First State Bank shall have exercised
dissenters' rights of appraisal with respect to the transactions, excluding for
these purposes holders of shares who have subsequently abandoned (including
abandonment as a result of a failure to comply with applicable procedures) their
dissenters' rights of appraisal.

     C.   REGULATORY APPROVALS.  The parties hereto and to the Merger Agreement
shall have received approval of the transactions contemplated by this Agreement
and the Merger Agreement from all necessary governmental agencies and
authorities, including the Texas Department of



Banking 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,
First State Bank may, but shall not be obligated to, answer and defend such
contest.

     D.   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 the Merger Agreement or which might result in divestiture,
rescission or damages in connection with such transactions and First State Bank
shall have been furnished with a certificate, dated the Closing Date and signed
by the President of Texas State Bank, 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.

     E.   FAIRNESS OPINION.  First State Bank shall have received a fairness
opinion, in form and content acceptable to First State Bank in its sole
discretion, and rendered by a firm acceptable to First State Bank in its sole
discretion, as to the fairness of the transaction to First State Bank and the
shareholders of First State Bank.

     F.   OPINION OF COUNSEL.  Prior to closing, Texas State Bank shall deliver
to First State Bank the opinion of Texas State Bank's counsel, in form and
content satisfactory to First State Bank, to the effect that (i) Texas State
Bank is duly organized, validly existing and in good standing as a banking
association under the laws of the state of Texas, and Texas State Bank has full
power and authority to carry on its business as presently conducted; (ii) this
Agreement and Plan of Reorganization and the Merger Agreement have been duly
authorized by all necessary corporate action on the part of Texas State Bank,
its directors and shareholders, and this Agreement and the Merger Agreement
constitute valid and binding obligations of Texas State Bank enforceable in
accordance with their respective 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 (iii) 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 Association or Bylaws of Texas State Bank, or, to
the best knowledge and belief of such counsel, any agreement or instrument to
which Texas State Bank is a party or is bound, or, to the best knowledge and
belief of such counsel, any law, regulation, judgment or order binding on Texas
State Bank.

                                    ARTICLE 8

                               CLOSING OBLIGATIONS

     A.   TEXAS STATE BANK OBLIGATIONS.  At the Closing, Texas State Bank shall
deliver the following:

          1.   Certificate of Merger, in the form required to be delivered
     pursuant to applicable provisions of the Texas Banking Act and rules
     of the Texas Department of Banking.

          2.   Officer's Certificate, including an incumbency certification
     and further certifying as to the existence and good standing of Texas
     State Bank, the



     accuracy of all representations and warranties of Texas State Bank, the
     approval by the Board of Directors of Texas State Bank, and Texas Regional
     as the sole shareholder of Texas State Bank, of resolutions authorizing and
     approving the transaction.

          3.   Wire transfer or delivery of checks to shareholders of First
     State Bank, as required by section 1.2.1.

          4.   An opinion of Texas State Bank's counsel in form and
     substance required by this Agreement and otherwise acceptable to First
     State Bank.

          5.   Such other documents, certificates, and other items as may
     be required to be delivered by Texas State Bank pursuant to the terms
     of this Agreement or as may be reasonably requested by First State
     Bank to effectuate the transaction herein described.

     B.   FIRST STATE BANK OBLIGATIONS.  At the Closing, First State Bank shall
deliver the following to Texas State Bank:

          1.   Certificate of Merger, in the form required to be delivered
     pursuant to applicable provisions of the Texas Banking Act and rules
     of the Texas Department of Banking.

          2.   Officer's Certificate, including an incumbency certification
     and further certifying as to the existence and good standing of First
     State Bank, the accuracy of all representations and warranties of
     First State Bank, the approval by the Board of Directors of First
     State Bank, and the shareholders of First State Bank, of resolutions
     authorizing and approving the transaction.

          3.   Certificate of Existence of First State Bank issued by the
     Texas Department of Banking and Certificate of Good Standing 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.

          4.   An opinion of First State Bank's counsel in form and
     substance required by this Agreement and otherwise acceptable to Texas
     State Bank.

          5.   Such other documents, certificates, and other items as may
     be required to be delivered by First State Bank pursuant to the terms
     of this Agreement or as may be reasonably requested by Texas State
     Bank to effectuate the transaction herein described.

                                    ARTICLE 9

                                  MISCELLANEOUS

     A.   SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations,
warranties and covenants in this Agreement shall survive any investigation of
the parties hereto, but shall not survive the Closing of the transaction
contemplated hereby.



     B.   BROKERS.  Texas State Bank and First State Bank agree that no third
party has in any way brought the parties together or been instrumental in the
making of this Agreement.  Each such party 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 Agreement or the
transactions contemplated hereby and thereby based on any alleged agreement or
understanding between such party and such third person, whether express or
implied from the actions of such party.

     C.   EXPENSES.  Whether or not the transactions provided for herein are
consummated, each party to this Agreement and the Merger Agreement will pay its
respective expenses incurred in connection with the preparation and performance
of this Agreement and Merger Agreement.

     D.   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 State Bank, then to:

          Texas State Bank
          3900 N. 10th Street
          McAllen, Texas 78502
          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 First State Bank, then to:

          First State Bank and Trust Company
          P.O. Box 550
          Mission, Texas 78573-0550
          Attention:  Mr. Elliott Bottom
                    Chairman of the Board

          with a copy to:

               Mr. David Reed
               Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P.
               3700 NationsBank Plaza
               901 Main Street
               Dallas, Texas 75202



     E.   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 controlling
persons thereof, but shall not be assigned by either party without the prior
written consent of the other party.

     F.   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.

     G.   ENTIRE AGREEMENT.  This Agreement embodies the entire agreement
between the parties 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 the party against whom
enforcement is sought.

     H.   WAIVERS.  Texas State Bank or First State Bank, 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.

     I.   GOVERNING LAW.  This Agreement shall be governed by the laws of the
State of Texas applicable to contracts made and to be performed therein.

     J.   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.

     K.   JOINDER BY SHAREHOLDERS OF FIRST STATE BANK.  Subject to the terms and
conditions hereof, each of the undersigned which executes this Agreement as a
Shareholder of First State Bank (i) acknowledges his, her or its consent to and
approval of the transaction herein described; (ii) represents that he, she or it
owns the number of shares of First State Bank as indicated below his, her or its
name below; (iii) agrees to recommend this transaction to other shareholders of
First State Bank and to vote to approve of the transaction at the shareholder
meeting called to consider and vote upon the merger transaction herein
described; (iv) agrees to perform and comply with the covenants and agreements
of the Shareholders of First State Bank as described in this Section 9.11; and
(v) acknowledge that Texas State Bank and Texas Regional are relying upon the
agreements of the Shareholders as contained in this section 9.11 in executing
and entering into this Agreement.

     L.   SCHEDULES.  First State Bank reserves the right, for a period of 15
days from the date hereof, to amend any Schedule to this Agreement, and First
State Bank covenants to deliver any amended Schedules to Texas State Bank, in
form suitable for attachment to this Agreement, within such 15 day period.
Texas State Bank shall have the right to review any amended Schedules as to
form, content or both, and shall have the right to object to any amendments to
Schedules or any information contained therein at any time within ten (10) days
thereafter.  Any amendments to Schedules not objected to by Texas State Bank, or
to which Texas State Bank indicates that it has no objection, shall become a
part of this Agreement fully as if attached hereto as of the date of execution
hereof.  Any amendments to Schedules to which Texas State Bank objects shall be
modified by First State Bank in a manner acceptable to Texas State Bank, or, if
First State Bank fails to make such modification, Texas State Bank shall be
entitled to terminate this Agreement, in which event neither party shall have
any further rights or obligations hereunder.



     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

                                   TEXAS STATE BANK



ATTEST:                            BY: /s/ G. E. RONEY
                                       ___________________________________
                                       GLEN E. RONEY,
                                          CHAIRMAN OF THE BOARD
/s/ MARY L. YARBOROUGH
_____________________________
   Cashier




                                   TEXAS REGIONAL BANCSHARES, INC.



ATTEST:                            BY: /s/ G. E. RONEY
                                       ___________________________________
                                       GLEN E. RONEY,
                                          CHAIRMAN OF THE BOARD
/s/ ANN SEFCIK
_____________________________
   Secretary

                                   FIRST STATE BANK AND TRUST COMPANY



ATTEST:                            BY:  /s/ ELLIOTT B. BOTTOM
                                        __________________________________
                                        ELLIOTT BOTTOM,
                                          CHAIRMAN OF THE BOARD

/s/ BRENT BOTTOM
__________________________
   Cashier


SHAREHOLDERS OF FIRST STATE BANK:

/s/ ELLIOTT B. BOTTOM                   /s/ BRENT BOTTON
__________________________________      _________________________________
Elliott Bottom                          Brent Bottom
Number of shares: 110,777               Number of shares: 650



Estate of Elinor P. Hobbs               H. Wendell Hobbs

/s/ H. WENDELL HOBBS                    /s/ H. WENDELL HOBBS
__________________________________      _________________________________
Printed Name: H. Wendell Hobbs          Printed Name: H. Wendell Hobbs
Number of shares: 6,008.17              Number of shares: 9,008.17



/s/ ROY SCHAPIRA                        /s/ SCOTT MARTIN, JR.
__________________________________      _________________________________
Printed Name: Roy Schapira              Printed Name: Scott Martin, Jr.
Number of shares: 2,700                 Number of shares: 1583.333



/s/ LONGORIA CATTLE, INC.
    BY LEO LONGORIA                     /s/ BLAINE H. HOLCOMB
__________________________________      _________________________________
Printed Name: Leo Longoria              Printed Name: Blaine H. Holcomb
Number of shares: 600                   Number of shares: 500






Marialice Shary Shivers                 Marialice S. Shivers Marital Trust

/s/ MARIALICE SHARY SHIVERS
    BY BLAINE H. HOLCOMB, AGENT         /s/ BLAINE H. HOLCOMB, TRUSTEE
__________________________________      _________________________________
Printed Name: Blaine H. Holcomb         Printed Name: Blaine H. Holcomb
Number of shares: 13,360                Number of shares: 13,360



/s/ CARLOS L. MARTINEZ                  /s/ RICHARD WALSH
__________________________________      _________________________________
Printed Name: Carlos L. Martinez        Printed Name: Richard Walsh
Number of shares: 100                   Number of shares: 345.4545



                                  SCHEDULE 1.1


                               AGREEMENT OF MERGER

                                     BETWEEN

                       FIRST STATE BANK AND TRUST COMPANY

                                       AND

                                TEXAS STATE BANK

                              Under the charter of

                                TEXAS STATE BANK

                               under the title of

                               "TEXAS STATE BANK"


     This AGREEMENT is made between FIRST STATE BANK AND TRUST COMPANY of
Mission, Texas (hereinafter referred to as "First State Bank"), a banking
association organized under the laws of the State of Texas, located at 900
Conway, Mission, Hidalgo County, Texas, with a  Stated Capital of $4,000,000,
divided into 200,000 shares of common stock, each of $20.00 par value, Surplus
of $___________, and Undivided Profits, including Capital Reserves, of
$_______________, as of ________________, 1995; TEXAS STATE BANK of McAllen,
Texas (hereinafter referred to as "Texas State Bank") a banking association
organized under the laws of the State of Texas, located at 3900 North Tenth
Street, McAllen, Hidalgo County, Texas, with a Stated Capital of
$________________, divided into _______ shares of common stock, each of $_______
par value, Surplus of $_____________, and Undivided Profits, including Capital
Reserves, of $________________, as of ____________________, 1995; and TEXAS
REGIONAL BANCSHARES, INC. (hereinafter referred to as the "Company"), a
corporation organized under the laws of the State of Texas, being located at
Kerria Plaza, Suite 301, 3700 N. 10th Street, McAllen, Hidalgo County, Texas.
Each is acting pursuant to a resolution of this board of directors, adopted by
the vote of a majority of its directors, pursuant to the authority given by and
in accordance with the provision of the Texas Banking Act, as amended, and other
applicable provisions of law, witnesseth as follows:


                                   Section 1.

     First State Bank and Texas State Bank (hereinafter referred to as the
"Merging Banks") shall be merged, and the surviving bank following the merger
shall be Texas State Bank.  For purposes hereof, Texas State Bank following the
merger is sometimes herein referred to as the "Surviving Bank."


                                   Section 2.



     Following the merger, the name of the Surviving Bank shall be "Texas State
Bank."


                                   Section 3.

     The business of the Surviving Bank shall be that of a Texas banking
association.  Until thereafter changed by appropriate action taken by the Board
of Directors of the Surviving Bank, this business shall be conducted by the
Surviving Bank using the established facilities of and at the established
offices of the former Texas State Bank and the former First State Bank, and the
main office shall be located at 3900 N. 10th Street, McAllen, Hidalgo County,
Texas.  In addition, contemporaneously with the consummation of the transactions
herein described, it is anticipated that The Border Bank of Hidalgo, Texas will
be merged with and into Texas State Bank so that with the consummation of that
transaction the existing locations of Texas State Bank of McAllen, the former
First State Bank and the former The Border Bank shall all become facilities of a
single Texas banking association.


                                   Section 4.

     The amount of capital stock of the Surviving Bank shall be
$_________________, divided into _______ shares of common stock, each of
$_______ par value, and at the time the merger shall become effective, the
Surviving Bank shall have a Surplus of $_____________________.  The Capital,
Surplus and Undivided Profits (including Capital Reserves) of the Surviving Bank
will be equal to the combined capital and surplus of the merging banks as stated
in the preamble of this Agreement, adjusted for earnings and expenses between
_________________, 1995, and the effective date of the merger.  It is
acknowledged by the parties hereto that the merger of First State Bank with and
into Texas State Bank shall be treated as a purchase for financial accounting
purposes.


                                   Section 5.

     At the Effective Time, the corporate existence of First State Bank and
Texas State Bank shall be merged into and continued in the Surviving Bank.  All
assets and all contract and other rights, franchises, interests, every type of
property (real, personal and mixed), choses in action, appointments,
designations and nominations (including all rights and interests as trustee,
executor, administrator, transfer agent, registrar of stocks and bonds,
guardian, assignee, receiver, and in every other fiduciary and agency capacity),
of each of the merging banks, as they exist at the Effective Time of the merger,
shall pass to and vest in the Surviving Bank without any conveyance or other
transfer.  After consummation of the merger, the Surviving Bank shall be liable
for all of the deposits, debts, liabilities, obligations and contracts of every
kind and description, including liabilities arising out of the operation of a
Trust Department, of each of the merging banks existing as of the Effective Time
of the merger, notwithstanding whether such liabilities are matured or
unmatured, contingent or certain, reflected on the balance sheets and books and
records of the Merging Banks or not.

     As its contribution to the capital structure of the Surviving Bank, First
State Bank shall contribute acceptable assets having a book value, over and
above its liability to its creditors, of at least $_________________________,
and having an estimated fair value, over and above its liability to its
creditors, of at least equal to that sum.

     As its contribution to the capital structure of the Surviving Bank, Texas
State Bank shall



contribute acceptable assets having a book value, over and above its liability
to its creditors, of at least $_________________________, and having an
estimated fair value, over and above its liability to its creditors, of at least
equal to that sum.


                                   Section 6.

     At the Effective Time, as hereinafter defined:

          (a)  Each share of First State Bank common stock owned
     beneficially and of record immediately prior to the Effective Time by
     the First State Bank shareholders, shall, without any action on the
     part of the holder thereof, be converted into and exchanged for the
     right to receive cash as calculated pursuant to that certain Agreement
     and Plan of Reorganization by and among the Company, Texas State Bank
     and First State Bank dated as of __________________, 1995 (the
     "Reorganization Agreement").

          (b)  No distribution of cash or other consideration as herein
     provided shall be made to any person or entity otherwise entitled
     thereto until surrender by such person of all certificates
     representing shares of First State Bank capital stock held by them of
     record.  The outstanding certificates representing such shares of
     First State Bank common stock as held by such shareholders, to the
     extent they are to receive shares of Company stock, shall, after the
     Effective Time, be deemed to be exchanged for new certificates for the
     appropriate number of shares of the Company stock.  Unless and until
     his or her certificate or certificates representing shares of First
     State Bank capital stock have been delivered to the Company, the
     Company shall not be obligated to make any distribution payable to
     holders of the Company common or preferred stock to such holder of
     First State Bank share certificates.  However, upon the holder's
     delivery of his or her First State Bank share certificates to the
     Company, the Company shall pay to the holder the amount (without
     interest thereon) of any and all consideration that is payable to such
     shareholder under this Agreement and the Agreement and Plan of
     Reorganization.

          (c)  The shares of the Texas State Bank common stock outstanding
     at the Effective Time, all of which shall be held by the Company,
     shall be converted into a like number of shares of the Surviving Bank,
     and the par value thereof shall be the par value per share of Texas
     State Bank common stock immediately prior to the Effective Time, and
     all such shares shall be owned and held by the Company.  The existing
     shares of First State Bank shall be cancelled.

          (d)  The capital of First State Bank and Texas State Bank
     immediately prior to the merger shall be combined as the capital of
     the Surviving Bank, subject to such adjustment as may be necessary to
     properly account for the transaction as a purchase for financial
     accounting purposes.

          (e)  All rights of the holders of outstanding certificates of
     First State Bank common stock under the plan of merger described in
     this Agreement shall be determined from the stock transfer records of
     First State Bank as of the close of business on the date specified in
     the approval letter to be issued by the Federal Reserve Board, or the
     Texas Department of Banking, or other applicable regulatory authority,
     and no transfer of record of any of the shares of First State



     Bank common stock shall take place thereafter.


                                   Section 7.

     First State Bank shall not declare or pay any dividend to its shareholders
between the date of this Agreement and the time at which the merger shall become
effective, nor shall First State Bank take any action prohibited by the
Reorganization Agreement, without the prior written consent of Texas State Bank.



                                   Section 8.

     The officers of the Surviving Bank at the Effective Time shall be those
persons who are officers of Texas State Bank immediately before the Effective
Time.  Until replacement or additional directors are elected by the Company, the
Board of Directors and the committees of the Board of Directors of the Surviving
Bank at the Effective Time shall be the same as, and shall be composed of the
same persons who are serving on, the Board of Directors and the committees of
the Board of Directors of Texas State Bank as they exist immediately before the
Effective Time.


