UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission file number 0-7674
FIRST FINANCIAL BANKSHARES, INC.
--------------------------------
(Exact name of registrant as Specified in its charter)
Texas 75-0944023
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
400 Pine Street, Abilene, Texas 79601
-------------------------------------
(Address of principal executive offices)
(Zip Code)
(325) 627-7155
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 2, 2005:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $10.00 par value
per share 15,517,743
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
---- ----
Forward-Looking Statement Disclaimer 3
1. Consolidated Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
3. Quantitative and Qualitative Disclosures About Market Risk 19
4. Controls and Procedures 20
PART II
OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders 21
6. Exhibits 22
Signatures 23
2
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this Form 10-Q, words such as "anticipate",
"believe", "estimate", "expect", "intend", "predict", "project", and similar
expressions, as they relate to us or management, identify forward-looking
statements. These forward-looking statements are based on information currently
available to our management. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to:
o general economic conditions;
o legislative and regulatory actions and reforms;
o competition from other financial institutions and financial holding
companies;
o the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve Board;
o changes in the demand for loans;
o fluctuations in the value of collateral and in loan reserves;
o inflation, interest rate, market and monetary fluctuations;
o changes in consumer spending, borrowing and savings habits;
o our ability to attract deposits;
o consequences of continued bank mergers and acquisitions in our market
area, resulting in fewer but much larger and stronger competitors;
o acquisitions and integration of acquired businesses; and
o other factors described in "Part I, Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Such statements reflect the current views of our management with respect to
future events and are subject to these and other risks, uncertainties and
assumptions relating to our operations, results of operations, growth strategy
and liquidity. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this paragraph. We undertake no obligation to publicly update
or otherwise revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at March 31,
2005 and 2004 and December 31, 2004, and the consolidated statements of earnings
and comprehensive earnings for the three months ended March 31, 2005 and 2004,
changes in shareholders' equity for the three months ended March 31, 2005 and
the year ended December 31, 2004, and cash flows for the three months ended
March 31, 2005 and 2004, follow on pages 5 through 9.
3
On April 26, 2005, the Company's Board of Directors declared a four for three
stock split in the form of a 33% stock dividend for shareholders of record on
May 16, 2005. All per share amounts in this report have been restated to reflect
this stock split. An amount equal to the par value of the additional common
shares to be issued pursuant to the stock split is reflected as a transfer from
retained earnings to common stock in the consolidated financial statements as of
and for the three months ended March 31, 2005.
4
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
---------------------------------- December 31,
2005 2004 2004
--------------- --------------- ---------------
ASSETS (Unaudited)
Cash and due from banks $ 91,264,718 $ 88,504,777 $ 94,508,165
Federal funds sold 50,950,000 15,175,000 99,750,000
--------------- --------------- ---------------
Cash and cash equivalents 142,214,718 103,679,777 194,258,165
Interest-bearing deposits in banks 669,787 282,328 489,957
Investment securities:
Securities held-to-maturity (market value of
$86,546,691, $131,748,477
and $93,470,201 at March 31, 2005 and 2004
and December 31, 2004, respectively) 84,157,749 124,326,152 90,066,367
Securities available-for-sale, at fair value 863,187,972 806,103,397 764,267,168
--------------- --------------- ---------------
Total investment securities 947,345,721 930,429,549 854,333,535
Loans 1,199,117,294 965,731,085 1,164,223,381
Less: Allowance for loan losses (14,409,141) (11,791,894) (13,837,133)
--------------- --------------- ---------------
Net loans 1,184,708,153 953,939,191 1,150,386,248
Bank premises and equipment, net 53,997,309 43,542,359 49,740,268
Intangible assets 53,713,722 24,683,882 40,546,052
Other assets 25,691,741 21,136,926 25,470,206
--------------- --------------- ---------------
TOTAL ASSETS $ 2,408,341,151 $ 2,077,694,012 $ 2,315,224,431
=============== =============== ===============
LIABILITIES
Noninterest-bearing deposits $ 521,453,171 $ 455,106,813 $ 512,009,366
Interest-bearing deposits 1,556,480,499 1,319,173,214 1,482,302,826
--------------- --------------- ---------------
Total deposits 2,077,933,670 1,774,280,027 1,994,312,192
Dividends payable 5,275,433 4,800,760 5,273,808
Short-term borrowings 43,519,562 15,438,499 35,691,608
Other liabilities 15,047,196 19,799,989 14,401,439
--------------- --------------- ---------------
Total liabilities 2,141,775,861 1,814,319,275 2,049,679,047
--------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value;
authorized 40,000,000 shares; 20,688,642,
15,486,322 and 15,511,576 shares issued at
March 31, 2005 and 2004 and December 31,
2004, respectively 206,886,420 154,863,220 155,115,760
Capital surplus 58,575,387 58,293,285 58,529,113
Retained earnings 4,913,502 36,568,622 49,834,536
Treasury stock (shares at cost: 137,008, 93,674
and 100,189 at
March 31, 2005 and 2004, and December 31,
2004, respectively) (2,343,079) (2,037,304) (2,289,729)
Deferred compensation 2,343,079 2,037,304 2,289,729
Accumulated other comprehensive income (loss) (3,810,019) 13,649,610 2,065,975
--------------- --------------- ---------------
Total shareholders' equity 266,565,290 263,374,737 265,545,384
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,408,341,151 $ 2,077,694,012 $ 2,315,224,431
=============== =============== ===============
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended March 31,
------------------------------------
2005 2004
---------------- -----------------
INTEREST INCOME
Interest and fees on loans $ 18,716,027 $ 14,018,537
Interest on investment securities:
Taxable 6,996,028 7,519,478
Exempt from federal income tax 2,381,131 2,403,116
Interest on federal funds sold and
interest-bearing deposits in banks 440,806 69,677
---------------- -----------------
Total interest income 28,533,992 24,010,808
INTEREST EXPENSE
Interest-bearing deposits 5,443,340 3,574,648
Other 233,881 52,335
---------------- -----------------
Total interest expense 5,677,221 3,626,983
---------------- -----------------
NET INTEREST INCOME 22,856,771 20,383,825
Provision for loan losses 410,167 178,000
---------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 22,446,604 20,205,825
NONINTEREST INCOME
Trust department income 1,714,809 1,575,522
Service fees on deposit accounts 5,017,912 4,270,655
ATM and credit card fees 1,123,419 875,057
Real estate mortgage fees 412,171 423,627
Net gain on sale of securities 40,806 18,426
Net gain on sale of student loans 1,309,229 1,791,858
Net gain on sale of real estate and other assets 12,021 114,374
Net gain on sale of PULSE ownership rights 2,979,579 -
Other 740,585 833,194
---------------- -----------------
Total noninterest income 13,350,531 9,902,713
NONINTEREST EXPENSE
Salaries and employee benefits 9,878,781 8,790,528
Net occupancy expense 1,155,308 998,538
Equipment expense 1,485,738 1,415,112
Printing, stationery & supplies 479,023 346,074
Correspondent bank service charges 383,010 383,656
Amortization of intangible assets 102,665 33,789
Other expenses 5,057,156 3,921,855
---------------- -----------------
Total noninterest expense 18,541,681 15,889,552
---------------- -----------------
EARNINGS BEFORE INCOME TAXES 17,255,454 14,218,986
Income tax expense 5,179,455 4,126,068
---------------- -----------------
NET EARNINGS $ 12,075,999 $ 10,092,918
================ =================
EARNINGS PER SHARE, BASIC $ 0.58 $ 0.49
================ =================
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.58 $ 0.49
================ =================
DIVIDENDS PER SHARE $ 0.26 $ 0.23
================ =================
See notes to consolidated financial statements.
