AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1995.OCTOBER 1, 1997
REGISTRATION NO. 33-_______
================================================================================333-_____________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
FIRST FINANCIAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
-----------------------
TEXAS 6712 75-0944023
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6712
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
400 PINE STREET
ABILENE, TEXAS 79601
(915) 675-7155627-7155
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CURTIS R. HARVEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST FINANCIAL BANKSHARES, INC.
400 PINE STREET
ABILENE, TEXAS 79601
(915) 675-7155627-7155
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF AGENT FOR SERVICE)
-----------------------
Copies to:
N. KATHLEEN FRIDAY, P.C. DAVID L. BUHRMANN WALTER E. ZELLERS
AKIN, GUMP, STRAUSS, MCMAHON, SUROVIK, SUTTLE, ZELLERS & ZELLERS
HAUER & FELD, L.L.P. BUHRMANN, HICKS & Gill, P.C. 127 NORTH WACO
1700 PACIFIC AVENUE, SUITE 4100 P.O. BOX 3679 WEATHERFORD, TX 76086
DALLAS, TEXAS 75201-4618 ABILENE, TX 79604
N. KATHLEEN FRIDAY, P.C. RICHARD G. WILLIAMS
AKIN, GUMP, STRAUSS, SHANNON, GRACEY, RATLIFF
HAUER & FELD, L.L.P. P.C. & MILLER, L.L.P.
1700 PACIFIC AVENUE, SUITE 4100 1600 BANK ONE TOWER
DALLAS, TEXAS 75201-4675 500 THROCKMORTON
FORT WORTH, TEXAS 76102
PAUL L. CANNON
MCMAHON, SUROVIK, SUTTLE,
BUHRMANN, COBB, HICKS & GILL,
400 PINE STREET, SUITE 800
ABILENE, TEXAS 79601
Approximate date of commencement of proposed sale to public: As soon as
practicable after the registration statement becomes effective.
-----------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:
[ ]-----------------------
CALCULATION OF REGISTRATION FEE
==================================================================================================================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock.................... 323,982 $15.85 $5,135,115 $1,771
======================================================================================================Stock...................... 216,454 $19.93 $4,313,928 $1,307.12
============================================================================================================================
(1) The registration fee has been computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended (the "Securities Act"), based on the book
value of the shares of Common Stock of Weatherford NationalSouthlake Bancshares, Inc. at SeptemberJune 30,
19951997 that may be exchanged for the securities being registered.
-----------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act, or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
===============================================================================================================================================================
FIRST FINANCIAL BANKSHARES, INC.
CROSS-REFERENCE SHEET SHOWING LOCATIONINFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLE OR NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE PROSPECTUSSECURITIES LAWS OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
- -------------------------------- ------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus....................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................... Inside Front Cover Page; Available Information;
Incorporation by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information................................ Prospectus Summary; Summary Financial Data;
First Financial and Subsidiaries and Weatherford
Holdings and Subsidiaries Pro Forma Combined
Selected Financial Data; Comparative Per Share
Data
4. Terms of the Transaction............................. The Exchange Offer; Description of First Financial
Capital Stock; Comparison of Shareholder Rights
5. Pro Forma Financial Information...................... Pro Forma Combined Selected Financial Data
6. Material Contacts With the Company Being
Acquired............................................. Prospectus Summary; Background of the Exchange
Offer; Operation After the Exchange Offer and
Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters........ *
8. Interests of Named Experts and Counsel............... *
9. Disclosure of Commission Position on
Indemnification of Securities Act Liabilities........ *
10. Information with Respect to S-3 Registrants.......... Available Information; Incorporation by Reference;
Prospectus Summary; Summary Financial Data;
Certain Regulatory Considerations; Information
About First Financial
11. Incorporation of Certain Information by Reference.... Incorporation by Reference
12. Information with Respect to S-2 or S-3 Registrants... *
13. Incorporation of Certain Information by Reference.... *
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants............................... *
15. Information With Respect to S-3 Companies............ *
16. Information With Respect to S-2 or S-3 Companies..... *
17. Information With Respect to Companies Other than
S-2 or S-3 Companies................................. Prospectus Summary; Summary Financial Data;
Information About Weatherford Holdings;
Consolidated Financial Statements
18. Information if Proxies, Consents or Authorizations
are to be Solicited.................................. *
19. Information if Proxies, Consents, or Authorizations
are not to be Solicited, or in an Exchange Offer..... The Exchange Offer; Incorporation by Reference;
Information About Weatherford Holdings
- -----------
* Not applicable.
- -------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- -------------------------------------------------------------------------------ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1995OCTOBER 1, 1997
OFFERING CIRCULAR/
- ------------------
PROSPECTUS
- ----------
OFFER TO EXCHANGE
ALL OUTSTANDING
SHARES OF COMMON STOCK OF
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC.
FOR
SHARES OF COMMON STOCK OF
FIRST FINANCIAL
BANKSHARES, INC.
----------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., ABILENE, TEXAS TIME,
ON _________, 1996__________, 1997
First Financial Bankshares, Inc., a Texas corporation ("First Financial" or
the "Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its voting common stock, par value $10.00 per share ("First
Financial Common Stock"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus is a part, for all of the issued
and outstanding shares of common stock of Weatherford NationalSouthlake Bancshares, Inc., a Texas
corporation ("Weatherford Holdings"Southlake"), par value $5.00$1.00 per share ("Weatherford HoldingsSouthlake Common Stock").
Upon consummation of the Exchange Offer, each outstanding share of Weatherford HoldingsSouthlake
Common Stock tendered in the Exchange Offer will, subject to certain provisions
with respect to fractional shares, be exchanged (the "Exchange") for 1.5.894 shares
of First Financial Common Stock, subject to certain adjustments.adjustment described herein. As a
result, up to 242,119 shares of Southlake Common Stock will be exchanged for a
maximum of 216,454 shares of First Financial Common Stock.
Subject to the terms and conditions of the Exchange Offer, First Financial
will accept for exchange all shares of Weatherford HoldingsSouthlake Common Stock that are validly
tendered on or prior to 5:00 p.m., Abilene, Texas time, on the date the Exchange
Offer expires, which will be ___________, 1996__________, 1997 (the "Expiration Date"), unless
the Exchange Offer is extended. Once shares of Weatherford
HoldingsSouthlake Common Stock are
tendered in the Exchange Offer, they may not be withdrawn. The Exchange Offer is
subject to certain conditions, including a condition that at least 90%, or such
higher amount as shall be necessary in order for the acquisition to be accounted
for as a pooling of interests (the "Required Amount"), of the outstanding
Weatherford HoldingsSouthlake Common Stock be tendered in the Exchange Offer. See "The Exchange
Offer--Conditions to Consummation of the Exchange Offer; Termination."
Upon consummation of the Exchange Offer, it is anticipated that Weatherford
HoldingsSouthlake
will be merged (the "Merger") with and into a wholly-owned subsidiary
of First Financial and that any
remaining Weatherford Shareholders (as defined
below)Southlake shareholders will receive in the Merger the same
consideration they would have received had they participated in the Exchange
Offer, subject to their rights to dissent tofrom the Merger. This Prospectus also
relates to the shares of First Financial Common Stock that may be issued in the
Merger.
Prior to the Exchange Offer, there has been no public market for the
Weatherford HoldingsSouthlake Common Stock. The First Financial Common Stock is traded on the NASDAQ
National Market under the trading symbol "FFIN." On _________,
1995,____________, 1997, the
closing sales price of the First Financial Common Stock, as reported by NASDAQ,
was $________.$__________.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is ___________, 1995____________, 1997
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FIRST FINANCIAL ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF WEATHERFORD HOLDINGSSOUTHLAKE COMMON STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
AVAILABLE INFORMATION
First Financial Bankshares, Inc. (which until October 26, 1993 was named
"First Abilene Bankshares, Inc.") is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission""SEC"). TheSuch reports, proxy statements and other
information filed
by the Company with the Commission canmay be inspected and copied at the Commissionpublic reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,20549; and at
the followingits regional offices of the Commission:located at 7 World Trade Center, New York, New York 10048;10048
and Northwestern Atrium Center, 500 West Madison Street, RoomSuite 1400, Chicago, Illinois 60661-2511. Copies of
such information canmaterials may also be obtained from the Public Reference Section of the Commission,SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, atupon payment of certain fees
prescribed rates.by the SEC. The SEC also maintains a site on the World Wide Web, the
address of which is http://www.sec.gov., that contains reports, proxy and
information statements and other information regarding reporting companies that
file electronically with the SEC.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the CompanyFirst Financial with the CommissionSEC under the
Securities Act.Act of 1933, as amended (the "Securities Act"). As permitted by the
rules and regulations of the Commission,SEC, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto, and reference is hereby made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
the CompanyFirst Financial and the securities offered hereby. Statements contained herein
concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the CommissionSEC are not necessarily
complete, and in each instance reference is made to the copy of such document so
filed. Each such statement is qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY SHAREHOLDER OF
WEATHERFORD HOLDINGSSOUTHLAKE TO WHOM THIS PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST TO
CURTIS R. HARVEY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FIRST
FINANCIAL BANKSHARES, INC., P.O. BOX 701,400 PINE STREET, ABILENE, TEXAS 79604,79601, TELEPHONE
NUMBER (915) 675-7155.627-7155. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY _______________, 1996.______________, 1997.
First Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994,1996, First Financial's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1995,1997 and June 30, 1995 and September 30, 19951997, and First Financial's Current
Reports on Form 8-K dated September 7, 1995May 27, 1997 and October 2,
1995,August 27, 1997, in each case filed
with the CommissionSEC pursuant to Section 13 of the Exchange Act, and the description of
First Financial Common Stock which is contained in First Financial's
Registration Statement on Form 8-A dated March 29, 1974, filed under Section 12
of the Exchange Act, as amended by Amendment No. 1 to Form 8-A on Form 8-A/A No.
1 dated January 7, 1994 and Amendment No. 2 to Form 8-A on Form 8-A/A No. 2
dated November 20, 1995, are incorporated into this Prospectus by reference.
All documents filed by First Financial pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document 2
incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of
2
this Prospectus to the extent that such statement is modified or superseded by a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representation must not be relied upon as having been
authorized by First Financial or Weatherford Holdings.Southlake. This Prospectus does not constitute
an offering within any jurisdiction to any person to whom it is unlawful to make
such offer within such jurisdiction.
The information herein concerning First Financial has been obtained from
various filings by First Financial under the Exchange Act and from management.
The information herein concerning Weatherford HoldingsSouthlake has been obtained from the
management of Weatherford Holdings.Southlake.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY..................................................... 5
The Parties.......................................................... 5
Summary of the Transaction........................................... 6
SUMMARY FINANCIAL DATA................................................. 9
FIRST FINANCIAL AND SUBSIDIARIES SELECTED FINANCIAL DATA............... 10
WEATHERFORD HOLDINGS AND SUBSIDIARIES SELECTED FINANCIAL DATA.......... 11
FIRST FINANCIAL AND SUBSIDIARIES AND WEATHERFORD HOLDINGS AND
SUBSIDIARIES PRO FORMA COMBINED SELECTED FINANCIAL DATA.............. 12
FIRST FINANCIAL AND SUBSIDIARIES, WEATHERFORD HOLDINGS AND
SUBSIDIARIES AND CITIZENS AND SUBSIDIARIES PRO FORMA COMBINED
SELECTED FINANCIAL DATA.............................................. 13
COMPARATIVE PER SHARE DATA............................................. 14
THE EXCHANGE OFFER..................................................... 15
General.............................................................. 15
Background of the Exchange Offer..................................... 15
First Financial's Reasons for the Exchange Offer..................... 15
Weatherford Holdings' Reasons for the Exchange Offer................. 15
Operation After the Exchange Offer and Merger........................ 17
The Exchange Rate.................................................... 17
The Expiration Date.................................................. 18
Conditions to Consummation of the Exchange Offer; Termination........ 18
Exchange of Shares and Certificates.................................. 19
Guaranteed Delivery Procedures....................................... 21
Fractional Shares.................................................... 21
No Withdrawal Rights................................................. 21
Regulatory Approvals Required........................................ 21
Federal Income Tax Consequences...................................... 22
Exchange Agent....................................................... 23
Resale by Weatherford Holdings' Affiliates........................... 23
Anticipated Merger and Dissenting Shareholders' Rights............... 24
Accounting Treatment................................................. 24
PROSPECTUS SUMMARY........................................................... 5
The Parties.......................................................... 5
Summary of the Transaction........................................... 6
SUMMARY FINANCIAL DATA.......................................................10
FIRST FINANCIAL AND SUBSIDIARIES SELECTED FINANCIAL DATA.....................11
SOUTHLAKE AND SUBSIDIARY SELECTED FINANCIAL DATA.............................12
FIRST FINANCIAL AND SUBSIDIARIES AND SOUTHLAKE AND SUBSIDIARY PRO
FORMA COMBINED SELECTED FINANCIAL DATA....................................13
FIRST FINANCIAL AND SUBSIDIARIES, SOUTHLAKE AND SUBSIDIARY, AND
TCB-SAN ANGELO PURCHASE PRO FORMA COMBINED SELECTED FINANCIAL DATA.......14
COMPARATIVE PER SHARE DATA...................................................15
THE EXCHANGE OFFER...........................................................16
General..............................................................16
Background of the Exchange Offer.....................................16
First Financial's Reasons for the Exchange Offer.....................17
Southlake's Reasons for the Exchange Offer...........................17
Operation After the Exchange Offer and Merger........................18
The Exchange Rate....................................................19
The Expiration Date..................................................19
Conditions to Consummation of the Exchange Offer; Termination........19
Exchange of Shares and Certificates..................................21
Guaranteed Delivery Procedures.......................................22
Fractional Shares....................................................22
No Withdrawal Rights.................................................23
Regulatory Approvals Required........................................23
Federal Income Tax Consequences......................................23
Exchange Agent.......................................................24
Resale by Southlake Affiliates.......................................24
Anticipated Merger and Dissenting Shareholders' Rights...............25
Accounting Treatment.................................................26
CERTAIN REGULATORY CONSIDERATIONS............................................26
General..............................................................26
Payment of Dividends.................................................28
Certain Transactions by First Financial with its Affiliates..........28
Capital..............................................................29
First Financial Support of the First Financial Banks.................31
Interstate Banking and Branching Act.................................31
Pending and Proposed Legislation.....................................32
3
PAGE
----
CERTAIN REGULATORY CONSIDERATIONS...................................... 25
General.............................................................. 25
Payment of Dividends................................................. 25
Certain Transactions by First Financial with its Affiliates.......... 26
Capital.............................................................. 26
First Financial Support of the First Financial Banks................. 28
FDIC Insurance Assessments........................................... 28
FDICIA............................................................... 28
Interstate Banking and Branching Act................................. 29
Pending and Proposed Legislation..................................... 29
DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK........................... 29
COMPARISON OF SHAREHOLDER RIGHTS....................................... 30
Board of Directors................................................... 30
Indemnification of Directors and Officers............................ 30
Special Meetings of Shareholders..................................... 30
INFORMATION ABOUT FIRST FINANCIAL...................................... 31
General.............................................................. 31
Recent Developments.................................................. 32
Market Prices of and Dividends Paid on First Financial Common Stock.. 32
INFORMATION ABOUT WEATHERFORD HOLDINGS................................. 33
General.............................................................. 33
Market Area.......................................................... 34
Services............................................................. 34
Competition.......................................................... 34
Employees............................................................ 34
Properties........................................................... 34
Market for and Dividends Paid on Weatherford Holdings Common Stock... 34
Security Ownership of Certain Beneficial Owners...................... 34
Security Ownership of Management..................................... 35
SELECTED CONSOLIDATED FINANCIAL DATA OF WEATHERFORD HOLDINGS........... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION OF WEATHERFORD HOLDINGS......................... 38
LEGAL MATTERS.......................................................... 53
EXPERTS................................................................ 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF WEATHERFORD HOLDINGS..... F-1
ANNEX A - OPINION OF GEORGE, MORGAN & SNEED, P.C.
ANNEX B - ARTICLES 5.12, 5.13, AND 5.16 OF THE TEXAS BUSINESS CORPORATION ACT
DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK.................................32
COMPARISON OF SHAREHOLDER RIGHTS.............................................32
Board of Directors...................................................33
Indemnification of Directors and Officers............................33
Special Meetings of Shareholders.....................................33
INFORMATION ABOUT FIRST FINANCIAL............................................33
General..............................................................33
Recent Developments..................................................34
Market Prices of and Dividends Paid on First Financial Common Stock..35
INFORMATION ABOUT SOUTHLAKE..................................................36
General..............................................................36
Market Area..........................................................36
Services.............................................................37
Competition..........................................................37
Employees............................................................37
Properties...........................................................37
Market for and Dividends Paid on Southlake Common Stock..............37
Security Ownership of Certain Beneficial Owners......................37
Security Ownership of Management.....................................38
SELECTED CONSOLIDATED FINANCIAL DATA OF SOUTHLAKE............................39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SOUTHLAKE................................................40
LEGAL MATTERS................................................................56
EXPERTS......................................................................56
4
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. As this summary is necessarily incomplete, reference is made
to, and this summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in this Prospectus and the
Annexes hereto. Shareholders of Weatherford HoldingsSouthlake are urged to read the Prospectus and
the Annexes hereto in their entirety.
THE PARTIES
The CompanyFirst Financial is a Texas corporation and a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").
On October
28, 1993, the Company changed its name from "First Abilene Bankshares, Inc." to
"First Financial Bankshares, Inc." First Financial owns, through its wholly-
ownedwholly-owned Delaware subsidiary, First Financial Bankshares of Delaware, Inc., all of the
capital stock of seveneight banks organized and located in Texas: First National Bank
of Abilene, Abilene, Texas; Hereford State Bank, Hereford, Texas; First National
Bank, Sweetwater, Texas; Eastland National Bank, Eastland, Texas; The First
National Bank in Cleburne, Cleburne, Texas; Stephenville Bank and Trust Co.,
Stephenville, Texas; and Southwest Bank of San Angelo National Bank, San Angelo, Texas and Weatherford
National Bank, Weatherford, Texas (collectively, the "First Financial Banks").
First Financial operates principally in order to give the First Financial Banks
access to additional management and technical resources, which enablehelp them to
provide expandedimprove or expand their banking services while continuing their local activity.activity
and identity. The First Financial Banks are engaged in the general commercial
banking business consisting of the acceptance of checking, savings and time
deposits, the making of loans, including bank credit card services, transmitting
funds and performing such other banking services as are usual and customary for
commercial banks. All First Financial
Banks, with the exception of Eastland National Bank, have trust powers, and
First National Bank of Abilene, First National Bank,
Sweetwater, Hereford State
Bank and Stephenville Bank and Trust CoCo. have active trust departments.
The trust departments offer a complete range of services to individuals,
associations and corporations. The First Financial Banks also administer
pension, profit sharing and other employee benefit plans, act as stock transfer
agents or stock registrars for corporations and provide paying agent services.
In addition, First National Bank of Abilene, The First National Bank in
Cleburne, San Angelo National Bank and Weatherford National Bank provide
securities brokerage services through arrangements with various third parties.
As of SeptemberJune 30, 1995,1997, First Financial and its consolidated subsidiaries had total
assets of approximately $1.03$1.3 billion, total deposits of approximately $905.7
million,$1.1
billion, total loans (net of allowance for loan losses) of approximately $446.2$572.5
million and total shareholders' equity of approximately $112.4$137.2 million. First
Financial's principal executive offices are located at 400 Pine Street, Abilene,
Texas 79601, and its telephone number is (915) 675-7155.627-7155. See "Information About
First Financial."
WeatherfordOn September 26, 1997, San Angelo National Bancshares, Inc.Bank, a subsidiary bank of First
Financial, acquired certain assets and assumed certain liabilities of Texas
Commerce Bank-San Angelo, National Association ("Weatherford Holdings"TCB-San Angelo") in a
transaction that will be accounted for as a purchase transaction (the "TCB-San
Angelo Purchase"). See "Information about First Financial--Recent
Developments."
Southlake is a one bank holding company formed in 19841987 and incorporated in
the State of Texas. Weatherford HoldingsSouthlake owns 100% of Parker Bancshares, Inc. ("Parker Bancshares"),
a Delaware corporation and bank holding company that owns 100% of WeatherfordTexas National Bank ("WeatherfordTexas
National"), a national bank having its principal office in the City of
Weatherford, ParkerSouthlake, Tarrant County, Texas. WeatherfordTexas National, which began operations in
1984,1985, is federally chartered and insured by the Federal Deposit Insurance
Corporation. The market areaCorporation (the "FDIC"). Southlake and Texas National are located approximately
20 miles northeast of Weatherforddowntown Fort Worth, Texas, and within the Fort Worth-
Dallas metropolitan area. In addition, Texas National is Parkermaintains a branch
location in Trophy Club, Denton County, and surrounding counties. With two locations in Weatherford,
WeatherfordTexas. Texas National provides a full
range of both commercial and consumer banking services, including loans,
checking accounts, savings programs, safe deposit facilities, access to
automated teller machines, and credit card programs. The bank does not offer
trust services. As of SeptemberJune 30, 1995,
Weatherford Holdings1997, Southlake and its consolidated subsidiariessubsidiary
had total assets of approximately $62.1$53.6 million, total deposits of approximately
$56.5$49.1 million, total loans (net of allowance for loan losses) of approximately
$25.0$25.4 million and total shareholders' equity of approximately $5.1$4.2 million.
Weatherford'sSouthlake's principal executive offices are located at 101 College Park Drive, Weatherford,3205 E. Highway 114,
Southlake, Texas 7608676092 and its telephone number is (817) 599-7351.488-5544. See
"Information about Weatherford Holdings".Southlake."
5
SUMMARY OF THE TRANSACTION
THE EXCHANGE OFFER
Pursuant to a Stock Exchange Agreement and Plan of Reorganization dated as
of October 20, 1995,August 18, 1997, between First Financial and Weatherford Holdings, Parker
BancsharesSouthlake and WeatherfordTexas National
(the "Exchange Agreement"), First Financial is offering to acquire from the
shareholders of Weatherford HoldingsSouthlake (the "Weatherford"Southlake Shareholders") all outstanding shares
of Weatherford HoldingsSouthlake Common Stock in exchange for shares of First Financial Common Stock
at the exchange rate specified below. THE WEATHERFORD HOLDINGSSOUTHLAKE BOARD OF DIRECTORS HAS
UNANIMOUSLY DETERMINED THAT THE EXCHANGE OFFER IS FAIR TO THE WEATHERFORDSOUTHLAKE
SHAREHOLDERS. See "The Exchange Offer."
THE EXCHANGE RATE
First Financial will issue and exchange 1.5.894 shares of First Financial
Common Stock for each share of Weatherford HoldingsSouthlake Common Stock tendered by the WeatherfordSouthlake
Shareholders who accept the Exchange Offer during the time period the Exchange
Offer is in effect; provided, however, that if First Financial, prior to
consummation of the Exchange Offer, shall issue any additional shares of itsFirst
Financial Common Stock pursuant to any stock dividend or stock split, the rate
of exchange (the "Exchange Rate") shall be adjusted so as to prevent dilution of
the exchanging WeatherfordSouthlake Shareholders. First Financial will not issue any
fractional shares of First Financial Common Stock. WeatherfordSouthlake Shareholders who
would otherwise be entitled to receive fractional shares of First Financial
Common Stock will be paid in cash for such fractional shares based upon a value
of $33.34$39.75 per share of First Financial Common Stock. See "The Exchange Offer-The
Exchange Rate."
THE EXPIRATION DATE
Unless otherwise extended by First Financial, the offer by First Financial
to exchange First Financial Common Stock for Weatherford HoldingsSouthlake Common Stock shall
terminate at 5:00 p.m., Abilene, Texas time on ______________, 19961997 (the
"Expiration Date").
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER; TERMINATION
Consummation of the Exchange Offer is subject to certain conditions,
including without limitation, the valid tender by WeatherfordSouthlake Shareholders of at least
ninety percent (90%)the
Required Amount of Weatherford HoldingsSouthlake Common Stock; the receipt of all required
regulatory approvals and the lapse of certain waiting periods with respect to
such approvals; the receipt by First Financial of an opinion from its
independent accountants that the transaction will be accounted for as a "pooling
of interests"; the receipt by Weatherford HoldingsSouthlake of an opinion from its independent
public accountants and/or tax counsel that the Exchange will not be considered a
taxable event for federal income tax purposes; the receipt by First Financial of
an opinion of counsel for Weatherford HoldingsSouthlake as to certain corporate matters regarding
Weatherford Holdings, Parker BancsharesSouthlake and WeatherfordTexas National; the receipt by Weatherford HoldingsSouthlake of an opinion of counsel
for First Financial as to certain corporate matters regarding First Financial;
the absence of any material adverse change in the financial condition of either First
Financial, Weatherford Holdings, Parker Bancshares,Southlake or WeatherfordTexas National; the absence of legal or governmental
action with respect to the Exchange Offer; the receipt by First Financial of a
satisfactory Phase I Environmental Assessment Report covering all properties
owned by Weatherford
HoldingsSouthlake and its subsidiaries; andTexas National; appropriate action shall have been taken
to freeze merge or terminate the Weatherford National 401(j) Profit SharingSouthlake Bancshares Employee Stock Ownership Plan (the "KSOP")
and First Financial shall be satisfied with respect to certain other matters
concerning such Plan.
6
the KSOP; Southlake and Texas National shall have terminated certain
other employee benefit plans; Southlake shall have redeemed and canceled all
outstanding shares of Southlake Preferred Stock; and no outstanding options
requiring the issuance or sale of, or otherwise relating to, any capital stock
of Southlake or Texas National shall exist as of the consummation of the
Exchange Offer.
The Exchange Offer may be terminated at any time (a) by mutual consent of
First Financial Weatherford Holdings, Parker Bancshares and Weatherford
National,Southlake, (b) by First Financial if any of the other
parties shall have breached a representation or warranty or covenant which
constitutes a material adverse change from that represented in the Exchange
Agreement or if
6
any of the conditions to consummating the Exchange Offer are not satisfied or
waived, (c) by Weatherford HoldingsSouthlake if First Financial shall have breached a representation
or warranty or covenant which constitutes a material adverse change from that
represented in the Exchange Agreement or if any of the conditions to
consummating the Exchange Offer are not satisfied or waived, (d) by First
Financial or Weatherford HoldingsSouthlake if the Exchange Offer is not consummated by MarchJanuary 31,
1996,1998, or (e) by First Financial or Weatherford HoldingsSouthlake if a court or governmental body
shall have taken any action restraining, enjoining or otherwise prohibiting the
Exchange or the Merger (as defined herein) and such action shall be final and nonappealable. If the
Exchange Offer is terminated without the acceptance by First Financial of any
shares of Weatherford HoldingsSouthlake Common Stock tendered, all shares so tendered will be
promptly returned to the tendering WeatherfordSouthlake Shareholders. See "The Exchange
Offer - Conditions to Consummation of the Exchange; Termination."
EXCHANGE OF SHARES AND CERTIFICATES
The WeatherfordSouthlake Shareholders are receiving with this Prospectus a letter of
transmittal for acceptance of the Exchange Offer (the "Letter of Transmittal").
Each WeatherfordSouthlake Shareholder wishing to accept the Exchange Offer must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and mail or otherwise
deliver the Letter of Transmittal, or such facsimile, together with the
certificates reflecting ownership of WeatherfordSouthlake Common Stock (the "Weatherford"Southlake
Common Stock Certificates") to be exchanged and any other required documentation
to the Exchange AgentTrust Department of First National Bank of Abilene (the "Exchange Agent")
at the address set forth herein and therein. The delivery of the Letter of
Transmittal with the WeatherfordSouthlake Common Stock Certificates shall be deemed to
constitute an acceptance of the Exchange Offer to the extent of the number of
shares of Weatherford HoldingsSouthlake Common Stock reflected on the WeatherfordSouthlake Common Stock
Certificates accompanying the Letter of Transmittal.
Upon expiration of the Exchange Offer and satisfaction of certain
conditions to the consummation of the Exchange Offer, if First Financial
receives written notice from the Exchange Agent that at least ninety percent (90%)the Required Amount of the
outstanding shares of Weatherford HoldingsSouthlake Common Stock have been validly tendered to First
Financial, then First Financial will promptly cause to be issued and mailed to
WeatherfordSouthlake Shareholders who have tendered shares of Weatherford HoldingsSouthlake Common Stock, by
registered mail, certificates of First Financial Common Stock ("First Financial
Common Stock Certificates") representing 1.5.894 shares (subject to adjustment as
herein described) of First Financial Common Stock for each share of Weatherford HoldingsSouthlake
Common Stock received by the Exchange Agent. Any cash payment to which a
WeatherfordSouthlake Shareholder may be entitled in place of fractional shares of First
Financial Common Stock will be included with the First Financial Common Stock
Certificates mailed to the WeatherfordSouthlake Shareholders.
Any beneficial holder whose shares of Weatherford HoldingsSouthlake Common Stock are registered
in the name of such holder's broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender in the Exchange Offer should contact the
registered holder promptly and instruct such registered holder to tender on his
or her behalf. If such beneficial holder wishes to tender on his or her own
behalf, such beneficial holder must, prior to completing and executing the
Letter of Transmittal and delivering the WeatherfordSouthlake Common Stock Certificates,
either make appropriate arrangements to register ownership of the shares of
Weatherford HoldingsSouthlake Common Stock in such holder's name or obtain a properly completed
stock power from the registered holder. The transfer of record ownership may
take considerable time. See "The Exchange Offer - Exchange of Shares and
Certificates."
7
GUARANTEED DELIVERY PROCEDURES
WeatherfordSouthlake Shareholders who wish to tender their shares of Weatherford
HoldingsSouthlake Common
Stock and whose WeatherfordSouthlake Common Stock Certificates are not immediately
available or who cannot deliver their WeatherfordSouthlake Common Stock Certificates and a
properly completed Letter of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the Expiration Date may
tender their shares of Weatherford HoldingsSouthlake Common Stock according to the guaranteed
delivery procedures set forth in "The Exchange Offer
- -- GuaranteedOffer--Guaranteed Delivery
Procedures."
7
NO WITHDRAWAL RIGHTS
Shares tendered pursuant to the Exchange Offer may not be withdrawn.
THE EXCHANGE AGENT
The Exchange Agent for purposes of the Exchange Offer discussed herein
shall be the Trust Department of First National Bank of Abilene, Third Floor,
400 Pine Street, Abilene, Texas 79601.
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Exchange Offer is conditioned on receipt by Weatherford
HoldingsSouthlake
of a written opinion from its independent accountants and/or tax counsel that
the exchange of shares of Weatherford HoldingsSouthlake Common Stock will not be considered a
taxable event for federal income tax purposes. Weatherford
HoldingsSouthlake has received an opinion
to such effect from its independent accountants, George, MorganJudd, Thomas, Smith & Sneed,Company,
P.C. A copy of their opinion, which is subject to certain qualifications and
assumptions, is attached hereto as Annex A. See "The Exchange Offer -- FederalOffer--Federal
Income Tax Consequences."
ANTICIPATED MERGER AND DISSENTING SHAREHOLDERS' RIGHTS
First Financial anticipates that, upon consummation of the Exchange Offer,
Weatherford Holdings and Parker BancsharesSouthlake will be merged (the "Merger") with and into First Financial Bancshares of Delaware, Inc., a wholly-owned Delaware
subsidiary of the Company, with any
remaining WeatherfordSouthlake Shareholders receiving in the Merger the same consideration
they would have received had they participated in the Exchange Offer, subject to
their rights to dissent from the Merger. See "The Exchange Offer -- AnticipatedOffer--Anticipated
Merger and Dissenting Shareholders' Rights."
REGULATORY APPROVALS
The Exchange Offer and Merger are subject to prior approval by the Board of
Governors of the Federal Reserve Board.System (the "Federal Reserve Board").
Regulatory approval is pending.has been obtained. See "The Exchange Offer--
RegulatoryOffer--Regulatory
Approvals Required."
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
As of October 1, 1995,September 30, 1997, the directors and executive officers of Weatherford
HoldingsSouthlake
beneficially owned 141,602136,958 shares of Weatherford HoldingsSouthlake Common Stock, representing
approximately 65.6%56.6% of Weatherford HoldingsSouthlake Common Stock outstanding. See "Information
about Weatherford Holdings--SecuritySouthlake--Security Ownership of Management."
FORWARD - LOOKING STATEMENTS
This Prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act, including
statements of goals, intentions and expectations as to future trends, plans,
events or results of operations of First Financial or Southlake. These
statements are based upon current and anticipated economic conditions,
nationally and in First Financial's markets, governmental monetary and fiscal
policies, interest rates, competitive factors and other conditions, which, by
their nature, are subject to risks and uncertainties that may cause actual
results to differ materially from those expressed or implied by such forward-
looking statements. Readers are cautioned against placing undue reliance on any
such forward-looking statement.