                                   Section 9.

     Effective as of the Effective Time and until amended by an appropriate
action taken by or on behalf of the Surviving Bank, the Articles of Association
of the Surviving Bank shall be the Articles of Association of Texas State bank
as in effect as of the Effective Time.  The Bylaws of the Surviving Bank shall
be the Bylaws of Texas State Bank in effect as of the Effective Time.

                                   Section 10.

     This Agreement may be terminated by the mutual action of the Boards of
Directors of each party hereto.  Since time is of the essence of this Agreement,
if for any reason the transaction shall not have been consummated by June 30,
1996, this Agreement shall, at the election of either party hereto, terminate
and be of no further force or effect.


                                   Section 11.

     This Agreement shall be ratified and confirmed by the affirmative vote of
the shareholders of each of the Merging Banks owning at least two-thirds of its
capital stock outstanding, at a meeting to be held on the call of the directors,
or as may be otherwise prescribed by law.  The merger shall become effective at
the time (herein called the "Effective Time") of issuance of a Certificate of
Merger or other evidence of consummation of the merger by the Texas Department
of Banking, or other applicable regulatory authority.

     Any shareholder of First State Bank shall be entitled to assert statutory
dissenters' appraisal rights by following the procedures set forth in Article
5.11, et seq., of the Texas Business Corporation Act, as amended, and other
applicable provisions of law.  If holders of more than two and one-half percent
(2.5%) of the outstanding shares of First State Bank common stock assert their
statutory dissenters' appraisal rights, Texas State Bank shall be



entitled, but shall not be obligated, to elect to terminate this Agreement, in
which case the merger herein described shall not be consummated.


                                   Section 12.

     Consummation of the merger as provided for herein is conditioned upon
fulfillment of certain conditions precedent described in the Reorganization
Agreement between the parties hereto, which contemplates the merger provided for
by this Merger Agreement.  Among other things, the consummation of the merger as
provided for herein shall be conditioned upon the receipt of all consents,
orders and approvals, and satisfaction of all other requirements prescribed by
law which are necessary for the consummation of the merger herein described,
including, without limitation, (i) receipt of an order issued by the Texas
Department of Banking approving the merger of First State Bank and Texas State
Bank; and (ii) receipt of an order issued by the Board of Governors of the
Federal Reserve System approving the application of the Company to consummate
the transactions herein described.  If any transaction contemplated hereby shall
have been contested by any federal or state governmental authority, or by any
third party, and such contest is brought by formal proceedings, Texas State Bank
shall have the right to, but shall not be obligated to, (i) answer and defend
such contest; or (ii) terminate this Agreement whereupon the merger herein
described shall not be consummated.

     In the event of the termination and abandonment of this Agreement pursuant
to the provisions of this Section 12 or any other provision of this Agreement,
this Agreement shall be of no further force or effect and there shall be no
liability by reason of this Agreement or the termination hereof on the part of
either First State Bank or Texas State Bank or the Company, or the  directors,
officers, employees, agents or shareholders of any of them.


                                   Section 13.

     First State Bank or Texas State Bank may, by an instrument in writing,
extend the time for or waive the performance of any obligations of the other or
waive the performance by the other of any of the covenants or conditions
contained herein.  This Agreement may be modified or amended at any time,
whether before or after action thereon by the shareholders of First State Bank
and Texas State Bank, by an instrument in writing signed by First State Bank,
Texas State Bank and the Company.

     WITNESS the signatures on behalf of each of the Merging Banks, each
signature hereunto set by its President and attested by its Cashier, and the
signature of the Company, hereunto set by the President of the Company, each
acting pursuant to a resolution of its Board of Directors, acting by a majority
thereof, and witness the signatures hereto of a majority of each of said Boards
of Directors.

     DATED to be effective _______________________, 1996.



                              FIRST STATE BANK AND TRUST COMPANY
Attest:

______________________________     By:  ________________________________________
          Cashier                       Elliott B. Bottom, President
                                                                 and Director

                                        ________________________________________
     (Seal of Bank)
                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        Directors of First State Bank



                              TEXAS STATE BANK
Attest:

                                        By:
______________________________               ___________________________________
          Cashier                            Glen E. Roney,
                                                       Chairman of the Board
                                                       and Director


                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        ________________________________________

                                        Directors of Texas State Bank



                                        TEXAS REGIONAL BANCSHARES, INC.



                                        By:  ___________________________________
                                             Glen E. Roney,
                                             Chairman of the Board



STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this _____ day of _____________, 19____, before me, a Notary Public for
the State and County aforesaid, personally came Elliott B. Bottom, as President,
and ___________________, as Cashier, of First State Bank and Trust Company, and
each in his said capacity acknowledged the foregoing instrument to be the act
and deed of said banking corporation and the seal affixed thereto to be its
seal; and came also_____________________________________________________________
________________________________________________________________________________
___________________________________, and _______________________________________
________________________________________ being a majority of the Board of
Directors of said banking corporation, and each of them acknowledged said
instrument to be the act and deed of said banking corporation and of himself as
a director thereof.

     WITNESS my official seal and signature this day and year aforesaid.



                                        ________________________________________
                                        Notary Public, State of Texas

                                        ________________________________________
                                        (Printed or Stamped Name of Notary)

                                        My Commission Expires: _________________



STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this _____ day of _______________, 19____, before me, a Notary Public
for the State and County aforesaid, personally came Glen E. Roney, as Chairman
of the Board, and ________________________________________, as Cashier, of Texas
State Bank, and each in his said capacity acknowledged the foregoing instrument
to be the act and deed of said banking corporation; and came also
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________________________, and
______________________________ , being a majority of the Board of Directors of
said banking corporation, and each of them acknowledged said instrument to be
the act and deed of said banking corporation and of himself as a director
thereof.

     WITNESS my official seal and signature this day and year aforesaid.



                                   _____________________________________________
                                   Notary Public, State of Texas

                                   _____________________________________________
                                   (Printed or Stamped Name of Notary)

                                   My Commission Expires: ______________________



STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this _____ day of _____________, 19____, before me, a Notary Public for
the State and County aforesaid, personally came Glen E. Roney, as Chairman of
the Board, of Texas Regional Bancshares. Inc., and in his said capacity
acknowledged the foregoing instrument to be the act and deed of said corporation
and the seal affixed thereto to be its seal.

     WITNESS my official seal and signature this day and year aforesaid.


                                   _____________________________________________
                                   Notary Public, State of Texas

                                   _____________________________________________
                                   (Printed or Stamped Name of Notary)

                                   My Commission Expires: ______________________




                          FIRST STATE BANK & TRUST CO.

                           SCHEDULES TO AGREEMENT AND
                             PLAN OF REORGANIZATION


Schedule 2.1        -    Organization

Schedule 2.3        -    Financial Statements, Records

Schedule 2.4        -    Loans

Schedule 2.5        -    Properties

Schedule 2.6        -    Environmental Matters

Schedule 2.7        -    Litigation

Schedule 2.8        -    Taxes

Schedule 2.9        -    Contracts

Schedule 2.11       -    Insurance

Schedule 2.12       -    Adverse Agreements

Schedule 2.13       -    Absence of Certain Charges

Schedule 2.14       -    Agreements with Directors,
                         Officers and Stockholders

Schedule 2.15       -    Affiliated Corporations

Schedule 2.16       -    Regulatory Matters, Exam
                         Reports

Schedule 2.17       -    Compliance with Applicable Law

Schedule 5.6        -    Permitted Transfers of Assets and Certain Other Matters



                              DISCLOSURE SCHEDULES

     The following Disclosure Schedules are delivered in accordance with the
provisions of that certain Agreement and Plan of Reorganization dated January 9,
1996.  Among other things, the Disclosure Schedules contain lists, descriptions,
exceptions and other limitations to the language of the representations and
warranties contained in Article 2 of the Agreement.  All capitalized terms used
herein have the meanings ascribed to such terms in the Agreement.
     Matters disclosed in any section of the Disclosure Schedules shall be
deemed to be incorporated into each of the other sections of the Disclosure
Schedules with respect to which such disclosure clearly applies.

 ................................................................................



                                  SCHEDULE 2.1

                                  ORGANIZATION

1.   Locations.

                       FIRST STATE BANK AND TRUST COMPANY
                     PHYSICAL DESCRIPTIONS OF BANK LOCATIONS




- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
    (a)                        (b)                             (c)
  LOCATION              LEGAL DESCRIPTION              FACILITIES/SERVICES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                                
MAIN BANK           MISSION ORIGINAL TOWNSITE:        MAIN BANK:
900 CONWAY          77 X 224.2 TRACT OF LAND            10 TELLERS
MISSION, TEXAS      LOT 7 & 8 BLOCK 160, EXC.,          2 COLLECTION TELLERS
                    W10'; E 140' LOTS 11, 12, 13 &      1 NIGHT DEPOSITORY
                    14, BLOCK 160; LOTS 21-26,
                    BLOCK 160; LOTS 15-20, BLOCK      NORTH DRIVE IN:
                    160; LOTS 9 & 10, BLOCK 160         2 TELLERS
                                                        4 DRIVE-IN LANES
                                                        1 NIGHT DEPOSITORY

                                                      SOUTH DRIVE IN:
                                                        2 TELLERS
                                                        4 DRIVE-IN LANES
                                                        1 NIGHT DEPOSITORY
- --------------------------------------------------------------------------------
EAST BRANCH         WRIGHT, LOTS 1 & 2, BLOCK H         4 DRIVE-IN LANES
E. 10TH ST. AT                                          2 LOBBY TELLERS
MAYBERRY ST.,                                           2 DRIVE-IN TELLERS
MISSION, TEXAS                                          1 ATM
                                                        1 NIGHT DEPOSITORY
- --------------------------------------------------------------------------------
WEST BRANCH         HOMEVILLE D, LOT 4, BLOCK 1         4 DRIVE-IN LANES
U.S. HWY. 83 AT     W 375' - S 375' N 681.50'           2 LOBBY TELLERS
TOM GILL ROAD       3.22 ACRES                          2 DRIVE-IN TELLERS
PENITAS, TEXAS                                          1 ATM
                                                        1 NIGHT DEPOSITORY
                                                        1 NEW ACCOUNTS REP.
- --------------------------------------------------------------------------------
SHARYLAND           NORTHEAST JUNCTION, LOT 1           3 DRIVE-IN LANES
BRANCH              CHATEAU VILLE RE-SUBD.              2 LOBBY TELLERS
SHARYLAND                                               2 DRIVE-IN TELLERS
BLVD. AT GRIFFIN                                        1 ATM
PARKWAY                                                 1 NIGHT DEPOSITORY
MISSION, TEXAS                                          2 NEW ACCOUNTS REPS.
- --------------------------------------------------------------------------------




- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
    (a)                        (b)                             (c)
  LOCATION              LEGAL DESCRIPTION              FACILITIES/SERVICES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                                
MCALLEN             FAIRWAY NORTH LOT 3,                3 DRIVE-IN LANES
BRANCH              BLOCK 1                             2 LOBBY TELLERS
2101 S. 10TH        HOLLENBECK LOT 8, LESS              2 DRIVE-IN TELLERS
STREET              E 1/2                               1 ATM
MCALLEN, TX         HOLLENBECK LOT W 1/2 OF 4           1 NIGHT DEPOSITORY
                                                        1 NEW ACCTS./SAFE DEP.
                                                        BOX REP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------




                                  SCHEDULE 2.3


                          FINANCIAL STATEMENTS, RECORDS


                                 SCHEDULE 2.3.1


     1.   The unaudited call reports for the periods ending December 31, 1993,
1992 and 1991 and September 30, 1995 do not contain the footnote disclosures
required by generally accepted accounting principals.

     2.   The audited financial statements for the period ending December 31,
1994 included a liability for "deferred compensation payable" in the amount of
$506,389.  This was an adjusting entry required by the Bank's auditors in
connection with the audit of the Bank's December 31, 1994 financials.  This
adjusting entry was not carried over to the Bank's general ledger and is
therefore not shown as a liability on the Bank's unaudited September 30, 1995
call report.

     3.   The First State Bank Financial Statements and the September 30, 1995
Balance Sheet do not disclose liabilities for loan commitments, letters of
credit, unasserted claims or for pending or overtly threatened litigation.

     4.   In the past, the Bank has elected not to amortize loan costs over the
life of the loan as contemplated by FASB 91; therefore, the unaudited reports of
regulatory condition for the periods ending December 31, 1993, 1992, and 1991
and September 30, 1995, as well as the audited financial statements for the
period ending December 31, 1994, do not show deferred loan costs.

     5.   The Bank does not book on a current month end basis changes in fair
market value on "available for sale securities" as contemplated by FASB 115.
These adjustments have typically been made only on a quarterly basis, although
such adjustments are reflected on the Bank's general ledger for the period
ending November 30, 1995.  The FASB 115 adjustment is reflected on each
quarterly regulatory report of condition filed by the Bank.

     6.   See Schedule 2.8 for description of treatment by Bank of accruals for
deferred taxes.

     7.   The Bank records interest income on loans "greater than or equal to 90
days past due and still accruing" on the general ledger; however, in order to
comply with regulatory reporting requirements, this income is reversed quarterly
and not reported on the Bank's regulatory reports of conditions.



                                 SCHEDULE 2.3.2


     1.   See Schedule 2.3.1 above and Schedules 2.13 and 2.16.


                                 SCHEDULE 2.3.3


     1.   See Schedule 2.3.3 above.

                                 SCHEDULE 2.3.4

     1.   See Schedule 2.16 below and provisions of MOU and examination reports
dealing with trust asset management



                                  SCHEDULE 2.4

                                      LOANS


                                 SCHEDULE 2.4.1


     1.   See Schedule 2.16 and examination reports with regard to certain
criticized lending practices and for a summary of specifically criticized loans
and related matters disclosed in examination reports and correspondence with
regulatory authorities.


     2.   The Bank has previously furnished Texas State Bank with copies of its
(i) loan watch list as of January 4, 1996; (ii) list of loans on non-accrual as
of December 31, 1995; and (iii) past due loan report as of December 31, 1995
(collectively the "Loan Reports").  Each of the loans described in the Loan
Reports and each loan specifically criticized in the examination reports
described in Section 2.16, presents more than the normal risk of
uncollectibility or other unfavorable features.


                                 SCHEDULE 2.4.2

     1.   The Bank has previously furnished Texas State Bank with a listing of
all loans to directors, officers, affiliates, and certain other related parties
dated December 31, 1995.



                                  SCHEDULE 2.5

                                   PROPERTIES


                                 No disclosures



                                  SCHEDULE 2.6

                              ENVIRONMENTAL MATTERS


                                 No disclosures



                                  SCHEDULE 2.7

                                   LITIGATION

     1.   HUMBERTO GARCIA V. FIRST STATE BANK & TRUST CO. OF MISSION; ELLIOTT B.
          BOTTOM; RUBEN RIVAS; RAUL E. MORA AND WIFE, MARTHA U. MORA A/D/A
          MARTHA ULLOA; AND JUAN TOVAR, Cause No. C-3089-92-B, in the District
          Court of Hidalgo County, Texas, 93rd Judicial District - This case
          involves claims under the Texas Deceptive Trade Practices Act and
          allegations of fraud, breach of fiduciary duty, breach of duty of good
          faith and fair dealing, intentional infliction of emotional distress,
          negligent infliction of emotional distress, negligent supervision,
          gross negligence and negligence.  The plaintiff has requested actual,
          treble and exemplary damages in unspecified amounts, together with
          attorneys' fees, costs and pre- and post- judgment interest.
          Discovery is ongoing.  A trial date has not yet been set.

     2.   CASIMIRO (CASEY) CANTU, ET UX, JANIA A. CANTU V. RUBEN RIVAS, JUAN
          GUERRA, JOSIE ALEAR, HAPPY YEARS, INC. AND FIRST STATE BANK OF
          MISSION, Cause No. C-4000-91-C, in the District Court of Hidalgo
          County, Texas, 139th Judicial District - This case involves claims
          against the Bank of negligence and violations of the Texas Deceptive
          Trade Practices Act and Section 17.41 et seq. of the Texas Business
          and Commerce Code.  The plaintiffs request actual damages in the
          amount of $255,000.00, damages for loss of consortium in an amount not
          less than $25,000.00, and punitive damages of not less than
          $500,000.00, together with attorneys' fees and pre- and post-judgment
          interest.  A hearing on the Bank's motion for summary judgment was
          held on April 10, 1995.  The court has taken the motion under
          advisement.  Discovery is ongoing.  A trial date has not yet been set.


     3.   LARRY HOFLAND AND MARSHA HOFLAND V. FIRST STATE BANK & TRUST COMPANY
          OF MISSION, Cause No. C-6591-95-D, in the 206th Judicial District
          Court, Hidalgo County, Texas.  This is a cause of action against the
          Bank for fraud, breach of contract, intentional infliction of
          emotional distress and negligence arising out of the foreclosure and
          subsequent sale of various properties of the Plaintiffs' on which the
          Bank had obtained lien positions in order to secure loans made to the
          Plaintiffs.  The suit was only recently filed and even more recently
          served on the Bank.  The Bank has referred the matter to its counsel.
          An answer has not yet been



          filed.

     4.   Except as set forth in Schedule 2.16 and the examination reports
          furnished to Texas State Bank under Section 2.16 of the Agreement,
          Border Bank knows of no violations of the kind described in the fourth
          sentence of Section 2.7 of the Agreement.



                                  SCHEDULE 2.8

                                      TAXES


     1.   The Bank is not under examination, nor has it been notified of any
examination or any proposed examination by any taxing authority.

     2.   The Bank computes appropriate reserves for deferred taxes only on a
quarterly basis; therefore, the statements referred to in Section 2.8 for the
period ended October 31, 1995 and the Bank's general ledger would not reflect
accruals for deferred taxes.