-6-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended March 31,
----------------------------------
2005 2004
---------------- ----------------
NET EARNINGS $ 12,075,999 $ 10,092,918
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
Change in unrealized gain (loss) on
investment securities available-for-sale (8,999,185) 10,017,329
Reclassification adjustment for realized
gains on investment securities
included in net earnings, before income tax (40,806) (18,426)
---------------- ----------------
Total other items of comprehensive
earnings (losses) (9,039,991) 9,998,903
Income tax (expense) benefit related to other
items of comprehensive earnings 3,163,997 (3,499,616)
---------------- ----------------
COMPREHENSIVE EARNINGS $ 6,200,005 $ 16,592,205
================ ================
See notes to consolidated financial statements.
-7-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other Total
Common Stock Capital Retained Treasury Stock Deferred Comprehensive Shareholders'
----------------------- ----------------------
Shares Amount Surplus Earnings Shares Amounts Compensation Earnings(Losses) Equity
---------- ------------ ----------- ----------- --------- ----------- ---------- ----------- ------------
Balances at December 31,
2003 15,480,679 $154,806,790 $58,253,180 $31,276,464 (90,918) $(1,934,604)$1,934,604 $ 7,150,323 $251,486,757
Net earnings - - - 39,171,239 - - - - 39,171,239
Stock issuances 30,897 308,970 275,933 - - - - - 584,903
Cash dividends declared,
$1.00 per share - - - (20,613,167) - - - - (20,613,167)
Minimum liability
pensions adjustment,
net of related
income taxes - - - - - - - (1,042,630) (1,042,630)
Change in unrealized
gain in investment
securities available-
for-sale, net of
related income taxes - - - - - - - (4,041,718) (4,041,718)
Shares purchased in
connection with
directors' deferred
compensation plan, net - - - - (9,271) (355,125) 355,125 - -
---------- ------------ ----------- ----------- --------- ----------- ---------- ----------- ------------
Balances at December 31,
2004 15,511,576 155,115,760 58,529,113 49,834,536 (100,189) (2,289,729) 2,289,729 2,065,975 265,545,384
Net earnings
(unaudited) - - - 12,075,999 - - - - 12,075,999
Stock issuances
(unaudited) 4,906 49,060 46,274 - - - - - 95,334
Cash dividends declared,
(unaudited)
$0.26 per share - - - (5,275,433) - - - - (5,275,433)
Change in unrealized
gain (loss) in
investment securities
available-for-sale,
net of related income
taxes (unaudited) - - - - - - - (5,875,994) (5,875,994)
Shares purchased in
connection with
directors' deferred
compensation plan,
net (unaudited) - - - - (2,568) (53,350) 53,350 - -
Four-for-three stock
split in the form
of a 33% stock divi-
dend (unaudited) 5,172,160 51,721,600 - (51,721,600) (34,251) - - - -
---------- ------------ ----------- ----------- --------- ----------- ---------- ----------- ------------
Balances at March 31,2005
(unaudited) 20,688,642 $206,886,420 $58,575,387 $ 4,913,502 $(137,008) $(2,343,079)$2,343,079 $(3,810,019)$266,565,290
========== ============ =========== =========== ========= =========== ========== =========== ============
See notes to consolidated financial statements.
-8-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Three Months Ended March 31,
-----------------------------------
2005 2004
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 12,075,999 $ 10,092,918
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,418,895 1,231,057
Provision for loan losses 410,167 178,000
Premium amortization, net of discount accretion 819,005 778,647
Gain on sale of assets (4,341,635) (1,924,658)
Deferred federal income tax benefit (expense) 694,581 (79,691)
Loans originated for resale (46,055,401) (41,381,496)
Proceeds from sales of loans held for resale 62,776,176 75,328,737
Decrease in other assets 3,026,765 1,367,840
Increase in other liabilities 90,556 5,340,674
--------------- ----------------
Total adjustments 18,839,109 40,839,110
--------------- ----------------
Net cash provided by operating activities 30,915,108 50,932,028
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing deposits in banks (179,830) 594,511
Cash paid in acquisition of common stock, net of cash acquired (1,126,694) -
Activity in available-for-sale securities:
Sales 33,721,039 6,462,322
Maturities 26,501,980 21,459,429
Purchases (134,458,287) (46,943,370)
Activity in held-to-maturity securities:
Maturities 6,497,500 8,132,865
Purchases (620,000) -
Net decrease (increase) in loans 5,641,937 (9,916,239)
Capital expenditures (3,102,902) (883,298)
Proceeds from sale of assets 3,286,406 231,180
--------------- ----------------
Net cash used in investing activities (63,838,851) (20,862,600)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (17,995,898) (17,467,777)
Net decrease in interest-bearing deposits (3,773,286) (4,523,366)
Net decrease (increase) in securities sold under agreements to repurchase 7,827,954 (13,536,668)
Proceeds from stock issuances 95,334 96,535
Dividends paid (5,273,808) (4,798,948)
--------------- ----------------
Net cash used in financing activities (19,119,704) (40,230,224)
--------------- ----------------
Net decrease in cash and cash equivalents (52,043,447) (10,160,796)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 194,258,165 113,840,573
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 142,214,718 $ 103,679,777
=============== ================
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 5,291,361 $ 4,052,268
Federal income tax paid 320,000 140,000
Assets acquired through foreclosure 482,377 94,808
Loans to finance the sale of other real estate - 507,800
See notes to consolidated financial statements.