8
SUMMARY FINANCIAL DATA
On March 10, 1994, First Financial acquired Concho Bancshares, Inc. and its
subsidiaries (collectively, "Concho"). The transaction was accounted for as a
pooling of interests for accounting purposes; therefore the financial statements
of First Financial for the year ended December 31, 1994 reflect the results of
Concho for the entire year, and prior periods have been restated to include the
combined balance sheets and income statements.
On July 28, 1995, First Financial acquired Citizens State Bank in Roby, Texas
("Roby"). On September 7, 1995, First Financial entered into an agreement to
acquire Citizens Equity Corporation and its subsidiary, Citizens National Bank
of Weatherford (together, "Citizens"). The acquisitions of Citizens and Roby
will be accounted for as purchase transactions for accounting purposes. For
further discussion of these acquisitions, see "Information About First
Financial." The proposed acquisition of Weatherford Holdings will be accounted
for as a pooling of interests.
The following pro forma data are prepared on the assumption that First
Financial acquired Citizens and Weatherford Holdings as of the date of the
balance sheet and as of the beginning of the period presented for the year ended
December 31, 1994 and for the nine months ended September 30, 1995, and 1994.
The pro forma balance sheet and income statement data for earlier periods also
assume that First Financial acquired Weatherford Holdings as of the beginning
of each such period. Years prior to 1994 exclude Citizens. For purposes of the
pro forma data, Roby is insignificant and has not been included.
The following tables present selected historical consolidated financial
data for (i)each of First Financial (ii) Weatherford Holdings, (iii)and Southlake, combined pro forma financial
data for First Financial and Weatherford HoldingsSouthlake and (iii) combined pro forma financial data for
First Financial, Weatherford HoldingsSouthlake and Citizens.the TCB-San Angelo Purchase. The historical
financial data for First Financial and Weatherford Holdings for each year in the five-year period ended
December 31, 19941996 are derived from the audited consolidated financial statements
of First Financial and Weatherford Holdings, respectively,
incorporated herein by reference orreference. The historical financial
data for Southlake as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996 are derived from the audited consolidated
financial statements of Southlake contained elsewhere in this Prospectus. The
historical financial data for First Financial and Weatherford HoldingsSouthlake as of SeptemberJune 30, 19941996
and 19951997 and for the ninesix months ended SeptemberJune 30, 19941996 and 19951997 are derived from
the unaudited financial statements of First Financial and Weatherford Holdings,Southlake,
respectively, and in the respective opinions of First Financial and Weatherford Holdings,Southlake,
include all normal recurring adjustments necessary for a fair presentation of
such information. Operating results for the ninesix months ended SeptemberJune 30, 19951997 are
not necessarily indicative of the results that may be achieved for the year
ending December 31, 1995.1997. The financial data should be read in conjunction with
the applicable consolidated financial statements of First Financial and
WeatherfordSouthlake incorporated herein by reference or included elsewhere in this
document.
The pro forma data give effect to the Exchange and the Merger, in each case
accounted for as a pooling of interests and based upon a conversion of each
share of Weatherford HoldingsSouthlake Common Stock into 1.5.894 shares of First Financial Common
Stock. The pro forma data are prepared on the assumption that First Financial
acquired Southlake and consummated the TCB-San Angelo Purchase as of the date of
the balance sheet and as of the beginning of the period presented for the year
ended December 31, 1996 and for the six months ended June 30, 1997. The pro
forma balance sheet and income statement data for earlier periods also assume
that First Financial acquired Southlake as of the beginning of each such period.
Years prior to 1996 exclude the TCB-San Angelo Purchase. All per share data of
First Financial have been adjusted to reflect stock splits and stock dividends.
The unaudited pro forma financial information presented is for
informational purposes only and is not necessarily indicative of results of
operations or financial position that would have been reported had the Exchange
or the Merger, as the case may be, or the TCB-San Angelo Purchase been completed
at the beginning of the period or as of the date for which such unaudited pro
forma information is presented, nor is such information indicative of future
results of operations or financial position.
9
FIRST FINANCIAL AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINESIX MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBERJUNE 30,
------------------------------------------------------ -----------------------------
1990 1991---------------------------------------------------------- ----------------------
1992 1993 1994 1994 1995 1996 1996 1997
-------- -------- -------- ----------- ----------- ------------- ------------------------ ------------ ---------- ---------- ---------- ----------
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income..................... $ 64,24164,718 $ 68,12762,995 $ 61,44164,621 $ 59,85074,657 $ 61,41684,176 $ 45,36341,667 $ 52,18843,888
Interest expense.................... 35,471 35,912 24,202 20,333 21,264 15,421 20,275
-------- --------25,692 21,513 22,416 29,448 33,731 16,701 17,800
-------- ---------- ---------- ------------------ ---------- ---------- ----------
Net interest income................. 28,770 32,215 37,239 39,517 40,152 29,942 31,91339,026 41,482 42,205 45,209 50,445 24,966 26,088
Provision (credit) for loan losses.. 2,890 1,240 1,145 508 (885) (40) 301,216 511 (882) 168 1,200 883 397
Noninterest income.................. 8,667 9,232 9,768 11,696 11,593 8,831 11,12810,312 12,940 12,313 15,030 15,842 7,744 8,701
Noninterest expense................. 23,889 27,307 28,935 31,875 33,092 24,547 24,258
-------- --------30,239 33,428 34,635 34,400 37,570 18,314 19,773
-------- ---------- ---------- ------------------ ---------- ---------- ----------
Income before income taxes.......... 10,658 12,900 16,927 18,830 19,538 14,266 18,75317,883 20,483 20,765 25,671 27,517 13,513 14,619
Provision (forfor income taxes......... 2,756 3,824 5,189 6,105 6,426 4,660 6,349
-------- --------taxes.......... 5,478 6,615 6,805 8,656 9,395 4,621 4,947
-------- ---------- ---------- ------------------ ---------- ---------- ----------
Net income before cumulative
effect of accounting change.................. 7,902 9,076 11,738 12,725 13,112 9,606 12,404change........ 12,405 13,868 13,960 17,015 18,122 8,892 9,672
Cumulative effect of
accounting change(1)............... -- 1,005 -- -- 1,024 -- -- --
-------- -------- -------- ---------- ---------- ------------------ ---------- ---------- ----------
Net income.......................... $ 7,90212,405 $ 9,07614,873 $ 11,73813,960 $ 13,74917,015 $ 13,112 9,606 12,404
======== ========18,122 $ 8,892 $ 9,672
======== ========== ========== ================== ========== ========== ==========
Net income per First Financial
Common Share before cumulative
effect of accounting change................change(2)...... $ 1.621.50 $ 1.851.67 $ 2.371.68 $ 2.562.04 $ 2.62 1.92 2.47
======== ========2.16 $ 1.06 $ 1.15
======== ========== ========== ================== ========== ========== ==========
Net income per First
Financial Common Share.............Share(2).......... $ 1.621.50 $ 1.851.79 $ 2.371.68 $ 2.772.04 $ 2.62 1.92 2.47
======== ========2.16 $ 1.06 $ 1.15
======== ========== ========== ================== ========== ========== ==========
CONSOLIDATED PER SHARE DATA
APPLICABLE TO FIRST FINANCIAL
COMMON STOCK:
Net income..........................income(2)....................... $ 1.621.50 $ 1.851.79 $ 2.371.68 $ 2.772.04 $ 2.62 1.92 2.472.16 $ 1.06 $ 1.15
Cash dividends declared............. 0.56 0.66 0.76 0.96 1.10 0.82 0.900.49 0.62 0.70 0.78 0.87 0.42 0.47
Book value at period end............ 14.74 15.96 17.60 19.45 20.79 20.34 22.4310.93 12.17 13.05 14.38 15.62 14.96 16.30
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities............... $309,346 $384,919 $404,440$430,227 $ 456,180482,885 $ 463,244 463,430 452,484490,950 $ 481,117 $ 511,789 $ 509,679 $ 529,439
Loans, net of allowance
for loan losses.................... 346,687 342,619 366,188 411,230 416,536 403,583 446,227380,009 427,627 437,686 497,735 563,459 531,327 572,463
Total assets........................ 866,952 915,308 928,338 1,017,983 1,012,613 988,565 1,027,024976,146 1,069,389 1,066,982 1,125,887 1,262,041 1,185,974 1,269,020
Deposits............................ 774,542 824,837 831,542 913,273 900,930 878,403 905,757875,398 960,389 950,251 997,578 1,121,881 1,051,312 1,122,041
Total liabilities................... 794,543 836,693 841,199 921,273 908,705 886,975 914,601886,072 968,660 958,465 1,005,859 1,130,880 1,060,832 1,131,853
Total shareholders' equity.......... 72,409 78,615 87,139 96,710 103,908 101,590 112,42390,074 100,729 108,517 120,028 131,161 125,142 137,167
- -------------------------------------
(1) As of January 1, 1993, First Financial recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) In March 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS 128") was issued and will require restatement of
the earnings per share ("EPS") reported above effective December 31, 1997.
Under SFAS 128, First Financial will report basic EPS and EPS assuming
dilution. The basic EPS would have been $1.15 and $1.07 for the six months
ended June 30, 1997 and 1996, respectively, and $2.16, $2.04 and $1.68 for
the years ended December 31, 1996, 1995 and 1994, respectively. The EPS
assuming dilution would have been $1.14 and $1.07 for the six months ended
June 30, 1997 and 1996, respectively, and $2.15, $2.04 and $1.67 for the
years ended December 31, 1996, 1995 and 1994, respectively.
10
WEATHERFORD HOLDINGSSOUTHLAKE AND SUBSIDIARIESSUBSIDIARY
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINESIX MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBERJUNE 30,
--------------------------------------------------- -----------------------------
1990 1991-----------------
1992 1993 1994 1994 1995 1996 1996 1997
------- -------- ----------- ---------- ------- -------- ------- ------------ ---------- ------------- --------------
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income.....................income................ $ 2,9062,270 $ 3,0882,338 $ 3,2772,494 $ 3,1052,989 $ 3,2053,261 $ 2,3531,593 $ 3,0191,752
Interest expense.................... 1,720 1,730 1,490 1,180 1,152 825 1,319expense............... 998 816 885 1,060 1,086 543 579
------- ------- ------- ------- ------- ------- -------
Net interest income................. 1,186 1,358 1,787 1,925 2,053 1,528 1,700income............ 1,272 1,522 1,609 1,929 2,175 1,050 1,173
Provision for loan losses........... 42 63 71 3 3 3 34losses...... -- 18 35 68 72 36 36
Noninterest income.................. 430income............. 482 544 1,244 720 530 517560 560 632 899 609 302
Noninterest expense................. 1,139 1,204 1,304 1,553 1,544 1,124 1,329expense............ 1,408 1,575 1,681 1,781 2,146 1,044 1,121
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes....................... 435 573 956 1,618 1,226 931 864taxes..... 346 489 453 712 856 579 318
Provision (benefit) for income taxes....................... 126 175 289 510 378 287 275taxes..... 96 102 111 172 167 143 54
------- ------- ------- ------- ------- ------- -------
Net income before cumulative
effect of accounting change............... 309 398 667 1,103 848 644 589change... 250 387 342 540 689 436 264
Cumulative effect of
accounting change(1)......................... -- (34) -- -- (19) -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)................... 309 398 667 1,084 848 644 589income..................... $ 250 $ 353 $ 342 $ 540 $ 689 $ 436 $ 264
======= ======= ======= ======= ======= ======= =======
Net income (loss) per Weatherford
HoldingsSouthlake
Common Share before
cumulative effect
of accounting change............... 1.40 1.82 3.06 5.11 3.92 2.98 2.73change(2)....... $ 1.32 $ 1.98 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
Net income (loss) per Weatherford HoldingsSouthlake
Common Share....................... 1.40 1.82 3.06 5.02 3.92 2.98 2.73Share(2)............... $ 1.32 $ 1.80 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
CONSOLIDATED PER SHARE DATA
APPLICABLE TO WEATHERFORD HOLDINGSSOUTHLAKE
COMMON STOCK:
Net income (loss)................... 1.40 1.82 3.06 5.02 3.92 2.98 2.73income(2).................. $ 1.32 $ 1.80 $ 1.71 $ 2.56 $ 3.14 $ 2.00 $ 1.16
Cash dividends declared.............declared........ -- -- -- -- 1.00 0.50 0.50-- -- --
Book value at period end............ 8.69 10.49 13.59 18.61 21.34 21.02 23.77end....... 9.33 11.19 11.98 15.62 18.78 17.23 19.93
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities............... $14,829 $22,906 $25,787 $26,705 $27,706 $25,790 $29,411securities.......... $10,024 $10,957 $13,531 $10,156 $10,241 $15,088 $14,398
Loans, net of allowance
for loan losses.................... 11,821 12,606 13,822 16,397 21,151 20,067 25,005losses............... 12,854 17,006 18,770 21,971 25,975 23,272 25,427
Total assets........................ 33,698 41,617 47,808 51,406 54,369 50,159 62,142
Deposits............................ 30,467 38,182 43,856 47,039 49,321 45,286 56,542assets................... 34,459 36,507 38,653 46,725 50,944 47,632 53,654
Deposits....................... 31,824 33,641 35,101 42,891 46,741 43,475 49,056
Total liabilities................... 31,786 39,325 44,873 47,387 49,760 45,619 57,009liabilities(3)........... 32,693 34,315 36,249 43,590 47,021 44,032 49,433
Total shareholders' equity.......... 1,912 2,292 2,935 4,019 4,609 4,540 5,133equity(4).. 1,766 2,192 2,404 3,135 3,923 3,600 4,221
- -------------------------------
(1) As of January 1, 1993, Weatherford HoldingsSouthlake recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) In March 1997, SFAS 128 was issued and will require restatement of the EPS
reported above effective December 31, 1997. Under SFAS 128, Southlake would
report basic EPS and EPS assuming dilution. The basic EPS would have been
$1.25 and $2.12 for the six months ended June 30, 1997 and 1996,
respectively, and $3.32, $2.69 and $1.75 for the years ended December 31,
1996, 1995 and 1994, respectively. The EPS assuming dilution would have been
$1.16 and $2.00 for the six months ended June 30, 1997 and 1996,
respectively, and $3.14, $2.56 and $1.71 for the years ended December 31,
1996, 1995 and 1994, respectively.
(3) Includes minority interest.
(4) After June 30, 1997 and prior to the date of this Prospectus, Southlake
redeemed all of its issued and outstanding shares of preferred stock for an
aggregate redemption price of $7,200.00, and 30,299 shares of Southlake
Common Stock were acquired by officers and directors of Texas National
pursuant to the exercise of outstanding stock options.
11
FIRST FINANCIAL AND SUBSIDIARIES AND
WEATHERFORD HOLDINGSSOUTHLAKE AND SUBSIDIARIESSUBSIDIARY
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINESIX MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBERJUNE 30,
---------------------------------- ---------------------------
1992 1993 1994------------------------------------ ----------------------
1994 1995 --------1996 1996 1997
----------- ---------- ------------ ----------- ------------------------ ----------
CONSOLIDATED SUMMARY OF
INCOME STATEMENT DATA:
Interest income..................... $ 64,71867,115 $ 62,95577,646 $ 64,62187,437 $ 47,71643,260 $ 55,20745,640
Interest expense.................... 25,692 21,513 22,416 16,246 21,594
--------23,301 30,508 34,817 17,244 18,379
---------- ---------- ---------- ---------- ----------
Net interest income................. 39,026 41,442 42,205 31,470 33,61343,814 47,138 52,620 26,016 27,261
Provision (credit) for loan losses.. 1,216 511 (882) (37) 64(847) 236 1,272 919 433
Noninterest income.................. 10,312 12,940 12,313 9,361 11,65512,873 15,662 16,741 8,353 9,003
Noninterest expense................. 30,239 33,428 34,636 25,671 25,587
--------36,316 36,181 39,716 19,358 20,894
---------- ---------- ---------- ---------- ----------
Income before income taxes.......... 17,883 20,443 20,764 15,197 19,61721,218 26,383 28,373 14,092 14,937
Provision for income taxes.......... 5,478 6,615 6,804 4,947 6,624
--------6,916 8,828 9,562 4,764 5,001
---------- ---------- ---------- ----------
Net income before cumulative
effect of accounting change........ 12,405 13,828 13,960 10,250 12,993
Cumulative effect of
accounting change(1)............... -- 1,005 -- -- --
-------- ---------- ---------- ---------- ----------
Net income.......................... 12,405 14,833 13,960 10,250 12,993
========$ 14,302 $ 17,555 $ 18,811 $ 9,328 $ 9,936
========== ========== ========== ==========
Net income per First Financial
Common Share before cumulative
effect of accounting change....... 2.35 2.61 2.62 1.93 2.44
======== ========== ========== ========== ==========
Net income per First
Financial Common Share............. 2.35 2.80 2.62 1.93 2.44
========$ 1.68 $ 2.06 $ 2.19 $ 1.09 $ 1.15
========== ========== ========== ========== ==========
CONSOLIDATED PER SHARE DATA
APPLICABLE TO FIRST FINANCIAL
COMMON SHARES:STOCK:
Net income.......................... 2.35 2.80 2.62 1.93 2.44$ 1.68 $ 2.06 $ 2.19 $ 1.09 $ 1.15
Cash dividends declared............. 0.76 0.96 1.10 0.82 0.900.70 0.78 0.87 0.42 0.47
Book value at period end............ 17.08 19.01 20.39 19.96 22.0313.06 14.45 15.73 14.28 16.42
CONSOLIDATED BALANCE SHEET
DATA AT PERIOD END:
Investment securities............... 430,227 482,885 490,950 489,220 481,895$ 504,481 $ 491,273 $ 522,030 $ 524,767 $ 543,837
Loans, net of allowance for
loan losses........................ 380,010 427,627 437,687 423,650 471,232456,456 519,706 589,434 554,599 597,890
Total assets........................ 976,146 1,069,389 1,066,982 1,038,724 1,089,1661,105,635 1,172,612 1,312,985 1,233,606 1,322,674
Deposits............................ 875,398 960,389 950,251 923,689 962,299985,352 1,040,469 1,168,622 1,094,787 1,171,097
Short-term borrowings............... 283 90 85 110 90 160 65115
Long-term debt...................... 1,776 1,174 1,167 1,079 1131,642 550 37 75 37
Total shareholders' equity.......... 90,074 100,729 108,517 106,130 117,556110,921 123,163 135,084 128,742 141,388
- --------------
(1) As of January 1, 1993, First Financial and Weatherford Holdings recorded
the cumulative effect of the change in accounting for income taxes to
comply with Statement of Financial Accounting Standards No. 109.
12
FIRST FINANCIAL AND SUBSIDIARIES,
WEATHERFORD HOLDINGSSOUTHLAKE AND SUBSIDIARIES,SUBSIDIARY, AND
CITIZENS AND SUBSIDIARIESTCB-SAN ANGELO PURCHASE
PRO FORMA COMBINED SELECTED FINANCIAL DATA/(1)/DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINEYEAR ENDED SIX MONTHS ENDED SEPTEMBERJUNE 30,
----------------------------
YEAR ENDED
DECEMBER 31, 1994 1994 1995
----------------------------- ----------- ---------------------------------------
1996 (1) 1996 (1) 1997 (1)
---------- ---------- ----------
CONSOLIDATED SUMMARY OF INCOME
STATEMENT DATA:
Interest income.....................income................................. $ 69,91998,057 $ 51,74848,877 $ 59,68550,689
Interest expense.................... 24,714 17,941 23,791expense................................ 40,394 20,021 21,057
---------- ---------- ----------
Net interest income................. 45,205 33,807 35,894income............................. 57,663 28,856 29,632
Provision (credit) for loan losses.. (932) (118) (11)losses....................... 1,272 919 433
Noninterest income.................. 13,178 10,133 11,493income.............................. 18,111 9,072 9,743
Noninterest expense................. 37,853 28,168 27,862expense............................. 45,215 22,250 23,721
---------- ---------- ----------
Income before income taxes.......... 21,462 17,435 19,536taxes...................... 29,287 14,759 15,221
Provision for income taxes.......... 7,117 5,208 6,570taxes...................... 9,939 5,111 5,019
---------- ---------- ----------
Net income.......................... 14,345 10,682 12,966income......................................... $ 19,348 $ 9,648 $ 10,202
========== ========== ==========
Net income per First Financial Common Share....................... 2.70 2.01 2.43Share........ $ 2.25 $ 1.13 $ 1.18
========== ========== ==========
CONSOLIDATED PER SHARE DATA APPLICABLE
TO FIRST FINANCIAL COMMON SHARES:STOCK:
Net income.......................... 2.70 2.01 2.43Income...................................... $ 2.25 $ 1.13 $ 1.18
Cash dividends declared............. 1.10 0.82 0.90declared......................... 0.87 0.42 0.47
Book value at period end............ 20.47 20.11 22.18end........................ 15.80 14.38 16.55
CONSOLIDATED BALANCE SHEET DATA AT
PERIOD END:
Investment securities............... 522,849 521,895 513,724securities......................... $ 601,704 $ 616,779 $ 621,084
Loans, net of allowance for loan losses.................... 437,687 454,990 506,960losses....... 589,434 603,411 663,361
Total assets........................ 1,161,773 1,132,523 1,180,444
Deposits............................ 1,029,022 1,007,752 1,043,175assets.................................. 1,477,325 1,399,982 1,470,139
Deposits...................................... 1,328,786 1,253,476 1,319,692
Short-term borrowings...............borrowings......................... 110 90 160 65115
Long-term debt...................... 1,167 1,079 113debt................................ 6,037 6,075 6,037
Total shareholders' equity.......... 108,902 106,947 118,346equity.................... 135,621 129,599 142,510
- --------------------------
(1) The accompanying pro forma combined data include adjustments for (1)(i)
reductions to interest income for securities sold to facilitate the
acquisition of Citizens (2) reductionsand increases to interest
expense for Citizens debtfunds borrowed to be repaid atfacilitate the acquisition date (3)consummation of the TCB-San
Angelo Purchase, (ii) goodwill amortization and (4)(iii) the related income tax
effects.
13
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for the First Financial Common Stock and the
Weatherford HoldingsSouthlake Common Stock certain historical, pro forma and pro forma equivalent
per share financial information. The pro forma data give effect to the Exchange
and the Merger, in each case accounted for as a pooling of interests and based
upon a conversion of each share of Weatherford HoldingsSouthlake Common Stock into 1.5.894 shares of
First Financial Common Stock. The pro forma financial data have been included as
required by the rules of the CommissionSEC and are provided for comparative purposes only.
The information presented below should be read in conjunction with the separate
financial statements of First Financial and Weatherford Holdings,Southlake, including the applicable
notes, included or incorporated by reference elsewhere herein. All per share
data of First Financial have been adjusted to reflect stock splits and stock
dividends.
The unaudited pro forma financial information presented is for
informational purposes only and is not necessarily indicative of results of
operations or financial position that would have been reported had the Exchange
or the Merger, as the case may be, been completed at the beginning of the period
or as of the date for which such unaudited pro forma information is presented,
nor is such information indicative of future results of operations or financial
position.
FIRST FINANCIAL WEATHERFORD HOLDINGS
------------------------------------ -----------------------------------SOUTHLAKE
---------------------------------------- -------------------------------------------
PRO FORMA PRO FORMA EQUIVALENT PRO FORMA
HISTORICAL COMBINED TOTAL(2) HISTORICAL PRO FORMA(3) TOTAL(4)
------------------- --------------- ------------ ---------- ------------- ---------- ---------- ------------ ---------
Common Shareholders' Equity:
COMMON SHAREHOLDERS' EQUITY:
December 31, 1994................. $20.79 $20.39 $20.47 $21.34 $30.59 $30.70
September1996.............. $15.62 $15.73 $15.80 $18.78 $14.07 $14.13
June 30, 1995................ 22.43 22.03 22.18 23.77 33.05 33.27
Cash Dividends Declared:1997.................. 16.30 16.42 16.55 19.93 14.68 14.79
CASH DIVIDENDS DECLARED:(1)
Year ended December 31:
1992..............................1994........................... $ 0.760.70 $ 0.760.70 $ 0.760.70 $ --- $ 1.140.63 $ 1.14
1993.............................. 0.96 0.96 0.96 -- 1.44 1.44
1994.............................. 1.10 1.10 1.10 1.00 1.65 1.65
Nine0.63
1995........................... 0.78 0.78 0.78 - 0.69 0.69
1996........................... 0.87 0.87 0.87 - 0.78 0.78
Six Months ended SeptemberJune 30, 1995............... 0.90 0.90 0.90 0.50 1.35 1.35
Net Income:
Year ended December 31, 1992:
Primary......................... $ 2.37 $ 2.35 $ 2.35 $ 3.06 $ 3.53 $ 3.53
Fully diluted................... 2.37 2.35 2.35 3.06 3.53 3.53
Year ended December 31, 1993:(5)
Primary......................... 2.56 2.61 2.61 5.02 3.92 3.92
Fully diluted................... 2.56 2.61 2.61 5.02 3.92 3.921997. 0.47 0.47 0.47 - 0.42 0.42
NET INCOME:
Year ended December 31, 1994:
Primary......................... 2.62 2.62 2.70 3.92 3.93 4.05Primary...................... $ 1.68 $ 1.68 $ 1.68 $ 1.71 $ 1.51 $ 1.51
Fully diluted................... 2.62 2.62 2.70 3.92 3.93 4.05
Ninediluted................ 1.68 1.68 1.68 1.71 1.51 1.51
Year ended December 31, 1995:
Primary...................... 2.04 2.06 2.06 2.56 1.84 1.84
Fully diluted................ 2.04 2.06 2.06 2.56 1.84 1.84
Year ended December 31, 1996:
Primary...................... 2.16 2.19 2.25 3.14 1.96 2.02
Fully diluted................ 2.16 2.19 2.25 3.14 1.96 2.02
Six Months ended SeptemberJune 30, 1995:
Primary......................... 2.47 2.44 2.43 2.73 3.66 3.651997:
Primary...................... 1.15 1.15 1.18 1.16 1.03 1.06
Fully diluted................... 2.47 2.44 2.43 2.73 3.66 3.65diluted................ 1.15 1.15 1.18 1.16 1.03 1.06
- --------------------------------
(1) The First Financial pro forma combined dividends per share amounts represent
historical dividends declared per share only on First Financial Common
Stock.
(2) The First Financial pro forma total per share amounts include First
Financial, Weatherford HoldingsSouthlake, and Citizens combinedassets and liabilities acquired in the TCB-San
Angelo Purchase for the year ended December 31, 19941996 and for the ninesix months
ended SeptemberJune 30, 19951997 and 1994.1996. Years prior to 19941996 include First Financial
and Weatherford Holdings and
exclude Citizens. Roby is insignificant and has not been included.Southlake only.
(3) The Weatherford HoldingsSouthlake pro forma equivalent per share amounts are calculated by
multiplying the First Financial pro forma combined per share amounts by the
Exchange Rate of 1.5..894. See "The Exchange Offer."
(4) The Weatherford Holdings totalSouthlake pro forma total per share amounts include First Financial,
Weatherford HoldingsSouthlake, and Citizensassets and liabilities acquired in the TCB-San Angelo
Purchase for the year ended December 31, 19941996 and for the ninesix months ended
SeptemberJune 30, 19951997 and 1994.1996. Years prior to 19941996 include First Financial and
Weatherford Holdings and exclude
Citizens.Southlake only. Such amounts are calculated by multiplying the First
Financial pro forma total per share amounts by the Exchange Rate of 1.5.
(5) For the year ended December 31, 1993, per share data is based on continuing
operations before cumulative effect of the change in accounting for income
taxes..894.
14
THE EXCHANGE OFFER
The information in this Prospectus concerning the terms of the Exchange
Offer is a summary only and is qualified in its entirety by reference to the
Exchange Agreement which is incorporated herein by reference.
GENERAL
Pursuant to the Exchange Agreement, First Financial is offering to acquire
from the WeatherfordSouthlake Shareholders all of the issued and outstanding Weatherford
HoldingsSouthlake
Common Stock. In exchange for each share of Weatherford HoldingsSouthlake Common Stock, the
WeatherfordSouthlake Shareholders shall receive 1.5.894 shares of First Financial Common
Stock, unless certain conditions require adjustmentssubject to adjustment to the Exchange Rate.Rate described herein. See "-- The"--The
Exchange Rate."
At least ninety percent (90%)The Required Amount of the Weatherford HoldingsSouthlake Common Stock must be tendered by the
WeatherfordSouthlake Shareholders in order for the Exchange to occur. The Exchange Offer is
also subject to certain other conditions. See "--
Conditions"--Conditions to Consummation of
the Exchange Offer."
BACKGROUND OF THE EXCHANGE OFFER
From time to time, Southlake received unsolicited inquiries from various
bank holding companies regarding the possible acquisition of Southlake. In May 1995,June
1994, Mr. Kenneth Murphy, the Chairman, President and Chief Executive Officer of
First Financial, contactedand Mr. Walter Worthington,Barry K. Emerson, Chairman, President and Chief
Executive Officer of Southlake, informally discussed a possible acquisition of
Southlake by First Financial. In the Chairmanfall of 1994, First Financial conducted a
due diligence review of Southlake and representatives of First Financial and
Southlake held several meetings to negotiate a possible acquisition. In December
1994, First Financial and Southlake, however, mutually agreed to terminate
negotiations as each party determined that the Boardtiming was not appropriate.
During the ensuing years, Messrs. Emerson and PresidentMurphy periodically discussed
on an informal basis a possible acquisition of Weatherford Holdings, to inquire as to whether
Weatherford Holdings would have anySouthlake by First Financial.
In February 1997, Mr. Murphy telephoned Mr. Emerson and reiterated First
Financial's interest in discussingexploring a possible acquisition of Southlake. Mr.
Emerson responded that Southlake would be interested in a possible transaction
but that discussions should be deferred until later in the possibilityyear when results of
becoming associatedoperations would be available from Southlake's new service branch in Trophy Club
which opened in November 1996.
In May 1997, Mr. Emerson telephoned Mr. Murphy and indicated that Southlake
would be interested in entering into further discussions.
On June 4, 1997, Mr. Murphy met with First Financial. Mr. Worthington indicated toEmerson and they discussed a
possible acquisition. Mr. Emerson informed Mr. Murphy that Weatherford Holdings had no current plans to seek an acquisition but
that heSouthlake would
take the matter under consideration. During the ensuing weeks,
Messrs.prefer a stock-for-stock exchange or merger. On June 25, 1997, Mr. Murphy and
Worthington discussedMr. Curtis Harvey, Executive Vice President and Chief Financial Officer of First
Financial, met with Mr. Emerson to discuss further the possibilitypossible terms of an
acquisition by First Financial and various alternatives for structuring an
acquisition.
At a meetingpreliminary range of pricing.
On July 1, 1997, Mr. Emerson met with the Merger and Acquisitions Committee
of the Board of Directors of Weatherford Holdings heldSouthlake, which consists of Mr. Emerson, Wade
Donnell, Derrell Johnson, James Ridenour and John Thompson, to inform them of
the status of the discussions with First Financial.
On July 8, 1997, the members of the Merger and Acquisitions Committee
(other than Mr. Johnson, who was unable to attend) met with Messrs. Murphy and
Harvey at First Financial's offices in Abilene. Thereafter, First Financial
performed an initial due diligence review of Southlake.
15
On July 15, 1997, Messrs. Murphy and Harvey attended a meeting of the
Southlake Board of Directors to discuss the possible acquisition. The Southlake
Board authorized Mr. Emerson to commence negotiating a definitive agreement with
First Financial.
Following the meeting of Southlake's Board of Directors on July 20, 1995, Mr. Worthington informed15, 1997,
Messrs. Emerson, Murphy and Harvey held further discussions regarding price. It
was agreed that price per share should equal two times the book value per share
of Southlake Common Stock, or $35.52. It was further agreed that the exchange
rate would be based on the per share market value of First Financial Common
Stock at a mutually agreed future date.
On July 22, 1997, the Board of Directors of his discussionsFirst Financial met and
authorized Messrs. Murphy and Harvey to negotiate a definitive agreement with
Mr. Murphy. The Board decided to continue to pursue discussions withSouthlake.
During the ensuing weeks, representatives of First Financial and to explore in particular a stock-for-stock exchange that would be
tax-free to Weatherford Shareholders.
During August 1995, Messrs. MurphySouthlake
and Worthington continued to discusstheir respective counsel negotiated the terms of the Exchange Agreement and
pricethe Merger and Acquisitions Committee met to review the exchange rate and other
terms of a business combination.