                                  SCHEDULE 2.9

                                    CONTRACTS


    (i)   EMPLOYMENT CONTRACTS.  The Bank does not have written employment
          contracts with any employees.  The Bank has previously furnished Texas
          State Bank with a list of current employees together with their
          salaries.  In addition to their respective salaries, the Bank has had
          a policy for many years of paying a bonus in an amount equal to 10% of
          each employee's salary.  This bonus is accrued on the books of the
          Bank and paid on December 15 of each year.  The Bank also participates
          in a cafeteria plan for the benefit of its employees.  This plan
          allows employees to set aside funds for medical expenses on a tax free
          basis.  The plan is a "control group" plan that also includes
          employees of an affiliate, The Border Bank, Hidalgo, Texas and
          Citizens State Bank, Roma, Texas.  The cafeteria plan covers life,
          accidental death and dismemberment, medical and dental.  A policy
          maintained through Jefferson Pilot Insurance Company covers certain
          employee life, accidental death, dismemberment, and health claims.
          The Bank pays 100% of the premiums for officers and their dependents.
          The Bank pays one-half of the premiums for other employees and their
          dependents.  There is an additional disability policy covering
          officers, E. Brent Bottom and Yvonne Trevino.  The premiums for this
          policy ($1500/each) are paid by the Bank.  Officers of the Bank are
          reimbursed for personal automobile usage and certain officers are
          allowed to use Bank credit cards for expenses related to the business
          of the Bank.  The Bank also pays club membership fees, dues and
          expenses for Elliott Bottom (Cimarron Country Club and McAllen Country
          Club), Brent Bottom (Cimarron Country Club, McAllen Country Club and
          The Tower Club) and for Bryan Calcote (Cimarron Country Club).
          Certain athletic club dues and related expenses are also paid on
          behalf of certain officers.  Elliott Bottom is also furnished with
          three Bank owned vehicles for his use.  Employees with over 15 years
          employment are afforded a three week paid vacation.  Other employees
          are afforded a two week paid vacation.

   (ii)   OTHER EMPLOYEE BENEFITS.  The Bank has three separate deferred
          compensation plans for the benefit of certain Bank employees.  The
          plans provide for retirement benefits to be paid to the specific
          employee or a designated beneficiary or estate if death occurs prior
          to payment of the full amount of deferred compensation on



          reaching age 65.  One plan entered into on December 10, 1963,
          commenced payments to a retired employee of approximately $13,000 per
          year on January 4, 1988, continuing annually thereafter through June
          2003.  A second plan, entered into on September 1, 1979, provides for
          payments of approximately $13,300 per year which was scheduled to
          commence on April 1, 1990, continuing annually thereafter through June
          2005; however, the employee elected to receive an amount less than
          that provided for in the plan over a longer period of time.  The third
          plan, covering Chairman Elliott Bottom, provides for a retirement
          benefit payment of $50,000 per year commencing in March, 1999 and
          continuing annually thereafter for 20 years.  The Bank owns and is the
          beneficiary of four life insurance policies on the three employees
          covered by the deferred compensation plans.  The life insurance policy
          face values are in amounts approximately equal to the total benefits
          paid under the plans.  The Bank owns two policies on the life of
          retired employee L. Jane Bell and one each on the lives of E. Downey
          Davis and Elliott Bottom.

  (iii)   MATERIAL LEASES OR LICENSES.

          None


   (iv)   CONTRACTS OR COMMITMENTS FOR CAPITAL EXPENDITURES IN EXCESS OF
          $100,000.

          a)   EDS CONTRACT. - On September 13, 1994, the Bank and Electronic
               Data Systems Corporation ("EDS") entered into that certain
               Agreement for Information Technology Services (the "EDS
               Agreement").  The EDS Agreement provides for EDS to render
               various specified data processing services to the Bank for a
               fixed monthly rate of $18,563 per month for designated "basic"
               services plus additional charges for certain "optional" services
               that the Bank may call upon EDS to perform.  The initial term of
               the EDS Agreement is for a period of five years from September
               13, 1994.  Under Section 7.2 of the EDS Agreement, if 50% or more
               of the stock or assets of the Bank change hands, the EDS
               Agreement may be terminated "upon the consummation of such
               acquisition or on a mutually agreeable date thereafter."
               However, in the event



               of such termination, EDS is entitled  to receive liquidated
               damages, as described in Section 7.6.  Under Section 7.6, EDS is
               entitled to receive the SUM of (a) all actual disengagement costs
               and expenses reasonably incurred by EDS in connection with
               termination PLUS a 25% "management fee" on such costs; AND (b) an
               amount equal to 80% of the total compensation "which would have
               been paid to EDS" under this the EDS Agreement during the
               remainder of its term.  (The EDS Agreement provides that EDS'
               total expected compensation is to be determined by multiplying
               the number of months remaining in the initial term by the average
               monthly charge to the Bank for the 12 months preceding the month
               in which notice of termination was given.)  On September 13,
               1994, the Bank and EDS entered into a Addendum to the EDS
               Agreement ("the Addendum").  The Addendum provides that the
               liquidated damages provisions of Section 7.6 of the EDS Agreement
               DO NOT APPLY if:  (a) the Bank changes ownership prior to
               September 13, 1996; AND (b) the Bank gives EDS 180 days prior
               written notice of the termination.  In such event, EDS'
               liquidated damages under the EDS Agreement are limited to the
               actual expenses incurred by EDS as a part of the deconversion
               process.


    (v)   CONTRACTS OR OPTIONS TO BUY OR SELL PROPERTY OUTSIDE ORDINARY COURSE
          OF BUSINESS.

          None


   (vi)   LOAN COMMITMENTS OR CREDIT EXTENSIONS IN EXCESS OF $500,000.

          The Bank has previously furnished Texas State Bank with a
          copy of Loan Commitments and Credit Extensions in excess of
          $500,000.


  (vii)   AGREEMENTS WITH DIRECTORS OR AFFILIATES.



          a)   Bottom & Bottom - Partnership comprised of Elliott Bottom and
               Brent Bottom - sells certain types of insurance to Bank customers
               and receives commissions associated with such sales - no written
               agreement.

          b)   See Schedule 2.4.2 for a description of loans to insiders.


 (viii)   CONTRACTS RELATING TO THE PURCHASE OR SALE OF CERTAIN SECURITIES.

          None


   (ix)   OTHER MATERIAL CONTRACTS OUTSIDE THE ORDINARY COURSE OF BUSINESS.

          None



                                  SCHEDULE 2.11
                                    INSURANCE

                                       (a)
                         FIRST STATE BANK AND TRUST CO.
                           CASUALTY INSURANCE SUMMARY



- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
INSURANCE TYPE                          COMPANY                   EXPIRES         AMOUNT OF COVERAGE
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
                                                                         
Commercial                         Fidelity and Deposit           1-June-96           $10,000,000.00
Catastrophe Liab.

Workers Compensation               Tx. Workers Comp.              1-June-96               500,000.00
                                   Ins. Fund

Fine Arts                          Fidelity and Deposit           1-June-96                31,400.00

Transit Cash Letter                Fidelity and Deposit           6-Dec.-96               100,000.00


Data Processing Transit            Fidelity and Deposit           6-Dec.-96               500,000.00


Business Auto                      Fidelity and Deposit           1-June-96             1,000,000.00

Commercial General                 Fidelity and Deposit           1-June-96             2,000,000.00
Liability

Building/Contents                  Fidelity and Deposit           1-June-96             5,841,419.00

Financial Institution              BancInsure, Inc.               1-June-96             3,000,000.00
Bond

Combination Safe                   BancInsure, Inc.               1-Jan.-97               300,000.00
Deposit

Blanket Extortion                  BancInsure, Inc.               1-Jan.-97             1,000,000.00

Registered Mail                    Registered Mail Ins.          30-Nov.-96           CV of property
                                   Assoc.

Stamp Bond                         Old Republic Ins. Co.         Continuous               100,000.00

Armored Car Service                American Home                 Continuous               225,000.00

Boiler and Machinery               The Hartford                  20-Sept.-96            2,500,000.00

Flood Insurance                    Omaha Property and            31-Oct.-96               231,300.00
                                   Casualty

Blanket Fire                       Mount Vernon Fire             20-Dec.-96               500,000.00
                                   Ins. Co.
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------





                                       (B)

                      LIFE, DISABILITY, MEDICAL AND DENTAL

                                POLICY SUMMARIES

                           LIFE POLICIES OWNED BY BANK




- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
INSURED             POLICY NO.     FACE VALUE        PREMIUM     DATE ISSUED    APPROXIMATE CASH VALUE
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
                                                                 

Elliott Bottom      UL0705270      $1,000,000        None -         2/85               $167,605
                                                     Paid up

L. Jane Bell        UL0708718        $174,684         $3,500        7/85                $27,850

L. Jane Bell        UL0739432         $50,000          5,002        10/89               $18,650

E. D. Davis         UL0707757        $250,000        None -         6/86               $110,451
                                                     Paid Up
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------




                 DISABILITY POLICIES PROVIDED TO BANK EMPLOYEES




- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSURED             POLICY NO.         COMPANY        APPROXIMATE ANNUAL PREMIUM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                             
Brent Bottom        H00632095      Jefferson - Pilot             $1,500
Yvonne Trevino      H00632097      Jefferson - Pilot             $1,500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------



             LIFE, ACCIDENTAL DEATH, DISMEMBERMENT & HEALTH POLICES
                   MAINTAINED BY BANK FOR BENEFIT OF EMPLOYEES




- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INSURED                     POLICY NO.                   COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                                       
Employees as a Group          47,878         Jefferson - Pilot Life Insurance
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------




                                  SCHEDULE 2.12

                               ADVERSE AGREEMENTS


     1.   See 2.16 for description of Memorandum of Understanding with banking
regulators.



                                  SCHEDULE 2.13

                           ABSENCE OF CERTAIN CHANGES

     1.   LOSSES CAUSED BY BEYDA PRUNEDA PENA.  Mrs. Pena was an employee of the
Bank from 1991 to August 1995 when she was terminated for acts of embezzlement
involving both loans and deposits.  The Bank has documented to date
approximately $143,000 in such losses, $108,000 of which have already been
reimbursed to the Bank under its blanket bond insurance policy.  A further
$15,000 in claims are currently being processed by the insurance company.  Since
the Bank's embezzlement coverage carries a $25,000 deductible, it appears that
net losses to the Bank will be limited to approximately the amount of this
deductible.  Mrs. Pena pleaded guilty to criminal charges brought against her by
the U.S. Attorney in U.S. District Court.  Sentencing is scheduled for
January 11, 1996.  The extent of Ms. Pena's suspected criminal activity is more
fully described in that certain letter dated September 7, 1995 from Yvonne A.
Trevino, Vice President of the Bank, to Assistant U.S. Attorney Luis Martinez.
A copy of this letter and the FDIC incident report have been delivered to Texas
State Bank.  A further description of the status of the Bank's insurance claim
is contained in a letter dated December 21, 1995 from BancInsure, Inc. to Ms.
Trevino, a copy of which has also been furnished to Texas State Bank.



                                  SCHEDULE 2.14

              AGREEMENTS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS


     1.   LIST OF EACH DIRECTOR, EXECUTIVE OFFICER, AFFILIATE AND HOLDER OF 5%
          OR MORE OF BANK CAPITAL STOCK.

          (a)  Elliott B. Bottom - Executive Officer, Director
                               and owner of more than 5% of capital
                               Stock of Bank

          (b)  E. Brent Bottom - Executive Officer

          (c)  Blaine H. Holcomb - Director

          (d)  Scott Martin, Jr. - Director

          (e)  Carlos L. Martinez - Director

          (f)  Frank Perez, Jr. - Director

          (g)  Roy Schapira - Director

          (h)  Richard A. Walsh - Director

          (i)  Byron L. Calcote - Executive Officer

          (j)  Hilario Acevedo - Executive Officer

          (k)  Angie Guerra - Executive Officer

          (l)  Consuelo Flores Hindsley - Executive Officer

          (m)  Yvonne A. Trevino - Executive Officer

          (n)  Sergio L. Garcia - Executive Officer

          (o)  Bottom & Bottom - Affiliate

          (p)  Bottom Interests, Inc. - Affiliate

          (q)  The Border Bank - Affiliate



          (r)  E & R Company - Affiliate

          (s)  Hobbs II, a Texas General Partnership - Affiliate

          (t)  M. S. Shivers (M.S. Shivers Marital Trust) - Affiliate and owner
               of more than 5% of capital stock


     2.   TRANSACTIONS INVOLVING THE BANK AND ANY OFFICER, DIRECTOR OR
          AFFILIATE.

          (a)  Bottom & Bottom - Receives commissions from certain insurance
               sales to Bank customers.

          (b)  See Schedule 2.9 for a description of employment benefits to
               certain officers, directors and affiliates.

          (c)  See Schedule 2.4.2 for a description of lending transactions
               involving officers, directors and affiliates.



                                  SCHEDULE 2.15

                             AFFILIATED CORPORATIONS

     1.   The Bank 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 the Bank or the shareholders of the Bank.



                                  SCHEDULE 2.16

                       REGULATORY MATTERS AND EXAM REPORTS

     1.   The Board of Directors of the Bank and the Banking Commissioner of
Texas entered into a Memorandum of Understanding ("MOU") on December 14, 1993.
The MOU was issued as a result of specific criticisms and alleged deficiencies
reflected in the October 4, 1993, Report of Examination issued by the Texas
Department of Banking.  The MOU documents an agreement reached between the
Commissioner and the Board of Directors concerning ten management goals and
corrective actions with respect to the Bank and sets forth time frames within
which these goals and corrective actions were to be accomplished.  The Board of
Directors, individually and collectively, agreed to cause management of the Bank
to take corrective actions and to use its best efforts to accomplish the goals
which were set forth in the MOU.  In subsequent examination reports and in a
letter dated September 26, 1995, the Texas Department of Banking has criticized
the Board's compliance with certain provisions of the MOU.  In the letter dated
September 26, 1995, Randall S. James, Deputy Commissioner, advised the Board of
Directors that the Texas Department of Banking's examination of July 11, 1994,
found that the Bank and Board were in compliance with only four of the ten
provisions contained in the MOU.  The Texas Department of Banking's examination
conducted on July 17, 1995, found partial compliance with one provision of the
MOU and nine provisions of the MOU were found to be in noncompliance.  The
examination report dated July 7, 1995, as well as Deputy Commissioner James'
letter of September 26, 1995 identifies other violations of law and banking
regulations.  Finally, Mr. James solicited a further response from the Board
concerning compliance with the provisions of the MOU and indicated that after
such response was reviewed, the Board would be advised what additional action,
if any, would be taken by the Texas Department of Banking to effect compliance.
The Bank was also advised that the Texas Department of Banking would schedule an
examination no later than the first quarter of 1996 to monitor the progress of
compliance with the MOU.  Other than the matters described in this Schedule 2.16
and the deficiencies and violations of law and regulations outlined in the
examination reports and correspondence described in Section 2.16, the Bank is
unaware of any other violations, or possible violations of banking statutes or
regulations.  The Board has retained James Sexton, Austin, Texas, a former Texas
Banking Commissioner, to assist the Board as an outside consultant with regard
to compliance with the MOU and certain other matters raised in the September 26,
1995 letter from Deputy Commissioner James.

     2.   See Schedule 2.3.1 for description of liability for "deferred
compensation payable" which was not reflected on certain quarterly regulatory
call reports filed during 1995.



                                  SCHEDULE 2.17

                         COMPLIANCE WITH APPLICABLE LAW


     1.   See Schedule 2.16 for a description of matters which bear upon the
Bank's regulatory compliance.



                                  SCHEDULE 5.6

             PERMITTED TRANSFERS OF ASSETS AND CERTAIN OTHER MATTERS

     1.   At Closing, Elliott Bottom shall have the right, but not the
obligation, to purchase the following vehicles at the book value of such
vehicles as of the date of Closing:

                         1989 Range Rover
                         1996 Range Rover
                         1993 Mercedes Benz

     2.   The Bank and Elliott Bottom have agreed to clarify Mr. Bottom's
deferred compensation agreement to make it clear that, in the event Mr. Bottom
ceases to be an employee of the Bank for any reason prior to his 65th birthday,
he will still be entitled to receive full benefits under his deferred
compensation agreement commencing upon the 65th anniversary of his birth.

EX-2.2

                                                                     EXHIBIT 2.2



                      AGREEMENT AND PLAN OF REORGANIZATION


     This Agreement and Plan of Reorganization (hereinafter called the
"Agreement") dated as of January 9, 1996, is executed by and between Texas State
Bank, McAllen, Texas, a Texas banking association ("Texas State Bank") and The
Border Bank, Hidalgo, Texas, a Texas banking association ("Border Bank").  Texas
State Bank is a wholly owned subsidiary of Texas Regional Bancshares, Inc., a
Texas corporation ("Texas Regional"), and Texas Regional joins into the
execution hereof for the purposes herein expressed.

     Subject to the fulfillment of the terms and conditions of this Agreement,
the undersigned shareholders of Border Bank (sometimes individually called a
"Shareholder" or collectively the "Shareholders") join into the execution hereof
for the purposes set forth in section 9.11 herein.


                              W I T N E S S E T H:

     This Agreement provides for the merger of Border Bank with and into Texas
State Bank, pursuant to the terms of this Agreement and Plan of Reorganization.
As a result of the merger, the shareholders of Border Bank, will receive an
aggregate of $20,500,000.00 in cash (subject to adjustment and calculated and
payable as herein provided).  The aggregate consideration shall be exchanged by
Texas State Bank for all of the outstanding shares of Border Bank capital stock,
and, upon the closing of the transaction, Border Bank will be merged with and
into Texas State Bank and Border Bank will cease its separate existence.

     As a result of the merger transaction, all rights, privileges, immunities,
powers and franchises of each of Texas State Bank and Border Bank 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 the merging associations and shall
thereafter possess all of the interests, both public and private, of each of the
merging associations, and all claims of creditors of each of Border Bank and
Texas State Bank shall survive and any liens shall be preserved unimpaired in
Texas State Bank as the surviving association.  All of the foregoing shall be
effected pursuant to and as set forth in this Agreement and in an Agreement of
Merger (the "Merger Agreement") to be executed by and among the Corporation,
Border Bank and Texas State Bank, the form of which is attached hereto as
SCHEDULE 1.1.