-9-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
In the opinion of Management, the unaudited consolidated financial statements
reflect all adjustments necessary for a fair presentation of the Company's
financial position and unaudited results of operations. All adjustments were of
a normal recurring nature. However, the results of operations for the three
months ended March 31, 2005, are not necessarily indicative of the results to be
expected for the year ending December 31, 2005, due to seasonality and other
factors. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted under SEC rules and
regulations.
Note 2 - Subsequent Event
On April 26, 2005, the Company's Board of Directors declared a four-for-three
stock split in the form of a 33% stock dividend effective for shareholders of
record on May 16, 2005. All per share amounts in this report have been restated
to reflect this stock split. An amount equal to the par value of the additional
common shares to be issued pursuant to the stock split is reflected as a
transfer from retained earnings to common stock on the consolidated financial
statements as of and for the three months ended March 31, 2005.
Note 3 - Earnings Per Share
Basic earnings per common share is computed by dividing net income available to
common shareholders by the weighted average number of shares outstanding during
the periods. In computing diluted earnings per common share for the three months
ended March 31, 2005 and 2004, the Company assumes that all outstanding options
to purchase common stock have been exercised at the beginning of the year (or
the time of issuance, if later). The dilutive effect of the outstanding options
is reflected by application of the treasury stock method, whereby the proceeds
from the exercised options are assumed to be used to purchase common stock at
the average market price during the respective periods. The weighted average
common shares outstanding used in computing basic earnings per common share for
the three months ended March 31, 2005 and 2004, were 20,684,392 and 20,645,008
shares, respectively. The weighted average common shares outstanding used in
computing fully diluted earnings per common share for the three months ended
March 31, 2005 and 2004, were 20,772,559 and 20,744,700, respectively. See Note
2 above.
Note 4- Stock Based Compensation
The Company grants stock options for a fixed number of shares with an exercise
price equal to the fair value of the shares at the date of grant to employees.
The Company accounts for stock option grants using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"). Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Had compensation cost for the plan been
determined consistent with Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, the Company's net earnings and earnings
per share would have been reduced by insignificant amounts on a pro forma basis
for the three months ended March 31, 2005 and 2004.
On January 25, 2005, the Company granted 101,066 options to key employees under
the 2002 Incentive Stock Option Plan. The options were granted at market price
on the grant date, as adjusted for the four for three stock split.
10
In December 2004, SFAS No. 123R, "Share-Based Payment," was issued. SFAS No.
123R requires companies to recognize in the statement of earnings the grant-date
fair value of stock options issued to employees. The statement was to be
effective for the third quarter of 2005 but in April 2005, the Securities and
Exchange Commission deferred the effective date until the first quarter of 2006
for calendar year-end companies. Due to the low volume of stock options granted
and outstanding, the implementation of this new pronouncement is not expected to
have a significant effect on the Company's earnings. The Company expects to
utilize the modified prospective method for transition to the new rules whereby
grants after the implementation date as well as unvested awards granted prior to
the implementation date will be measured and accounted for under SFAS No. 123R.
Note 5 - Pension Plan
The Company's defined benefit pension plan was frozen effective January 1, 2004
and no additional years of service will accrue to participants, unless the
pension plan is reinstated at a future date. The pension plan covered
substantially all of the Company's employees. The benefits were based on years
of service and a percentage of the employee's qualifying compensation during the
final years of employment. The Company's funding policy was and is to contribute
annually the amount necessary to satisfy the Internal Revenue Service's funding
standards. Contributions to the pension plan through December 31, 2003 were
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. As a result of freezing the
pension plan, we do not expect contributions or pension expense to be
significant in future years. Accordingly, no amount of net periodic benefit cost
was recorded in the three months ended March 31, 2005 and 2004 as the interest
cost component is generally offset with the expected return on plan assets.
The Company did not make a contribution to the pension plan during the year
ended December 31, 2004 and does not expect to make a contribution during the
year ending December 31, 2005, as required by Internal Revenue Service's funding
standards.
Note 6 - Acquisition
On October 25, 2004, we entered into a stock purchase agreement with the
shareholders of Clyde Financial Corporation, the parent company of The Peoples
State Bank, Clyde, Texas. On February 1, 2005, the transaction was completed.
Pursuant to the purchase agreement, we paid approximately $25.4 million for all
of the outstanding shares of Clyde Financial Corporation.
At closing, Clyde Financial Corporation and The Peoples State Bank were merged
into our wholly owned bank subsidiary, First Financial Bank, National
Association, Abilene. The total purchase price exceeded the estimated fair value
of tangible net assets acquired by approximately $13.2 million, of which
approximately $1.8 was assigned to an identifiable intangible asset with the
balance recorded by the Company as goodwill. The identifiable intangible asset
represents the future benefit associated with the acquisition of the core
deposits and is being amortized over seven years, utilizing a method that
approximates the expected attrition of the deposits.
The primary purpose of the acquisition was to expand the Company's market share
near Abilene and along Interstate Highway 20 in West Texas. Factors that
contributed to a purchase price resulting in goodwill include Peoples' historic
record of earnings, capable management and its geographic location which
complements the Company's existing service locations. The results of operations
from this acquisition are included in the consolidated earnings of the Company
commencing February 1, 2005.
11
The following is a condensed balance sheet disclosing the preliminary estimated
fair value amounts assigned to the major asset and liability categories at the
acquisition date.