In early September 1995, First Financial representatives conducted a
preliminary due diligence reviewthe transaction. During the course of Weatherford Holdings. On September 20, 1995,
First Financial submittednegotiations, the parties agreed
that the date to Weatherford Holdings a proposalbe used to acquire
Weatherford Holdings pursuant to an exchange offer in which each share of
Weatherford Holdings Common Stock would be exchanged for 1.5 sharesdetermine the market value of First Financial Common
Stock.Stock for purposes of calculating the Exchange Rate would be the last business
day of the calendar month preceding the date First Financial received written
notice of approval by the Federal Reserve Board to acquire Southlake.
On September 21, 1995,August 18, 1997, the Southlake Board of Directors of Weatherford Holdings met to
discuss the possible transaction and concluded that the proposed exchange rate
was fair to the Weatherford Holdings shareholders.
On September 21, 1995, First Financial and Weatherford Holdings executed a
Letter of Intent. During the period September 21, 1995 through October 19, 1995,
First Financial performed due diligence review at Weatherford National and the
parties began negotiating a definitive agreement. On October 19, 1995, the Board
of Directors of Weatherford Holdings met and approved the
Exchange Agreement, and on October 20, 1995, Weatherford Holdingslater that day, Southlake and First Financial executed
the Exchange Agreement.
15
FIRST FINANCIAL'S REASONS FOR THE EXCHANGE OFFER
It is part of First Financial's current business strategy to expand its
activities to areas in Texas where management believes there are long-term
opportunities that will benefit First Financial and its shareholders. The
acquisitionsacquisition of Weatherford Holdings and CitizensSouthlake will allow First Financial to continue its expansion
and enter the WeatherfordSouthlake market, which, management believes, has substantial
growth potential, thereby providing even greater asset and earnings growth
opportunities.
First Financial also views favorably the perceived compatibility of the
Weatherford HoldingsSouthlake management team with management of First Financial and its demonstratedperceived
success in providing quality banking services.
In addition, First Financial believes that in light of the acceleration in
the number and size of combinations currently occurring within the financial and
banking industries and the likelihood that future changes in banking laws will
provide further impetus to consolidation of banking entities, it is desirable
for First Financial to continue to grow through acquisition of quality community
banks in favorable markets.
WEATHERFORD HOLDINGS'SOUTHLAKE'S REASONS FOR THE EXCHANGE OFFER
The terms of the Exchange Offer, including the Exchange Rate, were the
result of arms' length negotiations between First Financial and Weatherford HoldingsSouthlake and
their respective representatives. Weatherford HoldingsSouthlake consulted with its own legal counsel
during the course of negotiations. The Weatherford HoldingsSouthlake Board of Directors believes
that the Exchange Offer is fair to the shareholders
of Weatherford Holdings.Southlake Shareholders. In reaching a
conclusion to approve the Exchange Offer, Weatherford Holdings'Southlake's Board of Directors
considered a number of factors. Weatherford Holdings'Southlake's Board of Directors did not assign
any relative or specific weights to the factors considered. Among other things,
the Weatherford HoldingsSouthlake Board of Directors considered:
1. The financial terms of the Exchange Offer. In this regard, Weatherford
HoldingsSouthlake's Board
-----------------------------------------
of Directors took into account the premium represented by the consideration
offered to WeatherfordSouthlake Shareholders in relation to the book value per share of
Weatherford Holdings'Southlake Common Stock. Weatherford Holdings'Southlake's Board of Directors was of the view that
the Exchange Rate represented a fair multiple of Weatherford Holdings'Southlake's per share book
value and historical and projected earnings. Weatherford Holdings'Southlake's Board of Directors
also considered the financial terms of other recent business combinations in
the banking industry and determined that the financial terms of the Exchange
Offer compared favorably to such other transactions;transactions.
16
2. Certain financial and other information concerning First Financial. Such
------------------------------------------------------------------
information included, but was not limited to, the financial condition, asset
quality, historical earnings and historical operations of First Financial Common Stock and
the dividend yield of First Financial Common Stock;Stock.
3. The terms, other than the financial terms, and structure of the Exchange
------------------------------------------------------------------------
Offer. In particular, the Weatherford HoldingsSouthlake Board of Directors considered the
-----
anticipated tax-free nature of the Exchange Offer to WeatherfordSouthlake Shareholders
receiving First Financial Common Stock in exchange for the shares of
Weatherford HoldingsSouthlake Common Stock.
In addition to the above factors, the proposed Exchange Offer and Merger
reflect the judgment of the Board of Directors of Weatherford HoldingsSouthlake that Weatherford Holdings'Southlake's
business can be benefittedbenefited by the resources and experience of First Financial,
that the Exchange Offer and Merger may produce an entity better able to meet
competitive challenges inherent in the banking industry, and that the
affiliation of First Financial and Weatherford HoldingsSouthlake could provide operational benefits
and efficiencies. The Weatherford HoldingsSouthlake Board of Directors believes that the Exchange
Offer would allow shareholders of
Weatherford HoldingsSouthlake Shareholders to exchange their shares for a security
in a company which has a broader market appeal and thus a more liquid
investment. First Financial common stockCommon Stock is traded on the NASDAQ National
Market,Market; thus Weatherford
16
Southlake Shareholders would have greater liquidity by holding
First Financial stock rather than shares of Weatherford Holdings,Southlake, for which there is no
established public trading market. In addition, while Weatherford HoldingsSouthlake historically has
not paid cash
dividends, to Weatherford Shareholders during 1994 and 1995 at the rate of $1.00
per annum, First Financial has declared cash dividends per share of
$1.10, $.98$.87, $.78 and $.76$.70 during the years ended December 31, 1994, 19931996, 1995 and 1992,1994,
respectively.
Furthermore, if the Exchange and Merger isare consummated, shareholders of
Weatherford HoldingsSouthlake
Shareholders would hold shares in a larger banking organization which would tend
to lessen the risk that local market factors in WeatherfordSouthlake would affect the value
of their investment. The resources of a larger banking organization would tend
to benefit WeatherfordSouthlake Shareholders as a result of its ability to compete in the
larger marketplace. The Weatherford HoldingsSouthlake Board of Directors also believes that, if the
Exchange and Merger are consummated, its subsidiary, WeatherfordTexas National, will
continue to retain its community bank character even though it will be a
subsidiary of a substantially larger bank holding company.
OPERATION AFTER THE EXCHANGE OFFER AND MERGER
If the Exchange Offer is consummated, First Financial will own at least 90%
of the outstanding Weatherford HoldingsSouthlake Common Stock. If the Merger is consummated as
presently anticipated, Weatherford HoldingsSouthlake will be merged with and into a
wholly-owned subsidiary of First Financial.
See "The Exchange Offer --
AnticipatedOffer--Anticipated Merger and Dissenting Shareholders'
Rights." Following the Merger
and the acquisition of Citizens, First Financial intends to merge Citizens
National Bank of Weatherford ("Citizens National"), a wholly-owned subsidiary of
Citizens, into Weatherford National. The surviving bank will retain the
Weatherford National name and charter, have its principal banking facility in
Weatherford, Texas, and have branches in both Weatherford and Aledo, Texas.
First Financial operates principally in order to give its affiliated banks
access to additional management and technical resources which help them to
improve or expand their banking services while continuing their local activity.activity
and identity. Each of the affiliated banks operates under the day-to-day
management of its board of directors and officers, with substantial authority in
making decisions concerning their own investments, loan policies, interest rates
and service charges. First Financial provides assistance to the affiliated
banks, especially with respect to decisions concerning major capital
expenditures, employee fringe benefits, including pension plans, group
insurance, dividend policies, appointment of officers and directors of
affiliated banks and their compensation. The internal audit and loan review
functions are centralized at First Financial. Each of these corporate staff
groups performs on-site operational audits and loan reviews of the subsidiary
banks. First Financial, through First National Bank of Abilene, provides advice
to and specialized services for the affiliated banks in such areas as lending,
investments, purchasing, advertising, public relations, and computer services.
17
THE EXCHANGE RATE
First Financial will issue and exchange 1.5.894 shares of First Financial
Common Stock for each share of Weatherford HoldingsSouthlake Common Stock tendered by the WeatherfordSouthlake
Shareholders who accept the Exchange Offer during the time period the Exchange
Offer is in effect; provided, however, that if First Financial, prior to the
consummation of the proposed Exchange Offer, shall issue any additional shares of First
Financial Common Stock pursuant to any stock dividend or stock split, the
Exchange Rate shall be appropriately adjusted to reflect such stock dividend or
stock split.
First Financial will not issue any fractional shares of First Financial
Common Stock. WeatherfordStock pursuant to the Exchange Offer or the Merger. Southlake
Shareholders who would otherwise be entitled to receive fractional shares of
First Financial Common Stock will be paid in cash for such fractional shares
based upon a value of $33.34$39.75 per share of First Financial Common Stock.
17
THE EXPIRATION DATE
Unless otherwise extended by First Financial, the Exchange Offer shall
terminate at 5:00 p.m., Abilene, Texas time on ______________, 1996 (the
"Expiration Date").1997.
CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER; TERMINATION
Consummation of the Exchange Offer is subject to the satisfaction of a
number of conditions, including the following:
(1) the expiration of all mandatory waiting periods and the existence in
full force and effect of all regulatory approvals, filings, registrations and
notifications, including the approval by the Board of Governors of the Federal Reserve SystemBoard of the
acquisition by First Financial of all of the issued and outstanding capital
stock of Weatherford Holdings;Southlake;
(2) the receipt by First Financial of an opinion from its independent
accountants that the transaction contemplated by the Exchange Agreement may be
properly accounted for as a pooling-of-interests, and the receipt by Weatherford
HoldingsSouthlake
from its independent accountants and/or tax counsel that the Exchange by the
WeatherfordSouthlake Shareholders will not be considered a taxable event for federal income
tax purposes;
(3) the accuracy of all the respective representations and warranties of
Weatherford Holdings, Parker Bancshares, WeatherfordSouthlake, Texas National and First Financial in the Exchange Agreement as of
the date of this Prospectus and as of the date of consummation of the Exchange
Offer (the "Consummation"Closing Date");
(4) the performance of all of the respective obligations and agreements and
compliance with all covenants and conditions by Weatherford Holdings, Parker
Bancshares, WeatherfordSouthlake, Texas National and
First Financial contemplated by the Exchange Agreement prior to or on the
ConsummationClosing Date;
(5) no outstanding options requiring the issuance or sale of, or otherwise
relating to, any capital stock of Southlake or Texas National shall exist as of
the Closing Date;
(6) the absence of any order, judgment or decree or proceeding or
litigation by any court, governmental body or regulatory authority pertaining to
the Exchange Offer;
(6)(7) the declaration by the CommissionSEC that the Registration Statement filed by
First Financial pursuant to the Securities Act covering the shares of First
Financial Common Stock to be issued in the Exchange is effective and that no
stop orders have been issued or threatened and that First Financial, Weatherford
Holdings, Parker Bancshares, WeatherfordSouthlake
and Texas National shall have complied with all applicable state and federal
securities laws relating to the Exchange Offer;
(7)(8) the absence of any material adverse change in the financial conditions
of First Financial, Weatherford Holdings, Parker BancsharesSouthlake or WeatherfordTexas National between August 31, 1995June 30, 1997 and the
ConsummationClosing Date;
(8)18
(9) receipt by First Financial and Weatherford HoldingsSouthlake of certain legal opinions in
form and substance satisfactory to the respective parties;
(9)(10) the valid tender of ninety percent (90%)the Required Amount of the issued and outstanding
shares of Weatherford HoldingsSouthlake Common Stock to First Financial;
(10)(11) the receipt by First Financial of a satisfactory Phase I Environmental
Assessment report covering all real property owned or held by Weatherford
Holdings, Parker BancsharesSouthlake or WeatherfordTexas
National;
(12) Southlake and (11) Weatherford Holdings, Parker Bancshares and WeatherfordTexas National shall have taken such action as is
necessary to freeze or terminate the Weatherford
National 401(k) Profit Sharing Plan or merge such Plan with an Employee Benefit
Plan of First FinancialKSOP and First Financial shall be satisfied that such 401(k)
Profit
18
Sharing Planthe
KSOP is a qualified plan under, and in full compliance with, the Employee
Retirement Income Security Act of 1974, the Internal Revenue Code of 1986, and
all other applicable laws, rules and regulations and that such
freezing, terminationno facts or
mergercircumstances exist which, in the opinion of the 401(k) Plan will notFirst Financial and its counsel,
may result in liability to First Financial, Weatherford Holdings, Parker BancsharesSouthlake or WeatherfordTexas National or any
of their directors, officers or employees.employees arising out of, or in connection with,
administration of the KSOP or the freeze of the KSOP if the Exchange and Merger
are consummated; and
(13) Southlake and Texas National shall have taken such action as is
necessary to (i) terminate the Texas National Executives' Supplemental Income
Plan, the Texas National Directors' Deferred Income Plan and the Texas National
Officers' Bonus Plan (collectively, the "Plans") and (ii) eliminate all
liability of Southlake and Texas National under the Plans.
The Exchange Agreement and the Exchange Offer may be terminated at any time
prior to the ConsummationClosing Date:
(a) by mutual written consent of First Financial Weatherford Holdings, Parker
Bancshares, and Weatherford National;Southlake;
(b) by First Financial if there is a breach of a representation or warranty
made by Weatherford Holdings, Parker BancsharesSouthlake or WeatherfordTexas National which constitutes a material adverse
change from that represented in the Exchange Agreement or if any of the
conditions to closing are not satisfied for reasons other than lack of
diligence by First Financial or waived by First Financial;
(c) by Weatherford HoldingsSouthlake if there is a breach of a representation or warranty made
by First Financial which constitutes a material adverse change from that
represented in the Exchange Agreement or if any of the conditions to
closing are not satisfied for reasons other than lack of diligence by
Southlake or waived by Weatherford Holdings;Southlake;
(d) by First Financial or Weatherford Holdings,Southlake, if the ConsummationClosing Date shall not have
occurred by MarchJanuary 31, 19961998 or such later date agreed to in writing by
First Financial, Weatherford Holdings, Parker BancsharesSouthlake and WeatherfordTexas National; or
(e) by First Financial or Weatherford HoldingsSouthlake if any court of competent jurisdiction
or other governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
Exchange or the Merger, and such order, decree, ruling or other action
shall have been final and nonappealable.
Whether or not the transactions contemplated by the Exchange Agreement are
consummated, each of the parties to the Exchange Agreement shall be responsible
for their respective fees and expenses incident to the negotiation, preparation,
execution and consummation of the transactions contemplated by the Exchange
Agreement, including attorneys' and accountants' fees and expenses.
19
EXCHANGE OF SHARES AND CERTIFICATES
A WeatherfordSouthlake Shareholder's delivery of a properly completed and executed
Letter of Transmittal and WeatherfordSouthlake Common Stock Certificates, prior to the
Expiration Date, to the Exchange Agent at the address provided herein shall be
deemed to constitute an acceptance of the Exchange Offer described in the
Prospectus as to the number of shares registeredreflected on the WeatherfordSouthlake Common Stock
Certificates surrendered.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a bank, broker, dealer, credit
union, savings association or other entity which is a member in good standing of
the Security Transfer Agent's Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange, Inc. Medallion Signature Program (each,
an "Eligible Institution"). Signatures on a Letter of Transmittal need not be
guaranteed (a) if the Letter of Transmittal is signed by the registered holder
of the shares of Weatherford HoldingsSouthlake Common Stock tendered therewith and such holder has
not completed the box entitled "Special Exchange Instructions" on the Letter of
Transmittal or (b) if such shares of Weatherford HoldingsSouthlake Common Stock are tendered for the
account of an Eligible Institution. See Instructions 1 and 3 of the Letter of
Transmittal.
19
THE METHOD OF DELIVERY OF WEATHERFORDSOUTHLAKE COMMON STOCK CERTIFICATES AND THE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS
AT THE ELECTION AND RISK OF THE WEATHERFORDSOUTHLAKE SHAREHOLDERS. INSTEAD OF DELIVERY BY
MAIL, IT IS RECOMMENDED THAT WEATHERFORDSOUTHLAKE SHAREHOLDERS USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. WEATHERFORDSOUTHLAKE COMMON STOCK CERTIFICATES AND LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE EXCHANGE AGENT, WHICH IS THE TRUST DEPARTMENT OF FIRST
NATIONAL BANK OF ABILENE.
If any First Financial Common Stock Certificate is to be issued in a name
other than that in which the WeatherfordSouthlake Common Stock Certificate surrendered for
exchange is registered, the certificate so surrendered must be properly endorsed
or otherwise be in proper form for transfer, and the person requesting such
exchange must pay to First Financial or the Exchange Agent any applicable
transfer or other taxes required by reason of the issuance of the certificate.
Any beneficial holder whose shares of Weatherford HoldingsSouthlake Common Stock are registered in
the name of his or her broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact such registered holder promptly
and instruct such registered holder to tender on his or her own behalf. If such
beneficial holder wishes to tender on his or her own behalf, such beneficial
holder must, prior to completing and executing the Letter of Transmittal and
delivering the WeatherfordSouthlake Common Stock Certificates, either make appropriate
arrangements to register ownership of the Weatherford HoldingsSouthlake Common Stock to be tendered
in such holder's name or obtain a properly completed stock power from the
registered holder.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Weatherford HoldingsSouthlake Common Stock listed therein, the WeatherfordSouthlake
Common Stock Certificates reflecting ownership of Weatherford HoldingsSouthlake Common Stock must be
endorsed or accompanied by appropriate stock powers which authorize such person
to tender the Weatherford HoldingsSouthlake Common Stock on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the WeatherfordSouthlake Common Stock Certificates.
If the Letter of Transmittal or any WeatherfordSouthlake Common Stock Certificates or
stock powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of a corporation or others acting in a fiduciary or
representative capacity, such persons should indicate when signing and, unless
waived by First Financial, evidence satisfactory to First Financial of their
authority to so act must be submitted with the Letter of Transmittal.
Upon expiration of the Exchange Offer and satisfaction of certain
conditions set forth in the Exchange Agreement, promptly after First Financial
receives written notice from the Exchange Agent indicating that at least ninety percent
(90%)the Required
Amount of the outstanding shares of Weatherford HoldingsSouthlake Common Stock have been validly
tendered, each outstanding share of Weatherford HoldingsSouthlake Common Stock tendered to First
Financial will be exchanged for shares of First Financial Common Stock at the
Exchange Rate calculated as described under the caption "--
The"--The Exchange Rate,"
and First Financial Common Stock Certificates reflecting the Exchange shall be
delivered to the WeatherfordSouthlake Shareholders by registered mail.
20
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered shares of Weatherford
HoldingsSouthlake Common
Stock will be determined by First Financial in its sole discretion, which
determination will be final and binding. First Financial reserves the absolute
right to reject any and all shares of Weatherford HoldingsSouthlake Common Stock not properly
tendered or any shares of Weatherford HoldingsSouthlake Common Stock First Financial's acceptance of
which would, in the opinion of counsel for First Financial, be unlawful. First
Financial reserves the absolute right to waive any irregularities or conditions
of tenders as to particular shares of Weatherford HoldingsSouthlake Common Stock. Unless waived, any
defects or irregularities in connection with tenders of shares of Weatherford HoldingsSouthlake
Common Stock must be cured within such time as First Financial shall determine.
Neither First Financial nor the Exchange Agent nor any other person shall be
under any duty to give notification of defects or irregularities with respect to
tenders of shares of Weatherford HoldingsSouthlake Common Stock nor shall any of them incur any
liability for failure 20
to give such notification. Tenders of shares of Weatherford HoldingsSouthlake
Common Stock will not be deemed to have been made until such irregularities have
been cured or waived. Any WeatherfordSouthlake Common Stock Certificates received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such WeatherfordSouthlake Common Stock
Certificates unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
WeatherfordSouthlake Shareholders who wish to tender their shares of Weatherford
HoldingsSouthlake Common
Stock and (i) whose WeatherfordSouthlake Common Stock Certificates are not immediately
available, or (ii) who cannot deliver their WeatherfordSouthlake Common Stock Certificates,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the holder of Weatherford HoldingsSouthlake Common Stock, the certificate number
or numbers of such Weatherford HoldingsSouthlake Common Stock and the amount of Weatherford HoldingsSouthlake Common
Stock tendered, stating that the tender is being made thereby, and guaranteeing
that, within five (5) business days after the Expiration Date, the Letter of
Transmittal, together with the WeatherfordSouthlake Common Stock Certificates registeringrepresenting
the Weatherford HoldingsSouthlake Common Stock to be tendered in proper form for transfer and any
other documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(3) such properly completed and executed Letter of Transmittal, together
with the certificates representing all tendered Weatherford HoldingsSouthlake Common Stock in proper
form for transfer and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five (5) business days after the
Expiration Date.
FRACTIONAL SHARES
No fractional shares of First Financial Common Stock will be exchanged for
shares of Weatherford HoldingsSouthlake Common Stock. In lieu thereof, each WeatherfordSouthlake Shareholder
having a fractional interest resulting from the exchange of Weatherford HoldingsSouthlake Common
Stock for First Financial Common Stock will be paid by First Financial an amount
in cash for such fractional share based upon a value of $33.34$39.75 per Shareshare of
First Financial Common Stock.
NO WITHDRAWAL RIGHTS
Tenders of shares of Weatherford HoldingsSouthlake Common Stock pursuant to the Exchange Offer
are irrevocable, and once such shares are tendered, they may not be withdrawn.
21
REGULATORY APPROVALS REQUIRED
The Board of Governors of the Federal Reserve System (the "Federal Reserve
Board")Board must approve First Financial's acquisition of
Weatherford Holdings,
Parker BancsharesSouthlake and WeatherfordTexas National under Section 3 of the Bank Holding
Company Act of 1956, as amended.BHCA. Regulatory approval
is pending.
21
has been obtained.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material U.S.United States Federal income
tax consequences of the Exchange and Merger, including certain consequences to
holders of Weatherford HoldingsSouthlake Common Stock who are citizens or residents of the United
States and who hold their shares as capital assets. ItThis summary does not
discuss all tax consequences that may be relevant to the WeatherfordSouthlake Shareholders
subject to special Federal income tax treatment (such as insurance companies,
dealers in securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons), or to WeatherfordSouthlake Shareholders who
acquired their shares of Weatherford HoldingsSouthlake Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. The summary does not
address the state, local or foreign tax consequences of the Exchange Offer, if
any.
Weatherford HoldingsSouthlake has received an opinion from its independent public
accountants,Judd, Thomas, Smith & Company, P.C.
with respect to certain Federal income tax consequences of the Exchange Offer. A
copy of their opinion, which is subject to certain qualifications and
assumptions, is attached hereto as Annex A, and the following summary of their
opinion is qualified in its entirety by reference thereto. Subject to the
qualifications and assumptions set forth in their opinion, George, MorganJudd, Thomas, Smith &
Sneed,Company, P.C. areis of the opinion that, for Federal income tax purposes:
1. The Exchange and Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code (the "Code"), and
First Financial Weatherford Holdings and First Financial Bankshares of
Delaware, Inc.Southlake each will be a party to the reorganization
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the WeatherfordSouthlake Shareholders upon
receipton the
exchange of their shares of Southlake Common Stock solely for shares of
First Financial Common Stock inpursuant to the terms of the Exchange
Agreement to the extent of such exchange for their Weatherford
Holdings Common Stock, except for any gain or loss recognized(except as provided below with
respect to Weatherford Shareholders who receive cash in lieu of fractional share
interests in First Financial Common Stock or pursuant to the exercise of
statutory dissenter rights.shares).
3. The aggregate Federal income tax basis of the shares of First Financial Common
Stock received by the Weatherford Shareholders in exchange for theirwhich shares of Weatherford HoldingsSouthlake Common Stock are exchanged pursuant to
the Exchange and Merger will be the same as the aggregate adjusted tax basis of their Weatherford Holdingssuch shares of
Southlake Common Stock exchanged therefor, less the taxany proportionate part of
such basis ifallocable to any allocated to fractional interest in any share interests.of First
Financial Common Stock.
4. The holding period for the shares of the First Financial Common Stock received byfor
which the
Weatherford Shareholders in exchange for their shares of Weatherford
HoldingsSouthlake Common Stock in the hands of the Weatherford Shareholdersare exchanged will include the
holding period of their Weatherford Holdingsthe Southlake Common Stock they are exchanged therefor.
A Weatherford Holdings Shareholdertherefor,
provided that such shares of Southlake Common Stock were held as a capital
asset on the date of the Exchange.
5. Southlake Shareholders who receivesreceive cash in lieu of a fractional share
interest in First Financial Common Stock will be treated as having received
the cash in redemption of the fractional share interest. The receipt
of cash in lieu of a fractional share interest should generally result in
capitaland gain or loss
to the holderwill be recognized in an amount equal to the difference between the amount of
cash
received and the portionproportionate part of the holder's Federal income tax basis in the
Weatherford Holdings Common Stock allocable to the fractional
share interest.interest, which gain or loss will be a capital gain or loss if the
Southlake Common Stock was a capital asset in the hands of the shareholder.
Such capital gain or loss will be long-term capital gain or loss if the
holder's holding period for the First Financial Common Stock received,
determined as set forth above, is longer than one year. The effective tax
rate on any resulting net long-term capital gain for Southlake Shareholders
who are individuals will generally depend on the shareholder's holding
period for the shares of First Financial Common Stock received, determined
as set forth above, and the income tax brackets under which the shareholder
is taxed. For individual shareholders, the maximum capital gains tax rate
on property held more than eighteen months is 20 percent and the maximum
capital gains tax rate on property held more than one year, but not more
than eighteen months, is 28 percent.
22
A WeatherfordSouthlake Shareholder who dissents from the Exchange and Merger and
receives cash in exchange for shares of Weatherford HoldingsSouthlake Common Stock will recognize
capital gain or loss equal to the difference between the amount of cash received
and the holder's Federal income tax basis in the shares.shares, provided that the
Southlake Common Stock was a capital asset in the hands of the shareholder at
the time of the exchange. Such capital gain or loss will be long-term capital
gain or loss if the holder has helddissenting Southlake Shareholder's holding period for the
shares for moreSouthlake Common Stock exchanged is longer than one year as of the effective timedate of the
Merger.
22
Exchange. The effective tax rate on any resulting net long-term capital gain
for a dissenting Southlake Shareholder who is an individual will generally
depend on the dissenting shareholder's holding period for shares of Southlake
Common Stock and the income tax brackets under which the dissenting shareholder
is taxed.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON THE INTERNAL REVENUE CODE (AND AUTHORITIES THEREUNDER) AS IN
EFFECT ON THE DATE OF THIS PROSPECTUS, WITHOUT CONSIDERATION OF THE PARTICULAR
FACTS OR CIRCUMSTANCES OF ANY SHAREHOLDER. WEATHERFORDSOUTHLAKE SHAREHOLDERS ARE URGED TO
CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE IN THEIR PARTICULAR SITUATIONS, AS WELL AS THE TAX
CONSEQUENCES UNDER ANY APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE AGENT
The Trust Department of First National Bank of Abilene has been appointed
as the Exchange Agent for the Exchange. Questions and requests for additional
copies of this Prospectus should be directed to the Exchange Agent addressed as
follows:
By mail, overnight, courier or hand delivery: Trust Department
First National Bank of Abilene
Third Floor
400 Pine Street
Abilene, Texas 79601
By facsimile transmission: (915) 675-7342627-7342
For confirmation by telephone: (915) 675-7003627-7003
RESALE BY WEATHERFORD HOLDINGSSOUTHLAKE AFFILIATES
The shares of First Financial Common Stock issuable to WeatherfordSouthlake
Shareholders upon consummation of the Exchange Offer have been registered under
the Securities Act, but such registration does not cover the resales by
affiliates of Weatherford HoldingsSouthlake ("Weatherford HoldingsSouthlake Affiliates"). First Financial Common Stock
received and beneficially owned by those WeatherfordSouthlake Shareholders who are deemed
to be Weatherford HoldingsSouthlake Affiliates may be resold without registration as provided for by
Rule 145 under the Securities Act, or as otherwise permitted. The term Weatherford HoldingsSouthlake
Affiliate is defined to include any person who, directly or indirectly,
controls, or is controlled by, or is under common control with Weatherford HoldingsSouthlake at or
during the time period covered by the Exchange Agreement. Each Weatherford HoldingsSouthlake
Affiliate who desires to resell the First Financial Common Stock must sell such
First Financial Common Stock either (i) pursuant to an effective registration
statement under the Securities Act; (ii) in accordance with the applicable
provisions of Rule 145 under the Securities Act; or (iii) in a transaction
which, in the opinion of counsel for the Weatherford HoldingsSouthlake Affiliate or as described in
a "no-action" or interpretive letter from the Commission,SEC, in each case reasonably
satisfactory in form and substance to First Financial, is exempt from the
registration requirements of the Securities Act. Rule 145(d) requires that
persons deemed to be Weatherford HoldingsSouthlake Affiliates resell their First Financial Common
Stock pursuant to certain of the requirements of Rule 144 under the Securities
Act if such First Financial Common Stock is sold within the first two yearsyear after the
receipt thereof. After two yearsone year if such person is not an affiliate of First
Financial and First Financial is current in the filing of its
23
periodic securities law reports, a former Weatherford HoldingsSouthlake Affiliate may freely resell
the First Financial Common Stock received in the Exchange Offer without
limitation. After threetwo years from the issuance of the First Financial Common
Stock, if such person is not an affiliate of First Financial at the time of sale
and has not been so for at least three months prior to such sale, such person
may freely resell such First Financial Common Stock, without limitation,
regardless of the status of First Financial's periodic securities law reports.
23
Each Weatherford HoldingsSouthlake Affiliate will deliver to First Financial a written
agreement to the effect that no sale will be made of any shares of First
Financial Common Stock received in the Exchange Offer by a Weatherford HoldingsSouthlake Affiliate
except (i) in accordance with the Securities Act; and (ii) if, as it expects to
do, First Financial utilizes pooling-of-interests accounting in accounting for
the Exchange Offer, until such time as First Financial shall publish the
financial results of at least thirty (30) days of post-Exchange operations of
First Financial. The First Financial Common Stock Certificates issued to
Weatherford HoldingsSouthlake Affiliates in the Exchange Offer may contain an appropriate
restrictive legend, and appropriate stop transfer orders may be given to the
Exchange Agent for such certificates.
ANTICIPATED MERGER AND DISSENTING SHAREHOLDERS' RIGHTS
First Financial anticipates that upon consummation of the Exchange Offer,
First FinancialSouthlake will contribute the shares of Weatherford Holdings Common Stock
acquired in the Exchange Offer to First Financial Bankshares of Delaware, Inc.,
a wholly-owned subsidiary of First Financial ("FFB Delaware"), and Weatherford
Holdings will then be merged (the "Merger") with and into FFB DelawareFirst Financial pursuant to Article 5.16
of the Texas Business Corporation Act (the "TBCA"). In the event that not all of
the outstanding Weatherford HoldingsSouthlake Common Stock is tendered for exchange in the Exchange
Offer, within ten (10) days after the effective date of the Merger, FFB DelawareFirst
Financial shall provide notice of the Merger to the WeatherfordSouthlake Shareholders who
did not elect to participate in the Exchange Offer. The consideration to be
issued in the Merger shall be the same as that in the Exchange Offer. A
WeatherfordSouthlake Shareholder who elects to dissent from the Merger (a "Dissenting
Shareholder") must follow specific procedures in order to perfect its
dissenter's rights.
Within twenty (20) days of mailing of the notice of the Merger, the
Dissenting Shareholders must make a written demand on FFB DelawareFirst Financial for the
fair value of their shares of Weatherford HoldingsSouthlake Common Stock. The fair value of such
shares shall be the value thereof as of the day before the effective date of the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger. The Dissenting Shareholders must include in their demands information as
to the number and estimated fair value of shares owned by such shareholders. Any
Dissenting Shareholder who fails to make a demand within the twenty (20) day
period shall be bound by the terms and the consideration provided in the Merger.
Within ten (10) days of receipt of a Dissenting Shareholder's written
demand, FFB DelawareFirst Financial shall either accept such demand or reject it and make a
counter-
offercounter-offer as to the fair value of the Weatherford HoldingsSouthlake Common Stock. Upon agreement
between FFB DelawareFirst Financial and the Dissenting Shareholder as to the fair value of
the Weatherford HoldingsSouthlake Common Stock, FFB DelawareFirst Financial shall pay the agreed fair value of
the shares of Weatherford HoldingsSouthlake Common Stock owned by such Dissenting Shareholder in
exchange for endorsed Weatherford HoldingsSouthlake Common Stock Certificates representing such
shares. The Dissenting Shareholder shall, at that time, cease to have any
interest in such shares. If a Dissenting Shareholder is unable to reach an
agreement with FFB DelawareFirst Financial as to the fair value of the Weatherford HoldingsSouthlake Common
Stock, the specific remedies provided in Articles 5.12, 5.13 and 5.16 of the
TBCA for determination of fair value by a court of law shall be available to
such shareholder. Articles 5.12, 5.13 and 5.16 of the TBCA are attached to this
Prospectus as Annex B.