     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

     A.   THE MERGER.  Upon and subject to the terms and provisions hereof, at
the Effective Time, as hereafter defined, Border Bank shall be merged with and
into Texas State Bank (the "Merger"), with the effect that the separate
existence of Border Bank shall cease.  Texas State Bank and Border Bank, shall
each execute and deliver the Merger Agreement in the form attached hereto as
SCHEDULE 1.1 (the "Merger Agreement") as soon as reasonably practicable
following the execution and delivery hereof.  The Merger Agreement shall provide
for the conversion, on the Effective Date (as hereinafter defined), of all of
the outstanding shares of Border Bank capital stock into the right to receive
the Total Consideration, as hereafter defined.  At the Effective Time of the
Merger, the rights of the shareholders of Border Bank shall, without the
requirement of further action on the part of the shareholders, immediately be
converted into the right to receive cash consideration, as herein provided, for
each share of Border Bank held by such shareholder of record as of the Effective
Time and such shareholder shall cease to be a shareholder of Border Bank and
such share certificate shall for all purposes be deemed only to represent a
right to receive cash pursuant to this Agreement and the Merger Agreement.

     B.   CONSIDERATION.  Upon consummation of the merger, each share of Border
Bank outstanding shall be converted into the right to receive cash consideration
as herein provided.  The consideration to be paid by Texas State Bank shall be
$102.50 per share (the "Per Share Consideration") which consideration shall be
exchanged for each of the 200,000 outstanding shares of Border Bank, for an
aggregate consideration of $20,500,000.00 (the "Total Consideration"), adjusted
as herein provided for amounts attributable to shareholders exercising
dissenters' rights of appraisal.

          1.   An amount equal to the Per Share Consideration (adjusted as
     herein provided for amounts attributable to shareholders exercising
     dissenters' rights of appraisal) shall be paid by Texas State Bank to
     each Border Bank shareholder who has not exercised his, her or its
     dissenters' rights of appraisal upon surrender of such shareholder's
     share certificate or certificates evidencing shares of Border Bank
     stock.  Such amount shall be payable at the time of Closing to
     shareholders who have surrendered such share certificates at or prior
     to the date of Closing, by check made payable to each shareholder and
     mailed to such shareholder at the shareholder's address as stated on
     the stock transfer records of Border Bank, or (if an account is
     designated by such shareholder not less than twenty days prior to the
     date of Closing) by direct deposit or wire transfer into such account
     on the date of Closing.  Amounts payable to shareholders who surrender
     their share certificates following the date of Closing shall be paid
     within ten days following receipt of the shareholder's share
     certificate.  The stock transfer records of Border Bank shall for all
     purposes be closed as of the Effective Time, and no transfer of record
     of any of the shares of Border Bank capital stock shall take place
     thereafter.



          2.   Any amounts that would otherwise have been payable pursuant
     to section 1.2.1 or 1.2.2 to any shareholder of Border Bank who has
     exercised his, her or its dissenters' rights of appraisal pursuant to
     applicable provisions of law shall be retained by Texas State Bank
     until such shareholder relinquishes his, her or its right of dissent,
     at which time the provisions of section 1.2.1 and 1.2.2 shall apply,
     except that the date of payment for such shares shall be extended to
     not less than ten days following the date of relinquishment of such
     dissenters' rights.  In the event that a shareholder of Border Bank
     exercises his, her or its dissenters' rights, if such shareholder
     receives as consideration for his or her shares an amount per share in
     excess of the Per Share Consideration, the amount payable to other
     shareholders in consideration of the merger shall be adjusted as
     follows:  the Total Consideration shall be reduced by the full amount
     payable to the dissenting shareholder and such adjusted Total
     Consideration shall be divided by the number of shares held by
     shareholders not exercising dissenters' rights to determine the amount
     of Per Share Consideration to be paid to all such other shareholders.

          3.   Any amounts payable to shareholders who surrender their
     share certificates after the date of Closing shall not bear interest
     attributable to periods either before or after the date of Closing.

     C.   CLOSING.  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.   March 31, 1996;

          2.   The thirtieth calendar day after the date of approval by the
     Federal Reserve Board as required by Section 7.02 herein; or

          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

          4.   If the transactions contemplated by this Agreement are being
     contested in any legal proceeding and Texas State Bank, 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 State Bank, to the consummation of the
     transactions contemplated hereby; or

          5.   Such other date as the parties may select by mutual
     agreement.

The Closing shall take place at the offices of Texas State Bank, 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 June 30, 1996, this Agreement, and the Merger Agreement if executed and
delivered prior thereto, shall, at the election of either party hereto by
written notice, terminate and be of no further force or effect.  In addition,
Border Bank may terminate this Agreement and the Merger Agreement if Texas
Regional fails to file a registration statement with the Securities and Exchange
Commission, pursuant to which Texas Regional proposes to offer for sale shares
of Texas Regional capital stock with an estimated price that will yield an
aggregate of $40,000,000.00 in proceeds to Texas Regional, within forty-five
days following the date of Texas Regional's receipt of audited financial
statements for both Border Bank and First State Bank and Trust Company, Mission,
Texas in each case accompanied by the unqualified report of KPMG Peat Marwick,
for fiscal years ended December 31, 1995, 1994 and 1993; PROVIDED THAT Border
Bank may exercise the right of termination in this sentence only if such right
is exercised by written notice to Texas State Bank within ten days following
expiration of such forty-five day period.  Any termination which occurs through
no fault of any of the parties to this Agreement or the Merger Agreement shall
be without liability to any of the parties hereto or to the Merger Agreement,
except for the obligation of Texas State Bank to make certain payments required
pursuant to section 5.7 hereof.  This Agreement and the Merger Agreement may be
terminated at any time prior to the Effective Date by the mutual action of the
respective Boards of Directors of Border Bank and Texas State Bank.

     D.   EFFECTIVE DATE.  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 Merger Agreement, subject to consummation of the Closing, to become
effective as soon as practicable after the Closing Date.  The merger shall
become effective at the time specified for consummation of the merger (herein
referred to as the "Effective Time") in the order to be issued by the Texas
Banking Department.

     E.   EFFECT OF MERGER.  As a result of the merger, Border Bank's assets and
business shall be acquired by Texas State Bank, free and clear of any and all
liens, claims or encumbrances.


                                    ARTICLE 2

                 REPRESENTATIONS AND WARRANTIES OF BORDER BANK

     Border Bank hereby represents and warrants to Texas State Bank as follows:

     A.   ORGANIZATION OF BORDER BANK.  Border Bank 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 its commercial banking business.  Border Bank has branch licenses and
all other authority necessary to own and operate branch bank facilities operated
by Border Bank.  A list of the branches presently operated by Border Bank,
together with a list of licenses



pending for operation of additional branch facilities are included on SCHEDULE
2.1.  True and complete copies of the Articles of Association and Bylaws of
Border Bank, as amended to date, have been delivered to Texas State Bank, or (to
the extent not previously delivered) Border Bank covenants to deliver the same
to Texas State Bank within 15 days following the date hereof.  Border Bank (i)
is duly authorized to conduct a general banking business, in accordance with its
charter, subject to the supervision of the Texas Banking Department, the Federal
Deposit Insurance Corporation 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.  Except as disclosed in SCHEDULE
2.1, Border Bank has no subsidiaries or affiliates, owns no voting securities of
any other corporation, and is not a member of any joint venture or partnership.
Border Bank is not a reporting company under the Securities Exchange Act of
1934, as amended (the "1934 Act").

     B.   CAPITALIZATION AND OWNERSHIP.  The authorized capital stock of Border
Bank consists of 200,000 shares (the "Shares") of capital stock, par value
$20.00 per share, all of which are duly authorized, validly issued and
outstanding, fully paid, nonassessable, and are owned beneficially and of record
by the persons named in the shareholder list previously delivered by Border Bank
to Texas State Bank.  The Shares have not been issued in violation of the
preemptive rights of any stockholder.  There are no outstanding options,
warrants, conversion rights, calls or commitments of any kind obligating Border
Bank to issue, directly or indirectly, additional shares of its capital stock,
and no authorization therefor has been given.  Border Bank does not have any
outstanding commitment or obligation to repurchase, reacquire or redeem any of
its outstanding capital stock.  The undersigned common shareholders of Border
Bank have joined into the execution hereof to evidence their consent to and
written approval of the transaction on the conditions herein described, and to
evidence their agreement to vote for and support the approval of the transaction
(on the conditions herein described) at the special shareholders' meeting to be
called to consider the merger.  The undersigned own beneficially and of record
not less than 68% of the outstanding common stock of Border Bank, and the
holders of common stock of Border Bank are the only shareholders who have the
right to vote on the proposed merger of Border Bank with and into Texas State
Bank.

     C.   FINANCIAL STATEMENTS AND RECORDS.

          1.   Border Bank has delivered to Texas State Bank (i) the unaudited
balance sheet of Border Bank as of December 31, 1994 (the "December 31, 1994
Balance Sheet"), and the related unaudited statements of income, changes in
stockholders' equity and changes in financial position for the year then ended,
together with the notes thereto; and (ii) the unaudited regulatory reports of
condition of Border Bank as of December 31, 1993, 1992 and 1991, and the related
unaudited statements of income and changes in equity capital for each of the
years then ended.  These financial statements fairly present the financial
position of Border Bank as of the dates thereof and the results of its
operations for the periods indicated.  In addition, Border Bank has delivered to
Texas State Bank its unaudited balance sheet and regulatory report of condition
as of September 30, 1995 (collectively, the "September 30, 1995 Balance Sheet")
and the related unaudited statements of income, changes in stockholders' equity
and changes in



financial position for the twelve-month period then ended.  In the opinion of
the management of Border Bank, these financial statements also fairly present
the financial position of Border Bank as of the date thereof and the results of
its operations for the period indicated and the financial records upon which
such financial statements are based have been kept in accordance with prudent
banking practices and the past practices of Border Bank.  Except as disclosed in
SCHEDULE 2.3.1, the September 30, 1995 Balance Sheet and related financial
statements for the nine-month period then ended, have been prepared in
accordance with generally accepted accounting principles, consistently applied.
The December 31, 1994 Balance Sheet and the September 30, 1995 Balance Sheet,
and the financial statements for the twelve and nine-month periods then ended,
described above are collectively referred to hereinafter as the "Border Bank
Financial Statements."  Except as set forth in SCHEDULE 2.3.1, the Border Bank
Financial Statements do not, as of the dates thereof, include any material
assets or omit to state any material liability, absolute or contingent, 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, Border Bank specifically represents to
Texas State Bank that, except as set forth in SCHEDULE 2.3.1, Border Bank has no
liabilities, either accrued, contingent or otherwise, which, individually or in
the aggregate, are material, which have not been reflected in the Border Bank
financial statements (including the September 30, 1995 Balance Sheet) or which
have been incurred in the ordinary course of business since the date of the
September 30, 1995 Balance Sheet.

          2.   Except as set forth in SCHEDULE 2.3.2, since December 31, 1994,
there have not been any material changes in the financial condition, results of
operations, business or prospects of Border Bank, 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 Border Bank.

          3.   The books and records of Border Bank reflect the transactions to
which it is or was a party or by which its 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 prudent banking principles except
as otherwise disclosed in SCHEDULE 2.3.3.  As of the date hereof and as of the
Closing, all of the minute books of Border Bank are and will be complete,
accurate and current.

          4.   Border Bank has no trust powers and does not operate a trust
department.

     D.   LOANS.

          1.   All Loans included in the assets of Border Bank, and all
commitments to make Loans by Border Bank (including leasing transactions and off
balance sheet lending transactions such as letters of credit), have been made in
the ordinary course of business of Border Bank and do not present more than the
normal risk of uncollectibility or other unfavorable features, except as
disclosed in Schedule 2.4.1.




          2.   All Loans to directors, officers and beneficial owners of 5% or
more of the outstanding capital stock of Border Bank, and loans to any person or
company related to or affiliated with any such person, are listed on Schedule
2.4.2.  The Loans listed on Schedule 2.4.2 do not present more than the normal
risk of uncollectibility or other unfavorable features.

          3.   Border Bank's reserves for loan losses have been calculated in
accordance with all applicable rules and regulations.  In the reasonable opinion
of the management, officers and directors of Border Bank, the reserve for loan
losses shown on the September 30, 1995 Balance Sheet is adequate in all respects
to provide for all losses on loans outstanding as of the date of September 30,
1995 Balance Sheet.

     E.   PROPERTIES.  Border Bank has good and indefeasible title to all assets
and properties, whether real or personal, tangible or intangible, which it
purports to own, including without limitation, all assets and properties
reflected on the September 30, 1995 Balance Sheet or acquired subsequent thereto
(except to the extent such assets and properties have been disposed of for fair
value in the ordinary course of business since the date of the September 30,
1995 Balance Sheet), subject to no liens, mortgages, security interests,
encumbrances, easements, title imperfections, or charges of any kind except (i)
as noted in the September 30, 1995 Balance Sheet or the notes to the Border Bank
Financial Statements, (ii) statutory liens not yet delinquent, (iii) security
interests granted incident to borrowings by Border Bank 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 Border
Bank.  Except as disclosed on SCHEDULE 2.5, all improvements, buildings and
structures located on real estate owned by Border Bank, and the use by Border
Bank of such real estate, together with such improvements, buildings and
structures, in the manner heretofore and currently used by Border Bank, 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.  Except as disclosed on SCHEDULE 2.5, all such improvements, buildings and
structures located on real estate owned by Border Bank, and all of the material,
tangible personal property owned by Border Bank, are in good operating condition
and repair, reasonable wear and tear excepted.  Listed on SCHEDULE 2.5 are all
policies of title insurance covering such properties.

     F.   ENVIRONMENTAL MATTERS.  Neither any Environmental Hazards nor any
Hazardous Materials Contamination exist on any real property owned by Border
Bank (including any owned by and used in connection with the business of Border
Bank and any foreclosed properties owned by Border Bank), or on any real
property used by the Bank in connection with the business of Border Bank 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."  Included on
SCHEDULE 2.6 is a list of any environmental survey or report related to any of
the Real Property, true, correct and



complete copies of which have been provided to Texas State Bank.  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,
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.

     G.   LITIGATION.  Except as set forth in SCHEDULE 2.7, no claims have been
asserted and no relief has been sought against Border Bank 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 Border Bank.  Border
Bank has complied with, and is presently in compliance with, all laws and
regulations pertaining to consumer credit and truth in lending.  The management
of Border Bank is not aware of any material violation by Border Bank of any of
the foregoing.  Except as set forth in SCHEDULE 2.7, Border Bank is 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 Border Bank have been duly obtained
and are in full force and effect, and there are no proceedings pending or, to
Border Bank's 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.

     H.   TAXES.  Border Bank has 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 Border Bank is not delinquent in the payment of any taxes shown on
such returns or reports.  Except as disclosed on SCHEDULE 2.8, Border Bank has
no examination pending by the Internal Revenue Service, the Texas Comptroller of
Public Accounts, or any other taxing authority, nor has Border Bank been
notified of any proposed examination.  Except as noted in SCHEDULE 2.8, there
are included in



the September 30, 1995 Balance Sheet, or reflected in the Notes to the Border
Bank Financial Statements, reserves adequate in the reasonable opinion of
management for the payment of all accrued but unpaid federal, state and local
taxes of Border Bank, including all income, franchise, ad valorem and other
taxes, and all interest and penalties, whether or not disputed, for the ten-
month period ended October 31, 1995, for the year ended December 31, 1994, and
for all fiscal years prior thereto.  Border Bank has not 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 or any federal tax, nor is Border Bank 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 Border Bank.  Border Bank has not filed a consent pursuant to Section
341(f) of the Internal Revenue Code or otherwise.

     I.   CONTRACTS.  Except as set forth in SCHEDULE 2.9, Border Bank is not 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 $100,000 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 $500,000 in any one transaction and $2,000,000
in the aggregate; (vii) agreements to which any director, officer or holder of
5% or more of the outstanding capital stock of Border Bank, or any 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.  Except as set forth on SCHEDULE 2.9, Border Bank is not 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 Border Bank, (a) under any
outstanding indenture, mortgage, contract, lease or other agreement to which
Border Bank is a party or by which Border Bank is bound; (b) under any provision
of the Articles of Incorporation or Bylaws of Border Bank which might result in
a material adverse effect on the financial condition, results of operations,
business or prospects of Border Bank; or (c) under any agreement with federal or
state regulatory authorities.  Border Bank does not have outstanding 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.

     J.   APPROVALS; VALIDITY OF AGREEMENT.  The Board of Directors of Border
Bank has approved the form, terms and provisions of this Agreement and the
transactions contemplated hereby.  Holders of voting Common Stock of Border Bank
are the only persons with the power to consider and vote upon the transactions
herein described.  Shareholders of Border Bank



joining into the execution hereof as provided below in the aggregate hold
beneficially and of record not less than 68% of the outstanding shares of Border
Bank voting Common Stock, and all such Shareholders have approved this Agreement
and the transactions contemplated hereby on the conditions herein described.
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, the execution, delivery and performance of this
Agreement and the Merger Agreement and the consummation of the merger
contemplated herein and therein, 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 Border Bank may be subject; (ii) any contract, agreement or
instrument to which Border Bank is a party or pursuant to which Border Bank is
bound; or (iii) the Articles of Incorporation or Bylaws of Border Bank.
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, no consent or approval or other action by any party
under any contract to which Border Bank is subject is required for the
execution, delivery and performance of this Agreement and consummation of the
transactions herein described, except where the failure to obtain such consent
would not have a material adverse effect on Border Bank.  The execution,
delivery and performance of this Agreement and the Merger Agreement and the
consummation of the transactions herein and therein described 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
Border Bank or upon any of the stock of Border Bank.  This Agreement constitutes
the legal, valid and binding obligation of Border Bank, enforceable against
Border Bank 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.

     K.   INSURANCE.  Border Bank has insurance coverage with reputable insurers
in amounts, types and risks insured as set forth in SCHEDULE 2.11.  Border
Bank's accounts are insured by the Federal Deposit Insurance Corporation
("FDIC") to the extent permitted by law, and Border Bank has paid all premiums
required to be paid and is in compliance with the applicable regulations of the
FDIC.

     L.   ABSENCE OF ADVERSE AGREEMENTS.  Except as set forth in SCHEDULE 2.12,
Border Bank is not a party to any agreement or instrument, nor is Border Bank
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 Border Bank.