ASSETS
Cash and cash equivalents $ 24,269,306
Interest-bearing deposit in banks 8,500,000
Investment in securities 34,480,602
Loans, net 56,267,932
Goodwill 11,475,289
Identifiable intangible asset 1,752,164
Other assets 3,096,570
------------
Total assets $139,841,863
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $113,890,662
Other liabilities 555,201
Shareholders' equity 25,396,000
------------
Total liabilities and shareholders' equity $139,841,863
============
Goodwill recorded in the acquisition of The Peoples State Bank will be accounted
for in accordance with SFAS No. 142. Accordingly, goodwill will not be
amortized, but will be tested for impairment annually. The goodwill and
identifiable intangible asset recorded are not expected to be deductible for
federal income tax purposes.
Cash flow information relative to the acquisition of The Peoples State Bank is
as follows:
Fair value of assets acquired $139,841,863
Cash paid for the capital stock of
The Peoples State Bank 25,396,000
Liabilities assumed $114,445,863
============
We believe the proforma impact of this acquisition to the Company's financial
statements is insignificant.
The main office of the former The Peoples State Bank was located in the City of
Clyde, Callahan County, Texas, approximately 12 miles east of Abilene, Texas.
The bank also operated offices in Moran, Ranger and Rising Star, Texas, for a
total of 4 banking offices. Effective April 1, 2005, First Financial Bank,
National Association, Abilene sold the Ranger and Rising Star banking offices
acquired from The Peoples State Bank to our other wholly owned banking
subsidiary, First Financial Bank, National Association, Eastland, Texas, all
located in Eastland County. This transaction had no impact on our consolidated
financial statements.
Note 7 - New Accounting Pronouncement
Statement of Position (SOP) 03-3, "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer" was issued in December 2003 and is effective
for 2005. SOP 03-3 addresses the accounting for differences between contractual
cash flows and cash flows expected to be collected from a company's initial
investment in loans acquired if those differences are attributable, at least in
part, to credit quality. SOP 03-3 limits the yield that may be accreted to the
excess of the investor's estimate of undiscounted cash flows expected at
12
acquisition to be collected over the investor's initial investment in the loan.
SOP 03-3 requires that the excess of contractual cash flows over cash flows
expected to be collected not be recognized as an adjustment of yield, loss
accrual, or valuation allowance. SOP 03-3 prohibits the "carrying over" or
creation of a valuation allowance in the initial accounting for loans included
in the scope of SOP 03-3. We were required to apply the provisions of this SOP
in conjunction with our acquisition of Clyde Financial Corporation completed on
February 1, 2005.
The Company's valuation allowances for all acquired loans subject to SOP 03-3
reflect only those losses incurred after acquisition, that is, the present value
of cash flows expected at acquisition that are not expected to be collected.
Valuation allowances are established only subsequent to the acquisition of the
loans.
For certain acquired loans that have experienced deterioration of credit quality
between origination and the Company's acquisition of the loans, the amount paid
for the loans reflects our determination that it is probable we will be unable
to collect all amounts due under the loan's contractual terms. At acquisition,
we review each loan to determine whether there is evidence of deterioration of
credit quality since origination and whether it is probable that we will be
unable to collect all amounts due according to the loan's contractual terms. We
consider all information, including expected prepayments, and estimate the
amount and timing of undiscounted expected principal, interest, and other cash
flows (expected at acquisition) for each loan. As these loans are generally
problem loans, we believe the estimation of cash flows is highly subjective. We
estimate the excess of the loan's scheduled contractual principal and
contractual interest payments over all cash flows expected at acquisition as an
amount that should not be accreted (nonaccretable difference). The remaining
amount - representing the excess of the loan's cash flows expected to be
collected over the amount paid - is accreted into interest income over the
remaining life of the loan (accretable yield).
Over the life of the loan, we continue to estimate cash flows expected to be
collected. We evaluate at the balance sheet date whether the present value of
our loans determined using the effective interest rates has decreased and if so,
recognize a loss. The present value of any subsequent increase in the loan's
actual cash flows or cash flows expected to be collected is used first to
reverse any existing valuation allowance for that loan. For any remaining
increases in cash flows expected to be collected, we adjust the amount of
accretable yield recognized on a prospective basis over the loan's remaining
life.
Loans within the scope of SOP 03-3 had an outstanding contractual balance of
$3,108,000 and carrying amount of $2,604,000 at March 31, 2005, virtually
unchanged from acquisition. The amount of contractually required payments
receivable totaled $4,315,000 and cash flows expected to be collected totaled
$3,782,000 as of March 31, 2005. The amount of discount accreted from
acquisition date through March 31, 2005 totaled $35,000. No accretion was
recognized on loans with a carrying value of $144,000 due to significant doubts
regarding their collectibility.
Note 8 - Related Party Transactions
During the three months ended March 31, 2005, the Company sold student loans
totaling $44 million, recognizing a net profit of $1.3 million, to a financial
institution of which an executive officer of one of our wholly owned subsidiary
banks is a board member. In the opinion of management, these loan sales are on
substantially the same terms as those prevailing at the time for comparable
transactions with unaffiliated persons.
Note 9 - Reclassifications
Certain prior period balances have been reclassified to conform with the current
period presentation.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
As a multi-bank financial holding company, we generate most of our revenue from
interest on loans and investments, trust fees, and service charges. Our primary
source of funding for our loans is deposits we hold in our subsidiary banks. Our
largest expenses are interest on these deposits and salaries and related
employee benefits. We usually measure our performance by calculating our return
on average assets, return on average equity, our regulatory leverage and risk
based capital ratios, and our efficiency ratio, which is calculated by dividing
noninterest expense by the sum of net interest income on a tax equivalent basis
and noninterest income.
The following discussion of operations and financial condition should be read in
conjunction with the financial statements and accompanying footnotes included in
Item 1 of this Form 10-Q as well as those included in the Company's 2004 Annual
Report on Form 10-K. On April 26, 2005, the Company's Board of Directors
declared a four-for-three stock split in the form of a 33% stock dividend
effective for shareholders of record on May 16, 2005. All per share amounts in
this report have been restated to reflect this stock split.
Critical Accounting Policies
- ----------------------------
We prepare consolidated financial statements based on the application of certain
accounting policies, accounting principles generally accepted in the United
States and customary practices in the banking industry. These policies, in
certain areas, require us to make significant estimates and assumptions.
We deem a policy critical if (1) the accounting estimate required us to make
assumptions about matters that are highly uncertain at the time we make the
accounting estimate; and (2) different estimates that reasonably could have been
used in the current period, or changes in the accounting estimate that are
reasonably likely to occur from period to period, would have a material impact
on the financial statements.