ACCOUNTING TREATMENT
First Financial expects to account for the Exchange as a pooling-of-interestspooling-of-
interests and expects to receive the written opinion of Arthur Andersen LLP that
it is appropriate to do so.
24
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable law or regulation may have a material effect on the business of First
Financial.
As a bank holding company, First Financial is subject to regulation under
the BHCA and its examination and reporting requirements. Under the BHCA, bank
holding companies may not (subject to certain limited exceptions) directly or
indirectly acquire the ownership or control of more than five percent (5%) of
any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior written approval of the Federal Reserve
Board. In addition, bank holding companies are generally prohibited under the
BHCA from engaging in nonbanking activities, except certain activities which the
Federal Reserve Board, by regulation, determines to be closely related to
banking, or to managing or controlling banks. Examples of activities which the
Federal Reserve Board has determined to be closely related to banking, or to
managing or controlling banks, include (1) the making or acquiring of loans or
other extensions of credit; (2) servicing of loans; (3) performing certain trust
functions; (4) providing bookkeeping and data processing services for a bank
holding company and its subsidiaries; (5) providing certain securities brokerage
services; and (6) acting or serving as an investment or financial advisor.
The BHCA provides that the Federal Reserve Board shall not approve any
acquisition, merger or consolidation the effect of which may be to substantially
lessen competition in the banking industry, which would tend to create a
monopoly in any section of the country, or which in any other manner would be a
restraint of trade, unless the anti-competitive effects of the proposed
combination are clearly outweighed by the convenience and needs of the community
to be served. In approving acquisitions by bank holding companies of banks and
companies engaged in banking-related activities, the Federal Reserve Board
considers, among other factors, the expected benefits to the public (greater
convenience, increased competition, greater efficiency, etc.) against the risks
of possible adverse effects (undue concentration of resources, decreased or
unfair competition, conflicts of interest, unsound banking practices, etc.).
First National Bank of Abilene, First National Bank, Sweetwater, The First
National Bank in Cleburne, Eastland National Bank, San Angelo National Bank and
Weatherford National Bank are all chartered under the National Bank Act and are
subject to supervision and regulation, as well as regular examination, by the
Office of the Comptroller of the Currency (the "OCC"). Hereford State Bank and
Stephenville Bank and Trust Co. were chartered under the Texas Banking Code
(which, effective September 1, 1995, was replaced by the newly-adopted Texas
Banking Act) and are similarly supervised, regulated and examined by the Banking
Commissioner of the State of Texas. Supervision and regulation of banks by
federal and state banking authorities is primarily intended to protect the
interests of depositors, although shareholders are likewise benefited. Various
requirements and restrictions under the laws of the United States and the State
of Texas affect the operations of each subsidiary bank, including the
requirement to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made and the interest that may be charged
thereon, and restrictions relating to investments and other activities.
Each First Financial Bank is a member of the FDIC. The Federal Deposit
Insurance Act requires that the FDIC approve any merger or consolidation by or
with an insured bank, or any establishment of branches by an insured bank, and
it is also empowered to regulate interest rates paid by insured banks. Approval
of the FDIC is also required before an insured bank retires any part of its
common or preferred stock, or any capital notes or debentures. Insured banks
which are also members of the Federal Reserve System, however, are regulated
with respect to the foregoing matters by the Federal Reserve System.
All of First Financial's subsidiary banks must pay assessments to the FDIC
for federal deposit insurance protection under a risk-based assessment system.
FDIC-insured depository institutions that are
25
members of the Bank Insurance Fund pay insurance premiums at rates based on
their risk classification. Institutions assigned to higher risk classifications
(i.e., institutions that pose a greater risk of loss to their respective deposit
insurance funds) pay assessments at higher rates than institutions that pose a
lower risk. An institution's risk classification is assigned based on its
capital levels and the level of supervisory concern the institution poses to
bank regulators. In addition, the FDIC can impose special assessments to cover
the costs of borrowings from the U.S. Treasury, the Federal Financing Bank and
the Bank Insurance Fund member banks. As of December 31, 1996, the assessment
rate for each of First Financial's subsidiary banks is at the lowest level risk-
based premium available.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking agencies to take "prompt corrective action"
in respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well-capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." A depository institution's capital tier will
depend upon where its capital levels are in relation to various relevant capital
measures, which will include a risk-based capital measure, a leverage ratio
capital measure and certain exceptions.other factors. Regulations establishing the specific
capital tiers provide that a well-capitalized institution must have a total
risk-based capital ratio of at least ten percent (10%), a Tier 1 risk-based
capital ratio of at least six percent (6%), and a Tier 1 leverage ratio of at
least five percent (5%), and not be subject to any specific capital order or
directive. For an institution to be adequately capitalized, it must have a total
risk-based capital ratio of at least eight percent (8%), a Tier 1 risk-based
capital ratio of at least four percent (4%), and a leverage ratio of at least
four percent (4%) [in some cases three percent (3%)]. Under current regulations,
First Financial's subsidiary banks would be considered to be well capitalized as
of December 31, 1996.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. An "undercapitalized institution" must develop a capital
restoration plan and its parent holding company must guarantee that bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of five percent (5%) of the bank's
assets at the time it became "undercapitalized" or the amount needed to comply
with the plan. Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the parent's general unsecured
creditors. In addition, FDICIA requires the various regulatory agencies to
prescribe certain non-capital standards for safety and soundness relating
generally to operations and management, asset quality and executive
compensation, and permits regulatory action against a financial institution that
does not meet such standards.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
PAYMENT OF DIVIDENDS
First Financial is a legal entity separate and distinct from its banking
and other subsidiaries. Most of First Financial's revenues result from dividends
paid to it by its Delaware holding company subsidiary, which receives dividends
from its bank subsidiaries. There are statutory and regulatory requirements
applicable to the payment of dividends by subsidiary banks as well as by First
Financial to its shareholders.
26
Each state bank subsidiary that is a member of the Federal Reserve System
and each national banking association is required by federal law to obtain the
prior approval of the Federal Reserve Board or the Office of the Comptroller of
the Currency (the "OCC"),OCC, as the case may be, for
the declaration and payment of dividends if the total of all dividends declared
by the board of directors of such bank in any year will exceed the total of (i)
such bank's net profits (as defined and interpreted by regulation) for that year
plus (ii) the retained net profits (as defined and interpreted by regulation)
for the preceding two (2) years, less any required transfers to surplus. In
addition, these banks may only pay dividends to the extent that retained net
profits (including the portion transferred to surplus) exceed bad debts (as
defined by regulation). Effective September 1, 1995, the newly adopted Texas
Banking Act eliminated the requirement under the predecessor code that, prior to
paying a dividend, a state bank must transfer to "certified surplus" an amount
which is not less than ten percent (10%) of the net profits of such bank earned
since the last dividend was declared; provided, however, that a transfer was not
required to certified surplus of a sum which would increase the certified
surplus to more than the capital of the bank.
During 1996, the First Financial Banks paid an aggregate of $19.0 million
in dividends. Under the foregoing dividend restrictions, in 1995at December 31, 1996
the First Financial Banks, without obtaining governmental approvals, could have
declared additional aggregate dividends of approximately $16.1$8.6 million from
retained net profits. During the
nine months ended September 30, 1995, the First Financial Banks paid an
aggregate of $8.7 million in dividends.
The payment of dividends by First Financial and its subsidiaries is also
affected by various regulatory requirements and policies, such as the
requirement to maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The Federal Reserve
Board and the OCC have each indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. The Federal Reserve Board, the OCC and the Federal Deposit
Insurance Corporation (the "FDIC")FDIC have issued
policy statements which provide that bank holding companies and insured banks
should generally only pay dividends out of current operating earnings.
25
CERTAIN TRANSACTIONS BY FIRST FINANCIAL WITH ITS AFFILIATES
There are also various legal restrictions on the extent to which First
Financial can borrow or otherwise obtain credit from, or engage in certain other
transactions with, its depository subsidiaries. The "covered transactions" that
an insured depository institution and its subsidiaries are permitted to engage
in with their nondepository affiliates are limited to the following amounts: (i)
in the case of any one such affiliate, the aggregate amount of "covered
transactions" of the insured depository institution and its subsidiaries cannot
exceed ten percent (10%) of the capital stock and the surplus of the insured
depository institution; and (ii) in the case of all affiliates, the aggregate
amount of "covered transactions" of the insured depository institution and its
subsidiaries cannot exceed twenty percent (20%) of the capital stock and surplus
of the insured depository institution. In addition, extensions of credit that
constitute "covered transactions" must be collateralized in prescribed amounts.
"Covered transactions" are defined by statute to include a loan or extension of
credit to the affiliate, a purchase of securities issued by an affiliate, a
purchase of assets from the affiliate (unless otherwise exempted by the Federal
Reserve Board), the acceptance of securities issued by the affiliate as
collateral for a loan and the issuance of a guarantee, acceptance, or letter of
credit for the benefit of an affiliate. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.
27
CAPITAL
The Federal Reserve Board has adopted risk based capital guidelines for
bank holding companies. The minimum guidelines for the ratio of total capital
("Total Capital") to risk weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is eight percent (8%). At least
half of the Total Capital is to be composed of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries and a
limited amount of perpetual preferred stock, less goodwill ("Tier 1 Capital").
The remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum Tier 1 Capital leverage ratio (Tier 1 Capital to totalaverage assets for
current quarter, less goodwill) of three percent (3%) for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies will generally be required to maintain
a minimum Tier 1 Capital leverage ratio of three percent (3%) plus an additional
cushion of 100 to 200 basis points. The Federal Reserve Board has not advised
First Financial of any specific minimum Tier 1 Capital leverage ratio applicable
to it. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets (e.g., goodwill, core deposit
intangibles and purchased mortgage servicing rights).
The following tables set forth the Tier 1 Capital to risk-weighted assets
ratios, the total capital to risk-weighted assets ratios and the Tier 1 leverage
ratios for First Financial and Weatherford HoldingsSouthlake individually and on a pro forma
combined basis as of certain dates and periods. Such pro forma combined data is
derived from the financial information of First Financial and Weatherford HoldingsSouthlake at SeptemberJune
30 or December 31 for each of the periods presented below and gives effect to
the Exchange and the Merger.
2628
Tier 1 Capital to Risk-Weighted Assets Ratio
(in each case calculated pursuant to the
risk-based capital guidelines)
Pro Forma Pro Forma
As of: First Financial First Financial(1) Weatherford HoldingsSouthlake Combined
- -------------------------- ---------------- ------------------ --------------------- ---------- ---------
SeptemberJune 30, 1995.. 20.38% 18.07% 17.96% 18.06%1997...... 19.51% 17.61% 12.31% 17.39%
December 31, 1994... 20.08% 18.99% 20.03%1996.. 18.90% 11.78% 18.57%
December 31, 1993... 16.76% 21.97% 16.93%1995.. 19.33% 10.75% 18.95%
December 31, 1992... 16.90% 23.81% 17.10%1994.. 20.03% 9.43% 19.68%
Total Capital To Risk-Weighted Assets Ratio
(in each case calculated pursuant to the
risk-based capital guidelines)
Pro Forma Pro Forma
As of: First Financial First Financial(1) Weatherford HoldingsSouthlake Combined
- -------------------------- ---------------- ------------------ --------------------- ---------- ---------
SeptemberJune 30, 1995.. 21.64% 19.18% 18.56% 19.15%1997...... 20.76% 18.74% 13.18% 18.51%
December 31, 1994... 21.34% 19.73% 21.27%1996.. 20.15% 12.56% 19.80%
December 31, 1993... 18.01% 22.97% 18.17%1995.. 20.57% 11.51% 20.18%
December 31, 1992... 18.39% 24.96% 18.58%1994.. 21.27% 10.10% 21.30%
Tier 1 Leverage Ratio
Pro Forma Pro Forma
As of: First Financial First Financial(1) Weatherford HoldingsSouthlake Combined
- -------------------------- ---------------- ------------------ ------------------------------- ----------
SeptemberJune 30, 1997...... 10.57% 9.40% 7.94% 9.35%
December 31, 1996.. 10.40% 7.95% 10.31%
December 31, 1995.. 10.91% 10.05% 8.26% 9.95%7.04% 10.67%
December 31, 1994... 10.26% 8.89%1994.. 10.19% December 31, 1993... 9.51% 8.09% 9.44%
December 31, 1992... 9.28% 7.83% 9.21%5.95% 10.14%
- -----------------
(1) SeptemberThe ratios as of June 30, 1995 ratios1997 include Citizensthe TCB-San Angelo Purchase. See
"Information about First Financial--Recent Developments."
In addition to the Federal Reserve Board capital standards, Texas-chartered
banks must also comply with the capital requirements imposed by the Texas
Banking Department. Although neither the Texas Banking Act nor the regulations
promulgated thereunder specify any minimum capital-to-assets ratio that must be
maintained by a Texas-chartered bank, the Texas Banking Department has a policy
that generally requires Texas-chartered banks to maintain a minimum 6% ratio of
stockholders equity (stated capital, surplus capital, surplus and undivided
profits or retained earnings) to total assets. As of September 30, 1995,December 31, 1996, all
Texas-chartered banks owned by First Financial exceeded the minimum ratio.
Failure to meet capital guidelines could subject an insured bank to a
variety of enforcement remedies, including the termination of deposit insurance
by the FDIC and a prohibition on the taking of brokered deposits. See "FDICIA" below.
Bankdeposits, and bank
regulators continue to indicate their desire to raise capital requirements
applicable to banking organizations beyond their current levels.
However, the management of First Financial is unable to predict
2729
whether and when higher capital requirements might be imposed and, if they are
imposed, at what levels and on what schedule.
FIRST FINANCIAL SUPPORT OF THE FIRST FINANCIAL BANKS
Under Federal Reserve Board policy, First Financial is expected to act as a
source of financial strength to each of its subsidiary banks and to commit
resources to support each of such subsidiaries. This support may be required at
times when, absent such Federal Reserve Board policy, First Financial would not
otherwise be required to provide it.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly controlled
FDIC-
insuredFDIC-insured depository institution, or (ii) any assistance provided by the FDIC
to any commonly controlled FDIC-insured depository institution "in danger of
default." "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a default is likely to occur in the absence
of regulatory assistance.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's shareholders, pro rata, and to the
extent necessary, if any such assessment is not paid by any shareholder after
three (3) months' notice, to sell the stock of such shareholder to make good the
deficiency.
FDIC INSURANCE ASSESSMENTS
The First Financial Banks must pay assessments to the FDIC for federal deposit
insurance protection under a risk based assessment system. FDIC-insured
depository institutions that are members of the Bank Insurance Fund pay
insurance premiums at rates based on their risk classification. Institutions
assigned to higher-risk classifications (that is, institutions that pose a
greater risk of loss to their respective deposit insurance finds) pay
assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In
addition, the FDIC can impose special assessments to cover the cost of
borrowings from the U.S. Treasury, the Federal Financing Bank, and Bank
Insurance Fund member banks. As of the date hereof, the assessment rate for
each of the First Financial Banks is at the lowest level risk-based premium
available.
FDICIA
Among other things, the Federal Deposit Insurance Corporation Improvement Act
of 1992 ("FDICIA") requires the federal banking agencies to take "prompt
corrective action" in respect of depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." A depository institution's
capital tier will depend upon where its capital levels are in relation to
various relevant capital measures, which will include a risk-based capital
measure, a leverage ratio capital measure and certain other factors.
Regulations establishing the specific capital tiers have been recently
enacted. Under these regulations, for an institution to be well capitalized it
must have a total risk-based capital ratio of at least ten percent (10%), a Tier
1 risk-based capital ratio of at least six percent (6%), and a Tier 1 leverage
ratio of at least five percent (5%), and not be subject to any specific capital
order or directive. For an institution to be adequately capitalized it must
have a total risk-based capital ratio of at least eight percent (8%), a Tier 1
risk-based capital ratio of at least four percent (4%), and a leverage ratio of
at least four percent (4%) (in some cases three percent (3%)). Under these new
regulations, the First Financial Banks would be considered to be well
capitalized as of December 31, 1994.
28
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. An "undercapitalized institution" must develop a capital
restoration plan and its parent holding company must guarantee that bank's
compliance with the plan. The liability of the parent holding company under any
such guarantee is limited to the lesser of 5% of the bank's assets at the time
it became "undercapitalized" or the amount needed to comply with the plan.
Furthermore, in the event of the bankruptcy of the parent holding company, such
guarantee would take priority over the parent's general unsecured creditors. In
addition, FDICIA requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally to operations
and management, asset quality and executive compensation and permits regulatory
action against a financial institution that does not meet such standards.
Banking agencies have recently adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
non-traditional activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, these banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk.
INTERSTATE BANKING AND BRANCHING ACT
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Interstate Banking and Branching Act"), a bank holding company is
able to acquire banks in states other than its home state. Prior to September
29, 1995, interstate acquisitions by bank holding companies were subject to
Federal law, which provided that no application to acquire shares of a bank
located outside of the state in which the operations of the acquiring bank
holding company were principally conducted would be approved by the Federal
Reserve Board unless such acquisition was specifically authorized by the laws of
the state in which the bank whose shares are to be acquired was located.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, therefore creating interstate branches, beginning June 1,
1997. Under such legislation, each state has the opportunity to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, pursuant to such act, a bank is now
able to open new branches in a state in which it does not already have banking
operations, if the laws of such state permit such DE NOVOde novo branching. Texas has
-- ----
adopted legislation to "opt out" of the interstate branching provisions (which
Texas law currently expires on September 2, 1999).
PENDING AND PROPOSED LEGISLATION
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. In 1995, several bills have been introduced
in Congress that would have the effect of broadening the securities underwriting
powers of bank holding companies and possibly permitting bank holding companies
to engage in nonfinancial activities. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on First
Financial and its subsidiaries cannot be determined at this time.
DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK
The following description contains a summary of all of the material
features of the capital stock of First Financial but does not purport to be
complete and is subject to and qualified in its entirety by reference to the
First Financial Articles of Incorporation, which are filed as exhibits to
documents incorporated by reference herein and by reference to the applicable
provisions of the Texas
Business Corporation Act.TBCA. See also "COMPARISON OF SHAREHOLDER RIGHTS" below. The
following description should be read carefully by the WeatherfordSouthlake Shareholders.
30
First Financial's total authorized capital stock consists of 10,000,000
shares of First Financial Common Stock with a par value of $10.00 per share.
There is no authorized preferred stock. As of November 1, 1995,June 30, 1997, there were issued
and outstanding 5,012,1338,415,136 shares of First Financial Common Stock.
The holders of First Financial Common Stock ("First Financial
Shareholders") are entitled to receive such dividends as may from time to time
be declared by the First Financial Board of Directors. First Financial
Shareholders are entitled to one vote per share of First Financial Common Stock
on every issue submitted to them as First Financial Shareholders at a meeting of
shareholders or otherwise. In the event of liquidation, First Financial
Shareholders are entitled to share ratably, after satisfaction in full of the
prior rights of creditors, in all assets of First Financial available for
distribution to First Financial Shareholders. First Financial Shareholders do
not have preemptive or cumulative voting rights. All shares of First Financial
Common Stock now issued and outstanding are fully paid and nonassessable.
29
COMPARISON OF SHAREHOLDER RIGHTS
In the event that the Exchange is consummated, WeatherfordSouthlake Shareholders whose
shares of Weatherford HoldingsSouthlake Common Stock are tendered in the Exchange Offer will become
First Financial Shareholders. Their rights will be governed by Texas law, the
First Financial Articles of Incorporation (the "First Financial Charter") and
the Bylaws of First Financial (the "First Financial Bylaws").
Certain differences between the rights of WeatherfordSouthlake Shareholders and First
Financial Shareholders are set forth below. As both Weatherford HoldingsSouthlake and First
Financial are organized under the laws of Texas, these differences primarily
arise from various provisions of the First Financial Charter, the First
Financial Bylaws, the Weatherford HoldingsSouthlake Articles of Incorporation (the "Weatherford Holdings"Southlake
Charter") and the Bylaws of Weatherford HoldingsSouthlake (the "Weatherford Holdings"Southlake Bylaws"). This summary
contains a description of the material differences in shareholder rights, but is
not meant to be relied upon as an exhaustive list or detailed description of the
provisions discussed herein and is qualified in its entirety by reference to the
TBCA, the First Financial Charter, the First Financial Bylaws, the Weatherford HoldingsSouthlake
Charter and the Weatherford HoldingsSouthlake Bylaws.
BOARD OF DIRECTORS
The First Financial Bylaws provide that the number of directors
constituting the First Financial Board of Directors shall be not less than three
and not more than thirty. Persons eligible for election to the First Financial
Board of Directors are First Financial Shareholders who, at the date of the
annual meeting of shareholders at which the Board is elected, (i) have not
attained the age of 72 years, or (ii) have not attained the age of 75 years and
own one percent (1%) or more of the outstanding shares of First Financial Common
Stock. Any director of First Financial may be removed, with or without cause, by
the holders of a majority of the shares outstanding.
The Weatherford HoldingsSouthlake Bylaws provide that the number of directors constituting the
Weatherford HoldingsSouthlake Board of Directors shall be not less than
one nor more than fifteen,determined by resolution of the exact number to be determined from time to timeSouthlake
Board of Directors or by the shareholders at their annualany meeting or at any special meeting called for
that purpose.thereof, but shall
never be less than three. At any meeting of WeatherfordSouthlake Shareholders called
expressly for the purpose of removing a director, any director or the entire
Weatherford
HoldingsSouthlake Board of Directors may be removed, with or without cause, by a vote of
the holders of a majority of the shares then entitled to vote at any election of
directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The First Financial Charter provides that each director, officer, employee
and agent of First Financial shall be indemnified for all expenses incurred in
connection with any action, suit, proceeding or claim to which he or she is
named a party or otherwise by virtue of holding such position; provided,
however, that no indemnification of employees or agents (other than directors or
officers) will be made without express
31
authorization of the Board of Directors. The First Financial Charter provides
that such indemnification shall be provided to the fullest extent permitted by
applicable law.
The Weatherford HoldingsSouthlake Charter and Bylaws do not provide that Weatherford Holdings shall
indemnify itsfor the indemnification of
officers or directors and officers against expenses actually and necessarily
incurred by such person in connection with the defense of any action, suit, or
proceeding, whether civil or criminal, in which he or she is made a party by
reason of being or having been such director or officer, except in relation to
matters as to which he or she shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in performance of duty.Southlake.
SPECIAL MEETINGS OF SHAREHOLDERS
The First Financial Bylaws provide that a special meeting of shareholders
may be called by (i) a majority of the Board of Directors, or (ii) by the Chief
Executive Officer joined by at least three members of the Board of Directors, or
(iii) by shareholders holding voting rights of not less than 20% of the stock of
the corporation.
The Weatherford HoldingsSouthlake Bylaws provide that a special meeting of the shareholders may
be called by the President, the Board of Directors or by any five or more shareholders owning
not less than 10%30% of all the shares entitled to vote at the
meeting.
30
stock of Southlake.
INFORMATION ABOUT FIRST FINANCIAL
GENERAL
First Financial is a Texas corporation and a multi-bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "BHCA").BHCA. First Financial owns, through its wholly-owned
Delaware subsidiary, First Financial Bankshares of Delaware, Inc., all of the
capital stock of seveneight banks located in Texas: First National Bank of Abilene,
Abilene, Texas; Hereford State Bank, Hereford, Texas; First National Bank,
Sweetwater, Texas; Eastland National Bank, Eastland, Texas; The First National
Bank in Cleburne, Cleburne, Texas; Stephenville Bank and Trust Co.,
Stephenville, Texas; and Southwest Bank
of San Angelo National Bank, San Angelo, Texas; and
Weatherford National Bank, Weatherford, Texas (collectively, the "First
Financial Banks"). As of SeptemberJune 30, 1995,1997, First Financial and its consolidated
subsidiaries had total assets of approximately $1.03$1.3 billion, total deposits of
approximately $905.7 million,$1.1 billion, total loans (net of allowance for loan losses) of
approximately $446.2$572.5 million and total shareholders' equity of approximately
$112.4$137.2 million.
First Financial operates principally in order to give the First Financial
Banks access to additional management and technical resources which help them to
improve or expand their banking and other services while continuing their local
activity.activity and identity. Each of the First Financial Banks operates under the day-to-dayday-
to-day management of its board of directors and officers, with substantial
authority in making decisions concerning its own investments, loan policies,
interest rates and service charges. First Financial provides assistance to the
First Financial Banks, especially with respect to decisions concerning major
capital expenditures, employee fringe benefits, including pension plans and
group insurance, dividend policies, appointment of officers and directors of
First Financial Banks and their compensation. The internal audit and loan review
functions are centralized at First Financial. Each of these corporate staff
groups performs on-site operational audits and loan reviews of the subsidiary
banks. First Financial, through First National Bank of Abilene, provides advice
to and specialized services for the affiliated banks in such areas as lending,
investments, purchasing, advertising, public relations and computer services.
Each First Financial Bank is engaged in the general commercial banking
business consisting of the acceptance of checking, savings and time deposits,
the making of loans, transmitting funds and performing such other banking
services as are usual and customary for commercial banks.
In addition to First National Bank of Abilene, Hereford State Bank, First National Bank, Sweetwater, and
Stephenville Bank and Trust Co. have active trust departments. The trust
departments offer a complete range of services to individuals, associations and
corporations, including the administration of estates, testamentary trusts and
various types of living trusts and agency accounts. Other sources of revenue are
services for businesses, including administering pension, profit sharing, and
other employee benefit plans, acting as stock transfer agent or stock registrar,
and providing paying agent services. First National Bank of Abilene, The First
National Bank in Cleburne, San Angelo National Bank and Weatherford National
Bank provide brokerage services through arrangements with various third parties.
32
Commercial banking in Texas is very competitive and First Financial,
holding less than 1% of deposits, represents only a minor segment of the
industry. Success is dependent upon being able to compete in the areas of
interest rates paid or charged and scope of services offered and prices charged
therefor. Subsidiary banks of First Financial compete in their respective
service areas with highly competitive banks, savings and loan associations,
small loan companies, credit unions and brokerage firms, all of which are
engaged in providing financial products and services.
In addition to competition from other banks, the First Financial Banks will
also continue to be subject to substantial competition from other financial
institutions, such as savings and loan associations, small loan companies,
credit unions and brokerage firms, all of which are engaged in providing
financial products and services.
First Financial's principal executive offices are located at 400 Pine
Street, Abilene, Texas 79601, and its telephone number is (915) 675-7155.627-7155. For
further information concerning First Financial which is incorporated herein by
reference from certain publicly-filed documents, see "Incorporation by
Reference."
31
RECENT DEVELOPMENTS
On September 7, 1995,May 27, 1997, San Angelo National Bank (f/k/a Southwest Bank of San
Angelo) ("Southwest Bank"), a subsidiary bank of First Financial, entered into an acquisition agreementa
Purchase and Assumption Agreement (the "Agreement") with Citizens Equity Corp. ("Citizens Equity"), The Citizens NationalTCB-San Angelo,
pursuant to which Southwest Bank of
Weatherford ("Citizens National") and various persons (the "Principal
Shareholders") owning, in the aggregate, more than two-thirds (2/3) of the
issued and outstanding shares of the common stock of Citizens Equity ("Citizens
Equity Stock"). Pursuant to the acquisition agreement, the Principal
Shareholders have agreed to sell, and First Financial has agreed to purchase allcertain assets and assume
certain liabilities (including deposit liabilities) of the Principal Shareholders' sharesbanking business of
Citizens Equity Stock for $60.00
per share, subject to certain price adjustments statedTCB-San Angelo in the City of San Angelo, Texas. The transaction (other than the
acquisition agreement. First Financial shall also make a cash tender offer to the remaining
shareholders of Citizens Equity to acquire their Citizens Equity Stock at the
same price per share at which the Principal Shareholders have agreed to sell
their shares. Consummation of the transaction is conditioned upon tender of
100% of the issued and outstanding shares of Citizen Equity Stock. It is also a
condition precedent to consummation of the transaction that Citizens Equity
acquire all, or substantially all, of the remaining shares of Citizens National
common stock not presently owned by Citizens Equity and that Citizens Equity
also redeem all 311 shares of its presently issued and outstanding Preferred
Stock.TCB-San Angelo's trust business) was consummated on September 26,
1997. Closing of the purchaseacquisition of Citizens Equity Stockthe trust business is expected to occur
during the first quarter of 1996. If1998.
The assets to be acquired (the "Acquired Assets") by Southwest Bank
pursuant to the transaction is consummated, Citizens
Equity will be merged withAgreement include (1) three banking facilities (land and
into FFB Delaware and Citizens National shall
become a subsidiary of FFB Delaware. It is also anticipated that Citizens
National will be merged with and into Weatherford National and that Weatherford
National, as the surviving bank, will have its principal banking facility in
Weatherford, Texas and branches in both Weatherford and Aledo, Texas.
In addition to certain conditions precedent statedbuildings) located in the acquisition
agreement, consummationCity of San Angelo, Texas, together with all their
furniture, furnishings, equipment and closingfixtures, (2) all loans of TCB-San Angelo,
other than certain loans which were specifically excluded, and (3) the stock of
all subsidiaries of TCB-San Angelo. Pursuant to the terms of the stock purchase transaction is subject
to approvalAgreement,
Southwest Bank will acquire and assume the trust business of TCB-San Angelo by
the Federal Reserve Board and other federal and state regulatory
authorities. The Federal Reserve Board has approved the acquisition. Funding of
the stock purchase will be provided from available cash reserves of First
Financial.
Citizens Equity is a Texas corporation and registered bank holding company
which owns approximately 91%acquiring all of the issued and outstanding capital stock of Citizens
National. Both Citizens EquitySan Angelo Trust
Company, National Association, a subsidiary trust company to be formed by TCB-
San Angelo to which all of the trust business and Citizens National areassets of TCB-San Angelo shall
be transferred in accordance with applicable federal and Texas banking laws. In
addition to deposit liabilities, Southwest Bank assumed certain other
liabilities, including safekeeping and safe deposit liabilities, and certain
other contracts, leases and other agreements (collectively, with the deposit
liabilities, the "Assumed Liabilities").
TCB-San Angelo is a national banking association which is indirectly
wholly-owned by Chase Manhattan Corporation. The principal banking office of
TCB-San Angelo is located at 301 West Beauregard in the City of Weatherford, Parker County, Texas. At September 30, 1995, Citizens EquitySan Angelo,
Texas, and TCB-San Angelo has a drive-in facility at 222 South Koenighein and a
branch facility at 3399 Knickerbocker Road in the City of San Angelo. As of
August 31, 1997, TCB-San Angelo had deposit liabilities of $148.3 million, total
liabilities of $148.7 million, loans in the amount of $67.6 million and total
assets held for sale of approximately $11,000,000, substantially all$74.4 million. The purchase price for the banking and
trust business of which is its
stock in Citizens National, which is its only operating subsidiary. Citizens
NationalTCB-San Angelo was originally chartered in 1868 and at July 31, 1995, had totalequal to the sum of (1) an amount equal to
the aggregate book value of the Acquired Assets minus the aggregate book value
-----
of the Assumed Liabilities, both determined as of the closing date, plus (2) a
----
premium of $16,800,000. Although Southwest Bank did not receive any cash, cash
equivalents or investment assets of approximately $94,000,000 and shareholders' equity of approximately
$8,400,000.
On July 28, 1995, First Financial acquired Citizens StateTCB-San Angelo, TCB-San Angelo was required
to pay to Southwest Bank, in Roby,cash, at closing, the amount by which the book
value of the Assumed Liabilities exceeded the sum of the book value of the
Acquired Assets and the premium to be paid by Southwest Bank. Pursuant to the
foregoing, TCB-San Angelo transferred to Southwest Bank funds totaling
approximately $57.5 million, in addition to the loans, banking premises and
facilities and other Acquired Assets.
Contemporaneously with entering into the Agreement with TCB-San Angelo,
Southwest Bank made application to the OCC to convert Southwest Bank from a
Texas ("Roby"). The Roby bank was purchased for cash by Firststate banking association to a national banking association under the
charter of San Angelo National Bank. Conversion of Southwest Bank to San Angelo
National Bank Sweetwater and then converted to a branch of First National Bank, Sweetwater.occurred on September 26, 1997.