     M.   ABSENCE OF CERTAIN CHANGES.  Except as set forth in SCHEDULE 2.13,
since December 31, 1994, Border Bank has not (i) issued or sold any of its
capital stock 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 Border Bank); (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 September 30,
1995 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 cancelled any debts or claims, or waived any rights;
(viii) except for salary increases to employees in the ordinary course of
business not exceeding 5% of prior year's compensation, 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 or 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) except for salary increases to employees in the
ordinary course of business not exceeding 5% of prior year's compensation,
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 Border
Bank; or (xiv) entered into any transaction outside the ordinary course of
business except as expressly contemplated by this Agreement.  Since June 30,
1995, there has been no material adverse change in Border Bank.

     N.   AGREEMENTS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS.  The name of
each director and executive officer of Border Bank, and the name of each holder
of five percent (5%) or more of the outstanding capital stock of Border Bank,
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 2.14.  Except as set forth in
SCHEDULE 2.14, 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 Border Bank.  Other than loan transactions, which
are scheduled on SCHEDULE 2.4.2, all transactions with directors, executive
officers, 5% stockholders and affiliates are fully and appropriately summarized
in SCHEDULE 2.14.  Except as described in SCHEDULE 2.14, none of the
transactions have been outside of the ordinary course of business, and, except
as set forth in SCHEDULE 2.14,



Border Bank now has no commitments, written or oral, to lend any funds to any
such person.

     O.   AFFILIATED CORPORATIONS.  Except as set forth in SCHEDULE 2.15, Border
Bank 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 Border Bank or for the shareholders of Border Bank.

     P.   REGULATORY MATTERS AND EXAMINATION REPORTS.  Except as disclosed on
SCHEDULE 2.16, Border Bank has no formal or informal agreements, arrangements or
understandings with the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Texas Department of Banking, or any other regulatory authority
(collectively, the "Regulatory Authorities"), nor does Border Bank have any
examination pending by any applicable Regulatory Authorities nor has Border Bank
been notified of any proposed examination by any Regulatory Authorities.  To the
extent permitted by law, Border Bank has provided to Texas State Bank (or, to
the extent not previously delivered, Border Bank covenants to deliver within 15
days to Texas State Bank) complete and correct copies of (i) all examination
reports by Regulatory Authorities forwarded to Border Bank during the calendar
years 1993, 1994, 1995 and to date 1996; (ii) any correspondence between Border
Bank and such agencies during such periods, and (iii) any agreements,
arrangements or understandings between Border Bank and such agencies, including
any agreements, arrangements or understandings arising out of or related to any
such examinations.

     Q.   COMPLIANCE WITH APPLICABLE LAW.  Except as disclosed on SCHEDULE 2.17,
Border Bank and the conduct of its 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
Border Bank, which violation might result in any material adverse change in the
condition, business, prospects, properties or assets of Border Bank.

     R.   DISCLOSURE.  Except to the extent qualified by one of the Schedules to
this Agreement, neither the financial statements nor any representation or
warranty contained herein, nor any information delivered or to be delivered by
Border Bank 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.

     S.   FINDERS.  Border Bank 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 3

               REPRESENTATIONS AND WARRANTIES OF TEXAS STATE BANK

     Texas State Bank and Texas Regional each, jointly and severally, represent
and warrant to Border Bank as follows:

     A.   ORGANIZATION.  Texas State Bank is a banking association 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 State Bank is wholly owned by Texas Regional Bancshares, Inc.
("Texas Regional"), a Texas business corporation duly registered with the
Federal Reserve Board as a bank holding company under the Bank Holding Company
Act of 1956, as amended.

     B.   APPROVALS; VALIDITY OF AGREEMENT.  The Board of Directors of Texas
State Bank has approved the form, terms and provisions of this Agreement and the
transactions contemplated hereby.  Texas Regional is the only shareholder of
Texas State Bank with the power to consider and vote upon the transactions
herein described, and Texas Regional has approved this Agreement and the
transactions contemplated hereby on the conditions herein described.  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, the execution, delivery and performance of this Agreement
and the Merger Agreement and the consummation of the merger contemplated herein
and therein, 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
Texas State Bank may be subject; (ii) any contract, agreement or instrument to
which Texas State Bank is a party or pursuant to which Texas State Bank is
bound; or (iii) the Articles of Incorporation or Bylaws of Texas State Bank.
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, no consent or approval or other action by any party
under any contract to which Texas State Bank is subject is required for the
execution, delivery and performance of this Agreement and consummation of the
transactions herein described, except where the failure to obtain such consent
would not have a material adverse effect on Texas State Bank.  The execution,
delivery and performance of this Agreement and the Merger Agreement and the
consummation of the transactions herein and therein described 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 Texas
State Bank or upon any of the stock of Texas State Bank.  This Agreement
constitutes the legal, valid and binding obligation of Texas State Bank,
enforceable against Texas State Bank 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.  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.

     C.   ORDERS AND DECREES.  Provided required approval is obtained from
applicable regulatory authorities, including the Federal Reserve Board and the
Texas Department of Banking, the execution, delivery and performance by Texas
State Bank 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
State Bank may be subject, (ii) the Articles of Incorporation or Bylaws of Texas
State Bank, or (iii) any contract or agreement to which Texas State Bank is a
party or by which it is bound.

     D.   FINDERS.  Texas State Bank 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.  Without limiting the generality of the foregoing, Texas State Bank
specifically represents that it has not been approached by (nor does it have any
agreements with) Service Asset Management Company of Dallas, or any person that
has asserted to Texas State Bank that he or she is acting on behalf of Service
Asset Management Company of Dallas.

     E.   SEC REPORTS AND NASDAQ COMPLIANCE.  Since January 1, 1995, Texas
Regional has made all filings (the "SEC Reports") required to be made by it
under the Securities Act of 1933 (the "Securities Act"), the Securities Exchange
Act of 1934 (the "Exchange Act") and the securities laws of any state, and any
rules and regulations promulgated thereunder.  The SEC Reports, when filed,
complied in all material respects with all applicable requirements of the
Securities Act, the Exchange Act and other requirements of law.  None of the SEC
Reports, at the time of filing, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading in light of the
circumstances in which they were made.  Texas Regional will deliver or make
accessible to the Border Bank true, accurate and complete copies of the SEC
Reports, as amended, which were filed with the SEC since January 1, 1995, and as
in effect as of the date hereof.  Texas Regional has taken all necessary actions
to ensure its continued inclusion in, and the continued eligibility of the Texas
Regional Class A Voting Common Stock for trading on the NASDAQ Stock Market
under all currently effective and currently proposed inclusion requirements.

     F.   FINANCIAL STATEMENTS.  Each of the balance sheets included in the SEC
Reports (including any related notes and schedules) fairly presents in all
material respects the consolidated financial position of Texas Regional as of
its date, and each of the other financial statements included in the SEC Reports
(including any related notes and schedules) fairly presents in all material
respects the consolidated results of operations or other information therein of
Texas Regional for the periods or as of the dates therein set forth in
accordance with generally accepted accounting principles, consistently applied
during the periods involved.

     G.   CHANGES SINCE JUNE 30, 1995.  Since June 30, 1995, there has been no
material adverse change in Texas State Bank.



                                    ARTICLE 4

                                 INDEMNIFICATION

     A.   INDEMNIFICATION.

          1.   Border Bank hereby agrees to indemnify, defend and hold harmless
Texas State Bank and Texas Regional, and their respective officers, directors,
employees, agents and attorneys from and against any and all losses, claims,
damages, expenses or liabilities to which 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 Border Bank in this Agreement or in the performance
hereof; (ii) any misleading or untrue statement of a material fact by or on
behalf of Border Bank, or any omission of a material fact necessary in order to
make any statements made, in light of the circumstances under which they were
not misleading, including any such statement as is made in the context of
solicitation by Border Bank of proxies for approval of the transactions
described in this Agreement by the shareholders of Border Bank; and (iii) any
irregularity or improper procedure in connection with the solicitation of
proxies and obtaining shareholder approval for the transaction described in this
Agreement.

          2.   Texas State Bank and Texas Regional hereby agree, jointly and
severally, to indemnify, defend and hold harmless Border Bank and its officers,
directors, employees, agents and attorneys from and against any and all losses,
claims, damages, expenses or liabilities to which Border 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 Texas State Bank 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 State Bank, or any omission of a material fact
necessary in order to make any statements made, in light of the circumstances
under which they were not misleading, including any such statement as is made in
the context of the sale by Texas Regional of common stock, the proceeds of which
are in part expected to be used to fund the payment of the Total Consideration
by Texas State Bank.

          3.   Each of Texas State Bank and Border Bank (to the extent of an
indemnification obligation hereunder, herein referred to as the "Indemnifying
Party") will indemnify the other parties hereto 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 "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:



               a.   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

               b.   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.   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.

          5.   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.

          6.   The indemnity agreement contained in this Article shall survive
any investigation made by or on behalf of any Indemnified Party.



                                    ARTICLE 5

                                SPECIAL COVENANTS

     A.   STOCKHOLDER APPROVAL BY BORDER BANK.  Subsequent to the execution and
delivery of this Agreement, (i) the Board of Directors of Border Bank has agreed
to cause Border Bank to submit this Agreement and the Merger Agreement to the
stockholders of Border Bank, for their authorization and approval, by written
consent or otherwise, in accordance with applicable provisions of law.  Subject
to the terms and conditions of this Agreement, the Board of Directors of Border
Bank has agreed to recommend this Agreement, the Merger Agreement and the
transactions contemplated thereby to the Border Bank stockholders.

     B.   FINANCING ARRANGEMENTS BY TEXAS REGIONAL.  Subsequent to the execution
and delivery of this Agreement, Texas Regional agrees to commence the
preparation of a registration statement to be filed pursuant to the Securities
Act of 1933, to effect the registration of the public offering of shares of the
Class A Common Stock of Texas Regional, with the expectation that the proceeds
of such offering would be used in part to fund the Total Consideration.  Texas
State Bank shall provide Border Bank with copies of any registration statement
and any amendment thereto.  Texas Regional and Texas State Bank shall not be
under any obligation to take any action that would cause such registration
statement to be declared effective, or to accept the proposed terms of any
underwriters in connection with the sale of such shares, that are not acceptable
to Texas Regional and Texas State Bank, it being acknowledged and agreed by
Border Bank that any determination as to the acceptability of the pricing and
other terms of any such financing arrangements are in the sole discretion of
Texas Regional and Texas State Bank.

     C.   PROSPECTUS AND PROXY STATEMENT INFORMATION.

          1.   Border Bank agrees to provide any and all information as may be
reasonably required by Texas Regional for purposes of preparation of any
prospectus to be included in any registration statement to effect the
registration of the offering of Texas Regional shares, for purposes of
communications with shareholders of Texas Regional pending the Closing and for
purposes of the proxy statement related to obtaining the approval by Border Bank
shareholders of the transaction herein described (collectively, the "Border Bank
Information").  Without limiting the generality of the foregoing, Border Bank
specifically covenants (i) to cause its financial statements as of December 31,
1995, 1994 and 1993, and the related statements of income, changes in
stockholders' equity and changes in financial position for the year then ended,
together with the notes thereto, to be prepared in accordance with generally
accepted accounting principles and examined by a firm of independent certified
public accountants reasonably acceptable to Texas State Bank and Texas Regional
and (ii) to deliver such financial statements (together with the unqualified
opinion of the auditors with respect thereto and accompanied by such
accountant's consent to use of such financial statements in the registrations
statement herein described) to Texas State Bank and Texas Regional.  Border Bank
hereby agrees that, upon delivery to Texas State Bank, the Border Bank
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.

          2.   Texas State Bank agrees to provide any and all information as may
be reasonably required by Border Bank for purposes of communications with
shareholders of Border Bank pending the Closing and for purposes of the proxy
statement related to obtaining the approval by Border Bank shareholders of the
transaction herein described (collectively, the "Texas State Information").
Texas State Bank hereby agrees that, upon delivery to Border Bank, the Texas
State 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.

     D.   ACCESS.  From and after the date of this Agreement, Border Bank shall
afford to the officers, attorneys, accountants and other authorized
representatives of Texas State Bank full and free access to the properties,
books, contracts, commitments and records of Border Bank at all reasonable times
during business hours, and such representatives of Texas State Bank shall be
furnished with true and complete copies of the same and with all other
information concerning the affairs of Border Bank as such representatives may
reasonably request.  Any such information treated as confidential by Border Bank
shall be kept confidential by the representatives of Texas State Bank (and shall
be used by them only in connection with this Agreement and the transactions
contemplated hereby) except to the extent that (i) it was already known to such
representatives when received, (ii) it hereafter becomes lawfully obtainable
from other sources, or (iii) it is disclosed by Texas State Bank in any document
filed with the Securities and Exchange Commission, the Federal Reserve Board or
any other governmental agency or authority.  In the event the transactions
contemplated by this Agreement and the Merger Agreement are not consummated,
Texas State Bank agrees to return to Border Bank any confidential information
delivered by Border Bank to Texas State Bank pursuant to this Section.

     E.   ENVIRONMENTAL INSPECTION.  Border Bank expressly agrees to supply
Texas State Bank with historical and operational information regarding the real
properties owned or operated by, or used in connection with the operation of the
business of, Border Bank, and any premises heretofore used in connection with
the operation of the business of Border Bank, and any other properties included
in the Real Property, including (but not limited to) any environmental tests or
surveys made of such properties.  Border Bank agrees to cooperate with any
reasonable request of Texas State Bank related to site assessment or site review
related to any environmental matter or investigation, including the making
available of such personnel of Border Bank as Texas State Bank may reasonably
request.  At Texas State Bank's discretion, Texas State Bank 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 Border
Bank 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 State Bank may deem reasonably necessary.  Any and all
costs of third parties associated with




obtaining such information shall be borne equally by Texas State Bank and Border
Bank.  In the event such tests indicate the presence of Hazardous Material
Contamination, the parties shall endeavor to obtain a reasonably reliable
estimate of the cost of remediating or removing such Hazardous Material
Contamination prior to the Closing.  In the event that such estimated cost is
less than $25,000, Border Bank shall accrue the cost thereof as an expense prior
to Closing for purposes of calculating the minimum net worth required at
Closing, in which event the parties shall proceed to Closing on the terms and
conditions described in this Agreement.  In the event that such estimated cost
exceeds an aggregate of $25,000, Texas State Bank may elect to either (i)
proceed with the transaction on the terms and conditions herein provided,
without modification, in which event the parties shall perform their respective
obligations as herein provided, without modification; or (ii) proceed with the
Closing on the terms and conditions herein provided, on the further condition
that Border Bank either fully remediate and remove the Hazardous Material
Contamination prior to Closing or (at Texas State Bank's option) accrue the full
cost thereof as an expense prior to Closing for purpose of calculating the
minimum net worth required at Closing, and in either of such events Border Bank
shall be entitled to acquiesce in such remediation and removal (or if Texas
State Bank has so elected, the accrual of the cost thereof), or Border Bank
shall be entitled to unilaterally terminate this Agreement.  In the event that
the cost of remediation exceeds $25,000, or if the parties are unable to obtain
a reasonably reliable estimate of the remediation and removal cost prior to
Closing, Texas State Bank shall be entitled to exercise the options set forth in
the preceding sentence, or to terminate this Agreement without further
liability.

     F.   ACTION BY BORDER BANK PRIOR TO CLOSING.

          1.   From and after the date of this Agreement until the Closing Date,
except as may be specifically provided for in Schedule 5.6, Border Bank will:

          (i) carry on its business in accordance with reasonably 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 of
     Border Bank and not make or commit to make any capital expenditure
     (whether or not in the ordinary course of business of Border Bank) in
     excess of $200,000 individually or $400,000 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) perform all 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 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) maintain its books of account and records in the usual,
     regular and orderly manner consistent with accounting practices during
     prior periods;

          (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) except for salary increases to employees in the ordinary
     course of business not exceeding 5% of prior year's compensation, not
     increase in any manner the compensation of any of its directors,
     officers or employees, except in accordance with customary practices,
     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, other than
     a dividend in the aggregate amount of not greater than $500,000,
     payable in January, 1996;

          (xi) not issue 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.

          2.   Without limiting the foregoing, except for expenses reasonably
incurred in connection with the Closing of the transaction herein described (all
of which will be incurred or fully accrued by Border Bank prior to Closing),
between the date hereof and the date of Closing, Border Bank specifically
covenants and agrees that Border Bank will not 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)
or significant expenses outside of the ordinary course of business of Border
Bank, nor will Border Bank increase expenses in any material way (either
individually or in the aggregate), nor will Border Bank make any changes in its
capital structure, in each case without the prior written consent of Texas State
Bank.

          3.   Provided that seeking such approvals is in accordance with
applicable



banking law and regulations, Border Bank will not make a fully collateralized
loan, nor will Border Bank commit to make a fully collateralized loan, in excess
of $1,000,000 to any one borrower or in any one transaction without the prior
approval of Texas State Bank, and Border Bank shall not make any other loan, nor
shall Border Bank commit to make any other loan, in excess of $200,000 to any
one borrower or in any one transaction without the prior consent of Texas State
Bank.

          4.   Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, Border Bank will not sell or
otherwise dispose of any of the Bank's real or personal property with a fair
market value in excess of $100,000 without the prior written consent of Texas
State Bank.

          5.   Without limiting the generality of the foregoing, from and after
the date of this Agreement until the Closing Date, Border Bank specifically
covenants and agrees not to 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, Border Bank shall not enter into any forward
commitment to acquire any such securities.

          6.   From and after the date of this Agreement until the Closing Date,
without the prior written consent of Texas State Bank, Border Bank (i) will not
permit any change to be made in its charter or Bylaws; (ii) will not take any
action following the date hereof that would have required that the action, or
any document, instrument or other information related thereto, be included on
SCHEDULE 2.9 had such action been taken prior to the date hereof; (iii) will in
all material respects perform all obligations required to be performed by it;
(iv) will not default, or allow any event to occur which, with notice or lapse
of time or action by a third party could result in a default, under any
outstanding indenture, mortgage, contract, lease or other agreement to which
Border Bank is a party or by which it is bound, or under any provision of the
Articles of Association or Bylaws of Border Bank which might have a material
adverse effect, or under any agreement with federal or state regulatory
authorities; or (v) will not grant any power of attorney.