The following discussion addresses our allowance for loan loss and our provision
for loan losses, which we deem to be our most critical accounting policy. We
have other significant accounting policies and continue to evaluate the
materiality of their impact on our consolidated financial statements, but we
believe that these other policies either do not generally require us to make
estimates and judgments that are difficult or subjective, or it is less likely
they would have a material impact on our reported results for a given period.
The allowance for loan losses is an amount we believe will be adequate to absorb
inherent estimated losses on existing loans for which full collectibility is
unlikely based upon our review and evaluation of the loan portfolio, including
letters of credit, lines of credit and unused commitments to provide financing.
The allowance for loan losses is increased by charges to income and decreased by
charged off loans (net of recoveries).
Our periodic evaluation of the adequacy of the allowance is based on general
economic conditions, the financial condition of our borrowers, the value and
liquidity of collateral, delinquency, prior loan loss experience, and the
results of periodic reviews of the portfolio by our independent loan review
department and by regulatory examiners. We have developed a consistent,
well-documented loan review methodology that includes allowances assigned to
specific loans and nonspecific allowances, which are based on the factors noted
above. While each subsidiary bank is responsible for the adequacy of its
allowance, our independent loan review department is responsible for reviewing
this evaluation for all of our subsidiary banks to ensure consistent methodology
and overall adequacy for us.
14
Although we believe we use the best information available to make loan loss
allowance determinations, future adjustments could be necessary if circumstances
or economic conditions differ substantially from the assumptions used in making
our initial determinations. A downturn in the economy and employment could
result in increased levels of nonperforming assets and charge-offs, increased
loan loss provisions and reductions in income. Additionally, as an integral part
of their examination process, bank regulatory agencies periodically review our
allowance for loan losses. The bank regulatory agencies could require additions
to the loan loss allowance based on their judgment of information available to
them at the time of their examination.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, the
borrower's financial condition is such that collection of interest is doubtful.
Our policy requires measurement of the allowance for an impaired
collateral-dependent loan based on the fair value of the collateral. Other loan
impairments are measured based on the present value of expected future cash
flows or the loan's observable market price.
Operating Results
- -----------------
Three-months ended March 31, 2005 and 2004
- ------------------------------------------
Net income for the first quarter of 2005 totaled $12.1 million, an increase of
$2.0 million or 19.6% over the same period last year. The earnings improvement
resulted primarily from an increase in net interest income of $2.5 million, a
$3.0 million gain from the special distribution of proceeds from the merger of
PULSE EFT Association and Discover Financial Services, Inc. and an increase in
service charges of $747 thousand, principally due to our enhanced overdraft
privilege product. Offsetting these items was a decline in our gain from the
sale of student loans of $483 thousand. Last year, we sold approximately $60
million in student loans in the first quarter of 2004, recognizing a premium of
$1.8 million. This compares to a sale of approximately $44 million in student
loans, with premium recognition of $1.3 million in the first quarter of 2005. On
a basic earnings per share basis, earnings amounted to $0.58 per share for the
first quarter of 2005, as compared to $0.49 per share for the first quarter of
2004. Return on average assets and return on average equity for the first
quarter of 2005 amounted to 2.04% and 18.19%, respectively. For the same periods
in 2004, return on average assets and return on average equity amounted to 1.96%
and 15.85%, respectively.
Tax equivalent net interest income for the first quarter of 2005 amounted to
$24.1 million as compared to $21.6 million for the same period last year. Our
rates on interest earning assets increased approximately 24 basis points while
our rates paid on deposits increased approximately 37 basis points. The increase
in volume of average interest earning assets of $260.4 million worked with the
increase in rates to improve interest income. Average interest bearing
liabilities increased $232.5 million, and coupled with the increase in rates,
partially offset the increase in interest income. Average earning assets were
$2.2 billion for the first quarter of 2005, which is 13.7% greater than for the
first quarter of 2004. Average interest bearing liabilities were $1.6 billion
for the first quarter of 2005, which is 17.2% greater than for the first quarter
of 2004. The Company's interest spread decreased to 4.12% for 2005 from 4.26%
for 2004. The Company's net interest margin was 4.51% for the first quarter of
2005, compared to 4.57% for the same period of 2004. Although the rising rate
environment was generally positive for us, our net interest margin continued to
decline primarily due to the proceeds from maturities of our investment
securities being reinvested at lower interest rates and more aggressive
depository pricing.
The provision for loan losses for the first quarter of 2005 totaled $410
thousand compared to $178 thousand for the same period in 2004. The increase was
due primarily to loan growth and changes in certain loan classifications. Gross
chargeoffs for the quarter ended March 31, 2005 totaled $391 thousand compared
to $241 thousand for the same period of 2004. Recoveries of previously
charged-off loans totaling $187 thousand in the quarter ended March 31, 2005 (as
compared to $279 thousand in 2004) offset the chargeoffs experienced. On an
annualized basis, net chargeoffs as a percentage of average loans were 0.07% for
15
the first quarter of 2005, as compared to a 0.02% net recovery for the same
period in 2004. The Company's allowance for loan losses totaled $14.4 million at
March 31, 2005, up $2.6 million from the balance of $11.8 million at March 31,
2004. The increased allowance is primarily due to growth in the loan portfolio
and additions from our acquisitions. The Company's allowance as a percentage of
nonperforming loans amounted to 463% at March 31, 2005. As of March 31, 2005,
management of the Company believes the Company's balance in allowance for loan
losses is adequate to provide for loans existing in its portfolio that are
deemed uncollectible.
Total noninterest income for the first quarter of 2005 was $13.4 million, as
compared to $9.9 million for the same period last year. The Company recognized a
$3.0 million gain from the special distribution of proceeds from the merger of
PULSE EFT Association and Discover Financial Services, Inc. Trust fees totaled
$1.7 million for 2005, up $139 thousand over the same period in 2004 due to
increased volume of trust assets managed and improvement in overall equity
markets. The market value of trust assets managed totaled $1.357 billion at
March 31, 2005 compared to $1.303 billion at March 31, 2004. Service fees on
deposits totaled $5.0 million for the first quarter of 2005, compared to $4.3
million for the same period of 2004, an improvement of $747 thousand, due to
increased fees from enhancements to the Company's overdraft privilege products.