33
MARKET PRICES OF AND DIVIDENDS PAID ON FIRST FINANCIAL COMMON STOCK
Since November 1, 1993, the First Financial Common Stock has been traded on
the NASDAQ National Market under the trading symbol "FFIN." The following table
sets forth, for the periods indicated, the high and low bid prices and cash
dividends declared per share of First Financial Common Stock. The information
with respect to price quotations was obtained from The Principal/Financial
Securities, Inc. of Abilene, Texas, a securities brokerage firm, and have been
adjusted to reflect stock splits and stock dividends.
DIVIDENDS
HIGH LOW DECLARED
------ ----------- ---------
1995:
1993:
First Quarter............ $29.45 $28.36Quarter......................... $16.50 $15.75 $0.18
Second Quarter........................ 19.50 16.50 0.20
Third Quarter......................... 20.50 18.75 0.20
Fourth Quarter........................ 20.75 19.25 0.20
1996:
First Quarter......................... $22.75 $20.75 $0.20
Second Quarter........... 31.20 29.45 0.26Quarter........................ 29.25 22.75 0.22
Third Quarter............ 32.00 31.20 0.26Quarter......................... 29.25 24.75 0.22
Fourth Quarter........... 33.20 32.00 0.26
32
1994:Quarter........................ 30.50 27.50 0.22
1997:
First Quarter............ $35.60 $31.60 $0.26Quarter......................... $31.25 $22.50 $0.22
Second Quarter........... 32.40 28.80 0.28Quarter........................ 37.00 29.25 0.25
Third Quarter............ 30.00 28.00 0.28
Fourth Quarter........... 28.50 24.00 0.28
1995:
First Quarter............ $26.00 $24.75 $0.28
Second Quarter........... 30.50 26.00 0.31
Third Quarter............ 31.75 29.50 0.31
Fourth Quarter (through November 20, 1995)...... 30.50 30.25 0.31September 29,
1997)................................. 45.00 36.00 0.25
On October 19, 1995August 15, 1997 (the last trading day preceding the execution of the
Exchange Agreement), the last sales price of First Financial Common Stock, as
reported by NASDAQ, was $32.00$39.50 per share. On __________, 19951997 (the last
practicable date prior to the mailing of this Prospectus), the last sales price
of First Financial Common Stock, as reported by NASDAQ, was $____________ per
share.
WEATHERFORDSOUTHLAKE SHAREHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
FIRST FINANCIAL COMMON STOCK. NO ASSURANCE CAN BE GIVEN CONCERNING THE MARKET
PRICE OF FIRST FINANCIAL COMMON STOCK BEFORE OR AFTER THE DATE ON WHICH THE
EXCHANGE IS CONSUMMATED. THE MARKET PRICE OF FIRST FINANCIAL COMMON STOCK WILL
FLUCTUATE BETWEEN THE DATE OF THIS PROSPECTUS AND THE DATE ON WHICH THE EXCHANGE
IS CONSUMMATED AND THEREAFTER.
The timing and amount of future dividends on First Financial Common Stock
will depend upon earnings, cash requirements, the financial condition of First
Financial and its subsidiaries, applicable government regulations and other
factors deemed relevant by the Board of Directors of First Financial. As
described under "Certain Regulatory Considerations," various state and federal
laws limit the ability of the First Financial Banks to pay dividends to First
Financial.
On October 10, 1995,September 12, 1997, there were 1,3941,559 holders of record of First
Financial Common Stock.
34
INFORMATION ABOUT WEATHERFORD HOLDINGSSOUTHLAKE
GENERAL
Weatherford HoldingsSouthlake is a one bank holding company formed in 19841987 and incorporated in
the State of Texas. Weatherford HoldingsSouthlake owns all100% of the capital stock of Parker Bancshares, Inc. ("Parker Bancshares"), a Delaware
corporation and bank holding company that owns all of the capital stock of
WeatherfordTexas National
Bank ("WeatherfordTexas National"), a national bank having isits principal office in the City
of Weatherford, ParkerSouthlake, Tarrant County, Texas. WeatherfordTexas National, which began operations in
1984,1985, is federally chartered and is insured by the Federal Deposit Insurance Corporation.
33
FDIC.
MARKET AREA
Weatherford HoldingsSouthlake and Texas National are located approximately 20 miles northeast
of downtown Fort Worth, Texas and within the Fort Worth-Dallas metropolitan
area. In addition, Texas National maintains a branch location in Trophy Club,
Denton County, Texas. Through its two locations, Southlake conducts business
principally in Parker CountyTarrant and Denton Counties and surrounding areas through its two locations in Weatherford, Texas.areas.
SERVICES
WeatherfordTexas National provides a full range of both commercial and consumer
banking services including loans, checking accounts, savings programs, safe
deposit facilities, access to automated teller machines, and credit card
programs. The bank does not offer trust services.
COMPETITION
The business of banking in WeatherfordTexas National's market area is highly
competitive. In Weatherford, sixSouthlake, eight other banks operate with nineeight locations. WeatherfordTexas
National also competes with credit unions, saving and loan associations,
investment brokers, insurance companies, and mortgage companies.
EMPLOYEES
As of September 30, 1995, Weatherford HoldingsAugust 31, 1997, Southlake and its subsidiaries employed 2821 full time
and 53 part time employees.
PROPERTIES
WeatherfordTexas National has two locations in Weatherford.locations. Its principal office is located at 101 College Drive3205
E. Highway 114, Southlake, Texas, 76092 and a full service branch office is
located at 1214 N. Main.Trophy Club, Texas.
MARKET FOR AND DIVIDENDS PAID ON WEATHERFORD HOLDINGSSOUTHLAKE COMMON STOCK
There is no established public trading market for Weatherford HoldingsSouthlake Common Stock.
Weatherford HoldingsSouthlake Common Stock is not listed on a national securities exchange and is
not authorized for quotation on an interdealer quotation system. As of October 1, 1995,September
30, 1997, there were 14736 holders of record of Weatherford HoldingsSouthlake Common Stock. Weatherford HoldingsSouthlake
has not paid dividends on Weatherford HoldingsSouthlake Common Stock in 1994 and 1995, but payment of future dividends is not assured.
The Exchange Agreement permits Weatherford to pay in January 1996 a dividend of
$.50 per share to shareholders of record as of a date in December 1995.since inception.
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of October 1, 1995,September 30, 1997, the management of Weatherford HoldingsSouthlake knew of no person,
other than those listed below (the "5% Southlake Shareholders"), owning
beneficially more than 5% of the Weatherford HoldingsSouthlake Common Stock.
Shares of Weatherford HoldingsSouthlake Percentage of
Common Stock Percentage of Weatherford HoldingsOutstanding
Name and Address of Beneficial Owner Beneficially Owned(1) Southlake Common Stock
Outstanding
------------------------------------- ------------------------------ ----------------------------------- ------------------------------------ --------------------- ----------------------
Walter F. Worthington 67,565/(2)/ 31.3%
803 East Park
Weatherford,Carmen Blankenship 12,800 5.29%
1311 W. Irving Blvd.
Irving, Texas 7608675061
James E. Burger 14,840 6.13%
334 Pebblebrook Drive
Grapevine, Texas 76051
Barry K. Emerson 24,829 10.25%
4356 Homestead Drive
Roanoke, Texas 76262
Derrell E. Johnson 18,840 7.78%
2503 Hillside Court
Southlake, Texas 76092
Wayne Lee 23,190 9.58%
3220 W. Southlake Blvd., Suite C
Southlake, Texas 76092
James R. Ridenour 14,840 6.13%
1030 Diamond Blvd.
Southlake, Texas 76092
ESOP 13,533 5.59%
3205 E. Highway 114
Southlake, Texas 76092
34
Mac A. Coalson 40,142/(3)/ 18.6%
7801 New Authon Road
Weatherford, Texas 76086
Melvin L. Worthington 27,360/(4)/ 12.7%
403 West Oak
Weatherford, Texas 76086
Gerald E. Davis 12,500 5.8%
P.O. Box 640
Weatherford, Texas 76086
Bill G. Wester 11,316 5.2%
107 Edge Hill Terrace
Weatherford, Texas 76086
- --------------
(1) As determined in accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended.
(2) Walter F. Worthington may be deemed to beneficially own 67,565 shares, 746
shares of which are owned directly by Frances Fant Worthington Special
Trust, of which Mr. Worthington is a trustee, and 20,402 shares of which are
owned directly by Worthington Properties Ltd., of which Frances Fant
Worthington Special Trust is a general partner, of which Mr. Worthington is
a trustee.
(3) Mac A. Coalson may be deemed to beneficially own 40,142 shares, 20,000
shares of which are owned directly by The McAllen F. and Greg T. Coalson
Trust, of which Mr. Coalson is a trustee.
(4) Melvin L. Worthington may be deemed to beneficially own 27,360 shares, 746
shares of which are owned directly by Frances Fant Worthington Special
Trust, of which Mr. Worthington is a trustee and 20,402 shares of which are
owned directly by Worthington Properties Ltd., of which Frances Fant
Worthington Special Trust is a general partner, of which Mr. Worthington is
a trustee.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as to the shares of Weatherford
HoldingsSouthlake
Common Stock beneficially owned by each director and executive officer and for
all directors and executive officers as a group as of October 1, 1995.September 30, 1997.
Shares of Weatherford HoldingsSouthlake
Common Stock Percentage of Weatherford HoldingsSouthlake
Name Beneficially Owned(1) Common Stock Outstanding
------- ---- --------------------- -----------------------------------------------------------
HelenJames E. Burger 14,840 6.13%
Wade Donnell 8,047 3.32%
Jack Dortch 8,840 3.65%
Barry K. Emerson 24,829 10.25%
Grover G. Brogdon 452 *
Mac A. Coalson 40,142/(3)/ 18.6%
GeraldFickes 10,692 4.42%
Derrell E. Davis 12,500 5.8%
Larry V. Mangrem 2,100 1.0%
Bill G. Wester 11,316 5.2%
Brookes B. Worthington 1,315 *
Melvin L. Worthington 27,360/(4)/ 12.7%
Walter F. Worthington 67,565/(2)/ 31.3%Johnson 18,840 7.78%
Wayne Lee 23,190 9.58%
Robert S. Mundlin 3,000 1.24%
James R. Ridenour 14,840 6.13%
John E. Thompson 9,840 4.06%
------- -----
All directors and executive
35
officers as a group: 141,602 65.6%group 136,958 56.57%
======= =====
- --------------
* Indicates beneficial ownership is less than one percent.
(1) Each director and executive officer of Weatherford Holdings has sole voting
and investment powers with respect to all shares of Weatherford Holdings
Common Stock shown as beneficially owned by such director or executive
officer except as otherwise indicated in the following footnotes. Beneficial
ownership is determined in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended.
(2) Walter F. Worthington may be deemed to beneficially own 67,565 shares, 746
shares of which are owned directly by Frances Fant Worthington Special
Trust, of which Mr. Worthington is a trustee, and 20,402 shares of which are
owned directly by Worthington Properties Ltd., of which Frances Fant
Worthington Special Trust is a general partner, of which Mr. Worthington is
a trustee.
(3) Mac A. Coalson may be deemed to beneficially own 40,142 shares, 20,000
shares of which are owned directly by The McAllen F. and Greg T. Coalson
Trust, of which Mr. Coalson is a trustee.
(4) Melvin L. Worthington may be deemed to beneficially own 27,360 shares, 746
shares of which are owned directly by Frances Fant Worthington Special
Trust, of which Mr. Worthington is a trustee and 20,402 shares of which are
owned directly by Worthington Properties Ltd., of which Frances Fant
Worthington Special Trust is a general partner, of which Mr. Worthington is
a trustee.36
After giving effect to the First Financial Common Stock to be issued in the
Exchange and the Merger, and based on the number of shares of First Financial
Common Stock outstanding as of November 1, 1995,September 30, 1997, no director or executive
officer of Weatherford HoldingsSouthlake or 5% Southlake Shareholder will beneficially own more than
one percent (1%) of the outstanding First Financial Common Stock immediately
after the Exchange and the Merger, other than Walter F. Worthington and Mac A. Coalson who will own
1.9% and 1.1%, respectively, of the outstanding First Financial Common Stock
immediately followingMerger. Also, after the Exchange, and the Merger.
There are no commitments at this time for the issuance of shares to any
officer, director or
other major stockholders.
36executive officer of Southlake or 5% Southlake Shareholder will beneficially own
any outstanding shares of Southlake Common Stock.
37
SELECTED CONSOLIDATED FINANCIAL DATA OF WEATHERFORD HOLDINGSSOUTHLAKE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
The following tables present selected historical consolidated financial
data of Weatherford HoldingsSouthlake as of the dates and for the periods indicated. Results of
operations for the ninesix months ended SeptemberJune 30, 19951997 are not necessarily indicative
of results for a full fiscal year. The financial data should be read in
conjunction with the historical consolidated financial statements of Weatherford HoldingsSouthlake
and related notes included elsewhere herein.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINESIX MONTHS YEARSENDED
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------- SEPTEMBERJUNE 30,
1990 1991------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- ---------- ---------- ------------ ----------- --------- --------
OPERATING RESULTS:
Net interest income..................income......... $ 1,1861,272 $ 1,3581,522 $ 1,7871,609 $ 1,9251,929 $ 2,0532,175 $ 1,7001,050 $ 1,173
Provision for loan losses............ 42 63 71 3 3 34losses... -- 18 35 68 72 36 36
Noninterest income................... 430income.......... 482 544 1,244 720 527560 560 632 899 609 302
Noninterest expense.................. 1,139 1,204 1,304 1,553 1,544 1,329expense......... 1,408 1,575 1,681 1,781 2,146 1,044 1,121
------- ------- ------- ------- ------- ------- -------
Income before income taxes........... 435 573 956 1,613 1,226 864
Provisions (benefit)taxes.. 346 489 453 712 856 579 318
Provision for income taxes........................ 126 175 289 511 378 275taxes.. 96 102 111 172 167 143 54
------- ------- ------- ------- ------- ------- -------
Net income before
cumulative effect of
accounting change................ 309 398 667 1,103 848 589change.......... 250 387 342 540 689 436 264
Cumulative effect of
accounting change..............................change(1)....... -- (34) -- -- -- (19) -- --
------- ------- ------- ------- ------- ------- -------
Net income...........................income.................. $ 309250 $ 398353 $ 667342 $ 1,084540 $ 848689 $ 589436 $ 264
======= ======= ======= ======= ======= ======= =======
Net income per Weatherford
HoldingsSouthlake
Common Share before
cumulative effect
of accounting change................change....... $ 1.401.32 $ 1.821.98 $ 3.061.71 $ 5.112.56 $ 3.923.14 $ 2.732.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
Net income per Weatherford
HoldingsSouthlake
Common Share............... $ 1.401.32 $ 1.821.80 $ 3.061.71 $ 5.022.56 $ 3.923.14 $ 2.732.00 $ 1.16
======= ======= ======= ======= ======= ======= =======
FINANCIAL POSITION:
Assets............................... $33,698 $41,617 $47,808 $51,406 $54,369 $62,142
Loans................................ 11,821 12,606 13,822 16,397 21,151 25,005Total assets................ $34,459 $36,507 $38,653 $46,725 $50,944 $47,632 $53,654
Loans, net of allowance
for loan losses............ 12,854 17,006 18,770 21,971 25,975 23,272 25,427
Investment Securities................ 14,829 22,906 25,787 26,705 27,706 29,411
Deposits............................. 30,467 38,182 43,856 47,039 49,321 56,542
Stockholders' equity................. 1,912 2,292 2,935 4,019 4,609 5,133securities....... 10,024 10,957 13,531 10,156 10,241 15,088 14,398
Deposits.................... 31,824 33,641 35,101 42,891 46,741 43,475 49,056
Total shareholders' equity.. 1,766 2,192 2,404 3,135 3,923 3,600 4,221
SIGNIFICANT RATIOS:
Return on assets..................... 0.98% 1.10% 1.50% 2.26% 1.66% 1.03%assets............ 0.80% 1.00% 0.90% 1.28% 1.46% 1.87% 1.05%
Return on equity..................... 10.94% 13.06% 19.90% 29.16% 19.50% 12.30%equity............ 11.43% 14.38% 14.53% 19.64% 19.39% 25.83% 13.12%
Net interest margin.................. 3.49% 3.10% 3.95% 3.77% 3.38% 3.46%margin......... 5.08% 5.28% 5.19% 5.70% 5.78% 5.63% 5.81%
Earning assets to assets............. 88.60% 01.05% 91.52% 90.74% 90.96% 91.33%assets.... 85.28% 84.27% 85.90% 85.40% 85.22% 85.31% 85.72%
Book value per share(1).............. 8.69 10.49 13.59 18.61 21.34 23.77share(2)..... $ 9.33 $ 11.19 $ 11.98 $ 15.62 $ 18.78 $ 17.23 $ 19.93
(Footnotes may appear on following page)
______________- -------------------------
(1) As of January 1, 1993, Southlake recorded the cumulative effect of the
change in accounting for income taxes to comply with Statement of Financial
Accounting Standards No. 109.
(2) At period end
37end.
38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WEATHERFORD HOLDINGSSOUTHLAKE
INTRODUCTION
Included in this review are the following sections:
I. Overview of Operations
II. Net Interest Income
III. Asset Quality
IV. Deposits
V. Return on Equity and Assets
VI. Noninterest Income and Expense and Income Taxes
VII. Liquidity and Interest Rate Sensitivity
VIII. Capital
IX. Discussion of First NineSix Months of 1995ended June 30, 1997 versus First NineSix Months of
1994ended
June 30, 1996
This discussion should be read in conjunction with the financial
statements, notes and tables included elsewhere in this Prospectus. Definitions
of terms used in this discussion include:
Average Balances
All average balances are calculated on the basis of daily averages. Interim
period annualizations are based on actual days in the relevant period.
Fully Taxable Equivalent Basis (FTE):
Income on earning assets which is subject to either a reduced rate or zero
rate of income tax has been adjusted to give effect to the statutory federal
income tax rate of 34%. Where appropriate, yield calculations include these
adjustments.
Net Interest Income:
Interest and related fee income on earning assets (FTE basis where
appropriate) reduced by total interest expense on interest bearing liabilities.
Net Interest Margin:
Net interest income on an FTE basis expressed as a percent of average
earning assets.
3839
I. OVERVIEW OF OPERATIONS
General
Net income of Weatherford Holdings for 19941996 was $848$689 thousand as compared to $1.01 million for 1993 and $667$540 thousand for 1992. Earnings1995
and $342 thousand for 1994. The 1996 increase was primarily attributable to
higher net interest income and increased noninterest income. Increased net
interest income was the primary factor in the 1995 increase over 1994.
On a per share were
$3.92, $5.02, and $3.06basis, 1996 net income amounted to $3.14 as compared to
$2.56 for 1995. In 1994 1993, and 1992, respectively.Southlake earned $1.71 per share. Return on average
assets for 1996 was 1.66% for 19941.46 percent as compared to 2.26% in 19931.28 percent for 1995 and 1.50% in 1992..90
percent for 1994. Return on shareholders'average equity in 1994for 1996 was 19.53%19.39 percent as
compared to 29.16% in 199319.64 percent for 1995 and 19.90% in 1992. The 1993 amounts reflect14.53 percent for 1994.
Net Interest Income
-------------------
On a $19 thousand reduction in earnings
which represented the cumulative effect of the adoption of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The decreased income for 1994
is attributed to a reduction in securities gains which amounted to $438
thousand, after-tax in 1993. Securities gains in 1994 were not significant, and
there were no securities gains or losses in 1992.
As shown in Table 1,taxable equivalent basis, net interest income in 1996 totaled $2.3
million, an increase of $281 thousand over the 1995 amount, which was $350
thousand higher than 1994. These yearly increases have resulted primarily from a
higher volume of average earning assets and deposits. Table 1 provides the
income and average yield earned on a tax-equivalent basisearning assets and the interest expense and
average rate paid on interest-bearing liabilities for the years 1994 amounted to $2.12 million as compared to $1.99 million for 1993 and $1.85
million for 1992.through
1996. Table 2 summarizes thepresents year-to-year changes in net interest income on a
fully tax-equivalent basis by major category of interest-earning assets and interest-bearing liabilities, identifyingallocates
the changes relatedattributable to variances in volumes and rates. The net interest
margin which measures net interest income as a percentage of average earning
assets amounted to 5.78 percent in 1996 as compared to 5.70 percent in 1995 and
5.19 percent in 1994. The improvement in 1996 is attributed to an increase in
the level of noninterest liabilities to fund earning assets. Growth in average
loans was the primary factor contributing to the 1995 increase over 1994.
Provision for Loan Losses
-------------------------
In 1996 the provision for loan losses in 1994charged against earnings amounted to
$3 thousand which was equal
to the 1993 amount and below the 1992 total of $71 thousand. Net charge-offs in
1994 totaled $7$72 thousand as compared to net recoveries of $5 thousand and $12$68 thousand in 19931995 and 1992, respectively.$35 thousand in 1994. Net
charge offs in 1996 amounted to $31 thousand, up from $21 thousand in 1995 but
below the 1994 total of $37 thousand. Nonperforming assets at December 31, 1994, amounted to $891996,
totaled $599 thousand as compared to $51$592 thousand at December 31, 1993,the end of 1995 and $62$325
thousand at December 31, 1992.the end of 1994. During 1996 nonaccrual loans increased $178
thousand, while foreclosed assets decreased $170 thousand. The 1995 increase
resulted from an increase in foreclosed assets. Table 7 provides the components
of nonperforming assets and Table 8 provides an analysis of the Allowance for
Loan Losses. Management is not aware of any classified loan not properly
classified as nonperforming and considers the allowanceAllowance for loan lossesLoan Losses to be
adequate.
Noninterest Income
------------------
Table 12 presents the detail of noninterest income for 1994 totaled $720which amounted to $899
thousand in 1996 as compared to $1.2 million
in 1993 and $543$632 thousand in 1992. As shown1995. Gain on sale of
foreclosed assets in Table 11,1996 was the 1994 decrease was
due primarilyprimary factor contributing to lower securities gains which totaled $664 thousand in 1993.
Service fees on deposit accounts and brokerage commissions in 1994 reflect
increasesthe increase
over the prior year total. In 1995, the gain on sale of foreclosed assets and
offsethigher real estate mortgage fees accounted for the increase over the 1994 total.
Noninterest Expense
-------------------
Noninterest expense for 1996 amounted to some extent$2.1 million, which was $365
thousand above the decrease in
securities gains. Totalprior year total. In 1995, noninterest expense for 1994 amounted to
$1.5$1.8 million and was $9 thousand below the 1993 total. Noninterest expensecompared to $1.7 million in 1992 amounted
to $1.3 million. Salaries and employee benefits, the largest component of
noninterest expense, increased $31 thousand, or 4.5%, to $708 thousand in 1994,
with essentially all of the increase being in salaries. Total salaries and
employee benefits totaled $677 thousand in 1993, which was up $105 thousand from
the 1992 total.1994. Table 12 provides detail of
noninterest expense and the changes from the prior year. An important measure in
determining effectiveness in managing noninterest expenses is efficiency ratio,
which is calculated by dividing the noninterest expense by the sum of net
interest income on a tax-equivalent basis and noninterest
40
income. Southlake's efficiency ratios were 66.56 percent, 66.55 percent and
74.53 percent in 1996, 1995 and 1994, respectively.
Income tax expense for 1994 amounted to $3781996 totaled $167 thousand as compared to $511$172
thousand in 1993for 1995 and $289$111 thousand in 1992. Weatherford Holdings'for 1994. Southlake's effective tax rates on
pre-taxpretax income were 30.9%, 31.6%,19.5 percent, 24.2 percent and 30.2%24.5 percent, respectively,
for the years 1994, 1993,1996, 1995 and 1992, respectively1994. The lower effective tax rate for 1996
resulted from an increase in tax-exempt investment securities.
Balance Sheet Review
Total assets amounted to $54.3at the end of 1996 were $50.9 million, and $51.4up $4.2 million, ator 9
percent, from the December 31, 1994
and 1993, respectively.1995, total. During 19941996, total assets averaged
$51.0 million
compared to an average of $48.8 million in 1993.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 which modified the accounting for
investment securities. The statement requires management to classify debt and
equity securities as held-to-maturity, available-for-sale, or trading based on
their intent. Securities classified as held-to-maturity are recorded at cost,
adjusted for amortization of premiums and accretion of discounts. Securities
classified as available-for-sale are recorded at fair value, with unrealized
gains and losses, net of deferred taxes, excluded from earnings and reported in
a separate component of shareholders' equity. Securities classified as trading
are recorded at fair value, with unrealized
39
gains and losses included in earnings. As permitted by the statement,
Weatherford Holdings adopted this statement effective January 1, 1994, and the
resulting cumulative adjustment increased investment securities $37.7 thousand,
deferred income taxes payable $12.8 thousand, and shareholders' equity $24.9
thousand. Holding investment securities until maturity continues to be
Weatherford Holdings' primary investment strategy. Investment securities
totaling $3.8 million, however, are classified as available-for-sale which
provides Weatherford Holdings flexibility in asset and liability management to
liquidate prior to maturity certain investments. Investment securities at
December 31, 1994, totaled $27.7$47.2 million as compared to $26.7$42.0 million atduring 1995.
Investment Securities
---------------------
At December 31, 1993. Table1996, the investment securities portfolio totaled $10.2
million, virtually unchanged from the prior year end. At December 31, 1996,
securities with an amortized cost of $7.3 million were classified as securities
held-to-maturity and securities with a market value of $2.9 million were
classified as securities available-for-sale. Total investment securities at
year-end 1996 included structured notes with an amortized cost of $200 thousand
and an approximate market value of $199 thousand. Tables 3 presentsand 4 provide detail
relating to the compositionmaturities and fair values of the investment portfolio and Table 4 provides maturities and yields of investment securities
at
December 31, 1994. The net unrealized loss for held-to-maturity securities
amounted to $1.6 million at December 31, 1994.1996 and 1995.
Loans
-----
Total loans at December 31, 1994,1996, amounted to $21.3 million which represents a 28.3% increase from the year-
end 1993 total of $16.6 million. Table 5 presents the composition of the loan
portfolio.
Total deposits at December 31, 1994, were $49.3 million as compared to $47.0
million at December 31, 1993. For the year, total deposits averaged $46.3
million which was up from the 1993 average of $45.1 million. Table 9 provides
the composition of total average deposits and average rates on interest-bearing
deposits. At December 31, 1994, total shareholders' equity was $4.6$26.2 million, an increase of
$600 thousand,$4.0 million, or 14.9%,18.0 percent, from December 31, 1993.
Interest-Sensitivity
Table 13 presents Weatherford Holdings' interest-sensitivity gap at December
31, 1994.year-end 1995. As shown in Table 5,
commercial loans accounted for approximately half of the table, Weatherford Holdings1996 increase. The loan
totals reflect loans made to businesses and individuals located in the primary
market served by Texas National. Loans in the real estate mortgage
classification generally provide for repricing intervals that protect Texas
National from the rate risk inherent in long term fixed rate mortgages.
Deposits
--------
Deposits, which represent the primary source of funding, totaled $46.7
million at the end of 1996. When compared to the previous year-end total,
deposits increased $3.9 million, or 9.0 percent. Table 9 provides a breakdown of
average deposits and rates paid over the past three years and the remaining
maturity of time deposits of $100 thousand or more
Asset and Liability Management
Interest Rate Risk
------------------
Southlake manages its assets and liabilities to control the exposure of its
net interest income and capital to risks associated with interest rate changes
to achieve growth in net interest income. Texas National has an asset liability
committee which monitors interest rate risk and compliance with investment
policies. Interest-sensitivity gap and simulation analysis are among the ways
that Texas National tracks interest rate risk. From time to time it may be
necessary for Texas National to reallocate investable funds or make pricing
adjustments to better position itself for interest rate movements. As presented
in Table 13, the interest-sensitivity gap analysis as of December 31, 1996,
reflects a negative cumulativeslight positive repricing gap in the one-year horizon. Consequently, a sudden and large
increase in rates or a dramatic narrowing in the spread between asset yields and
liability costs would result in an adverse impact on the nethorizon which protects
Texas National from significant interest margin;
however, the adverse impact is more moderate if interest rates follow historical
trends and increase gradually. There arerate risk. Southlake uses no off-balance sheetoff-
balance-sheet financial instruments to manage interest rate risk.
4041
Liquidity
---------
Liquidity is the ability of Southlake to meet cash demands as they arise.
Such needs can develop from loan demand or deposit withdrawals. 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 Federal funds credit lines
with correspondent banks. Given the strong core deposit base and relatively low
loan deposit ratio maintained at Texas National, Southlake management considers
the current liquidity position to be adequate.
Parent Company Funding Sources and Dividends
Southlake's ability to service debt has been dependent on funds derived
from Texas National. These funds historically have been produced by intercompany
dividends. At December 31, 1996, approximately $1.3 million was available for
the payment of intercompany dividends by Texas National without the prior
approval of regulatory agencies. Due to previous debt service requirements,
Southlake has not paid dividends to shareholders.
42
II. NET INTEREST INCOME
TABLE 1 - AVERAGE BALANCES AND AVERAGE YIELDS AND RATES (000'S OMITTED)--
WEATHERFORD HOLDINGSSOUTHLAKE
The following table shows Weatherford Holdings'Southlake consolidated balances of assets,
liabilities and capital computed principally on an average daily basis and the
interest income and average yield on interest-earning assets and interest
expense and average rate on interest-bearing liabilities for the three years
ended December 31, 1994,1996, (000's omitted). The calculations of average yields and
rates are based upon the average daily balances. Non-accrual loans are included
in the average daily balance of loans and any interest income recognized on a
cash basis is included in interest income on loans:
1996 1995 1994
1993 1992
--------------------------- ------------------------------------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense RateAVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- -------- -------- -------- -------- -------- --------------- ------- -------- -------
ASSETS
Short-term investments................investments..... $ 1,3823,854 $ 62 4.49%215 5.58% $ 1,9503,268 $ 56 2.87%193 5.91% $ 2,6193,975 $ 100 3.82%168 4.23%
Taxable investment
securities......... 24,098 1,202 4.99 25,382 1,428 5.63 23,001 1,601 6.96securities................ 5,944 329 5.53 6,552 365 5.57 7,377 399 5.41
Tax-exempt investment
securities(1)... 2,149 198 9.21 2,072 189 9.12 1,962 182 9.28
Loans(1)............. 6,909 441 6.38 5,242 338 6.45 4,046 250 6.18
Loans (2)........................... 18,889 1,810 9.58 15,398 1,496 9.72 13,823 1,456 10.53.................. 23,499 2,426 10.32 20,831 2,208 10.60 17,186 1,762 10.25
------- ------- ------- ------ ------- ------
Total earning assets.................. 46,518 3,272 7.03 44,802 3,169 7.07 41,405 3,339 8.06assets.. 40,206 3,411 8.48 35,893 3,104 8.65 32,584 2,579 7.91
Cash and due from banks............... 2,654 2,206 2,403banks.... 3,373 3,000 2,579
Bank premises and equipment........... 1,458 1,399 811equipment 1,929 1,729 1,541
Other assets.......................... 572 585 652assets............... 1,898 1,587 1,388
Allowance for loan losses............. (183) (184) (153)losses.. (229) (180) (160)
------- ------- -------
Total assets.......................... $51,019 $48,808 $45,118assets.......... $47,177 $42,029 $37,932
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing deposits............. $37,719deposits.. $28,276 $ 1,151 3.05% $37,219 $1,155 3.10% $35,015 $1,445 4.13%1,060 3.75% $26,414 $1,001 3.79% $23,913 $ 831 3.48%
Short-term borrowingsborrowings...... 115 7 6.09 28 2 7.14
Long-term debt........................ 13 1 8.00 449 24 680 45 6.62debt............. 277 26 9.70 536 52 9.70 536 52 9.70
------- ------- ------- ------ ------- ------
Total interest bearing
liabilities.... 37,732 1,152 3.05 37,668 1,179 3.13 35,695 1,490 4.17
------- ------ ------liabilities.......... 28,553 1,086 3.80 27,065 1,060 3.92 24,477 885 3.62
Noninterest-bearing
deposits.......... 8,640 7,448 6,277deposits.................. 14,748 11,963 10,946
Other liabilities..................... 299 278 394liabilities.......... 323 252 156
------- ------- -------
Total liabilities..................... 46,671 45,394 42,366liabilities..... 43,624 39,280 35,579
Shareholders' equity.................. 4,348 3,414 2,752equity....... 3,553 2,749 2,353
------- ------- -------
Total liabilities and
shareholders' equity................................ $51,019 $48,808 $45,118equity.. $47,177 $42,029 $37,932
======= ======= =======
------- ------ ------
Net interest income...................income........ $ 2,120 $ 1,990 $ 1,8492,325 $2,044 $1,694
======= ======= ============= ======
Rate Analysis
Interest income/earning
assets........ 7.03% 7.07% 8.06%assets.................. 8.48% 8.65% 7.91%
Interest expense/earning
assets....... 2.48 2.63 3.60assets.................. 2.70 2.95 2.72
---- ---- ----
Net yield on
earning assets 4.56% 4.44% 4.47%assets..... 5.78% 5.70% 5.19%
==== ==== ====
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
(2) Nonaccrual loans are included in loans.