          7.   As of the time of Closing, any material liabilities, accrued,
contingent or otherwise, which have been incurred since the date of the
September 30, 1995 Balance Sheet will have been fully disclosed to Texas State
Bank, except that Border Bank shall not be required to disclose, pursuant to
this section, (i) deposit liabilities and (ii) other liabilities of less than
$50,000 incurred in the ordinary course of business.

     G.   TERMINATION FEE.  As part of the consideration to Border Bank, Texas
State Bank hereby agrees that, if the transaction described in this Agreement
shall fail to close as a result of Texas State Bank exercising its right to
terminate for failure of a condition specified in section 6.4 (Regulatory
Approvals), section 6.7 (Due Diligence Review; No Material Adverse Change),
section 6.11 (Fairness Opinion), or section 6.14 (Financing) hereof, or as a
result of a breach by Texas State Bank of its obligations hereunder, or if
either party exercises its right to terminate as a result of the transaction
failing to close prior to June 30, 1996 (as herein



provided), in each case for any reason other than an intentional
misrepresentation or other default by Border Bank hereunder, Texas State Bank
shall pay to Border Bank a termination fee in the amount of $65,000.00.


                                    ARTICLE 6

                  CONDITIONS TO OBLIGATIONS OF TEXAS STATE BANK

     In addition to any other condition herein described as a condition to the
obligations of Texas State Bank under this Agreement, the obligations of Texas
State Bank under this Agreement and the Merger Agreement are subject, in the
discretion of Texas State Bank, to the satisfaction at or prior to the Closing
Date of each of the following conditions:

     A.   COMPLIANCE WITH REPRESENTATIONS.  The representations and warranties
made by Border Bank 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 Border Bank shall have performed or complied with
all covenants and conditions required by this Agreement or the Merger Agreement
to be performed or complied with by it prior to or at the Closing.  Texas State
Bank shall have been furnished with a certificate, signed by the President of
Border Bank in his capacity as such and dated the Closing Date, and a
certificate, signed by the Cashier of Border Bank in his capacity as such and
dated the Closing Date, to the foregoing effect.

     B.   STOCKHOLDER APPROVAL.  Border Bank shall have delivered to Texas State
Bank a certificate signed by the Cashier of Border Bank in his capacity as such,
confirming the approval of this transaction by the requisite vote of Border
Bank's shareholders.

     C.   DISSENTERS.  Holders of an aggregate of not greater than 2.5% of the
issued and outstanding shares of Border Bank shall have exercised dissenters'
rights of appraisal with respect to the transactions, excluding for these
purposes holders of shares who have subsequently abandoned (including
abandonment as a result of a failure to comply with applicable procedures) their
dissenters' rights of appraisal.  Texas State Bank shall have been furnished
with a certificate, dated the Closing Date and signed by the President of Border
Bank, in his capacity as such, to the effect that no dissenters' rights action
or proceeding is pending, or, to the best of his knowledge, threatened, or (if
any such action or proceeding is pending or threatened) stating the relevant
details of each such action or proceeding.

     D.   REGULATORY APPROVALS.  The parties hereto and to the Merger Agreement
shall have received approval of the transactions contemplated by this Agreement
and the Merger Agreement from all necessary governmental agencies and
authorities, including the Texas Department of Banking 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 State Bank may, but shall not
be obligated to, answer and



defend such contest.

     E.   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 the Merger 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 Border Bank which might result
in any material adverse change in the financial condition, results of
operations, business or prospects of Border Bank.  Texas State Bank shall have
been furnished with a certificate, dated the Closing Date and signed by the
President of Border Bank, in his capacity as such, to the effect that no such
litigation, investigation, inquiry or proceeding is pending, or, to the best of
his knowledge, threatened.

     F.   OPINION OF COUNSEL.  Prior to closing, Border Bank shall deliver to
Texas State Bank the opinion of Border Bank's counsel, in form and content
satisfactory to Texas State Bank, to the effect that (i) Border Bank is duly
organized, validly existing and in good standing as a banking association under
the laws of the state of Texas, and Border Bank has full power and authority to
carry on its business as presently conducted; (ii) the authorized capital stock
of Border Bank consists of 200,000 shares of capital stock, par value of $20.00
per share, of which all 200,000 shares are validly issued, fully paid and
nonassessable, and no options, warrants, conversion or other rights, agreements
or commitments of any kind obligating Border Bank 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) this Agreement and Plan of Reorganization and the Merger Agreement
have been duly authorized by all necessary corporate action on the part of
Border Bank, its directors and shareholders, and this Agreement and the Merger
Agreement constitute valid and binding obligations of Border Bank enforceable in
accordance with their respective 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 (iv) 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 Association or Bylaws of Border Bank, or, to the
best knowledge and belief of such counsel, any agreement or instrument to which
Border Bank is a party or is bound, or, to the best knowledge and belief of such
counsel, any law, regulation, judgment or order binding on Border Bank.

     G.   DUE DILIGENCE REVIEW; NO MATERIAL ADVERSE CHANGE.  Texas State Bank
and its employees, agents, attorneys, accountants and other representatives
shall be entitled to review and monitor the assets, liabilities, business and
prospects of Border Bank during the period from the date hereof to the time of
Closing.  Texas State Bank shall be entitled to terminate this transaction at
its sole option (i) at any time within ninety (90) days following the date
hereof if the results of such review are not satisfactory in all respects to
Texas State Bank; or (ii) at any time prior to closing if any material adverse
change shall have occurred in the condition, financial position or business
prospects of Border Bank.



     H.   CONSENTS, APPROVALS AND ESTOPPEL CERTIFICATES.  Texas State Bank shall
have received all such consents, approvals, estoppel certificates and other
assurances, in each case in form and content reasonably satisfactory to Texas
State Bank, from any party to an agreement with Border Bank or by which Border
Bank is bound as a result of an order of any authority, or pursuant to any other
legal requirement, which agreement, order or other requirement requires consent,
approval or other assurance in order that the Closing of the transaction herein
described will not constitute an event of default or create a right of
termination or result in any other material adverse event thereunder.  Without
limiting the generality of the foregoing, Texas State Bank shall have received
consents and estoppel certificates from each landlord of Border Bank and from
each tenant of Border Bank, consenting (if Texas State Bank 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 Border Bank
is a party, the fact that no default exists (or which 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 State Bank.

     I.   NET WORTH OF BORDER BANK.  The net worth of Border Bank, calculated in
accordance with regulatory requirements of the Texas Department of Banking,
shall be not less than the sum of $17,300,000, increased by $200,000 per month
for each month elapsed during the period from March 31, 1996, until the date of
closing.  In the event that the Closing is not consummated prior to April 1,
1996, and provided that the net worth of Border Bank (calculated in accordance
with regulatory requirements of the Texas Department of Banking) is not less
than $17,300,000 as of March 31, 1996, Border Bank shall be permitted to pay
dividends to its shareholders prior to Closing in an amount up to an aggregate
of 60% of the net income of Border Bank from April 1, 1996, to the end of the
month next preceding the date of Closing.

     J.   CONTEMPORANEOUS TRANSACTION.  Contemporaneously with the closing of
the transaction herein described, First State Bank of Mission, Texas, shall be
merged with and into Texas State Bank pursuant to the terms and conditions of,
and as described in, the Agreement and Plan of Reorganization by and between
Texas State Bank and First State Bank dated of even date herewith.

     K.   FAIRNESS OPINION.  Texas State Bank shall have received a fairness
opinion, in form and content acceptable to Texas State Bank and Texas Regional
in their sole discretion, and rendered by a firm acceptable to Texas State Bank
and Texas Regional in their sole discretion, as to the fairness of the
transaction to Texas State Bank, Texas Regional and the shareholders of Texas
Regional, and such opinion shall not have been withdrawn prior to Closing.

     L.   TERMINATION OF DATA PROCESSING ARRANGEMENTS.  Border Bank shall have
exercised its right to terminate its data processing services contract with
Electronic Data Systems, Inc., on terms and upon conditions reasonably
acceptable to Texas State Bank.

     M.   COVENANT NOT TO COMPETE.  Elliott Bottom shall have entered into a
covenant not to compete with Texas State Bank on terms and conditions acceptable
to Texas State Bank, which shall provide that Elliott Bottom shall not engage,
directly or indirectly, in the commercial banking business in Hidalgo, Cameron,
Starr or Willacy Counties, Texas for a period of three



(3) years following the date of Closing, provided that such obligation not to
compete with Texas State Bank shall terminate immediately in the event of a
change of control of a majority of the outstanding capital stock of Texas State
Bank or Texas Regional Bancshares, Inc.

     N.   FINANCING.  Texas Regional shall have successfully completed and
closed a duly registered public offering of shares of its Class A Voting Common
stock, at prices and on terms and conditions acceptable to Texas Regional in its
sole discretion, which has yielded cash proceeds to Texas Regional of not less
than $40,000,000.00.


                                    ARTICLE 7

                    CONDITIONS TO OBLIGATIONS OF BORDER BANK

     The obligations of Border Bank under this Agreement and the Merger
Agreement are subject, in the discretion of Border Bank, to the satisfaction at
or prior to the Closing Date, of each of the following conditions:

     A.   COMPLIANCE WITH REPRESENTATIONS.  The representations and warranties
made by Texas State Bank and 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 State Bank and Texas Regional shall have performed or complied with all
covenants and conditions required by this Agreement or the Merger Agreement to
be performed or complied with by them prior to or at the Closing.  Border Bank
shall have been furnished with a certificate dated the Closing Date, signed by
the Chairman of Texas Regional and by the President of Texas State Bank, in each
case in his capacity as such, to the foregoing effect.

     B.   DISSENTERS.  Holders of an aggregate of not greater than 2.5% of the
issued and outstanding shares of Border Bank shall have exercised dissenters'
rights of appraisal with respect to the transactions, excluding for these
purposes holders of shares who have subsequently abandoned (including
abandonment as a result of a failure to comply with applicable procedures) their
dissenters' rights of appraisal.

     C.   REGULATORY APPROVALS.  The parties hereto and to the Merger Agreement
shall have received approval of the transactions contemplated by this Agreement
and the Merger Agreement from all necessary governmental agencies and
authorities, including the Texas Department of Banking 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, Border Bank may, but shall not be
obligated to, answer and defend such contest.

     D.   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 the Merger
Agreement or which might result in divestiture, rescission or damages in
connection with such transactions and Border Bank shall have been furnished with
a certificate, dated the Closing Date and signed by the President of Texas State
Bank, 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.

     E.   FAIRNESS OPINION.  Border Bank shall have received a fairness opinion,
in form and content acceptable to Border Bank in its sole discretion, and
rendered by a firm acceptable to Border Bank in its sole discretion, as to the
fairness of the transaction to Border Bank and the shareholders of Border Bank.

     F.   OPINION OF COUNSEL.  Prior to closing, Texas State Bank shall deliver
to Border Bank the opinion of Texas State Bank's counsel, in form and content
satisfactory to Border Bank, to the effect that (i) Texas State Bank is duly
organized, validly existing and in good standing as a banking association under
the laws of the state of Texas, and Texas State Bank has full power and
authority to carry on its business as presently conducted; (ii) this Agreement
and Plan of Reorganization and the Merger Agreement have been duly authorized by
all necessary corporate action on the part of Texas State Bank, its directors
and shareholders, and this Agreement and the Merger Agreement constitute valid
and binding obligations of Texas State Bank enforceable in accordance with their
respective 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 (iii) 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
Association or Bylaws of Texas State Bank, or, to the best knowledge and belief
of such counsel, any agreement or instrument to which Texas State Bank is a
party or is bound, or, to the best knowledge and belief of such counsel, any
law, regulation, judgment or order binding on Texas State Bank.


                                    ARTICLE 8

                               CLOSING OBLIGATIONS

     A.   TEXAS STATE BANK OBLIGATIONS.  At the Closing, Texas State Bank shall
deliver the following:

          1.   Certificate of Merger, in the form required to be delivered
     pursuant to applicable provisions of the Texas Banking Act and rules
     of the Texas Department of Banking.

          2.   Officer's Certificate, including an incumbency certification
     and further certifying as to the existence and good standing of Texas
     State Bank, the accuracy of all representations and warranties of
     Texas State Bank, the approval



     by the Board of Directors of Texas State Bank, and Texas Regional as the
     sole shareholder of Texas State Bank, of resolutions authorizing and
     approving the transaction.

          3.   Wire transfer or delivery of checks to shareholders of
     Border Bank, as required by section 1.2.1.

          4.   An opinion of Texas State Bank's counsel in form and
     substance required by this Agreement and otherwise acceptable to
     Border Bank.

          5.   Such other documents, certificates, and other items as may
     be required to be delivered by Texas State Bank pursuant to the terms
     of this Agreement or as may be reasonably requested by Border Bank to
     effectuate the transaction herein described.

     B.   BORDER BANK OBLIGATIONS.  At the Closing, Border Bank shall deliver
the following to Texas State Bank:

          1.   Certificate of Merger, in the form required to be delivered
     pursuant to applicable provisions of the Texas Banking Act and rules
     of the Texas Department of Banking.

          2.   Officer's Certificate, including an incumbency certification
     and further certifying as to the existence and good standing of Border
     Bank, the accuracy of all representations and warranties of Border
     Bank, the approval by the Board of Directors of Border Bank, and the
     shareholders of Border Bank, of resolutions authorizing and approving
     the transaction.

          3.   Certificate of Existence of Border Bank issued by the Texas
     Department of Banking and Certificate of Good Standing 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.

          4.   An opinion of Border Bank's counsel in form and substance
     required by this Agreement and otherwise acceptable to Texas State
     Bank.

          5.   Such other documents, certificates, and other items as may
     be required to be delivered by Border Bank pursuant to the terms of
     this Agreement or as may be reasonably requested by Texas State Bank
     to effectuate the transaction herein described.



                                    ARTICLE 9

                                  MISCELLANEOUS

     A.   SURVIVAL OF REPRESENTATION AND WARRANTIES. All representations,
warranties and covenants in this Agreement shall survive any investigation of
the parties hereto, but shall not survive the Closing of the transaction
contemplated hereby.

     B.   BROKERS.  Texas State Bank and Border Bank agree that no third party
has in any way brought the parties together or been instrumental in the making
of this Agreement.  Each such party 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 Agreement or the
transactions contemplated hereby and thereby based on any alleged agreement or
understanding between such party and such third person, whether express or
implied from the actions of such party.

     C.   EXPENSES.  Whether or not the transactions provided for herein are
consummated, each party to this Agreement and the Merger Agreement will pay its
respective expenses incurred in connection with the preparation and performance
of this Agreement and Merger Agreement.

     D.   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 the Texas State Bank, then to:

          Texas State Bank
          3900 N. 10th Street
          McAllen, Texas 78502
          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 Border Bank, then to:

          The Border Bank



          P.O. Drawer A
          Hidalgo, Texas 78557
          Attention:  Mr. Elliott Bottom
                    Chairman of the Board

          with a copy to:

               Mr. David Reed
               Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P.
               3700 NationsBank Plaza
               901 Main Street
               Dallas, Texas 75202

     E.   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 controlling
persons thereof, but shall not be assigned by either party without the prior
written consent of the other party.

     F.   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.

     G.   ENTIRE AGREEMENT.  This Agreement embodies the entire agreement
between the parties 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 the party against whom
enforcement is sought.

     H.   WAIVERS.  Texas State Bank or Border Bank, 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.

     I.   GOVERNING LAW.  This Agreement shall be governed by the laws of the
State of Texas applicable to contracts made and to be performed therein.

     J.   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.

     K.   JOINDER BY SHAREHOLDERS OF BORDER BANK.  Subject to the terms and
conditions hereof, each of the undersigned which executes this Agreement as a
Shareholder of Border Bank (i) acknowledges his, her or its consent to and
approval of the transaction herein described; (ii) represents that he, she or it
owns the number of shares of Border Bank as indicated below his, her or its name
below; (iii) agrees to recommend this transaction to other shareholders of
Border Bank and to vote to approve of the transaction at the shareholder meeting
called to consider and vote upon the merger transaction herein described; (iv)
agrees to perform and comply with the



covenants and agreements of the Shareholders of Border Bank as described in this
Section 9.11; and (v) acknowledge that Texas State Bank and Texas Regional are
relying upon the agreements of the Shareholders as contained in this section
9.11 in executing and entering into this Agreement.

     L.   SCHEDULES.  Border Bank reserves the right, for a period of 15 days
from the date hereof, to amend any Schedule to this Agreement, and Border Bank
covenants to deliver any amended Schedules to Texas State Bank, in form suitable
for attachment to this Agreement, within such 15 day period.  Texas State Bank
shall have the right to review any amendments to Schedules as to form, content
or both, and shall have the right to object to any amended Schedules or any
information contained therein at any time within ten (10) days thereafter.  Any
amendments to Schedules not objected to by Texas State Bank, or to which Texas
State Bank indicates that it has no objection, shall become a part of this
Agreement fully as if attached hereto as of the date of execution hereof.  Any
amendments to Schedules to which Texas State Bank objects shall be modified by
Border Bank in a manner acceptable to Texas State Bank, or, if Border Bank fails
to make such modification, Texas State Bank shall be entitled to terminate this
Agreement, in which event neither party shall have any further rights or
obligations hereunder.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.

                              TEXAS STATE BANK



ATTEST:                       BY: /s/ G. E. RONEY
                                  ________________________________
                                  GLEN E. RONEY,
                                     CHAIRMAN OF THE BOARD
/s/ MARY L. YARBOROUGH
__________________________
   Cashier

                              TEXAS REGIONAL BANCSHARES, INC.