During the first quarter of 2005 the Company sold approximately $44 million in
student loans, recognizing a premium of $1.3 million. In 2004 the Company sold
$60 million of its student loans, recognizing a premium of $1.8 million. The
Company's real estate mortgage fees of $412 thousand were slightly less than the
$424 thousand recognized in the first quarter of 2004.
Noninterest expense for the first quarter of 2005 amounted to $18.5 million as
compared to $15.9 million for the same period in 2004. Salaries and benefits
expense, the Company's largest noninterest expense item, increased 12.4% to $9.9
million in 2005, up $1.1 million over the same period in 2004. The primary
causes of this increase were the increase in number of employees resulting from
acquisitions and overall pay increases effective during the first quarter. Net
occupancy expense increased approximately $157 thousand, to $1.2 million, also
attributable to facilities obtained through acquisitions and to increased
utility costs. Equipment expense increased $71 thousand in 2005 over 2004 due to
the depreciation of new technology expenditures made in the latter part of 2004
and depreciation associated with acquisitions.
The Company's other categories of expense increased $1.3 million in the first
quarter of 2005 compared to the first quarter of 2004. Several factors
contributed to this increase, including an increase in printing and supplies of
$133 thousand principally due to our acquisition of Clyde Financial Corporation
and the name changes of our Abilene and Eastland subsidiary banks; a volume
related increase of $130 thousand in ATM and credit card fees (related income
increased $248 thousand); an increase in audit fees, primarily due to increased
work in response to Sarbanes-Oxley, of $215 thousand; increased professional
fees of $330 thousand principally as a result of fees associated with our
enhanced overdraft privilege product and costs related to conversion of the
Clyde acquisition to our data processing system; a $218 thousand increase in
advertising and public relations costs, also attributable to our acquisitions,
the name change of two of our subsidiary banks and expansion of our existing
branch network.
We believe a key indicator of our operating efficiency is expressed by the ratio
that is calculated by dividing noninterest expense by the sum of net interest
income (on a tax equivalent basis) and noninterest income. This ratio in effect
measures the amount of funds expended to generate revenue. We improved this
efficiency ratio from 50.40% for the first quarter of 2004 to 49.54% for the
first quarter of 2005.
Balance Sheet Review
- --------------------
Total assets at March 31, 2005 amounted to $2.4 billion as compared to $2.3
billion at December 31, 2004, and $2.1 billion at March 31, 2004. Since December
31, 2004, loans increased $34.9 million. The $44 million sale of our student
loans mentioned above was offset by the acquisition of approximately $56 million
in loans from the Clyde acquisition and nearly $23 million in new loans.
Deposits totaled $2.1 billion at March 31, 2005 compared to $2.0 billion at
December 31, 2004, up 4.2%, principally attributable to the Clyde acquisition
($114 million). Deposits at March 31, 2004 were $1.8 billion.
16
Loans at March 31, 2005, totaled $1.199 billion, compared to $1.164 billion at
year-end 2004. Loans totaled $1.0 billion at March 31, 2004. As compared to
March 31, 2004 amounts, loans at March 31, 2005 reflect (i) a $61.0 million
increase in commercial, financial and agricultural loans; (ii) a $157.2 million
increase in real estate loans; and (iii) a $14.6 million increase in consumer
and student loans. Investment securities at March 31, 2005, totaled $947.4
million as compared to $854.3 million at year-end 2004 and $930.4 million at
March 31, 2004. The unrealized loss, net of income tax, in the investment
portfolio at March 31, 2005, amounted to $1.8 million; the portfolio had an
overall tax equivalent yield of 4.81% for the three months ended March 31, 2005.
At March 31, 2005, the investment portfolio had a weighted average life of 3.80
years and modified duration of 3.26 years. At March 31, 2005, the Company did
not hold any structured notes and management does not believe that their
collateralized mortgage obligations have an interest, credit or other risk
greater than their other investments.
Nonperforming assets at March 31, 2005, totaled $4.3 million as compared to $5.0
million at December 31, 2004. The decrease resulted primarily from the
collection of certain loans previously classified nonaccrual because of concerns
about the borrowers' ability to repay. In addition, certain foreclosed property
included above at approximately $450,000 was under contract for sale at March
31, 2005. We expect no significant loss on this transaction. At 0.35% of loans
plus foreclosed assets, management considers nonperforming assets to be at a
manageable level and is unaware of any material classified credit not properly
disclosed as nonperforming.
Acquisition
- -----------
On October 25, 2004, we entered into a stock purchase agreement with the
shareholders of Clyde Financial Corporation, the parent company of The Peoples
State Bank, Clyde, Texas. On February 1, 2005, the transaction was completed.
Pursuant to the purchase agreement, we paid approximately $25.4 million for all
of the outstanding shares of Clyde Financial Corporation.
At closing, Clyde Financial Corporation and The Peoples State Bank were merged
into our wholly owned bank subsidiary, First Financial Bank, National
Association, Abilene. The total purchase price exceeded the estimated fair value
of tangible net assets acquired by approximately $13.2 million, of which
approximately $1.8 was assigned to an identifiable intangible asset with the
balance recorded by the Company as goodwill. The identifiable intangible asset
represents the future benefit associated with the acquisition of the core
deposits and is being amortized over seven years, utilizing a method that
approximates the expected attrition of the deposits.
The primary purpose of the acquisition was to expand the Company's market share
near Abilene and along Interstate Highway 20 in West Texas. Factors that
contributed to a purchase price resulting in goodwill include Peoples' historic
record of earnings, capable management and its geographic location which
complements the Company's existing service locations. The results of operations
from this acquisition are included in the consolidated earnings of the Company
commencing February 1, 2005.
17
The following is a condensed balance sheet disclosing the preliminary estimated
fair value amounts assigned to the major asset and liability categories at the
acquisition date.
ASSETS
Cash and cash equivalents $ 24,269,306
Interest-bearing deposits in banks 8,500,000
Investment in securities 34,480,602
Loans, net 56,267,932
Goodwill 11,475,289
Identifiable intangible asset 1,752,164
Other assets 3,096,570
------------
Total assets $139,841,863
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $113,890,662
Other liabilities 555,201
Shareholders' equity 25,396,000
------------
Total liabilities and shareholders' equity $139,841,863
============
Goodwill recorded in the acquisition of The Peoples State Bank will be accounted
for in accordance with SFAS No. 142. Accordingly, goodwill will not be
amortized, but will be tested for impairment annually. The goodwill and
identifiable intangible asset recorded are not expected to be deductible for
federal income tax purposes.