4143
TABLE 2 - ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE (000'S OMITTED)--
WEATHERFORD HOLDINGSSOUTHLAKE
1996 COMPARED TO 1995 1995 COMPARED TO 1994
Compared to 1993 1993 Compared to 1992
--------------------------------------------------------- ----------------------------------------
Change Attributable to Total Change Attributable to Total
Volume Rate Change Volume Rate Change
-------------------------------------------------------- ---------------------------------
CHANGE ATTRIBUTABLE TO TOTAL CHANGE ATTRIBUTABLE TO TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
------------- --------- ------- ----------------------- ------- ----------------------------------- --------- -------
Short-term investments..... $ (16)35 $(13) $ 22 $(30) $ 655 $ (26) $ (18) $ (44)25
Taxable investment
securities................. (72) (154) (226) 166 (339) (173)(34) (2) (36) (45) 11 (34)
Tax-exempt investment
securities (1)............. 7 2 9 10 (3) 7
Loans (1).................. 339 (25) 314 166 (126) 40
----- ----- ----- ----- ----- -----107 (4) 103 74 14 88
Loans...................... 283 (65) 218 374 72 446
---- ---- ---- ---- ---- ----
Interest income............ 258 (155) 103 316 (486) (170)
----- ----- ----- ----- ----- -----391 (84) 307 373 152 525
---- ---- ---- ---- ---- ----
Interest bearing deposits.. 16 (20) (4) 91 (381) (290)71 (12) 59 87 83 170
Short-term borrowings...... -- -- -- -- -- --
----- ----- ----- ----- ----- -----(7) - (7) 6 (1) 5
Long-term debt............. (24) 1 (23) (16) (5) (21)
----- ----- ----- ----- ----- -----(25) (1) (26) - - -
Interest expense........... (9) (19) (27) 75 (386) (311)
----- ----- ----- ----- ----- -----38 (12) 26 93 82 175
---- ---- ---- ---- ---- ----
Net interest income........ $353 $(72) $281 $280 $ 266 (136) $ 130 $ 242 (101) $ 141
===== ===== ===== ===== ===== =====70 $350
==== ==== ==== ==== ==== ====
- ---------------
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
42
TABLE 3 - COMPOSITION OF INVESTMENT SECURITIES -- WEATHERFORD HOLDINGS(000'S OMITTED)--SOUTHLAKE
The table below sets forth the composition of investment securities at the dates
indicated:
AT DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
1993 1992
--------- ----------- ----------------- ------ ------
Held-to-Maturity at Amortized Cost
- --------------------------------------------------
U.S. Treasury obligations and obligations of
U.S. Government corporations and agencies........ $13,728 $17,385 $22,845$ 308 $ -- $ 250
Obligations of states and political subdivisions.. 2,360 2,068 2,0767,047 6,358 4,535
Mortgage-backed securities........................ 7,764 7,191 806
------- ------- --------- -- --
------ ------ ------
Total debt securities............................ 23,852 26,644 25,7277,355 6,358 4,785
Other securities.................................. -- 60 60
------- ------- -------
$23,852 $26,704 $25,787
======= ======= =======
December-- --
------ ------ ------
$7,355 $6,358 $4,785
====== ====== ======
AT DECEMBER 31,
----------------------
1996 1995 1994
------------------- ------ ------
Available-for-Sale at Fair Value
- --------------------------------------------------
U.S. Treasury obligations and obligations of
U.S. Government corporations and agencies........ $2,821$2,775 $3,688 $8,636
Obligations of states and political subdivisions.. -- -- --
Mortgage-backed securities........................ 973-- -- --
------ ------ ------
Total debt securities............................ 3,7942,775 3,688 8,636
Other securities.................................. 60111 111 111
------ $3,854------ ------
$2,886 $3,799 $8,747
====== ====== ======
44
TABLE 4 - MATURITY AND YIELDS OF INVESTMENTDEBT SECURITIES HELD AT DECEMBER 31, 1994
-- WEATHERFORD HOLDINGS1996--
SOUTHLAKE
The following table shows the maturities of investment securities at December
31, 19941996 and the weighted average yields (for tax exempt obligations on a fully
taxable basis assuming a 34% tax rate adjusted for disallowed interest
deductions in accordance with Federal income tax regulation) of such securities
(000's omitted):
MATURING
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- -------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ------ ------- ------ ------ ----------- ------ ----- ------------- ----- ------ ----- ------ -----
Held-to-Maturity - ----------------at
- ---------------------
Amortized Cost
--------------
U.S. Treasury obligations and
obligations of U.S. Government
corporations and agencies $1,601 4.03% $12,127 4.65%$ 308 5.50% $ -- --% $ -- --% $13,728 4.58%$ -- --% $ 308 5.50%
Obligations of states and
political subdivisions 301 9.25 1,339 8.65 720 8.411,816 6.42 4,521 6.31 710 7.37 -- -- 2,360 8.647,047 6.45%
Mortgage-backed securities -- -- -- -- 2,773 5.54 4,991 5.48 7,764 5.50
------- ------- ------- ------- -- -- -- -- --
------ ---- ------ ---- ------------- ---- ------ ---- ------ ----
Total $1,902 4.86% $13,486 5.05% $3,493 6.13% $4,991 5.48% $23,852 5.28%
======= ======= ======= =====$2,124 6.29% $4,521 6.31% $ 710 7.37% $ -- --% $7,355 6.41%
====== ==== ====== ==== ============= ==== ====== ==== ====== ====
43
MATURING
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
--------------- ----------------- ---------------- --------------- -------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ------ ------- ------ ------ ----------- ------ ----- ------------- -----
Available-for-Sale:------ ----- ------ -----
Available-for-Sale
- ---------------------------------------------
at Fair Value
-------------
U.S. Treasury obligations and
obligations of U.S. Government
corporations and agencies $2,627 6.95% $194 6.20% $--$ 750 6.05% $2,025 6.39% $ -- --% $ -- --% $2,821 6.91%
Mortgage-backed securities$2,775 6.30%
Obligations of states and
political subdivisions -- -- 612 6.24 -- -- 361 8.04 973 6.81
Other-- -- -- -- -- --
Mortgage-backed securities -- -- -- -- -- -- 60 6.00 60 6.90-- -- -- --
------ ---- ---- ---- --- -- ---------- ---- ------ --------- ------ ---- ------ ----
Total $2,627 6.95% $806 6.23% $--$ 750 6.05% $2,025 6.39% $ -- --% $421 7.75% $3,854 6.90%$ -- --% $2,775 6.30%
====== ==== ==== ==== === == ========== ==== ====== ========= ====== ==== ====== ====
45
TABLE 5 - COMPOSITION OF LOANS -- WEATHERFORD HOLDINGSLOANS--SOUTHLAKE
The table below sets forth the amount of loans outstanding at the end of the
years indicated, according to type of loan (000's omitted):
DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
Commercial, financial, and agricultural.. $ 4,1767,773 $ 2,8705,430 $ 2,8725,285 $ 2,4904,499 $ 2,4002,248
Real estate - construction............... 1,656 876 515 600 491estate--construction................ 5,981 5,170 3,778 4,581 2,513
Real estate-mortgage..................... 11,668 8,501 6,673 5,777 5,701estate--mortgage.................... 8,034 7,440 6,651 5,149 4,717
Consumer................................. 3,832 4,335 3,939 3,834 3,3374,431 4,135 3,212 2,936 3,532
------- ------- ------- ------- -------
$21,332 $16,582 $13,999 $12,701 $11,929$26,219 $22,175 $18,926 $17,165 $13,010
======= ======= ======= ======= =======
TABLE 6 - LOAN MATURITIES AND INTEREST SENSITIVITY AT DECEMBER 31, 1994 --
WEATHERFORD HOLDINGS1996--
SOUTHLAKE
The amounts of total loans (excluding real estate mortgages and installment
consumer loans) outstanding as of December 31, 1994,1996, which, based on remaining
scheduled repayments of principal, are due in (i) one year or less, (ii) more
than one year but less than five years, and (iii) more than five years, are
shown in the following table. The amounts due after one year are classified
according to the sensitivity to changes in interest rates. Aggregate maturities
of loan balances which are due:
Over One Year
One Year Through Over
Or Less Five Years Five Years TotalOVER ONE YEAR
ONE YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ----------- ----------- ------------------------ ---------- -------
Commercial, financial and agricultural......... $1,486 $1,834 $856 $4,176agricultural............ $2,425 $5,348 $-- $ 7,773
Real estate - construction..................... 1,656construction........................ 5,650 331 -- -- 1,6565,981
------ ------ ---- ------
$3,142 $1,834 $856 $5,832--- -------
$8,075 $5,679 $-- $13,754
====== ====== ==== ======
Maturities
After
One Year
-----------=== =======
MATURITIES
AFTER
ONE YEAR
----------
Loans with fixed interest rates................ $2,580rates................... $5,054
Loans with floating or adjustable interest rates......................................... 110rates.. 625
------
$2,690$5,679
======
4446
III. ASSET QUALITY
TABLE 7 - NONPERFORMING ASSETS (000'S OMITTED)-- WEATHERFORD HOLDINGS--SOUTHLAKE
AT DECEMBER 31,
--------------------------------------
PAST DUE AND NON-ACCRUAL LOANS: 1996 1995 1994 1993 1992
1991 1990
----- ----- ----- ----- ----------- ------ ------ ------ ------
Nonaccrual loans...............................loans........................... $ 27178 $ -- $ -- $ 110-- $ 129115
Loans past due 90 days or more................. 16 5 10 45 3more............. -- 1 6 2 --
Restructured loans.............................loans......................... -- -- -- -- --
----- ----- ----- ----- -----
Nonperforming loans....................... 43 5 10 155 132loans...................... 178 1 6 2 115
Foreclosed assets.............................. 46 46 52 55 115assets.......................... 421 591 319 415 352
----- ----- ----- ----- -----
Total nonperforming assets................assets............... $ 89599 $ 51592 $ 62325 $ 210417 $ 247467
===== ===== ===== ===== =====
As a % of loans and foreclosed properties...... 0.42% 0.31% 0.44% 1.65% 2.05%properties.. 2.25% 2.60% 1.69% 2.37% 3.49%
Loan Concentrations
AtLOAN CONCENTRATIONS
As of December 31, 1994, Weatherford Holdings had $1.07 million1996, there were no concentrations of loans exceeding 10%
to any industry segment except as disclosed in loans
outstanding to the agricultural industry, which represented 5.02% of total
loans.Table 5 herein.
Allocation of Allowance for Loan Losses
- ---------------------------------------ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
1996 1995 1994 1993 1992
1991 1990
----------- ----------- ----------- ----------- --------------------- ---------- ---------- ---------- ----------
ALLOCATION ALLOCATION ALLOCATION ALLOCATION ALLOCATION
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
----------- ----------- ----------- ----------- --------------------- ---------- ---------- ---------- ----------
Real estate - construction.............. $ 1456 $ 947 $ 631 $ 442 $ 630
Real estate - mortgage.................. 96 92 82 40 5075 68 55 47 57
Commercial, financial and agricultural.. 34 30 8 6 772 50 44 41 27
Consumer................................ 37 53 8241 38 26 27 43
46
----- ----- ----- ----- --------------- ---------- ---------- ---------- ----------
$ 181244 $ 185203 $ 177156 $ 94158 $ 108
===== ===== ===== ===== =====
Allocation as Percent of Total Loans
- ------------------------------------157
========== ========== ========== ========== ==========
ALLOCATION AS PERCENT OF TOTAL LOANS
1996 1995 1994 1993 1992
1991 1990
----- ----- ----- ----- --------------- ---------- ---------- ---------- ----------
Real estate - construction.............. 7.6% 5.1% 3.3% 4.6% 5.3%22.8% 23.3% 20.0% 26.7% 19.3%
Real estate - mortgage.................. 53.2 49.7 46.1 42.8 45.830.6 33.6 35.1 30.0 36.3
Commercial, financial and agricultural.. 19.1 16.4 4.3 6.6 6.429.6 24.5 27.9 26.2 17.3
Consumer................................ 20.2 28.7 46.4 46.1 42.6
----- ----- ----- ----- -----
100% 100% 100% 100% 100%
===== ===== ===== ===== =====16.9 18.6 17.0 17.1 27.1
---------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
47
TABLE 8 - LOAN LOSS EXPERIENCE ANDANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES -- WEATHERFORD
HOLDINGS(000'S OMITTED)--SOUTHLAKE
The following table summarizes the daily average amount of net loans
outstanding; changes in the allowance for loan losses arising from loans charged
off, and recoveries on loans previously charged off, by loan category; additions
to the allowance which have been charged to operating expense; and the ratio of
net loans charged off to average loans outstanding:
45
1996 1995 1994 1993 1992
1991 1990
------- ------- ------- ------- --------------- -------- -------- -------- --------
Balance at January 1,.......................... $ 185203 $ 177156 $ 94158 $ 108157 $ 104207
Charge-offs:
Commercial, financial and
agriculture... 2 1 10 45 32
Consumer................................agriculture.............. 15 15 22 34 43
Consumer.................. 25 15 19 8 3 6 36 3218
All other...............................other................. -- -- -- -- --
------- ------- ------- ------- --------------- -------- -------- -------- --------
Total loans charged off.................. 10 4 16 81 64off.... 40 30 41 42 61
Recoveries:
Commercial, financial and
agriculture... --agriculture.............. 4 8 3 11 8
Consumer.................. 5 19 0 0
Consumer................................1 1 14 3
4 9 4 22
All other...............................other................. -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries......................... 3recoveries........... 9 289 4 26
------- ------- ------- ------- -------25 11
-------- -------- -------- -------- --------
Net (recoveries)/charge-offs............. 7 (5) (12) 77 38
Provision/(credit)charge-offs............ 31 21 37 17 50
Provision for loan losses....... 3 3 71 63 42
------- ------- ------- ------- -------losses.. 72 68 35 18 --
-------- -------- -------- -------- --------
Balance at December 31,...................... $ 181244 $ 185203 $ 177156 $ 94158 $ 108
======= ======= ======= ======= =======157
======== ======== ======== ======== ========
Loans at year-end........................ $21,332 $16,582 $13,999 $12,701 $11,929year-end.......... $ 26,219 $ 22,175 $ 18,926 $ 17,165 $ 13,010
Average loans............................ 18,889 15,398 13,823 12,200 12,308loans.............. 23,499 20,831 17,186 15,146 13,882
Net charge-offs/(recoveries)/average
loans 0.04% (0.03)% (0.09)% 0.63% 0.31%loans..................... 0.13% 0.10% 0.22% 0.11% 0.36%
Allowance for loan
losses/year-end loans. 0.85 1.12 1.26 0.74 0.91loans..... 0.93 0.92 0.82 0.92 1.21
Allowance for loan
losses/nonperforming
assets.................... 40.73 34.29 48.00 37.89 33.62
IV. DEPOSITS
TABLE 9 - COMPOSITION OF DEPOSITS -- WEATHERFORD HOLDINGSDEPOSITS--SOUTHLAKE
The following table presents the average daily amount and the average rate
paid on deposits (000's omitted):
1996 1995 1994
1993 1992
------------------- -------------------- -------------------------------------- ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
Noninterest bearing demand
deposits $ 8,640$14,748 --% $ 7,448$11,963 --% $ 6,277$10,946 --%
Interest-bearing demand
deposits
Interest-bearing checking 11,815 2.19 11,700 2.23 9,588 2.984,572 1.57 4,237 1.86 3,882 1.91
Savings and money market
accounts 11,314 2.89 11,132 3.02 9,993 3.7212,021 2.99 12,166 3.15 12,932 3.53
Time deposits under
$100,000 11,628 3.78 11,250 3.91 12,722 5.125,868 5.27 5,570 5.10 4,781 4.41
Time deposits of $100,000
or more 2,962 4.25 3,137 3.76 2,712 4.945,815 5.50 4,441 5.72 2,318 3.88
------- ------- -------
Total interest-bearing
deposits 37,719 3.05 37,219 3.10 35,015 4.1328,276 3.75 26,414 3.79 23,913 3.48
------- ------- -------
Total deposits $46,359 $44,667 $41,29243,024 $38,377 $34,859
======= ======= =======
4648
TABLE 10 - REMAINING MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE --
WEATHERFORD HOLDINGS
Time deposits of $100,000 or more outstanding at December 31, 1994 will mature
as follows (000's omitted):TIME DEPOSITS
(000'S OMITTED)--SOUTHLAKE
DecemberDECEMBER 31, 19941996
-----------------
(IN THOUSANDS)
(in thousands)
Under three months $3,604$3,724
Over three through
twelve months 1,8371,395
Over twelve months 623875
------
$6,064$5,994
======
V. RETURN ON EQUITY AND ASSETS
TABLE 11 - RETURN ON EQUITY AND ASSETS -- WEATHERFORD HOLDINGS
The ratio of net earnings to average shareholders' equity and daily average
total assets and certain other ratios are presented below:ASSETS--SOUTHLAKE
Year ended December 31,
--------------------------
1992 1993-------------------------------
1996 1995 1994
-------- ------- ------------- ------ ------
Percentage of net earnings
to:
Average total assets 1.50% 2.26% 1.66%1.46% 1.28% 0.90%
Average shareholders'
equity 19.90 29.16 19.5319.39 19.64 14.53
Percentage of dividends declared per common
share to earnings per common share -- -- 25.51--
Percentage of average shareholders' equity
to daily average total assets 7.61 7.91 8.527.53 6.54 6.20
VI. NONINTEREST INCOME AND EXPENSE AND INCOME TAXES
TABLE 12 - NONINTEREST INCOME AND NONINTEREST EXPENSE -- WEATHERFORD HOLDINGS
Noninterest Income (000's omitted)EXPENSE--SOUTHLAKE
NONINTEREST INCOME (000'S OMITTED):
INCREASE INCREASE
1996 (DECREASE) 1995 (DECREASE) 1994
(DECREASE) 1993 (DECREASE) 1992
------------ ---------- ---------- ---------- ---------
Service fees on deposit
accounts..accounts.................. $366 $ 5669 $357 $ 76 $ 490 $ 30 $ 4604 $353
Gain on sale of assets..... 247 226 21 (12) 33
Other:
Miscellaneous income............ 44 14 30 (6) 36
Mastercard fees................. 1 -- 1 (2) 3
Securities gains (losses)....... 12 (652) 664 664 --income.... 115 63 52 26 26
Real estate mortgage
fees....... 29 10 19 (2)fees................... 100 17 83 58 25
Merchant credit card
fees................... 44 (54) 98 (4) 102
Other service fees...... 27 6 21 Brokerage commissions........... 46 31 15 15 --
Safe deposit rental fees........ 10 (2) 12 1 11
Exchange fees................... 12 (1) 13 1 12
----- ----- ------- 21
---- -----
154 (600) 754 671 83
----- ----- ------ ---- --------- ---- ----
286 32 254 80 174
---- ---- ---- ---- ----
$899 267 $632 $ 720 (524) $1,244 $701 $ 543
===== ===== ======72 $560
==== ========= ==== ==== ====
4749
Noninterest Expense (000's omitted)NONINTEREST EXPENSE (000'S OMITTED):
INCREASE INCREASE
1996 (DECREASE) 1995 (DECREASE) 1994
(DECREASE) 1993 (DECREASE) 1992
--------------- ---------- ------------- ---------- -------------
Salaries....................................................Salaries................... $ 581814 $ 128 $ 686 $ 103 $ 583
Payroll taxes.............. 49 6 43 4 39
$ 542 $ 76 $ 466
Payroll taxes............................................... 44 2 42 7 35
Profit sharing.............................................. 17 3 14 3 11KSOP....................... 16 (40) 56 6 50
Medical and other benefits.................................. 66benefits. 43 10 33 4 29
------ ------ ------ ------ ------
922 104 818 117 701
Net occupancy.............. 91 6 85 1 84
Equipment expense.......... 136 22 114 13 101
Other:
Advertising and business
development.............. 230 163 67 (13) 7980
Other miscellaneous....... 145 51 94 (7) 101
Outside data processing... 114 24 90 10 80
Director fees............. 76 1 75 (5) 80
Credit card and ATM....... 73 (62) 135 (9) 144
Outside operations........ 69 15 54 7 47
Printing and supplies..... 61 29 32 (3) 35
Postage and courier....... 51 2 49 7 42
Legal and accounting fees. 49 19 60
-------30 6 24
Insurance................. 34 7 27 (5) 32
Other real estate expense. 33 9 24 9 15
Correspondent bank service
fees..................... 30 8 22 2 20
Communications............ 30 6 24 4 20
FDIC insurance expense.... 2 (39) 41 (33) 74
------ ------ ------- ------
708 31 677 105 572
Net occupancy............................................... 94 2 92 35 57
Equipment expense........................................... 162 58 104 36 68
FDIC insurance expense...................................... 102 5 97 11 86
Correspondent bank service charges.......................... 11 (3) 14 2 12
Other:
Printing and supplies..................................... 58 (3) 61 15 46
Postage and courier....................................... 60 1 59 7 52
Legal and accounting fees................................. 1 (2) 3 1 2
Outside data processing fees.............................. -- (92) 92 (35) 127
Other professional and service fees....................... 6 (9) 15 (1) 16
Advertising............................................... 43 (5) 48 16 32
Other miscellaneous....................................... 299 8 291 57 234
------- -------
997 233 764 (30) 794
------ ------ ------- ------
467 (102) 569 60 509
------- ------ ------ ------- ------
Total Noninterest Expense $2,146 $ 1,544365 $ (9) $1,5531,781 $ 249 $1,304
=======101 $ 1,680
====== ====== ======= ============= =======
As a % of Tax Equivalent
Net Revenue 54.37% 48.02% 54.52%66.56% 66.55% 74.53%
VII. LIQUIDITY AND INTEREST RATE SENSITIVITY
TABLE 13 - INTEREST SENSITIVITY ANALYSIS -- WEATHERFORD
HOLDINGSANALYSIS--SOUTHLAKE (000'S OMITTED)
WITHIN 3 4 - 6 7 - 12 1 - 5 OVER 5
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
-------- ------------- ------ ------- ------- -------------
Interest-earning assets:
Total loans................................................loans............................ $13,143 $2,993 $2,606 $ 4,3437,477 $ 3,753 $5,420 $ 5,252 $ 2,564 $21,332-- $26,219
Investment securities...................................... 1,087 300 3,147 14,070 9,102 27,706securities.................. 701 175 1,999 6,545 711 10,131
Short-term investments..................................... 3,854 3,854investments................. 7,000 -- -- -- -- 7,000
------- ------------- ------ ------- ------- -------
Total interest - earning
assets.................................................. 9,284 4,053 8,567 19,322 11,666 52,892
Interest - bearinginterest-earning assets.......... 20,844 3,168 4,605 14,022 711 43,350
Interest-bearing liabilities:
Transaction deposit accounts............................... 22,129accounts.......... 17,121 -- -- -- -- 22,12917,121
Time deposits.............................................. 11,221 3,305 2,280 1,886deposits......................... 5,639 1,258 1,849 4,437 -- 18,69213,183
Borrowed funds.............................................funds........................ -- -- -- -- -- --
Mortgage notes payable.....................................payable................ -- -- 38 75 -- 113-- -- --
------- ------------- ------ ------- ------- -------
Total interest-bearing
liabilities............................................. $33,350liabilities........................ $22,760 $1,258 $1,849 $ 3,305 $2,318 $ 1,9614,437 $ -- $40,934$30,304
------- ------------- ------ ------- ------- -------
Interest sensitivity gap.................................... (24,066)gap............... $(1,916) $1,910 $2,756 $ 748 $6,249 $17,361 $11,666 $11,9589,585 711 13,046
Cumulative interest sensitivity gap........................................................ (24,066) (23,318) (17,069) 292 11,958 11,958gap.... (1,916) (6) 2,750 12,335 13,046 13,046
Ratio of interest sensitive
assets to interest sensitive
liabilities................................................ 0.28 1.23 3.70 9.85liabilities.......................... 0.92 2.52 2.49 3.16 --
Cumulative ratio of interest
sensitive assets to interest
sensitive liabilities......................................liabilities................ 0.92 1.00 1.11 1.41 1.43
Cumulative interest sensitivity
gap as a percent of earning
assets..................................................... (45.50)assets............................... (4.42)% (44.09)(0.01)% (32.27)% 0.55% 22.61%6.34% 28.45% 30.09%
48
VIII. CAPITAL
At year end 1994, total shareholders' equity was $4.6 million, an increase of
nearly $0.6 million over December 31, 1993. Weatherford Holdings' risk based
capital ratio has decreased from 22.97% in 1993 to 19.23% at year end 1994.
However, the ratio remains well above the minimum 8.00% required by federal
regulations. Book value of Weatherford Holdings' stock at year-end 1994 was
$21.34 per share, or a 15% increase over 1993's $18.61 per share. Weatherford
Holdings declared a cash dividend of $1 per share in 1994, has declared a cash
dividend of $.50 in the first nine months of 1995 and will declare a cash
dividend of $.50 per share in December 1995.
IX. DISCUSSION OF NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1994
OVERVIEW OF OPERATIONS
For the nine months ended September 30, 1995, net income amounted to $589
thousand, or $2.73 per share, compared to $644 thousand, or $2.98 per share,
earned during the same period in 1994.
Return on average assets and return on average equity for the nine months
ended September 30, 1995, amounted to 1.35% and 16.06%, respectively. For the
same period in 1994, return on average assets was 1.70% and return on average
equity was 20.20%.
On a tax-equivalent basis, net interest income for the first nine months of
1995 was up $174 thousand from the same period last year. Table 14 provides an
analysis of average yields and rates and Table 15 summarizes the changes in net
interest income on a fully tax-equivalent basis by major category of interest-
earning assets and interest-bearing liabilities, identifying changes related to
volumes and rates.
September 1995 year-to-date noninterest income totaled $527 thousand, down
slightly from the prior year amount of $530 thousand. The decrease is
attributable primarily to lower real estate mortgage fees which decreased from
$28 thousand to $9 thousand. Total year-to-date noninterest expense at
September 30, 1995, amounted to $1.3 million as compared to $1.1 million the
prior year. The 1995 increase resulted primarily from the opening of a new
branch in July 1995. Table 15 provides the detail of noninterest income and
noninterest expense.
The provision for losses for the nine month period ended September 30, 1995,
amounted to $34 thousand as compared to $3 thousand the prior year. Net charge-
offs for the first nine months of 1995 totaled $43 thousand as compared to $6
thousand during the first nine months of 1994. Nonperforming assets at
September 30, 1995, totaled $125 thousand as compared to $89 thousand at
December 31, 1994. The increase resulted primarily from an increase in
nonaccrual loans. Management is not aware of any classified loans not properly
classified as nonperforming and considers the allowance for loan losses to be
adequate.
BALANCE SHEET REVIEW
Total assets at September 30, 1995, totaled $62.1 million as compared to $50.2
million the prior year and $54.4 million at December 31, 1994. The balance
sheets reflect normal recurring adjustments and accruals. Compared to September
30, 1994, Federal funds sold, loans, and investment securities have increased
$2.7 million, $4.9 million, and $3.6 million, respectively. Since year-end
1994, Federal funds sold are up $1.7 million, loans are up $3.8 million, and
investment securities are up $1.7 million. The net unrealized loss in
investment securities held to maturity at September 30, 1995, totaled $362
thousand as compared to $1.6 million at December 31, 1994. The improvement
resulted primarily from a reduction in market interest rates. At September 30,
1995, the investment securities portfolio included structured notes with an
amortized cost of $1 million and market value of $977 thousand. There were no
high risk mortgage securities in the investment portfolio at September 30, 1995.
49
Total deposits at September 30, 1995, amounted to $56.5 million as compared to
$45.3 million at September 30, 1994, and $49.3 million at December 31, 1994.
Total equity capital amounted to $5.1 million at September 30, 1995, which was
up from $4.5 million at September 30, 1994, and $4.6 million at year-end 1994.
The risk-base capital and leverage ratios at September 30, 1995, were 18.56% and
8.26%, respectively.
50
TABLE 14 - AVERAGE BALANCES AND AVERAGE YIELDS AND RATES - WEATHERFORD HOLDINGSSOUTHLAKE (000'S
OMITTED):
NINESIX MONTHS ENDED SEPTEMBERJUNE 30,
------------------------------------------------------
1995 19941997 1996
-------------------------- --------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------
ASSETS
Short-term investments................ $ 2,3194,612 $ 104 6.00%118 5.12% $ 1,3894,299 $ 43 4.14%116 5.40%
Taxable investment securities......... 25,796 1,009 5.23 24,255 905 4.994,241 128 6.04 6,449 175 5.43
Tax-exempt investment securities (1).. 2,185 145 8.87 2,077 145 9.337,244 235 6.49 6,679 211 6.31
Loans (1) (2)......................... 23,328 1,811 10.38 18,276 1,310 9.58............................. 27,029 1,350 9.99 22,367 1,162 10.39
------- ------ ------- -------
Total earning assets................ 53,628 3,069 7.65 45,997 2,403 6.9843,126 1,831 8.49 39,794 1,664 8.36
Cash and due from banks............... 2,572 2,7693,392 3,316
Bank premises and equipment........... 1,703 1,4652,412 1,761
Other assets.......................... 670 5721,645 1,987
Allowance for loan losses............. (178) (184)(263) (211)
------- -------
Total assets........................ $58,395 $50,619$50,312 $46,647
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearingInterest-bearing deposits............. $44,188 $1,312 3.97% $37,517$30,219 $ 825 2.94%
Short-term borrowings.................578 3.83% $28,253 $ 528 3.74%
Long-term debt........................ 113 7 8.00309 15 9.71
------- ------ ------- -------------
Total interest bearing liabilities.. 44,301 1,319 3.98 37,517 825 2.94
------ ------30,219 578 3.83 28,562 543 3.80
Noninterest-bearing deposits.......... 8,824 8,54215,709 14,427
Other liabilities..................... 366 297360 282
------- -------
Total liabilities................... 53,491 46,35646,288 43,271
Shareholders' equity.................. 4,904 4,2634,024 3,376
------- -------
Total liabilities and shareholders'
equity............................. $58,395 $50,619equity.............................. $50,312 $46,647
======= =======
Net interest income................... $1,750 $1,578
Rate Analysis$1,253 $ 1,121
====== =======
RATE ANALYSIS
Interest income/earning assets....... 7.65% 6.98%assets........ 8.49% 8.36%
Interest expense/earning assets...... 3.29 2.18
-----assets....... 2.68 2.73
---- ------
Net yield on earning assets......... 4.36% 4.81%
=====5.81% 5.63%
==== ======
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
(2) Nonaccrual loans are included in loans.
51
TABLE 15 - CHANGES IN INTEREST INCOME AND INTEREST EXPENSE - WEATHERFORD
HOLDINGSSOUTHLAKE (000'S
OMITTED):
NINESIX MONTHS ENDED SEPTEMBERJUNE 30,
19941997 COMPARED TO 1993
----------------------------------1996
--------------------------------
CHANGE ATTRIBUTABLE TO
--------------------------------------------- TOTAL
VOLUME RATE CHANGE
---------- ----------- --------------- -------- ------
Short-term investments................ $ 53133 $ 8(131) $ 612
Taxable investment securities......... 382 (278) 10455 (102) (47)
Tax-exempt investment securities (1).. -- -- --
Loans(1).............................. 926 (425) 501246 (222) 24
Loans................................. 1,646 (1,458) 188
------ ------------ ----
Interest income...................... 1,361 (695) 666
Interest bearing2,080 (1,913) 167
------ ------- ----
Interest-bearing deposits............. 474 13 487601 (551) 50
Short-term borrowings................. -- -- --- - -
Long-term debt........................ 7 -- 7(15) - (15)
------ ------------ ----
Interest expense..................... 481 13 494586 (551) 35
------ ------------ ----
Net interest income.................. $ 880 (708) $172$1,494 $(1,362) $132
====== ============ ====
- ---------------
(1) Computed on a tax-equivalent basis assuming a marginal tax rate of 34%.