ATTEST:                       BY: /s/ G. E. RONEY
                                  ________________________________
                                  GLEN E. RONEY,
                                     CHAIRMAN OF THE BOARD
/s/ ANN SEFCIK
__________________________
   Secretary



                              THE BORDER BANK



ATTEST:                       BY: /s/ ELLIOTT B. BOTTOM
                                  ________________________________
                                  ELLIOTT BOTTOM,
                                      CHAIRMAN OF THE BOARD

/s/ LEONARD MARES
_____________________________
   Cashier



SHAREHOLDERS OF THE BORDER BANK:


/s/ ELLIOTT B. BOTTOM                   /s/ BRENT BOTTOM
__________________________________      __________________________________
Elliott Bottom                          Brent Bottom
Number of shares:  400.00               Number of shares: 2,501.12


/s/ H. WENDELL HOBBS                    /s/ H. WENDELL HOBBS
__________________________________      __________________________________
Printed Name: H. Wendell Hobbs,         Printed Name: H. Wendell Hobbs
               Trust                                  Estate of Elinor P.
Number of shares: 6,899.95              Number of shares: 4,899.95


/s/ ROBERT BARNES                       /s/ ROBERT BARNES
__________________________________      __________________________________
Printed Name: Robert F. Barnes          Printed Name: Son - Tier, INC.
Number of shares: 2,889.98              Number of shares: 1010


/s/ J. ORTEGON                          /s/ H. GUTIERREZ
__________________________________      __________________________________
Printed Name: Jose G. Ortegon           Printed Name: Hugo Gutierrez
Number of shares: 980                   Number of shares: 373.30


/s/ BOTTOM INTEREST, INC.               /s/ BASL, INC.
    ELLIOTT B. BOTTOM, PRES.                ELLIOTT B. BOTTOM, PRES.
__________________________________      __________________________________
Printed Name: Bottom Interest, Inc.     Printed Name: BASL, INC.
Number of shares: 104,600               Number of shares: 12,250.344


/s/ ROBERT DE LA GARZA                  /s/ ROBERT DE LA GARZA
__________________________________      __________________________________
Printed Name: Robert De La Garza        Printed Name: Robert De La Garza
                                                      or Gilda
Number of shares: 511.20                Number of shares:  305.62


/s/ LONGORIA CATTLE, INC.
    BY LEO LONGORIA                     /s/ ROY SCHAPIRA
__________________________________      __________________________________
Printed Name: Longoria Cattle, Inc.     Printed Name: Roy Schapira
Number of shares: 6,650                 Number of shares: 1,438.32


/s/ ROY SCHAPIRA                        /s/ RICHARD ALLEN WALSH
__________________________________      __________________________________
Printed Name: Roy or Ruth Schapira      Printed Name: Richard Allen Walsh
Number of shares: 500                   Number of shares: 905





                                  SCHEDULE 1.1


                               AGREEMENT OF MERGER

                                     BETWEEN

                                 THE BORDER BANK

                                       AND

                                TEXAS STATE BANK

                              Under the charter of

                                TEXAS STATE BANK

                               under the title of

                               "TEXAS STATE BANK"


     This AGREEMENT is made between THE BORDER BANK of Hidalgo, Texas
(hereinafter referred to as "Border Bank"), a banking association organized
under the laws of the State of Texas, located at Hidalgo, Hidalgo County, Texas,
with a  Stated Capital of $4,000,000, divided into 200,000 shares of common
stock, each of $20.00 par value, Surplus of $___________, and Undivided Profits,
including Capital Reserves, of $_______________, as of ________________, 1995;
TEXAS STATE BANK of McAllen, Texas (hereinafter referred to as "Texas State
Bank") a banking association organized under the laws of the State of Texas,
located at 3900 North Tenth Street, McAllen, Hidalgo County, Texas, with a
Stated Capital of $________________, divided into _______ shares of common
stock, each of $_______ par value, Surplus of $_____________, and Undivided
Profits, including Capital Reserves, of $________________, as of
____________________, 1995; and TEXAS REGIONAL BANCSHARES, INC. (hereinafter
referred to as the "Company"), a corporation organized under the laws of the
State of Texas, being located at Kerria Plaza, Suite 301, 3700 N. 10th Street,
McAllen, Hidalgo County, Texas.  Each is acting pursuant to a resolution of this
board of directors, adopted by the vote of a majority of its directors, pursuant
to the authority given by and in accordance with the provision of the Texas
Banking Act, as amended, and other applicable provisions of law, witnesseth as
follows:



                                   Section 1.

     Border Bank and Texas State Bank (hereinafter referred to as the "Merging
Banks") shall be merged, and the surviving bank following the merger shall be
Texas State Bank.  For purposes hereof, Texas State Bank following the merger is
sometimes herein referred to as the "Surviving Bank."


                                   Section 2.

     Following the merger, the name of the Surviving Bank shall be "Texas State
Bank."


                                   Section 3.

     The business of the Surviving Bank shall be that of a Texas banking
association.  Until thereafter changed by appropriate action taken by the Board
of Directors of the Surviving Bank, this business shall be conducted by the
Surviving Bank using the established facilities of and at the established
offices of the former Texas State Bank and the former Border Bank, and the main
office shall be located at 3900 N. 10th Street, McAllen, Hidalgo County, Texas.
In addition, contemporaneously with the consummation of the transactions herein
described, it is anticipated that The Border Bank of Hidalgo, Texas will be
merged with and into Texas State Bank so that with the consummation of that
transaction the existing locations of Texas State Bank of McAllen, the former
Border Bank and the former The Border Bank shall all become facilities of a
single Texas banking association.


                                   Section 4.

     The amount of capital stock of the Surviving Bank shall be
$_________________, divided into _______ shares of common stock, each of
$_______ par value, and at the time the merger shall become effective, the
Surviving Bank shall have a Surplus of $_____________________.  The Capital,
Surplus and Undivided Profits (including Capital Reserves) of the Surviving Bank
will be equal to the combined capital and surplus of the merging banks as stated
in the preamble of this Agreement, adjusted for earnings and expenses between
_________________, 1995, and the effective date of the merger.  It is
acknowledged by the parties hereto that the merger of Border Bank with and into
Texas State Bank shall be treated as a purchase for financial accounting
purposes.


                                   Section 5.

     At the Effective Time, the corporate existence of Border Bank and Texas
State Bank shall be merged into and continued in the Surviving Bank.  All assets
and all contract and other




rights, franchises, interests, every type of property (real, personal and
mixed), choses in action, appointments, designations and nominations (including
all rights and interests as trustee, executor, administrator, transfer agent,
registrar of stocks and bonds, guardian, assignee, receiver, and in every other
fiduciary and agency capacity), of each of the merging banks, as they exist at
the Effective Time of the merger, shall pass to and vest in the Surviving Bank
without any conveyance or other transfer.  After consummation of the merger, the
Surviving Bank shall be liable for all of the deposits, debts, liabilities,
obligations and contracts of every kind and description, including liabilities
arising out of the operation of a Trust Department, of each of the merging banks
existing as of the Effective Time of the merger, notwithstanding whether such
liabilities are matured or unmatured, contingent or certain, reflected on the
balance sheets and books and records of the Merging Banks or not.

     As its contribution to the capital structure of the Surviving Bank, Border
Bank shall contribute acceptable assets having a book value, over and above its
liability to its creditors, of at least $_________________________, and having
an estimated fair value, over and above its liability to its creditors, of at
least equal to that sum.

     As its contribution to the capital structure of the Surviving Bank, Texas
State Bank shall contribute acceptable assets having a book value, over and
above its liability to its creditors, of at least $_________________________,
and having an estimated fair value, over and above its liability to its
creditors, of at least equal to that sum.


                                   Section 6.

     At the Effective Time, as hereinafter defined:

          (a)  Each share of Border Bank common stock owned beneficially
     and of record immediately prior to the Effective Time by the Border
     Bank shareholders, shall, without any action on the part of the holder
     thereof, be converted into and exchanged for the right to receive cash
     as calculated pursuant to that certain Agreement and Plan of
     Reorganization by and among the Company, Texas State Bank and Border
     Bank dated as of __________________, 1995 (the "Reorganization
     Agreement").

          (b)  No distribution of cash or other consideration as herein
     provided shall be made to any person or entity otherwise entitled
     thereto until surrender by such person of all certificates
     representing shares of Border Bank capital stock held by them of
     record.  The outstanding certificates representing such shares of
     Border Bank common stock as held by such shareholders, to the extent
     they are to receive shares of Company stock, shall, after the
     Effective Time, be deemed to be exchanged for new certificates for the
     appropriate number of shares of the Company stock.  Unless and until
     his or her certificate or certificates representing shares of Border
     Bank capital stock have been delivered to the Company, the



     Company shall not be obligated to make any distribution payable to holders
     of the Company common or preferred stock to such holder of Border Bank
     share certificates.  However, upon the holder's delivery of his or her
     Border Bank share certificates to the Company, the Company shall pay to the
     holder the amount (without interest thereon) of any and all consideration
     that is payable to such shareholder under this Agreement and the Agreement
     and Plan of Reorganization.

          (c)  The shares of the Texas State Bank common stock outstanding
     at the Effective Time, all of which shall be held by the Company,
     shall be converted into a like number of shares of the Surviving Bank,
     and the par value thereof shall be the par value per share of Texas
     State Bank common stock immediately prior to the Effective Time, and
     all such shares shall be owned and held by the Company.  The existing
     shares of Border Bank shall be cancelled.

          (d)  The capital of Border Bank and Texas State Bank immediately
     prior to the merger shall be combined as the capital of the Surviving
     Bank, subject to such adjustment as may be necessary to properly
     account for the transaction as a purchase for financial accounting
     purposes.

          (e)  All rights of the holders of outstanding certificates of
     Border Bank common stock under the plan of merger described in this
     Agreement shall be determined from the stock transfer records of
     Border Bank as of the close of business on the date specified in the
     approval letter to be issued by the Federal Reserve Board, or the
     Texas Department of Banking, or other applicable regulatory authority,
     and no transfer of record of any of the shares of Border Bank common
     stock shall take place thereafter.


                                   Section 7.

     Border Bank shall not declare or pay any dividend to its shareholders
between the date of this Agreement and the time at which the merger shall become
effective, nor shall Border Bank take any action prohibited by the
Reorganization Agreement, without the prior written consent of Texas State Bank.



                                   Section 8.

     The officers of the Surviving Bank at the Effective Time shall be those
persons who are officers of Texas State Bank immediately before the Effective
Time.  Until replacement or additional directors are elected by the Company, the
Board of Directors and the committees of the Board of Directors of the Surviving
Bank at the Effective Time shall be the same as, and shall be composed of the
same persons who are serving on, the Board of Directors and the committees of
the Board of Directors of Texas State Bank as they exist immediately before the



Effective Time.


                                   Section 9.

     Effective as of the Effective Time and until amended by an appropriate
action taken by or on behalf of the Surviving Bank, the Articles of Association
of the Surviving Bank shall be the Articles of Association of Texas State bank
as in effect as of the Effective Time.  The Bylaws of the Surviving Bank shall
be the Bylaws of Texas State Bank in effect as of the Effective Time.


                                   Section 10.

     This Agreement may be terminated by the mutual action of the Boards of
Directors of each party hereto.  Since time is of the essence of this Agreement,
if for any reason the transaction shall not have been consummated by June 30,
1996, this Agreement shall, at the election of either party hereto, terminate
and be of no further force or effect.


                                   Section 11.

     This Agreement shall be ratified and confirmed by the affirmative vote of
the shareholders of each of the Merging Banks owning at least two-thirds of its
capital stock outstanding, at a meeting to be held on the call of the directors,
or as may be otherwise prescribed by law.  The merger shall become effective at
the time (herein called the "Effective Time") of issuance of a Certificate of
Merger or other evidence of consummation of the merger by the Texas Department
of Banking, or other applicable regulatory authority.

     Any shareholder of Border Bank shall be entitled to assert statutory
dissenters' appraisal rights by following the procedures set forth in Article
5.11, et seq., of the Texas Business Corporation Act, as amended, and other
applicable provisions of law.  If holders of more than two and one-half percent
(2.5%) of the outstanding shares of Border Bank common stock assert their
statutory dissenters' appraisal rights, Texas State Bank shall be entitled, but
shall not be obligated, to elect to terminate this Agreement, in which case the
merger herein described shall not be consummated.


                                   Section 12.

     Consummation of the merger as provided for herein is conditioned upon
fulfillment of certain conditions precedent described in the Reorganization
Agreement between the parties hereto, which contemplates the merger provided for
by this Merger Agreement.  Among other things, the consummation of the merger as
provided for herein shall be conditioned upon the



receipt of all consents, orders and approvals, and satisfaction of all other
requirements prescribed by law which are necessary for the consummation of the
merger herein described, including, without limitation, (i) receipt of an order
issued by the Texas Department of Banking approving the merger of Border Bank
and Texas State Bank; and (ii) receipt of an order issued by the Board of
Governors of the Federal Reserve System approving the application of the Company
to consummate the transactions herein described.  If any transaction
contemplated hereby shall have been contested by any federal or state
governmental authority, or by any third party, and such contest is brought by
formal proceedings, Texas State Bank shall have the right to, but shall not be
obligated to, (i) answer and defend such contest; or (ii) terminate this
Agreement whereupon the merger herein described shall not be consummated.

     In the event of the termination and abandonment of this Agreement pursuant
to the provisions of this Section 12 or any other provision of this Agreement,
this Agreement shall be of no further force or effect and there shall be no
liability by reason of this Agreement or the termination hereof on the part of
either Border Bank or Texas State Bank or the Company, or the  directors,
officers, employees, agents or shareholders of any of them.


                                   Section 13.

     Border Bank or Texas State Bank may, by an instrument in writing, extend
the time for or waive the performance of any obligations of the other or waive
the performance by the other of any of the covenants or conditions contained
herein.  This Agreement may be modified or amended at any time, whether before
or after action thereon by the shareholders of Border Bank and Texas State Bank,
by an instrument in writing signed by Border Bank, Texas State Bank and the
Company.

     WITNESS the signatures on behalf of each of the Merging Banks, each
signature hereunto set by its President and attested by its Cashier, and the
signature of the Company, hereunto set by the President of the Company, each
acting pursuant to a resolution of its Board of Directors, acting by a majority
thereof, and witness the signatures hereto of a majority of each of said Boards
of Directors.

     DATED to be effective _______________________, 1996.



                              THE BORDER BANK
Attest:


___________________________        By:______________________________________
          Cashier                     Elliott B. Bottom, President
                                                                 and Director


                                      ______________________________________


     (Seal of Bank)                   ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________

                                      Directors of The Border Bank


                              TEXAS STATE BANK
Attest:


___________________________        By:______________________________________
          Cashier                       Glen E. Roney,
                                                  Chairman of the Board
                                                       and Director


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________


                                      ______________________________________

                                      Directors of Texas State Bank



                                      TEXAS REGIONAL BANCSHARES, INC.



                                      By:___________________________
                                             Glen E. Roney,
                                             Chairman of the Board



STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this______day of_______________, 19___, before me, a Notary Public for
the State and County aforesaid, personally came Elliott B. Bottom, as President,
and_____________________________________, as Cashier, of The Border Bank, and
each in his said capacity acknowledged the foregoing instrument to be the act
and deed of said banking corporation and the seal affixed thereto to be its
seal; and came also____________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
____________________________________________________________________, and______
______________________________________________________being a majority of the
Board of Directors of said banking corporation, and each of them acknowledged
said instrument to be the act and deed of said banking corporation and of
himself as a director thereof.

     WITNESS my official seal and signature this day and year aforesaid.



                                             ___________________________________
                                             Notary Public, State of Texas

                                             ___________________________________
                                             (Printed or Stamped Name of Notary)

                                             My Commission Expires:_____________


 STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this______ day of________________ , 19___, before me, a Notary Public
for the State and County aforesaid, personally came Glen E. Roney, as Chairman
of the Board, and ________________________________________________, as Cashier,
of Texas State Bank, and each in his said capacity acknowledged the foregoing
instrument to be the act and deed of said banking corporation; and came also
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________, and____________________, being a majority of
the Board of Directors of said banking corporation, and each of them
acknowledged said instrument to be the act and deed of said banking corporation
and of himself as a director thereof.

     WITNESS my official seal and signature this day and year aforesaid.



                                             ___________________________________
                                             Notary Public, State of Texas

                                             ___________________________________
                                             (Printed or Stamped Name of Notary)

                                             My Commission Expires:_____________



STATE OF TEXAS      Section
                         Section
COUNTY OF HIDALGO        Section


     On this _____ day of _____________, 19____, before me, a Notary Public for
the State and County aforesaid, personally came Glen E. Roney, as Chairman of
the Board, of Texas Regional Bancshares. Inc., and in his said capacity
acknowledged the foregoing instrument to be the act and deed of said corporation
and the seal affixed thereto to be its seal.

     WITNESS my official seal and signature this day and year aforesaid.


                                             ___________________________________
                                             Notary Public, State of Texas

                                             ___________________________________
                                             (Printed or Stamped Name of Notary)

                                             My Commission Expires:_____________



                                   BORDER BANK

                           SCHEDULES TO AGREEMENT AND
                             PLAN OF REORGANIZATION


Schedule 2.1        -    Organization

Schedule 2.3        -    Financial Statements, Records

Schedule 2.4        -    Loans

Schedule 2.5        -    Properties

Schedule 2.6        -    Environmental Matters

Schedule 2.7        -    Litigation

Schedule 2.8        -    Taxes

Schedule 2.9        -    Contracts

Schedule 2.11       -    Insurance

Schedule 2.12       -    Adverse Agreements

Schedule 2.13       -    Absence of Certain Charges

Schedule 2.14       -    Agreements with Directors,
                         Officers and Stockholders

Schedule 2.15       -    Affiliated Corporations

Schedule 2.16       -    Regulatory Matters, Exam
                         Reports

Schedule 2.17       -    Compliance with Applicable Law

Schedule 5.6        -    Permitted Transfers of Assets



                              DISCLOSURE SCHEDULES

     The following Disclosure Schedules are delivered in accordance with the
provisions of that certain Agreement and Plan of Reorganization dated January 9,
1996.  Among other things, the Disclosure Schedules contain lists, descriptions,
exceptions and other limitations to the language of the representations and
warranties contained in Article 2 of the Agreement.  All capitalized terms used
herein have the meanings ascribed to such terms in the Agreement.
     Matters disclosed in any section of the Disclosure Schedules shall be
deemed to be incorporated into each of the other sections of the Disclosure
Schedules with respect to which such disclosure clearly applies.

 ................................................................................



                                  SCHEDULE 2.1

                                  ORGANIZATION


LOCATIONS
- ---------

     1.   Main Bank
          Hidalgo, Texas 78557

          M.   Original Main Bank Building (1968) & Addn.:         6,565 sq. ft.
          N.   1994 Addition to Main Bank Building:                6,580 sq. ft.
                                                                   -------------

                                        Total:                    13,145 sq. ft.