Cash flow information relative to the acquisition of The Peoples State Bank is
as follows:
Fair value of assets acquired $139,841,863
Cash paid for the capital stock of
The Peoples State Bank 25,396,000
Liabilities assumed $114,445,863
============
We believe the proforma impact of this acquisition to the Company's financial
statements is insignificant.
The main office of the former The Peoples State Bank was located in the City of
Clyde, Callahan County, Texas, approximately 12 miles east of Abilene, Texas.
The bank also operated offices in Moran, Ranger and Rising Star, Texas, for a
total of 4 banking offices. Effective April 1, 2005, First Financial Bank,
National Association, Abilene sold the Ranger and Rising Star banking offices
acquired from The Peoples State Bank to our other wholly owned banking
subsidiary, First Financial Bank, National Association, Eastland, Texas, all
located in Eastland County. This transaction had no impact on our consolidated
financial statements.
Liquidity and Capital
- ---------------------
Liquidity is our ability to meet cash demands as they arise. Such needs can
develop from loan demand, deposit withdrawals or acquisition opportunities.
Potential obligations resulting from the issuance of standby letters of credit
and commitments to fund future borrowings to our loan customers are other
factors affecting our liquidity needs. Many of these obligations and commitments
are expected to expire without being drawn upon; therefore the total commitment
amounts do not necessarily represent future cash requirements affecting our
liquidity position. The potential need for liquidity arising from these types of
financial instruments is represented by the contractual notional amount of the
18
instrument. Asset liquidity is provided by cash and assets which are readily
marketable or which will mature in the near future. Liquid assets include cash,
federal funds sold, and short-term investments in time deposits in banks.
Liquidity is also provided by access to funding sources, which include core
depositors and correspondent banks that maintain accounts with, and sell federal
funds to, our subsidiary banks. Other sources of funds include our ability to
sell securities under agreements to repurchase, and an unfunded $50.0 million
line of credit which matures December 31, 2005, established with a nonaffiliated
bank.
Given the strong core deposit base and relatively low loan to deposit ratios
maintained at our subsidiary banks, management considers the current liquidity
position to be adequate to meet short- and long-term liquidity needs.
First Financial Bank, National Association, Abilene funded the acquisition of
Clyde Financial Corporation from existing cash balances. Nevertheless, we
anticipate that any future acquisitions of financial institutions and expansion
of branch locations could place a demand on our cash resources. Available cash
at our parent company, available dividends from subsidiary banks, utilization of
available lines of credit, and future debt or equity offerings are expected to
be the sources of funding for these potential acquisitions or expansions.
The Company's consolidated statements of cash flows are presented on page 9 of
this report. Total equity capital amounted to $266.6 million at March 31, 2005,
which was up from $265.5 million at year-end 2004 and $263.4 million at March
31, 2004. The Company's risk-based capital and leverage ratios at March 31, 2005
were 15.37% and 8.94%, respectively. The first quarter 2005 cash dividend of
$0.26 per share totaled $5.3 million and represented 43.7% of first quarter
earnings.
Interest Rate Risk
- ------------------
Interest rate risk results when the maturity or repricing intervals of
interest-earning assets and interest bearing liabilities are different. The
Company's exposure to interest rate risk is managed primarily through the
Company's strategy of selecting the types and terms of interest-earning assets
and interest-bearing liabilities which generate favorable earnings, while
limiting the potential negative effects of changes in market interest rates. The
Company uses no off-balance-sheet financial instruments to manage interest rate
risk. The Company and each subsidiary bank have an asset/liability committee
which monitors interest rate risk and compliance with investment policies.
Interest-sensitivity gap and simulation analyses are among the ways that the
subsidiary banks monitor interest rate risk. As of March 31, 2005, management
estimates that, over the next twelve months, an upward shift of interest rates
by 150 basis points would result in an increase in projected net interest income
of 2.68% and a downward shift of interest rates by 150 basis points would result
in a reduction in projected net interest income of 8.21%. These are good faith
estimates and assume the composition of our interest sensitive assets and
liabilities existing at March 31, 2005, will remain constant over the relevant
twelve month measurement period and changes in market interest rates are
instantaneous and sustained across the yield curve, regardless of duration or
pricing characteristics of specific assets or liabilities. Also, this estimate
does not contemplate any actions that we might undertake in response to changes
in market interest rates. In management's opinion, these estimates are not
necessarily indicative of what actually could occur in the event of immediate
interest rate increases or decreases of this magnitude. Because interest-bearing
assets and liabilities reprice in different time frames and proportions to
market interest rate movements, various assumptions must be made based on
historical relationships of these variables in reaching any conclusion. Since
these correlations are based on competitive and market conditions, our future
results could, in management's belief, be different from the foregoing
estimates, and such changes in results could be material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management considers interest rate risk to be a significant market risk for the
Company. See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" for disclosure regarding this market risk.
19
Item 4. Controls and Procedures
As of March 31, 2005, we carried out an evaluation, under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Securities
Exchange Act Rule 15d-15. Our management, including the principal executive
officer and principal financial officer, does not expect our disclosure controls
and procedures will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints; additionally, the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls also is based, in
part, upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, controls may become inadequate
due to changes in conditions; also the degree of compliance with policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected. Our principal executive officer and principal financial officer
have concluded, based on our evaluation of our disclosure controls and
procedures, our disclosure controls and procedures under Rule 13a-14 (c) and
Rule 15d - 14 (c) of the Securities Exchange Act of 1934 are effective at the
reasonable assurance level as of March 31, 2005.
Subsequent to our evaluation, there were no significant changes in internal
controls or other factors that could significantly affect these internal
controls.