52
TABLE 16 - NONINTEREST INCOME AND EXPENSE Noninterest Income (000's omitted)- SOUTHLAKE (000'S OMITTED):
For the Nine Months Ended
SeptemberNONINTEREST INCOME:
FOR THE SIX MONTHS
ENDED JUNE 30, Change
--------------------------- ----------------
1994 1995CHANGE
--------------- ---------------
1996 1997 $ %
------------ ------------- ------ -------------- ----- ------
Trust department income
Service fees on deposit accounts.....accounts......... $ 419178 $ 415207 $ (4) (0.95)%29 16.29%
Net gain (loss) on sale of assets........ 272 (13) (285) --
Other:
Miscellaneous income................ 33 53 20 60.61
Mastercard fees..................... -- 1 1 --
Securities gains (losses)........... 2 -- (2) --income.................... 65 45 (20) (30.77)
Real estate mortgage fees........... 28 9 (19) (67.86)
Brokerage commissions............... 31fees............... 59 22 (37) (62.71)
Merchant credit card fees............... 22 24 2 9.09
Other service fees...................... 13 17 4 30.77
------ ------ ----- -------
159 108 (51) (32.08)
------ ------ ----- -------
Total noninterest income.............. $ 609 $ 302 $(307) (50.41)%
====== ====== ===== =======
NONINTEREST EXPENSE:
Salaries $ 338 $ 402 $ 64 18.93%
Payroll taxes 24 32 1 3.23
Safe deposit rental fees............ 8 8 -- --
Exchange fees....................... 9 933.33
KSOP 27 3 (24) (88.89)
Medical and other benefits 22 22 -- --
------ ----- ---- ------
111 112 -- 0.90
------ ----- ---- ------
Total noninterest income.......... $ 530 $ 527 $ (3) (0.57)%
====== ===== ==== ======
NONINTEREST EXPENSE (000'S OMITTED):
Salaries............................ $ 419 $ 498 $ 79 18.85%
Payroll taxes.......................-------
411 459 48 11.68
Net occupancy............................ 38 65 27 71.05
Equipment expense........................ 64 101 37 57.81
Other:
Advertising and business development.... 179 60 (119) (66.48)
Other miscellaneous..................... 57 57 -- --
Outside data processing................. 53 71 18 33.96
Director fees........................... 31 36 5 16.13
Profit sharing...................... 13 14 1 7.69
Medical37 6 19.35
Credit card and other benefits..........ATM..................... 39 41 2 5.13
------ ------ ---- ------
502 589 87 17.33
Net occupancy....................... 54 61 7 12.96
Equipment expense................... 121 128 7 5.79
FDIC insurance expense.............. 76 50 (26) (34.21)
Correspondence bank service charges. 8 13 5 62.50
Other:37 (2) (5.13)
Outside operations...................... 31 49 18 58.06
Printing and supplies............. 44 46 2 4.55supplies................... 23 43 20 86.96
Postage and courier............... 44 52 8 18.18courier..................... 25 31 6 24.00
Legal and accounting fees............... 34 37 3 8.82
Insurance............................... 16 19 3 18.75
Other real estate expense............... 15 14 (1) (6.67)
Correspondent bank service fees......... 1 5 415 15 -- Other professional and service
fees............................. 4 5 1 25.00
Advertising....................... 28 75 47 --
Other miscellaneous............... 242 305 63 26.03Communications.......................... 13 26 13 100.00
------ ------ ---- ------
363 488 125 34.44----- -------
531 496 (35) (6.59)
------ ------ ---- ----------- -------
Total noninterest expense......... $1,124 $1,329 $205 18.24%expense............. $1,044 $1,121 $ 77 7.38%
====== ====== ==== ======
as===== =======
As a % of tax-equivalent net revenue...................... 53.32% 58.36%revenue.. 60.36% 72.09%
====== ======
53
VIII. CAPITAL
At December 31, 1996, consolidated shareholders' equity was $3.9 million,
or 7.7 percent of total assets, compared to $3.1 million, or 6.7 percent of
total assets, at December 31, 1995. In accordance with Statement of Financial
Accounting Standards No. 115, Southlake's unrealized losses on securities
available-for-sale are reported as a reduction in shareholders' equity. At
December 31, 1996 and 1995, unrealized losses amounted to $4 thousand and $3
thousand respectively. During 1996, consolidated shareholders' equity averaged
$3.5 million, or 7.5 percent of average assets, compared to the 1995 average of
$2.7 million, or 6.5 percent of average assets.
Banking system regulators measure capital adequacy by means of the risk-
based capital ratio and leverage ratio. The risk-based capital rules provide for
the weighting of assets and off-balance-sheet commitments and contingencies
according to prescribed risk categories ranging from 0 percent to 100 percent.
Regulatory capital is then divided by risk-weighted assets to determine the
risk-adjusted capital ratios. The leverage ratio is computed by dividing
shareholders' equity less intangibles by quarter-to-date average assets less
intangibles. Regulatory minimums for the risk-based and leverage ratios are 8.00
percent and 4.00 percent, respectively. At December 31, 1996, Southlake's total
risk-based and leverage ratios were 12.56 percent and 7.95 percent,
respectively.
IX. DISCUSSION OF SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED
JUNE 30, 1996
Overview of Operations
For the six months ended June 30, 1997, Southlake's net income amounted to
$264 thousand, or $1.16 per share, compared to $436 thousand, or $2.00 per
share, earned in the first half of 1996. Return on average assets and return on
average equity for the six months ended June 30, 1997, amounted to 1.05 percent
and 13.12 percent, respectively. Southlake's return on average assets and return
on average equity for the same period last year amounted to 1.87 percent and
25.83 percent.
Net interest income on a tax equivalent basis for the first six months of
1997 was $132 thousand above the 1996 amount and resulted primarily from loan
growth. The net interest margin for the six months ended June 30, 1997, was 5.81
percent, up from 5.63 percent for 1996. The provision for loan losses for the
first half of 1997 totaled $36 thousand, and was unchanged from the 1996 amount.
Total noninterest income for the six months ended June 30, 1997, amounted
to $302 thousand as compared to the prior year total of $609 thousand. The
decrease in total noninterest income is attributed to a $285 thousand decline in
gain on sale of foreclosed assets. For the first six months of 1997, service
fees on deposits increased $29 thousand compared to the 1996 amount. Other
noninterest income, which includes merchant credit card fees, real estate
mortgage fees, ATM transaction fees, and various other miscellaneous service-
related fees and income, totaled $108 thousand and was down $51 thousand from
the 1996 amount. The decrease resulted primarily from lower real estate mortgage
fees.
Noninterest expense for the six months ended June 30, 1997, totaled $1.12
million as compared to $1.04 million during the same period in 1996. The
increase is attributable primarily to higher employee, occupancy, and equipment
costs associated with a branch opening in January 1997.
Balance Sheet Review
Consolidated assets at June 30, 1997, totaled $53.6 million as compared to
$50.9 million at year-end 1996 and $47.6 million at June 30, 1996. Since year-
end 1996, investment securities have increased $4.1 million and loans have
decreased $491 thousand. The balance sheets presented reflect normal recurring
adjustments and accruals. The net unrealized loss in the investment portfolio at
June 30, 1997, totaled $34 thousand. At June 30, 1997, Southlake did not hold
any CMOs. Amortized cost of structured notes at June 30,
54
1997, totaled $200 thousand as compared to an approximate market value of $199
thousand. Total deposits at June 30, 1997, amounted to $49.1 million, up $2.4
million from December 31, 1996, and up $5.7 million from the June 30, 1996,
amount.
Nonperforming assets at June 30, 1997, totaled $533 thousand, or 2.00
percent of loans and foreclosed assets, and were down $66 thousand from the
December 31, 1996, amount. Foreclosed asset expense remains immaterial. At June
30, 1997, the allowance for loan losses amounted to .54 percent of nonperforming
assets. Management is not aware of any material classified credits not properly
disclosed as nonperforming and considers the allowance for loan losses to be
adequate.
Liquidity and Capital
Southlake's consolidated statements of cash flows are presented elsewhere
in this document. At June 30, 1997, management believes that the balance sheet
reflects adequate liquidity and the parent company has no debt. Total equity
capital amounted to $4.2 million at June 30, 1997, which was up from $3.9
million at year-end 1996 and $3.6 million at June 30, 1996. Southlake's risk-
based capital and leverage ratios at June 30, 1997, were 13.10 percent and 7.89
percent, respectively.
LEGAL MATTERS
The legality of the First Financial Common Stock to be issued in connection
with the Exchange Offer and Merger will be passed upon by McMahon, Surovik,
Suttle, Buhrmann, Hicks & Gill, P.C.
53
EXPERTS
The consolidated financial statements of First Financial as of December 31,
19941996 and 19931995 and for each of the years in the three-year period ended December
31, 1994,1996, incorporated by reference in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report dated January 11, 1995,10, 1997, with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of Weatherford HoldingsSouthlake as of December 31, 19941996
and 19931995 and for each of the years in the three-year period ended December 31,
1994,1996, included in this prospectus and elsewhere in the registration statement
have been audited by George, MorganJudd, Thomas, Smith & Sneed,Company, P.C., independent public
accountants, as indicated in their report dated January 7, 1995,September 19, 1997, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
5455
INDEX TO WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC.'S AND SUBSIDIARY
FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED
DECEMBER 31, 1992, 1993 AND 1994
Report of Independent Public Accountants................................................ F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994............................ F-3
Consolidated Statements of Earnings for three years ended December 31, 1992,
1993 and 1994.......................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the three years ended
December 31, 1992, 1993 and 1994....................................................... F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1992,
1993 and 1994.......................................................................... F-6
Notes to Consolidated Financial Statements.............................................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1994 AND SEPTEMBER 30, 1995
Compilation Report...................................................................... F-20
Consolidated Balance Sheets as of September 30, 1994 and 1995........................... F-21
Consolidated Statements of Earnings for the three months and the nine months
ended September 30, 1994 and 1995...................................................... F-22
Consolidated Statement of Changes in Stockholders' Equity for the nine months ended
September 30, 1994 and 1995............................................................ F-23
Consolidated Statements of Cash Flows for the nine months ended September 30, 1994 and
1995................................................................................... F-24
Notes to Consolidated Financial Statements..............................................Page
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995.................................. F-3
Consolidated Statements of Income for the three years ended
December 31, 1996, 1995 and 1994............................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1996, 1995 and 1994.. F-5
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1995 and 1994........................ F-6
Notes to Consolidated Financial Statements.................... F-8
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND JUNE 30, 1996
Compilation Report............................................ F-22
Consolidated Balance Sheets as of June 30, 1997 and 1996...... F-23
Consolidated Statements of Income for the three months and
six months ended June 30, 1997 and 1996..................... F-24
Consolidated Statements of Changes in Stockholders' Equity
for the six months ended June 30, 1997 and 1996............... F-25
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996.................................. F-26
F-1
REPORT OF[JUDD, THOMAS, SMITH & COMPANY, P.C. LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------AUDITORS' REPORT
Board of Directors and Stockholders
Weatherford NationalSouthlake Bancshares, Inc.
Southlake, Texas
We have audited the accompanying consolidated balance sheets of Weatherford
NationalSouthlake
Bancshares, Inc. (a Texas corporation) and subsidiariesSubsidiary as of December 31, 19941996 and 1993,1995, and the
related consolidated statements of earnings,income, changes in stockholders' equity, and
cash flows for each of the three years in the period
ended December 31, 1996, 1995 and 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the auditaudits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Weatherford
NationalSouthlake
Bancshares, Inc. and subsidiariesSubsidiary as of December 31, 19941996 and 1993,1995, and the
results of their consolidatedits operations and their consolidatedits cash flows for each of the three years in the period ended
December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
/s/ GEORGE, MORGAN/S/ JUDD, THOMAS, SMITH & SNEED, P.C.
Weatherford, Texas
January 7, 1995COMPANY
September 19, 1997
F-2
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
1994 19931996 1995
------------ ------------
Assets
ASSETS
Cash and due from banks $ 2,335,3213,436,740 $ 2,467,9964,671,647
Interest earning deposits in banks 100,000 115,794
Federal funds sold 1,000,000 3,800,000
Securities available-for-sale (notes A and B) 3,853,812
Securities held-to-maturity (notes A and B) 23,852,058 26,704,5487,000,000 6,220,000
Investment securities
Available-for-sale 2,775,775 3,688,021
Held-to-maturity 7,355,124 6,357,722
Other investment securities 110,500 110,500
Loans, less allowance for credit losses of $181,259 and
$184,810 at December 31, 994 and 1993
(notes A, C, D, K, L and M) 21,151,227 16,396,842
Bank premisesnet 25,975,071 21,971,147
Premises and equipment, (notes A and E) 1,555,245 1,503,393net 2,370,478 1,682,675
Accrued interest receivable 506,088 443,972
Foreclosed381,745 387,292
Other real estate (note A) 45,785 45,785421,296 591,102
Prepaid expenses 116,735 111,371
Cash surrender value of life insurance 603,194 545,560
Goodwill, net of accumulated amortization of $51,344
and $45,842 for 1996 and 1995, respectively 168,702 174,204
Other assets (note F) 69,326 43,097
----------- -----------
$54,368,862 $51,405,633
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest128,558 98,224
------------ ------------
Total assets $ 50,943,918 $ 46,725,259
============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing demand $ 8,499,29816,437,992 $ 8,557,40914,114,516
Interest bearing (note G) 40,821,258 38,481,590
----------- -----------
Total deposits 49,320,556 47,038,99930,302,614 28,776,940
------------ ------------
46,740,606 42,891,456
Accrued expenses andinterest payable 54,469 63,414
Other liabilities 208,543 253,752
Deferred income taxes (notes A and J) 118,794 94,105220,641 156,242
Note payable (note H) 112,500
----------- ------------ 475,000
------------ ------------
Total liabilities 49,760,393 47,386,856
----------- -----------
STOCKHOLDERS' EQUITY
Capital47,015,716 43,586,112
Minority interest 5,244 4,593
Stockholders' equity
Preferred stock $5.00- 8% nonvoting, cumulative, $1.00 par value,
1,000,000 shares authorized, 220,771authorized: 7,200 issued and outstanding 7,200 7,200
Common stock - $1.00 par value, 1,000,000 shares authorized:
208,880 and 200,700 shares in 1996 and 1995 issued
1,103,855 1,103,855
Paid-in capital 11,245 11,245
Net unrealized depreciationand outstanding 208,880 200,700
Surplus 1,052,449 959,814
Retained earnings 2,658,712 1,970,198
Unrealized loss on available-for-sale securities net of tax benefit (41,877)
Retained earnings 3,577,314 2,945,745(4,283) (3,358)
------------ ------------
Total stockholders' equity 3,922,958 3,134,554
------------ ------------
Total liabilities and stockholders' equity $ 50,943,918 $ 46,725,259
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
----------- ----------- 4,650,537 4,060,845
Less treasury stock, at cost, 4,783 shares (42,068) (42,068)-----------
Interest income
Loans (including fees) $ 2,426,114 $ 2,207,598 $ 1,761,565
Taxable securities 329,278 365,077 399,485
Tax-exempt securities 291,329 223,253 164,833
Deposits in banks 5,850 11,383 35,943
Federal funds sold 208,686 181,917 131,886
----------- ----------- -----------
Total stockholders' equity 4,608,469 4,018,777interest income 3,261,257 2,989,228 2,493,712
----------- ----------- $54,368,862 $51,405,633-----------
Interest expense
Interest bearing money-market
and savings deposits 358,588 383,140 455,618
N.O.W. and super N.O.W. deposits 71,793 78,976 74,031
Time deposits, $100,000 and over 319,759 254,434 90,746
Other time deposits 309,634 283,970 210,905
Interest on note payable 26,081 52,660 52,121
Federal funds purchased 15 7,285 1,728
----------- ----------- -----------
Total interest expense 1,085,870 1,060,465 885,149
----------- ----------- -----------
Net interest income 2,175,387 1,928,763 1,608,563
Provision for loan losses 72,000 68,000 35,000
----------- ----------- -----------
Net interest income after
provision for loan losses 2,103,387 1,860,763 1,573,563
----------- ----------- -----------
Other income
Service charges on deposit accounts 366,130 357,283 353,213
Other operating revenue 285,001 253,771 174,454
Net gain on sale of assets 247,463 20,734 32,682
----------- ----------- -----------
Total other income 898,594 631,788 560,349
----------- ----------- -----------
Other expense
Salaries 813,790 686,028 582,596
Other employee benefits 108,319 132,164 118,425
Net occupancy expense 91,373 84,612 83,538
Other operating expenses 1,131,116 877,554 895,128
Minority interest 955 678 621
----------- ----------- -----------
Total other expenses 2,145,553 1,781,036 1,680,308
----------- ----------- -----------
Income before income taxes 856,428 711,515 453,604
Income taxes (167,338) (171,756) (111,204)
----------- ----------- -----------
Net income $ 689,090 $ 539,759 $ 342,400
=========== =========== ===========
Primary earnings per common share $ 3.14 $ 2.56 $ 1.71
=========== =========== ===========
The accompanying notes are an integalintegral part of this statement.
F-3these financial statements.
F-4
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARCHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Unrealized
Gain
Paid-In (Loss) on
Capital in Available-
Common Stock Preferred Stock Excess of Retained For-Sale
Shares Amount Shares Amount Par Earnings Securities Total
------- -------- ------ ------ ---------- ---------- ---------- ----------
Balance, December 31, 1993 195,900 $195,900 7,200 $7,200 $ 899,814 $1,089,191 $ $2,192,105
Net income 342,400 342,400
Common stock issued 4,800 4,800 60,000 64,800
Dividends paid on preferred (576) (576)
stock
Current year unrealized loss
on available-for-sale securities,
net of applicable deferred taxes (195,140) (195,140)
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1994 200,700 200,700 7,200 7,200 959,814 1,431,015 (195,140) 2,403,589
Net income 539,759 539,759
Dividends paid on preferred
stock (576) (576)
Current year unrealized gain
on available-for-sale securities,
net of applicable deferred taxes 191,782 191,782
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1995 200,700 200,700 7,200 7,200 959,814 1,970,198 (3,358) 3,134,554
Net income 689,090 689,090
Common stock issued 8,180 8,180 92,635 100,815
Dividends paid on preferred (576) (576)
stock
Current year unrealized loss on
available-for-sale securities, net
of applicable deferred taxes (925) (925)
------- -------- ----- ------ ---------- ---------- --------- ----------
Balance, December 31, 1996 208,880 $208,880 7,200 $7,200 $1,052,449 $2,658,712 $ (4,283) $3,922,958
======= ======== ===== ====== ========== ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-5
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
----------- ----------- -----------
Operating activities
Net income $ 689,090 $ 539,759 $ 342,400
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 72,000 68,000 35,000
Depreciation and amortization 150,376 149,069 128,871
Loss (gain) on sale of investments 24,583 11,412 (32,682)
Other gains on sale of assets (272,046) (32,146) (750)
Donation of bank property 137,000 - -
Increase in cash surrender value of life insurance (57,634) (71,288) (164,554)
Change in prepaid expenses (5,364) (40,201) (2,642)
Change in interest receivable 5,547 (68,080) (27,373)
Change in interest payable (8,945) 18,319 2,497
Change in other liabilities 64,399 35,667 92,527
Minority interest 955 678 621
Change in other - net (30,133) (49,127) (3,182)
----------- ----------- -----------
Net cash provided by operating activities 769,828 562,062 370,733
----------- ----------- -----------
Investing activities
Net change in time deposits with banks 15,794 282,206 1,187,000
Maturities of held-to-maturity securities 762,315 545,000 130,000
Maturities and sales of available-for-sale securities 5,612,828 5,984,713 2,882,563
Purchases of held-to-maturity securities (1,803,552) (2,164,990) (1,056,548)
Purchases of available-for-sale securities (4,709,293) (745,687) (4,805,690)
Net change in funding and principal collections on loans (4,398,524) (3,351,008) (1,798,518)
Net change in federal funds sold (780,000) (6,220,000) 1,180,000
Expenditures for premises and equipment (1,116,259) (359,560) (33,810)
Proceeds from sale of premises and equipment 324,339 108,230 1,039
Proceeds from sale of foreclosed property 613,227 96,892 95,941
Purchase of other real estate - (297,040) -
----------- ----------- -----------
Net cash used in investing activities (5,479,125) (6,121,244) (2,218,023)
----------- ----------- -----------
Financing activities
Net increase in demand and savings deposits 2,746,993 2,326,754 2,422,552
Principal payment on debt (475,000) - (125,000)
Proceeds from the issuance of common stock 100,816 - 64,800
Net change in federal funds purchased - (505,000) 505,000
Net change in customer time deposits 1,102,157 5,464,676 (962,911)
Dividends paid (576) (576) (576)
----------- ----------- -----------
Net cash provided by financing activities 3,474,390 7,285,854 1,903,865
----------- ----------- -----------
Net (decrease) increase in cash and due from banks (1,234,907) 1,726,672 56,575
Cash and due from banks, beginning of year 4,671,647 2,944,975 2,888,400
----------- ----------- -----------
Cash and due from banks, end of year $ 3,436,740 $ 4,671,647 $ 2,944,975
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
---------- ---------- ----------
Interest Income
InterestSupplemental schedule of noncash investing
and fees onfinancing activities:
Other real estate acquired in
settlement of loans (note A) $1,810,531 $1,495,782 $1,456,334
Interest on investment securities
Taxable 1,202,423 1,427,616 1,601,049
Exempt from federal income taxes 130,501 125,466 119,774
Interest on federal funds sold 56,755 51,226 84,804
Other interest 4,990 5,066 15,076
---------- ---------- ----------
Total interest income 3,205,200 3,105,156 3,277,037
---------- ---------- ----------
Interest Expense
Interest on deposits 1,151,076 1,155,226 1,444,198
Interest on notes and debentures payable 1,134 24,342 45,504
---------- ---------- ----------
Total interest expense 1,152,210 1,179,568 1,489,702
---------- ---------- ----------
Net interest income 2,052,990 1,925,588 1,787,335
Provision for credit losses (note A and D) 3,000 3,000 70,559
---------- ---------- ----------
Net interest income after provision for credit losses 2,049,990 1,922,588 1,716,776
---------- ---------- ----------
Noninterest income
Service charges and fees 706,935 578,553 528,515
Gain on sale$ 322,600 $ 81,868 $ -
========== ========== ==========
Sale of foreclosed real estate
4,350 3,000
Gain on sale of securities (note B) 12,069 663,769
Gain on sale of other assets 700 (2,330) 12,275
---------- ---------- ----------
Total other income 719,704 1,244,342 543,790
---------- ---------- ----------
Noninterest Expenses
Employee compensation and benefits 707,777 676,507 572,449
Net occupancy and equipment expense 256,493 195,681 124,777
Net cost of operations of foreclosed real estate 12,960 1,314 24,969
Other operating expenses 566,564 679,907 581,744
---------- ---------- ----------
Total other expenses 1,543,794 1,553,409 1,303,939
---------- ---------- ----------
Earnings before income taxes 1,225,900 1,613,521 956,627
Federal tax provision (note J) 378,343 510,683 289,059
---------- ---------- ----------
Earnings before cumulative effect adjustment 847,557 1,102,838 667,568
Cumulative effect adjustment for change in accounting for
income taxes (note J) (19,113)
---------- ---------- ----------
NET EARNINGSfinanced through loans $ 847,557 $1,083,725- $ 667,56831,500 $ -
========== ========== ==========
Earnings per share before cumulative adjustment for change
in accounting for income taxesSupplemental cash flow information:
Income tax paid $ 3.92238,472 $ 5.11202,747 $ 3.06113,417
========== ========== ==========
Earnings per shareInterest paid $1,094,863 $1,041,126 $ 3.92 $ 5.02 $ 3.06883,148
========== ========== ==========
The accompanying notes are an integalintegral part of this statement.
F-4these financial statements.
F-7
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
Net Unrealized
Depreciation on
Common Paid-in Available-for- Retained Treasury
Stock Capital Sale Securities Earnings Stock
------------ ---------- --------------- -------- ----------
Balances January 1, 1991 $ 1,103,855 $ 11,245 $ $ 1,194,452 $ (17,693)
Net earnings in 1992 667,568
Purchase of treasury stock (24,375)
----------- --------- --------- ----------- --------
Balance at December 31, 1992 1,103,855 11,245 1,862,020 (42,068)
Net earnings year in 1993 1,083,725
----------- --------- --------- ----------- --------
Balance at December 31, 1993 1,103,855 11,245 2,945,745 (42,068)
Initial unrealized gain recorded on
investment in securities
available-for-sale (net of deferred
tax benefit) 24,908
Net earnings year in 1994 847,557
Dividends declared ($1.00 per share) (215,988)
Change in unrealized depreciation on
available-for-sale securities
(net of deferred tax benefit) (66,785)
----------- --------- --------- ----------- --------
Balances at December 31, 1994 $ 1,103,855 $ 11,245 $ (41,877) $ 3,577,314 $(42,068)
=========== ========= ========== =========== ========
The accompanying notes are an integal part of this statement.
F-5
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1994 1993 1992
------------ ------------ -------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 847,557 $ 1,083,725 $ 667,568
----------- ------------ ------------
Adjustments to reconcile net earnings to cash provided
by operating activities
Depreciation and amortization 135,993 89,079 52,486
Cumulative effect of change in account for income
taxes 19,113
Provision for credit losses 3,000 3,000 70,559
Premium amortization, net of discount accretion 86,971 7,166 51,848
Net gain on sale of available-for-sale securities (12,069)
Net gain on sale of investment securities (663,769)
Gain on sale of foreclosed real estate (4,350) (3,000)
Gain on sale of other assets (700) 2,330 (12,275)
Change in other assets (67,613) 69,380 82,179
Change in other liabilities (20,520) (63,392) 29,539
----------- ------------ ------------
Total adjustments 125,062 (541,443) 271,336
----------- ------------ ------------
Net cash provided by operating activities 972,619 542,282 938,904
----------- ------------ ------------
Cash flows from investing activities
Changes in federal funds sold 2,800,000 (250,000) (800,000)
Proceeds from maturities of held-to-maturity securities 1,959,150 4,901,220 9,012,457
Proceeds from maturities of available-for-sale securities 410,141
Proceeds from sales of available-for-sale securities 1,212,692
Proceeds from sales of investment securities 15,748,001
Net increase in loans (4,757,385) (2,578,164) (1,284,579)
Proceeds from sale of other assets 700 13,775
Proceeds from sale of foreclosed real estate 10,595 4,000
Purchase of bank premises and equipment (187,004) (677,753) (193,838)
Purchase of held-to-maturity securities (2,094,618) (20,909,935) (11,945,652)
Purchase of available-for-sale securities (2,627,039)
------------ ------------ ------------
Net cash used by investing activities (3,283,363) (3,756,036) (5,193,837)
----------- ------------ ------------
Cash flows from financing activities
Change in non-interest bearing activities (58,111) 1,839,027 1,644,918
Change in interest bearing activities 2,339,668 1,343,967 4,028,890
Proceeds from long-term debt 112,500
Payments on long-term debt (625,000) (155,000)
Purchase of treasury stock (24,375)
Dividends declared (215,988)
----------- ------------ ------------
Net cash provided by financing activities 2,178,069 2,557,994 5,494,433
----------- ------------ ------------
Net change in cash and cash equivalents (132,675) (655,760) 1,239,500
Cash and cash equivalents at beginning of year 2,467,996 3,123,756 $ 1,884,256
----------- ------------ ------------
Cash and cash equivalents at end of year $ 2,335,321 $ 2,467,996 $ 3,123,756
=========== ============ ============
Supplemental schedule of non-cash investing and financing
activities
Unrealized depreciation on available-for-sale securities $ 63,450 $ $
Other real estate acquired through foreclosure $ $ $ 52,030
Other real estate disposed through loans $ $ $ 54,000
Cash paid during the year for
Interest $ 1,109,250 $ 1,225,493 $ 1,524,230
Income taxes $ 554,253 $ 512,203 $ 137,602
The accompanying notes are an integal part of this statement.
F-6
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE A -1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Weatherford
NationalSouthlake
Bancshares, Inc. (Weatherford)(the Company) and its wholly99.9% owned subsidiary, Parker
Bancshares, Inc. (Parker) (a Delaware corporation), and its wholly owned
subsidiary, the WeatherfordTexas National
Bank (the Bank). Both the Company and the Bank are incorporated in the State of
Texas. Southlake Bancshares, Inc. and Subsidiary provides a variety of banking
services to individuals and businesses through its two branches in Southlake and
Trophy Club. Its primary source of revenue is loans to customers who are
primarily middle-income individuals and small to mid-sized businesses. The
accounting and reporting policies of Southlake Bancshares, Inc. and Subsidiary
conform to generally accepted accounting principles and to general practices
within the banking industry. The following are descriptions of the more
significant of those policies. All material intercompany transactions and
accounts have been eliminated upon consolidation.
Weatherford was incorporated on February 21, 1984. Parker was incorporated on
December 13, 1988,Investment Securities
- ---------------------
The Company uses Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and commencedEquity Securities. Pursuant to
do business on December 28, 1988. The Bank
was incorporated on November 5, 1983, and received approval from the Board of
Governors of the Federal Reserve System to openSFAS No. 115, investment securities that are held for business on July 16, 1984.
On December 28, 1988, Weatherford exchanged all of the shares it owned in the
Bank for all of the stock in Parker.
2. Basis of Accounting
-------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and conform with practices within the
banking industry.
3. Trading Securities
------------------
Bonds, notes, and debentures held principally forshort-term resale in the near term are
classified as trading account securities and carried at fair value. Debt securities that
management has the ability and intent to hold to maturity are recordedclassified as
held-to-maturity and carried at theircost, adjusted for amortization of premium and
accretion of discounts using methods approximating the interest method.
Securities which do not meet either of the previously mentioned categories are
classified as available-for-sale and are carried at fair values.
Unrealizedvalue. Realized and
unrealized gains and losses on trading account securities are included immediately in othernet income.
The Bank does not have an investment department
and does not actively engage in securities trading, hence no securities are
classified as trading securities.
4. Securities Held-to-Maturity
---------------------------
Bonds, notes, and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
5. Securities Available-for-Sale
-----------------------------
Available-for-sale securities consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on available-for-
sale securities are reported as a net amount in a separate component of
shareholders' equity until realized. RealizedUnreal ized gains and losses on the salesecurities available-for-sale are recognized as
direct increases or decreases in stockholders' equity net of available-for-saledeferred income
tax.
Costs of securities sold are determinedrecognized using the specific-identificationspecific identification
method.
DeclinesCompany Premises and Equipment
- ------------------------------
The Company's premises and equipment are stated at cost less accumulated
depreciation, which is computed using the straight-line method over estimated
useful lives ranging from three to forty years.
Major expenditures for property and those which substantially increase useful
lives are capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs and
related accumulated depreciation amounts are removed from the accounts with the
resulting gains or losses included as income.
Goodwill
- --------
Goodwill is amortized on the straight-line basis over forty years.
Federal Income Taxes
- --------------------
The Company files a consolidated income tax return with its subsidiary. Income
taxes are allocated on a separate return basis pursuant to a tax-sharing
agreement.
The Company uses SFAS No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes. The difference between the financial statement and tax bases of assets
and liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax consequences
using the currently enacted tax laws and rates that apply to
F-8
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
the periods in which they are expected to affect taxable income. Income tax
expense is the current tax payable for the period plus or minus the net change
in the fairdeferred tax assets and liabilities.
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of individual held-to-maturityestimated cash flows. The allowance is increased by a provision
for loan losses, which is charged to expense, and available-for-sale securities below their cost that are other than temporary
have resulted in write-downs of the individual securities to their fair value.
The related write-downs have been included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
6. Loans
-----
Loans are reported at the principal amount outstanding,reduced by charge-offs, net of
unearned income
and the allowance for credit losses.recoveries.
Loans
- -----
Unearned discount on installment loans is recognized as income over the terms of
the loans by using principal amounts
outstanding.the interest method. Interest on other loans is calculated by using
the simple interest method on the daily balancebalances of the principal amount
outstanding. Loans on which the accrual of interest has been discontinued are
designated as non-accrualnonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or principal or F-7
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
when a loan becomes contractually past due by ninety
days or more with respect to interestprincipal or principal. Wheninterest. Generally when a loan is
placed on non-accrualnonaccrual status, all interest previously accrued but not collected
is reversed against current period income. Income on such loans is then
recognized only to the extent that cash is received and where the future collection
of principal is probable. Interest accrualsAccruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the judgementjudgment
of management, the loans areloan is estimated to be fully collectible as to both
principal and interest.
Renegotiated loansLoan origination fees and certain direct loan origination costs are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interestamortized
over the appropriate lending or commitment period.
Other Real Estate Owned
- -----------------------
Other real estate owned is generally
accrued on such loans in accordance with the new terms.
Mortgage loans originated and intended for sale in the secondary market are
carriedstated at the lower of costfair value or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
7. Premises and Equipment
----------------------
Bank premises and equipment are carried at original cost less accumulated
depreciation. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets. Costs incurred for maintenance
and repairs are expensed currently. For income tax purposes, the accelerated
cost recovery system of depreciation is used.