     2.   1886 Courthouse Building:                                2,512 sq. ft.

     3.   1886 Jail Building (2 Floors):                           1,984 sq. ft.

     4.   Motor Bank Facility:

          Enclosed Area:                                             612 sq. ft.
          Covered Drive-In Bank:                                   1,638 sq. ft.
                                                                   -------------

                                        Total:                     2,250 sq. ft.

     5.   Old Post Office Building (Storage):                      1,400 sq. ft.

     6.   Small Storage House:                                       400 sq. ft.



                                  SCHEDULE 2.3

                          FINANCIAL STATEMENTS, RECORDS


                                 SCHEDULE 2.3.1


     1.   The unaudited call reports for the periods ending December 31, 1993,
1992 and 1991 and September 30, 1995 do not contain the footnote disclosures
required by generally accepted accounting principals.

     2.   The Border Bank Financial Statements and the September 30, 1995
Balance Sheet do not disclose liabilities for loan commitments, letters of
credit, unasserted claims or for pending or overtly threatened litigation.

     3.   In the past, the Bank has elected not to amortize loan costs over the
life of the loan as contemplated by FASB 91; therefore, the unaudited reports of
regulatory condition for the periods ending December 31, 1993, 1992, and 1991
and September 30, 1995, as well as the unaudited financial statements for the
period ending December 31, 1994, do not show deferred loan costs.

     4.   See Schedule 2.8 for description of treatment by Bank of accruals for
deferred taxes.



                                 SCHEDULE 2.3.2


     1.   See Schedule 2.3.1 above and Schedules 2.13 and 2.16.


                                 SCHEDULE 2.3.3


     1.   See Schedule 2.3.3 above.



                                  SCHEDULE 2.4

                                      LOANS


                                 SCHEDULE 2.4.1


     1.   See Schedule 2.16 and examination reports with regard to certain
criticized lending practices and for a summary of specifically criticized loans
and related matters disclosed in examination reports and correspondence with
regulatory authorities.

     2.   The Bank has previously furnished Texas State Bank with copies of its
(i) loan watch list as of_________________ , 199_; (ii) list of loans on non-
accrual as of_________________, 199__, and (iii) Past due loan report as of_____
__________, 199__ (collectively the "Loan Reports").  Each of the loans
described in the Loan Reports and each loan specifically criticized in the
examination reports described in Section 2.16, presents more than the normal
risk of uncollectibility or other unfavorable features.


                                 SCHEDULE 2.4.2

     1.   The Bank has previously furnished Texas State Bank with a listing of
all loans to directors, officers, affiliates, and certain other related parties
as of___________________, 199__.



                                  SCHEDULE 2.5

                                   PROPERTIES


                                 No disclosures



                                  SCHEDULE 2.6

                              ENVIRONMENTAL MATTERS


                                 No disclosures



                                  SCHEDULE 2.7

                                   LITIGATION


                                 No disclosures



                                  SCHEDULE 2.8

                                      TAXES


     1.   The Bank is not under examination, nor has it been notified of any
examination or any proposed examination by any taxing authority.

     2.   The Bank computes appropriate reserves for deferred taxes only on a
quarterly basis; therefore, the statements referred to in Section 2.8 for the
period ended October 31, 1995 and the Bank's general ledger would not reflect
accruals for deferred taxes.



                                  SCHEDULE 2.9

                                    CONTRACTS


      (i) EMPLOYMENT CONTRACTS.  The Bank does not have written employment
          contracts with any employees.  The Bank has previously furnished Texas
          State Bank with a list of current employees together with their
          salaries.  In addition to their respective salaries, the Bank has had
          a policy for many years of paying a bonus in an amount equal to 10% of
          each employee's salary.  This bonus is accrued on the books of the
          Bank and paid on December 15 of each year.  The Bank also participates
          in a cafeteria plan for the benefit of its employees.  This plan
          allows employees to set aside funds for medical expenses on a tax free
          basis.  The plan is a "control group" plan that also includes
          employees of an affiliate, First State Bank & Trust Co., Mission,
          Texas and Citizens State Bank of Roma, Texas.  The cafeteria plan
          covers life, accidental death and dismemberment, medical and dental.
          A policy maintained through Jefferson Pilot Insurance Company covers
          employee life, accidental death, dismemberment and health claims.  The
          Bank pays 100% of the premiums for officers and their dependents.  The
          Bank pays one-half of the premiums for other employees and their
          dependents.  Officers of the Bank are reimbursed for personal
          automobile usage and certain officers are allowed to use Bank credit
          cards for expenses related to the business of the Bank.  Certain
          athletic club dues and related expenses are also paid on behalf of
          certain officers.  Brent Bottom, President of the Bank is also
          furnished with a Bank owned vehicle for his use.  Employees with over
          15 years employment are afforded a three week paid vacation.  Other
          employees are afforded a two week paid vacation.

     (ii) OTHER EMPLOYEE BENEFITS.  The Bank has one deferred compensation
          agreement for the benefit of a retired Bank employee.  The agreement
          provides for retirement benefits to be paid to the employee or a
          designated beneficiary or estate if death occurs prior to payment of
          the full amount of deferred compensation on reaching age 65.  The
          agreement entered into on January 1, 1990, commenced payments to the
          retired employee of approximately $1,112.50 per month on March 15,
          1995, continuing monthly thereafter for 180 months.  The Bank owns and
          is the beneficiary of a life insurance policy on the employee covered
          by the deferred compensation agreement.  See Schedule



          2.11 for description of this life insurance policy.  The life
          insurance policy face value is in an amount approximately equal to the
          total benefits paid under the agreement.

    (iii) MATERIAL LEASES OR LICENSES.

          None


     (iv) CONTRACTS OR COMMITMENTS FOR CAPITAL EXPENDITURES IN EXCESS OF
          $100,000.

          a)   EDS CONTRACT.  On September 13, 1994, the Bank and Electronic
               Data Systems Corporation ("EDS") entered into that certain
               Agreement for Information Technology Services (the "EDS
               Agreement").  The EDS Agreement provides for EDS to render
               various specified data processing services to the Bank for a
               fixed monthly rate of $5,796 per month for designated "basic"
               services plus additional charges for certain "optional" services
               that the Bank may call upon EDS to perform.  The initial term of
               the EDS Agreement is for a period of five years from September
               13, 1994.  Under Section 7.2 of the EDS Agreement, if 50% or more
               of the stock or assets of the Bank change hands, the EDS
               Agreement may be terminated "upon the consummation of such
               acquisition or on a mutually agreeable date thereafter."
               However, in the event of such termination, EDS is entitled  to
               receive liquidated damages, as described in Section 7.6.  Under
               Section 7.6, EDS is entitled to receive the SUM of (a) all actual
               disengagement costs and expenses reasonably incurred by EDS in
               connection with termination PLUS a 25% "management fee" on such
               costs; AND (b) an amount equal to 80% of the total compensation
               "which would have been paid to EDS" under the EDS Agreement
               during the remainder of its term.  (The EDS Agreement provides
               that EDS' total expected compensation is to be determined by
               multiplying the number of months remaining in the initial term by
               the average monthly charge to the Bank for the 12 months
               preceding the month in which notice of termination



               was given.)


      (v) CONTRACTS OR OPTIONS TO BUY OR SELL PROPERTY OUTSIDE ORDINARY COURSE
          OF BUSINESS.

          None


     (vi) LOAN COMMITMENTS OR CREDIT EXTENSIONS IN EXCESS OF
          $500,000.

          The Bank has previously furnished Texas State Bank with a copy of Loan
          Commitments and Credit Extensions in excess of $500,000.


    (vii) AGREEMENTS WITH DIRECTORS OR AFFILIATES.

          a)   Bottom & Bottom - Partnership comprised of Elliott
               Bottom and Brent Bottom - sells insurance to Bank
               customers and receives commissions associated with
               such sales (no written agreement).

          b)   See Schedule 2.4.2 for a description of loans to insiders.

   (viii) CONTRACTS RELATING TO THE PURCHASE OR SALE OF CERTAIN SECURITIES.

          None


     (ix) OTHER MATERIAL CONTRACTS OUTSIDE THE ORDINARY COURSE OF BUSINESS.

          None



                                  SCHEDULE 2.11
                                    INSURANCE

                                       (a)
                                   BORDER BANK
                           CASUALTY INSURANCE SUMMARY



- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
INSURANCE TYPE                                 COMPANY         EXPIRES     AMOUNT OF
                                                                           COVERAGE
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
                                                                  
Financial Institution Bond                   BancInsure         1-1-97     $3,800,000.00

Blanket Extortion Policy                     BancInsure         1-1-97      2,500,000.00

Computer Crime Policy                        BancInsure         1-1-97      1,900,000.00

Combination Safe Depository Policy           BancInsure         1-1-97        300,000.00

Commercial Property Coverage*                     F & D         1-1-96      3,312,900.00

Commercial General Liabilities*                   F & D         1-1-96      2,000,000.00

Commercial Inland Marine*                         F & D         1-1-96         31,255.00

Commercial Auto Policy                            F & D         1-1-96      1,000,000.00

Commercial Catastrophe Liability Policy           F & D         6-1-96      5,000,000.00

Inland Marine Mail Policy                  Registered Mail     12-01-96     5,000,000.00
                                           Ins. Assoc.

Commercial Inland Marine Data Processing
Coverage                                          F & D        12-6-96        500,000.00

Texas Workers Compensation Ins.            Tx. Workers         6-1-96         500,000.00
                                           Comp Fund

Proctor Homer Warren Inc. (Foreclosed             F & D         Until          85,000.00
Property)                                                    Cancelled
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------


*  Part of Commercial Package Policy



                                       (b)

                      LIFE, DISABILITY, MEDICAL AND DENTAL

                                POLICY SUMMARIES


     1.   Texas Life Insurance Co., Policy No. UL0707689 in the face amount of
$250,000.  This is a universal life policy owned by the Bank which insures the
life of retired bank employee (and Director) Robert de la Garza.  The policy was
issued on July 1, 1985 with an annual premium of $2,500.00, payable on July 1,
of each year.  In the event of the insured's death, proceeds will be paid in a
lump sum, subject to the right of beneficiary to elect to have all or any part
paid in monthly installments.  This policy was obtained in connection with the
deferred compensation agreement entered into with Mr. de la Garza.  See Schedule
2.9 for a description of this deferred compensation agreement.

     2.   Jefferson - Pilot Life Insurance Company, Group Policy No. 47,878 -
Life, Accidental Death, Dismemberment and Health Claims of Employees.



                                  SCHEDULE 2.12

                               ADVERSE AGREEMENTS


     1.   See 2.16 for description of Memorandum of Understanding with banking
regulators.



                                  SCHEDULE 2.13

                           ABSENCE OF CERTAIN CHANGES


                                 No disclosures



                                  SCHEDULE 2.14

              AGREEMENTS WITH DIRECTORS, OFFICERS AND STOCKHOLDERS

     1.   LIST OF EACH DIRECTOR, EXECUTIVE OFFICER, AFFILIATE AND
          HOLDER OF 5% OR MORE OF BANK CAPITAL STOCK.

          (a)  Elliott B. Bottom - Director
                               and owner of more than 5% of capital
                               Stock of Bank

          (b)  E. Brent Bottom - Executive Officer, Director

          (c)  Robert F. Barnes - Director

          (d)  Robert de la Garza - Director

          (e)  Hugo Gutierrez - Director

          (f)  Jose G. Ortegon - Director

          (g)  Leonardo Mares - Executive Officer

          (h)  Maria Elena Cantu - Executive Officer

          (i)  Mary Carman Gonzalez - Executive Officer

          (j)  Bottom & Bottom - Affiliate

          (k)  Bottom Interests, Inc. - Affiliate & owner of more than 5% of
                                        capital stock

          (l)  First State Bank & Trust Co. - Affiliate

          (m)  B.A.S.L., Inc. - Affiliate & owner of more than 5% of capital
                                stock

          (n)  E & R Company - Affiliate

          (o)  Hobbs II, a Texas General Partnership - Affiliate


     2.   TRANSACTIONS INVOLVING THE BANK AND ANY OFFICER, DIRECTOR OR



          AFFILIATE.

          (a)  Bottom & Bottom - Receives commissions from
               certain insurance sales to Bank customers.

          (b)  See Schedule 2.9 for a description of employment
               benefits to certain officers, directors and
               affiliates.

          (c)  See Schedule 2.4.2 for a description of lending transactions
               involving officers, directors and affiliates.



                                  SCHEDULE 2.15

                             AFFILIATED CORPORATIONS

     1.   The Bank 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 the Bank or the shareholders of the Bank.



                                  SCHEDULE 2.16

                       REGULATORY MATTERS AND EXAM REPORTS

     1.   The Board of Directors of the Bank and the Banking Commissioner of
Texas entered into a Memorandum of Understanding ("MOU") on October 8, 1993.
The MOU was issued as a result of specific criticisms and alleged deficiencies
reflected in the June 28, 1993, Report of Examination issued by the Texas
Department of Banking.  The MOU documents an agreement reached between the
Commissioner and the Board of Directors concerning nine management goals and
corrective actions with respect to the Bank and sets forth time frames within
which these goals and corrective actions were to be accomplished.  The Board of
Directors, individually and collectively, agreed to cause management of the Bank
to take corrective actions and to use best efforts to accomplish the goals which
were set forth in the MOU.  In subsequent examination reports and in a letter
dated September 27, 1995, the FDIC has criticized the Board's compliance with
certain provisions of the MOU.  The Texas Department of Banking has also
criticized compliance with the MOU.  In the letter dated September 27, 1995,
Kenneth L. Walker, Regional Director of the FDIC, advised the Board of Directors
that the FDIC's examination of June 30, 1995, found that the Bank and Board were
not in satisfactory compliance with the MOU.  The examination report dated June
30, 1995, as well as Mr. Walker's letter of September 27, 1995 identifies other
violations of law and banking regulations.  Finally, Mr. Walker solicited a
further response from the Board concerning compliance with the provisions of the
MOU.  Other than the deficiencies described in this Schedule 2.16 and the
deficiencies and violations of law and regulations outlined in the examination
reports and correspondence described in Section 2.16, the Bank is unaware of any
other violations, or possible violations of banking statutes or regulations.
The Board has retained James Sexton, Austin, Texas, a former Texas Banking
Commissioner, to assist the Board as an outside consultant with regard to
compliance with the MOU and certain other matters raised in the September 27,
1995 letter from Mr. Walker.



                                  SCHEDULE 2.17

                         COMPLIANCE WITH APPLICABLE LAW


     1.   See Schedule 2.16 for a description of matters which bear upon the
Bank's regulatory compliance.



                                  SCHEDULE 5.6

                          PERMITTED TRANSFERS OF ASSETS

     1.   At Closing, Brent Bottom shall have the right, but not the obligation,
to purchase the following vehicles at the book value of such vehicles as of the
date of Closing:

                                  1994 Suburban

EX-20

                                                                      EXHIBIT 20

                                January 10, 1996


FOR IMMEDIATE  RELEASE

          CONTACT:       GEORGE R. CARRUTHERS
                         EXECUTIVE VICE PRESIDENT AND
                         CHIEF FINANCIAL OFFICER
                         TEXAS REGIONAL BANCSHARES, INC.
                              (210) 632-7613


TEXAS REGIONAL BANCSHARES, INC.  TO ACQUIRE FIRST STATE BANK AND TRUST COMPANY,
MISSION, TEXAS,  AND THE BORDER BANK, HIDALGO, TEXAS


McALLEN, TEXAS,   (January 10, 1996) Texas Regional Bancshares, Inc.,
(NASDAQ/NM-TRBS), and First State Bank and Trust Co., Mission, Texas, and The
Border Bank, Hidalgo, Texas, announced today agreements under which Texas State
Bank, the principal operating subsidiary of Texas Regional Bancshares, will
acquire through merger the First State Bank and The Border Bank.  The
announcement was made jointly by Glen E. Roney, Chairman of Texas Regional
Bancshares and Elliott B. Bottom, Chairman of both First State Bank and The
Border Bank.
                                     (more)



                                     Page 2


The agreements have been approved by the appropriate Boards of Directors of
Texas Regional Bancshares, Texas State Bank, First State Bank and The Border
Bank.

Under terms of the agreements, Texas State Bank will acquire the First State
Bank for a total cash consideration of $79.0 million and will acquire The
Border Bank, for a total cash consideration of $20.5 million.

Both acquisitions are subject to completion of satisfactory due diligence by
Texas Regional Bancshares and  must be approved by the shareholders of the First
State Bank and The Border Bank.  These acquisitions must also be approved by the
appropriate regulators.  Closing is also contingent upon Texas Regional
Bancshares having successfully raised additional capital to partially fund these
transactions on terms and conditions acceptable to Texas Regional Bancshares.

                                     (more)



                                     Page 3


At September 30, 1995, Texas Regional Bancshares reported  assets of $619.3
million, equity of $60.7 million  and earnings for the nine months ended
September 30, 1995, of $6.3 million, representing an annualized return on
average assets of 1.51%.  At September 30, 1995, First State Bank reported
assets of $405.3 million, equity of $58.2 million and earnings for the nine
months ended September 30, 1995, of $7.3 million, representing an annualized
return on average assets of 2.38%. At September 30, 1995, The Border Bank
reported assets of $115.3 million, equity of $16.8 million and earnings for the
nine months ended September 30, 1995,  of $1.6 million, representing an
annualized return on average assets of 1.89%.

This will give Texas State Bank 15 banking locations, providing full service
banking to its customers.  All locations will become part of Texas State Bank
and operate under the Texas State Bank name.

                                     (more)



                                     Page 4


It was also announced that Elliott B. Bottom would remain as President and Chief
Executive Officer of the Mission locations and Brent Bottom would remain as the
Chief Executive Officer of the Hidalgo location.

Glen E. Roney and Elliott B. Bottom each have over 35 years banking experience
serving this market area.

When these transactions are completed, Texas Regional Bancshares will be the
largest banking organization headquartered in the Rio Grande Valley of Texas,
with assets of over $1.1 billion and estimated capital of over $100 million.