20
PART II
OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
On April 26, 2005, the annual meeting of shareholders was held in Abilene,
Texas. The following directors were elected at this meeting and the respective
number of votes cast for and withheld:
Votes Votes
Director For Withheld
-------- --- --------
Joseph E. Canon 12,623,956 4,231
Mac A. Coalson 12,623,805 4,382
David Copeland 12,623,914 4,273
F. Scott Dueser 12,579,184 49,003
Derrell E. Johnson 12,618,937 9,250
Kade L. Matthews 12,624,207 3,980
Raymond A. McDaniel, Jr 12,584,363 43,824
Bynum Miers 12,584,604 43,583
Kenneth T. Murphy 12,584,754 43,433
James M. Parker 12,572,590 55,597
Jack D. Ramsey, M.D 12,623,008 5,179
Dian Graves Stai 12,584,642 43,545
F. L. Stephens 12,624,207 3,980
Johnny E. Trotter 12,578,767 49,420
There were no votes against, abstentions or broker non-votes.
In addition, the shareholders voted to ratify the selection of Ernst & Young LLP
to serve as the Company's independent public auditors for the year ending
December 31, 2005 by a vote of 12,619,001 for, 4,091 against and 5,095
abstained.
There were no other matters voted upon at the meeting.
21
Item 6. Exhibits
The following exhibits are filed as part of this report:
3.1 -- Articles of Incorporation, and all amendments thereto, of the
Registrant (incorporated by reference from Exhibit 1 of the
Registrant's Amendment No. 2 to Form 8-A filed on Form 8-A/A No. 2 on
November 21, 1995).
3.2 -- Amended and Restated Bylaws, and all amendments thereto, of the
Registrant (incorporated by reference from Exhibit 2 of the
Registrant's Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on
January 7, 1994).
3.3 -- Amendment to the Articles of Incorporation of the Registrant, dated
April 27, 2004 (incorporated by reference from Exhibit 3.3 of the
Registrant's Form 10-Q Quarterly Report for the quarter ended March
31, 2004).
3.4 -- Amendment to Amended and Restated Bylaws of the Registrant, dated
April 27, 1994 (incorporated by reference from Exhibit 3.4 of the
Registrant's Form 10-Q Quarterly Report for the quarter ended March
31, 2004).
3.5 -- Amendment to Amended and Restated Bylaws of the Registrant, dated
October 23, 2001 (incorporated by reference from Exhibit 3.5 of the
Registrant's Form 10-Q Quarterly Report for the quarter ended March 31
2004).
4.1 -- Specimen certificate of First Financial Common Stock (incorporated
by reference from Exhibit 3 of the Registrant's Amendment No. 1 to
Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
10.1 -- Deferred Compensation Agreement, dated October 28, 1992, between
the Registrant and Kenneth T. Murphy (incorporated by reference from
Exhibit 10.1 of the Registrant's Form 10-K Annual Report for the year
ended December 31, 2002).
10.2 -- Revised Deferred Compensation Agreement, dated December 28, 1995,
between the Registrant and Kenneth T. Murphy (incorporated by
reference from Exhibit 10.2 of the Registrant's Form 10-K Annual
Report for the year ended December 31, 2002).
10.3 -- Executive Recognition Plan (incorporated by reference from Exhibit
10.3 of the Registrant's Form 10-K Annual Report for year ended
December 31, 2002).
10.4 -- Form of Executive Recognition Agreement (incorporated by reference
from Exhibit 10.4 of the Registrant's Form 10-K Annual Report for the
year ended December 31, 2002).
10.5 -- 1992 Incentive Stock Option Plan (incorporated by reference from
Exhibit 10.5 of the Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1998).
10.6 -- 2002 Incentive Stock Option Plan (incorporated by reference from
Appendix A of the Registrant's Schedule 14a Definitive Proxy Statement
for the 2002 Annual Meeting of Shareholders)
10.7 -- Revised Consulting Agreement dated January 1, 2005 between the
Registrant and Kenneth T. Murphy (incorporated by reference from
Exhibit 10.7 of the Registrant's Form 10-K Annual Report for the year
ended December 31, 2004).
*31.1-- Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Executive
Officer of First Financial Bankshares, Inc.
*31.2-- Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Financial
Officer of First Financial Bankshares, Inc.
*32.1-- Section 1350 Certification of Chief Executive Officer of First
Financial Bankshares, Inc.
*32.2-- Section 1350 Certification of Chief Financial Officer of First
Financial Bankshares, Inc.
- -------------
*Filed herewith
22
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 thereunto duly authorized.
FIRST FINANCIAL BANKSHARES, INC.
Date: May 4, 2005 By:/S/ F. Scott Dueser
-------------------
F. Scott Dueser
President and Chief Executive Officer
Date: May 4, 2005 By:/S/ J. Bruce Hildebrand
-----------------------
J. Bruce Hildebrand
Executive Vice President and
Chief Financial Officer
23
Exhibit 31.1
------------
Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.
I, F. Scott Dueser, President and Chief Executive Officer of First
Financial Bankshares, Inc., certify that:
1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectives of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2005
By: /s/ F. SCOTT DUESER
-------------------------------------
F. Scott Dueser
President and Chief Executive Officer
Exhibit 31.2
------------
Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.
I, J. Bruce Hildebrand, Executive Vice President and Chief Financial
Officer of First Financial Bankshares, Inc., certify that:
1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b. Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectives of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2005 By: /s/ J. Bruce Hildebrand
----------------------------------
J. Bruce Hildebrand
Executive Vice President and Chief
Financial Officer
Exhibit 32.1
------------
Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States code) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q")
for the quarter ended March 31, 2005 of First Financial Bankshares, Inc.
I, F. Scott Dueser, the President and Chief Executive Officer of the Issuer
certify that:
1. the Form 10-Q fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and
2. the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: May 4, 2005
By: /s/ F. SCOTT DUESER
---------------------------
F. Scott Dueser
Chief Executive Officer
Subscribed and sworn to before me this 4th of May 2005.
/s/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2009
Exhibit 32.2
------------
Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United
States code) and accompanies the annual report on Form 10-Q (the "Form 10-Q")
for the quarter ended March 31, 2005 of First Financial Bankshares, Inc.
I, J. Bruce Hildebrand, the Executive Vice President and Chief Financial Officer
of the Issuer certify that:
1. the Form 10-Q fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d)); and
2. the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: May 4, 2005
By: /s/ J. Bruce Hildebrand
---------------------------
J. Bruce Hildebrand
Chief Financial Officer
Subscribed and sworn to before me this 4th of May 2005.
/s/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2009