8. Allowance for Credit Losses
---------------------------
The allowance for credit losses is maintained at a level considered adequate to
provide for potential credit losses. The allowance is increased by provisions
charged to operating expense and reduced by net charge-offs. The level of the
allowance is based on management's evaluation of potential losses, the risk
characteristics of various categories of loans, review of individual credits,
recent loss experience, as well as prevailing and anticipated economic
conditions and other pertinent factors.
9. Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of, loan foreclosure are
carried at the lower of the recorded
investment in the property or itsat date of foreclosure. At foreclosure, if fair value is less estimated selling costs. Prior to foreclosure,than
the value of the
underlying loanCompany's recorded investment, a write-down is written down to the fair market value of the real estate to
be acquired byrecognized through a charge
to the allowance for credit losses, if necessary. Anyloan losses. Declines in fair value subsequent write-downsto
foreclosure are charged against earnings. Operating expensesrecognized by a charge to earnings with a corresponding write-
down of such
properties, netthe asset.
Cash Flows
- ----------
For purposes of related income arereporting cash flows, the Company has defined cash and cash
equivalents as those amounts included in net costthe balance sheet caption "Cash and due
from banks."
Estimates
- ---------
The preparation of operationsconsolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of foreclosed real estate.
10. Income Taxes
------------
The Bank, Parkerassets and Weatherford file a consolidated federal income tax return.
The Bank receives a charge or credit from Bancshares equivalent to its federal
income tax computed on a separate return basisliabilities and
allocating alldisclosure of contingent assets and liabilities at the date of the surtax
exemption to the Bank.
Income taxes are provided for the tax effects of transactions reported in theconsolidated
financial statements and consistthe reported amounts of taxes currently due plus deferred taxes
related primarily to differences betweenrevenues and expenses during
the basis of the items listed in Note I
for financial and income tax reporting. The deferred tax assets and liabilities
F-8reporting period. Actual results could differ from those estimates.
F-9
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that are
available to offset future taxable income and tax credits that are available to
offset future federal income taxes.
11. Per Share Data
--------------
Earnings per share are based on the weighted average number of common
shares and common share equivalents outstanding in 1994, 1993, and 1992 of
215,988; 215,998; and 218,413, respectively.
12. Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Bank considers only cash and
due from banks to be cash equivalents.
13. Accounting Standards Not Yet Adopted
------------------------------------
In May 1993, Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan," was issued. In October
1994, SFAS 114 was amended by Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures." These statements require that impaired loans, within the scope of
the statements, be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or market price or the
fair value of the collateral if the loan is collateral dependent. These
statements apply to fiscal years beginning after December 15, 1994, and are not
expected to have a material effect on the accompanying financial statements.
14. Reclassification of Amounts
---------------------------
To effectively provide comparative information, certain amounts in the prior
year were reclassified for financial statement presentation.
NOTE B -2. INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (FASB Statement 115), "Accounting for Certain Investments in
Debt and Equity Securities" FASB Statement 115 requires the Bank to account for
their investment securities as either trading securities, securities held-to-
maturity, or securities available-for-sale. The adoption of this statement
effective January 1, 1994 resulted in an after-tax adjustment to equity of $
24,908 and increasing investments by $ 37,739 . FASB Statement 115 does not
permit retroactive application of the statement.
Prior to January 1, 1994 the Company accounted for its investment in securities
at amortized cost.
F-9
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE B - INVESTMENT SECURITIES (continued)
Debt and equity securities have been classified in the statements of financial
condition according to management's intent. The carrying value, approximate fair
value and unrealized gains (losses) of the securitiesSecurities held-to-maturity at December 31, are as
follows:1996 consist of the following:
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUEGross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------- ------------ ---------------------
Securities held-to-maturity
U.S. TreasuryTax-exempt securities $ 6,691,871 $ $ (432,429) $ 6,259,442
U.S. Government agencies
and corporations 7,036,026 (531,102) 6,504,924
Obligations of state and
political subdivisions 2,360,299 26,504 (16,066) 2,370,737
Mortgage-backed$7,046,858 $19,100 $(24,420) $7,041,538
Federal agency securities 7,763,862 (712,502) 7,051,360
----------- --------- ----------- -----------
Total Investment in securities
held-to-maturity $23,852,058 $ 26,504 $(1,692,099) $22,186,463
=========== ========= =========== ===========
Securities available-for-sale
U.S. Government agencies
and corporations $ 2,835,117 $ $ (14,685) $ 2,820,432
Mortgage-backed securities 1,022,145 (48,765) 973,380
----------- --------- ----------- -----------
Total investment in debt
securities available for sale 3,857,262 (63,450) 3,793,812
Other securities 60,000 60,000
----------- --------- ----------- -----------
Total investment in securities
available-for-sale $ 3,917,262 $ $ (63,450) $ 3,853,812
=========== ========= =========== ===========308,266 - (1,798) 306,468
---------- ------- -------- ----------
$7,355,124 $19,100 $(26,218) $7,348,006
========== ======= ======== ==========
F-10
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERSecurities available-for-sale at December 31, 1994, 1993 AND 1992
NOTE B - INVESTMENT SECURITIES (continued)1996 consist of the following:
DECEMBER 31, 1993
-------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUEGross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
U.S. Treasury obligations $1,834,768 $10,396 $ - $1,845,164
Federal agency securities $ 8,235,303 $ 15,075 $ (48,834) $ 8,201,544
U.S. Government agencies
and corporations 14,905,138 10,764 (96,059) 14,819,843
Obligations of state and
political subdivisions 2,067,702 135,940 2,203,642
Mortgage-backed securities 1,436,405 54,197 (750) 1,489,852
-----------947,495 - (16,884) 930,611
---------- ------- -------- ----------
-----------
Total investment in debt
securities 26,644,548 215,976 (145,643) 26,714,881
Other securities 60,000 60,000
----------- -------- ---------- -----------
Total investment in securities $26,704,548 $215,976 $ (145,643) $26,774,881
=========== ========$2,782,263 $10,396 $(16,884) $2,775,775
========== ================== ======== ==========
Other securities include Federal Reserve Bank stock for which there is no
readily determinable fair value and on which there is contractual restrictions
on the sale and transfer of the stock. These stocks are carried at amortized
cost and evaluated for declines in value.
The amortized cost and approximate market value of the investment portfolioSecurities held-to-maturity at December 31, 1994 and 1993, by contractual maturity are shown above. Expected
maturities will differ from contractual maturities because borrowers may have1995 consist of the right to call or prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated market value of debt securities held to
maturity at December 31, 1994, by contractual and expected maturity, are shown
below.following:
AMORTIZED ESTIMATED
COST FAIR VALUEGross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- -----------
Due within one year $ 1,901,544 $ 1,865,674
Due after one year through five years 13,466,338 12,546,165
Due after five years through ten years 720,314 723,264
Mortgage-backed securities 7,763,862 7,051,360
----------- -----------
$23,852,058 $22,186,463
=========== ===========
The amortized cost and estimated market value of debt securities available for
sale at December 31, 1994, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
Due within one year $2,635,107 $2,627,039
Due after one year through five years 200,010 193,393
Mortgage-backed
Tax-exempt securities 1,022,145 973,380
---------- ----------
$3,857,262 $3,793,812$6,357,722 $33,095 $(26,701) $6,364,116
========== ======= ======== ==========
F-11F-10
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE B -2. INVESTMENT SECURITIES, (continued)
Gross realized gains and gross realized losses on sales of available for sale
securities for the year endedCONTINUED
Securities available-for-sale at December 31, 1994 were as follows.1995 consist of the following:
GROSS REALIZED
-------------------------
GAINS LOSSES
-------- ---------------Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ----------
U.S. Treasury obligations $2,195,525 $8,833 $ (3,944) $2,200,414
Federal agency securities $ 308 $(313)
U.S. Government agencies and corporations 2,024 (187)
Mortgage-backed securities 10,237
------- -----
$12,569 $(500)
======= =====1,499,960 812 (13,165) 1,487,607
---------- ------ -------- ----------
$3,695,485 $9,645 $(17,109) $3,688,021
========== ====== ======== ==========
Gross realized gains and gross realized losses on salesThe following is a summary of investmentmaturities of securities for the year endedas of December 31, 1993 were as follows.1996:
GROSS REALIZED
-------------------------
GAINS LOSSES
-------- ---------------Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- --------- ---------- -----------
U.S. Treasury securities $158,580
Amounts maturing in:
One year or less $2,123,776 $2,122,061 $ U.S. Government agencies and corporations 505,189
-------- -----
$663,769748,453 $ ======== =====749,687
After one to five years 4,520,806 4,512,817 2,033,810 2,026,088
After five to ten years 710,542 713,128 - -
After ten years - - - -
---------- ---------- ---------- ----------
$7,355,124 $7,348,006 $2,782,263 $2,775,775
========== ========== ========== ==========
Securities carried at approximately $5,044,032with carrying v alues of $4,517,407 and $2,827,264 with market values
of approximately $4,899,766 and $2,845,081$3,781,737 at December 31,
19941996 and 1993,1995, respectively, were pledged to secure U.S. government deposits and
other public funds as required or permitted by law.
During 1996, the Company sold available-for-sale securities for total proceeds
of $3,525,993, resulting in gross realized losses of $24,583. During 1995, the
Company sold available-for-sale securities for total proceeds of $4,084,704,
resulting in gross realized losses of $11,412. During 1994, the Company sold
available-for-sale securities for total proceeds of $2,382,563, resulting in
gross realized gains of $43,254 and trust funds.gross realized losses of $10,572.
F-11
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C -3. LOANS
AtLoans outstanding at December 31 1994 and 1993, the Bank's loan portfolio was categorizedare detailed as follows:
1994 19931996 1995
----------- -----------
Commercial and industrialsingle-pay consumer $ 3,101,3856,412,944 $ 2,128,2433,701,831
Real estate - construction 1,655,538 876,1595,981,404 5,170,429
Real estate - mortgage 6,978,530 6,449,425
Real estate - other 4,355,267 2,051,539
Loans held for sale 334,4008,034,215 7,440,814
Installment loans 3,921,847 4,326,850
Agricultural 1,074,564 742,0424,532,814 4,180,279
Credit card 349,251 398,690
Lease financing loans 461,906 488,4611,349,315 1,723,505
Overdrafts 40,167 27,2969,626 3,954
----------- -----------
21,923,604 17,090,015Total Loans 26,669,569 22,619,502
Less: Unearned discount 591,118 508,363income (450,813) (445,072)
Less: Allowance for creditloan losses 181,259 184,810(243,685) (203,283)
----------- -----------
$21,151,227 $16,396,842
=========== ===========
Non-accrual loans are as follows:
1994 1993
----------- -----------
Principle balances on non-accrual status $ 26,924 $ 0
=========== ===========
Approximate interest foregone related to
non-accrual loans $ 369 $ 0Loans, net $25,975,071 $21,971,147
=========== ===========
F-12
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERAt December 31, 1994, 1993 AND 1992
NOTE C - LOANS (continued)1996, the Company had nonaccrual loans of approximately
$178,000. If interest on those loans had been accrued at their original rates,
such income would have approximated $12,000. There were no nonaccrual loans at
December 31, 1995 and 1994.
Loans, excluding credit card loans, non-accrual loans and overdrafts, at fixed
interest rates and variable interest rates at December 31, are as follows:
1994 19931996 1995
----------- -----------------------
Fixed rates $15,115,646 $11,491,249$20,689,408 $16,717,356
Variable rates 6,278,961 5,083,0095,451,432 5,499,502
----------- -----------
$21,394,607 $16,574,258
============$26,140,840 $22,216,858
=========== ===========
The following table shows the maturity distribution of the fixed rate loans at
December 31:
1994 1993
1996 1995
----------- -----------------------
Three months or less $ 2,635,6222,751,691 $ 1,542,6221,730,246
Three through twelve months 2,703,516 2,187,5744,344,776 3,834,961
One year through five years 7,212,225 6,385,145year 2,734,331 10,531,934
Over five years 2,564,283 1,375,908858,610 620,215
----------- -----------
$15,115,646 $11,491,249
============$20,689,408 $16,717,356
=========== ===========
F-12
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D -4. ALLOWANCE FOR CREDITLOAN LOSSES
An analysis of transactions in the allowance for credit losses is shown below:presented as follows:
1996 1995 1994
1993 1992
------------ ----------- ----------------- --------- ---------
Balance at beginning of year $ 184,810 $ 177,217 $ 95,285- January 1 $203,283 $155,960 $158,201
Provision charged to operating expense 3,000 3,000 70,559for loan losses 72,000 68,000 35,000
Recoveries credited to allowance 3,224 8,203 27,322
Losses charged to allowance (9,775) (3,610) (15,949)
----------- -----------8,688 9,139 3,898
Loans charged-off (40,286) (29,816) (41,139)
-------- -------- --------
Balance at end of year $ 181,259 $ 184,810 $177,217
=========== ===========- December 31 $243,685 $203,283 $155,960
======== ======== ========
For income tax purposes, $108,994 has been accumulated in the allowance for
credit losses. This amount in based on Internal Revenue Code Regulations.
NOTE E -5. PREMISES AND EQUIPMENT
The compositionAn analysis of bank premises and equipment for the two periods is summarized
below:as follows:
1994 1993 1992
---------- ---------- ----------1996 1995
----------- -----------
Land $ 505,958539,249 $ 353,439 $ 353,439
Land578,272
Bank building and improvements 54,990 54,990 48,537
Building 765,528 765,528 335,0001,471,145 1,035,303
Furniture and fixtures 582,255 555,419 154,596
Automobiles 25,755 25,755 176,508
Leasehold improvements 8,984 8,984 25,755
Construction in progress 7,000 26,122equipment 887,753 497,681
---------- ----------
----------
1,950,470 1,764,115 1,119,9572,898,147 2,111,256
Less, accumulated depreciation 395,225 260,722 206,370(527,669) (428,581)
---------- ----------
----------
$1,555,245 $1,503,393 $ 913,587
========== ========== ==========
Depreciation expense $ 135,152 $ 85,617 $ 49,024
==========Premises and equipment, net $2,370,478 $1,682,675
========== ==========
Total depreciation expense for 1996, 1995 and 1994 amounted to $118,342,
$109,965 and $111,990, respectively.
F-13
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE E - PREMISES AND EQUIPMENT (continued)
The Bank capitalized interest expense of $16,284 in 1984 as part of the cost of
construction of banking facilities in accordance with Financial Accounting
Standards Board Statement No. 34, "Capitalization of Interest".
NOTE F - OTHER ASSETS
Other assets are composed of the following:
1994 1993 1992
----------- ----------- ----------
Prepaid expenses $ 24,959 $ 26,055 $ 23,343
Organization and start-up costs 84,838 84,838 84,838
Deferred income tax benefit 21,573
Federal income tax receivable 4,433
Other assets 18,361 16,200 15,130
----------- ----------- ----------
154,164 127,093 123,311
Less accumulated
amortization 84,838 83,996 80,534
----------- ----------- ----------
$ 69,326 $ 43,097 $ 42,777
=========== =========== ==========
Amortization expense $ 842 $ 3,462 $ 3,462
=========== =========== ==========
NOTE G -6. INTEREST BEARING DEPOSITS
Interest bearing deposits at December 31 are summarized as follows:
1994 19931996 1995
----------- -----------
NOWN.O.W. and super N.O.W. accounts $ 9,235,638 $10,130,0025,449,121 $ 4,833,237
Money market accounts 5,455,104 5,752,12210,185,380 10,294,249
Savings 5,290,080 5,814,633accounts 1,487,201 1,570,699
Individual retirement accounts Under $100,000 4,272,187 4,090,592
Over $100,000 450,295 437,2091,832,164 1,802,288
Certificates of deposit
Under $100,000 8,355,566 7,422,7235,356,029 4,222,656
Over $100,000 5,614,352 2,700,0002,992,719 3,053,811
State and political subdivisions 2,148,036 2,134,309(over $100,000) 3,000,000 3,000,000
----------- ----------
$40,821,258 $38,481,590-----------
$30,302,614 $28,776,940
=========== ===========
Related party deposits totaled $363,664 and $340,881 at December 31, 1996 and
1995, respectively.
Certificates of deposit and individual retirement accounts issued in amounts of
$100,000 or more and their remaining maturities at December 31 are as follows:
1994 19931996 1995
---------- ----------
Three months or less $3,604,351 $1,400,222$3,723,863 $3,856,883
Three through twelve months 1,837,007 1,215,0411,394,908 1,880,919
Over twelve months 623,289 521,946874,948 316,009
---------- ----------
$6,064,647 $3,137,209$5,993,719 $6,053,811
========== ==========
NOTE H - LONG TERM DEBT
On November 15, 1994, the Bank purchased land to be used as a branch location of
the Bank and issued a real estate lien note in the amount of $112,500 payable to
F-14
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERNOTE 7. NOTE PAYABLE
The Company had a note payable to a bank bearing an interest rate of .5% above
the bank's prime lending rate. The note matures on July 31, 1994, 1993 AND 1992
NOTE H - LONG TERM DEBT (continued)
an individual.1998 with provisions
for interest payments to be made quarterly. Principal payments include $113,383
due on July 31, 1997 and the remaining principal is due at maturity. The
principaloutstanding balance at December 31, 1995 was $475,000. The note was paid in full
on December 31, 1996. The note was collateralized by 191,700 shares of the
noteissued and outstanding common stock of the Southlake Bancshares, Inc.
NOTE 8. REGULATORY MATTERS
The Bank must obtain prior approval from the Office of the Comptroller of the
Currency if the total of cash dividends declared in any calendar year exceed the
total of net profits (as defined) of that year combined with the total of the
retained net profits (as defined) of the preceding two years. At December 31,
1996, the Bank could have declared dividends of $1,302,925 without prior
approval of the Office of the Comptroller of the Currency.
The Bank was required to maintain reserve balances with the Federal Reserve
Bank. During 1996 and 1995, such average balances totaled approximately $425,000
and $375,000, respectively.
The Bank is payable in annual installment
payments of $37,500 each,subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
15th day of November each year, beginning
November 15, 1995Bank's financial statements. Under capital adequacy guidelines and continuing regularly and annually until the
principal has
been paid. Interest computed at 8% per annum onregulatory framework for prompt corrective action, the unpaid principal balance is
payable annually as it accrues on the same dates as and in addition to the
installments of principal. The Bank agreedmust meet specific
capital guidelines that it will not make any prepayment
on the note prior to January 1, 1997 without the written consentinvolve quantitative measures of the holder
ofBank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the note. The note is securedregulators about components, risk
weightings, and other factors.
Quantitative measures established by a vendor's lien retained in deed of even
date fromregulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
holder,following table) of total and by a deedTier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of trustTier I capital (as defined) to average
assets (as defined). Management believes, as of even dateDecember 31, 1996 and 1995, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notification from the Bank to a trustee which conveysOffice
of the property described above.
NOTE I - EMPLOYEE BENEFITS
In 1990,Comptroller of the Currency categorized the Bank established a defined contribution (401(k)) pension plan which
covers substantially all employees.as adequately
capitalized under the regulatory framework for prompt corrective action. To be
categorized as adequately capitalized the Bank must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
The eligible employeesCompany's actual capital amounts and ratios are allowed to
contribute from three to fifteen percent of their salary toalso presented in the plan. The Bank
contributes three percent of the participating employees' salaries to the plan.
The Bank makes its contribution semi-monthly. Those contributions totaled
$16,580, $14,321 and $10,966, in 1994, 1993, and 1992, respectively.table.
F-15
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J 8. REGULATORY MATTERS, CONTINUED
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions:
-------------------- --------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- ---------- ---------- ----------- ----------
As of December 31, 1996
Total capital
(to risk weighted assets) $4,003,185 12.56% >/- $2,548,960 >/- 8.00% >/- $3,186,200 >/- 10.00%
Tier I Capital
(to risk weighted assets) $3,752,300 11.78% >/- $1,274,480 >/- 4.00% >/- $1,911,720 >/- 6.00%
Tier I Capital
(to average assets) $3,752,300 7.95% >/- $1,887,080 >/- 4.00% >/- $2,358,850 >/- 5.00%
As of December 31, 1995
Total capital
(to risk weighted assets) $3,168,226 11.51% >/- $2,201,840 >/- 8.00% >/- $2,752,300 >/- 10.00%
Tier I Capital
(to risk weighted assets) $2,957,743 10.75% >/- $1,100,920 >/- 4.00% >/- $1,651,380 >/- 6.00%
Tier I Capital
(to average assets) $2,957,743 7.04% >/- $1,681,160 >/- 4.00% >/- $2,101,450 >/- 5.00%
NOTE 9. FEDERAL INCOME TAXES
Effective January 1, 1993,Other assets in the Bank adopted Statementaccompanying balance sheet includes the following amounts
of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."deferred tax assets and liabilities:
1996 1995
--------- ---------
Deferred tax liability $ (4,644) $(3,431)
Deferred tax assets 153,590 83,146
-------- -------
Net deferred tax asset $148,946 $79,715
======== =======
F-16
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. FEDERAL INCOME TAXES, CONTINUED
The cumulative effect of the
change in accounting principle is included in determining net income for 1993.
Financial statements for prior years have not been restated.
The total 1994 and 1993 Federal incomedeferred tax provision (benefit)assets consists of the following components:at December 31:
1996 1995
--------- --------
Employee benefits $ 62,427 $40,237
Contributions 28,730 -
Loan fees 19,503 17,116
Depreciation 5,568 2,168
Bad debts 37,362 23,625
Investment securities (1,456) (1,142)
Accretion (3,188) (2,289)
-------- -------
$148,946 $79,715
======== =======
The components of income tax expense are as follows:
1996 1995 1994 1993 1992
--------- --------- ---------
Current
provision $353,654 $515,379 $259,428
Deferred 24,689 (4,696) 29,631Federal $238,472 $202,747 $113,417
State - - -
-------- -------- --------
$378,343 $510,683 $289,059
======== ======== ========238,472 202,747 113,417
Deferred income taxes at the appropriate rates are detailed as follows:
1994 1993 1992
--------- -------- --------
Net unrealized depreciation on available-for-sale
securities $(21,573) $ $
Excess depreciation charges
for tax purposes 23,138 8,608 818
Excess provision for credit losses for financial
reporting purposes (24,570) (23,550) (18,259)
Excess expenses for tax purposes using the cash
method of accounting 120,226 109,047 101,521
Other, net (4,392)federal (71,134) (30,991) (2,213)
-------- -------- --------
$ 97,221 $ 94,105 $ 79,688Income tax expense $167,338 $171,756 $111,204
======== ======== ========
F-15The Company's income tax expense differed from the statutory federal rate of 34%
as follows:
1996 1995 1994
---------- --------- ---------
Statutory rate applied to earnings
before income taxes $ 291,186 $241,915 $154,225
Effect of tax exempt income (123,882) (80,936) (61,271)
Non-deductible expenses and
other items 34 10,777 18,250
--------- -------- --------
Income tax expense $ 167,338 $171,756 $111,204
========= ======== ========
F-17
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE J - INCOME TAXES (continued)
Applicable income taxes for financial reporting purposes differ from the amount
computed by applying the statutory federal income tax rate for the reasons noted
in the table below:
DECEMBER 31
-------------------------------------------------------------
1994 % 1993 % 1992 %
--------- --------- --------- --------- --------- ------
Tax at statutory federal
income tax rate $416,803 34.00 $548,597 34.00 $325,253 34.00
Increase (decrease) in tax
resulting from:
Tax exempt income (41,109) (3.35) (39,373) (2.44) (40,723) (4.26)
Other, net 2,649 .21 1,459 .09 4,529 .48
-------- ----- -------- ----- -------- -----
$378,343 30.86 $510,683 31.65 $289,059 30.22
======== ===== ======== ===== ======== =====
NOTE K -10. RELATED PARTY TRANSACTIONS
WITH RELATED PARTIES
The Bank's officers, directors, and their associates, including corporations
and firms of which they and their families have an ownership interest, are also
customers of the Bank. These persons, corporations, and firms have had
transactions inIn the ordinary course of business, the Company has and expects to continue to
have transactions, including borrowings, with its employees, officers, directors
and their affiliates. In the Bank, allopinion of which weremanagement, such transactions are on substantially the
same terms, including interest rates and collateral requirements, as those
prevailing at the time for comparable transactions with unaffiliated persons and did not involve more than normal riskpersons.
The following is a recap of collectibility or present
other unfavorable features. The Bank expects to havethe aggregate activity of such transactions on
similar terms with its officers, directors, and their associates in the future.
The aggregate indebtedness transactions with such related parties for 1994 and
1993 were as follows:loans:
1994 19931996 1995
---------- -------------------
Balance at- January 1 $ 510,285 $ 527,724
New loans or additions to lines of credit 300,017 319,742
Payment on loans (317,722) (337,181)475,429 $211,968
Borrowings 372,961 322,656
Repayments (344,103) (59,195)
--------- -----------------
Balance at- December 31 $ 492,580 $ 510,285504,287 $475,429
========= =================
NOTE L -11. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a qualified employee stock ownership plan with a 401(k)
provision. The plan covers all employees who have attained age 20 1/2 with at
least 1,000 hours of service in a plan year. Participants are allowed to make
salary reduction contributions up to 15% of compensation, not to exceed the
Internal Revenue Code tax deductible maximum. The Board of Directors may, at
their discretion, contribute to participant accounts by matching employee salary
deferrals, contributing basic contributions to all nonhighly compensated
participants in order to satisfy the nondiscrimination requirements of the
Internal Revenue Code, and/or make optional contributions to all participant
accounts allocated based upon total relative compensation.
Discretionary Company contributions of $16,000, $56,042 and $50,004 were made
during 1996, 1995 and 1994, respectively. At December 31, 1996, 15,900 shares of
Southlake Bancshares, Inc. had been purchased by the employee stock ownership
plan.
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The BankCompany is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates.customers.
These financial instruments include commitments to extend credit, and standby
letters of credit.
Thosecredit and financial guarantees. These financial instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial
position.balance sheet. The contract or notional amountamounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
F-18
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK, CONTINUED
The Bank'sCompany's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The BankCompany uses the same credit
policies and collateral requirements in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
F-16
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (continued)
Financial instruments whose contract amounts represent credit risk at December
31, 1996 are as follows:
1994 1993
----------1996
----------
Commitments on interim
construction loans $ 958,039 $ 535,457
Commitments on lines ofto extend credit 717,845 367,386$8,063,598
==========
Standby letters of credit 119,655 137,190
Unused credit card lines 1,542,000 1,438,879
---------- ----------
$3,337,539 $2,478,912
==========and financial guarantees written $ 126,225
==========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The BankCompany evaluates each customer's
creditworthiness on a case-by-case basis. The amount of the collateral obtained,
if deemed necessary by the BankCompany upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include customer deposits, accounts receivable, inventory, property, plant,
and equipment, and income-
producingincome-producing commercial properties.
Standby letters of credit and financial guarantees written are written conditional
commitments issued by the BankCompany to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The average collateral value held on
letters of credit is approximately 53.37%.
NOTE M - CONCENTRATION13. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
FOR CERTAIN ENTITIESMost of the Company's business activity is with customers located within twenty
five miles of the Bank. As of December 31, 1996, the Company's loans to and
guarantees of obligations of borrowers in the construction and land development
industry were $5,981,404. The BankCompany grants agribusiness, commercial,interim construction and residentialland
development loans to customers throughout Parker County, Texas and surrounding counties.its lending area. Although the BankCompany
has a diversified loan portfolio, a substantial portion of its debtors' ability
to honor their contracts is dependent upon the construction and land development
economic conditions in Parker
County, Texas and the surrounding counties.
NOTE N - REGULATORY MATTERS
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends, as of
December 31, 1994, that the Bank could declare, without approval of the
Comptroller of the Currency, amounted to approximately $1,488,039. The Bank is
also required to maintain minimum amounts of capital to total "risk weighted"
assets, as defined by the Bank Regulators. At December 31, 1994, the Bank was
required to have minimum Tier 1 and total capital ratios of 4.00% and 8.00%,
respectively. The Bank's actual ratios at that date were 16.52% and 17.16%,
respectively. The Bank's leverage ratio at December 31, 1994 was 8.89%.
NOTE O - CASH AND INVESTMENT SECURITIES
The Bank was required to maintain reserve balances with the Federal Reserve
Bank. During 1994 and 1993, such average balances totaled approximately
$412,000 and $365,000, respectively.
F-17sector.
F-19
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,NOTE 14. DEFERRED COMPENSATION PLANS
The Company has established nonqualified deferred compensation plans covering
all executive officers and directors. The amount of liability attributable to
the plans for 1996 and 1995 were $165,085 and $121,219, respectively. The amount
of expense attributable to the plans for 1996, 1995 and 1994 1993 AND 1992were $30,812,
$46,311 and $68,464, respectively.
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires15. STOCK OPTIONS
The Company has outstanding non-statutory stock option agreements and incentive
stock option agreements. Under the non-statutory stock option agreements, the
Company has granted stock options of 27,560 shares to disclosecertain officers and
directors. The options are fully exercisable from the estimated
fair value of its financial instrument assets and liabilities. Forgrant date up to fifteen
years therefrom. Under the incentive stock option agreement, the Company as for most financial institutions, over 90%has
granted stock options of its assets and liabilities11,359 shares to Bank officers. The options are considered financial instruments as defined in Statement No. 107. Manyfully
exercisable one year from grant date up to ten years therefrom.
Following is a summary of the Company's financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction.
Estimated fair values have been determined bystatus of the Company using the best
available data, as generally provided in the Company's Regulatory Reports, and
an estimation methodology suitable for each category of financial instruments.
For those loans and deposits with floating interest rates, it is presumed that
estimated fair values generally approximate the recorded book balances. The
estimation methodologies used, the estimated fair values, and recorded book
balances atstock options during December 31,
19941996, 1995 and 1993, were as follows:
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices.1994:
ESTIMATED FAIR VALUE RECORDED BOOK BALANCE
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------Non-statutory Incentive
Stock Options Stock Options
----------------- ------------------
Grant date 1992 1996 1992 1992
-------- ------- ------- ---------
Cash and due from banksOutstanding at December 31, 1993 22,720 - 5,679 5,680
Granted - - - -
Exercised - - - -
------- ------ ------ --------
Outstanding at December 31, 1994 22,720 - 5,679 5,680
Granted - - - -
Exercised - - - -
------- ------ ------ --------
Outstanding at December 31, 1995 22,720 - 5,679 5,680
Granted - 4,840 - -
Exercised (2,840) - - (2,840)
------- ------ ------ --------
Outstanding at December 31, 1996 19,880 4,840 5,679 2,840
======= ====== ====== ========
Exercise price $ 2,335,32110.50 $16.47 $11.55 $ 2,467,996 $ 2,335,321 $ 2,467,996
Federal funds sold 1,000,000 3,800,000 1,000,000 3,800,000
Investment in securities 26,040,275 26,774,881 27,705,870 26,704,54810.50
======= ====== ====== ========
Financial instruments with stated maturities have been valued using a presentThe exercise price per share closely approximates the fair market value discounted cash flow with a discount rate approximating current market for
similar assets and liabilities. Financial instrument assets with variable rates
and financial instrument liabilities with no stated maturities have an estimated
fair value equal to bothon the
amount payable on demand and the recorded book
balance.
ESTIMATED FAIR VALUE RECORDED BOOK BALANCE
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Deposits with stated maturities $18,586,459 $14,628,303 $18,785,866 $14,701,322
Deposits with no stated
maturities 30,630,515 32,388,476 30,630,515 32,388,476
Net loans 20,953,157 16,449,599 21,151,227 16,396,842
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values.
The Company's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost accounting. No disclosure of the relationship value of the
Company's deposits is required by Statement No. 107 nor has the Company
estimated its value. There is no material difference between the notional
amount and the estimated fair value of off-balance-sheet unfunded loan
commitments which total $3,217,884 and $2,341,722 at December 31, 1994 and 1993,
respectively, and are generally priced at market at the time of funding.
Letters of credit discussed in Note L have an estimated fair value based on fees
currently charged for similar agreements. At December 31, 1994 and 1993, fees
related to the unexpired term of the letters of credit are not significant.
F-18date each option was granted.
F-20
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,NOTE 16. EARNINGS PER SHARE
Primary earnings per share amounts are computed based on the weighted average
number of shares actually outstanding plus the shares that would be outstanding
assuming conversion and exercise of dilutive stock options, which are considered
to be common stock equivalents. The number of shares that would be issued from
the exercise of stock options has been reduced by the number of shares that
could have been purchased from the proceeds at the average market price of the
company's stock.
The following data show the amounts used in computing primary earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock:
1996 1995 1994
-------- -------- --------
Net income available to common stockholders
used in primary EPS $688,514 $539,183 $341,824
======== ======== ========
Weighted average number of common
shares used in basic EPS 207,362 200,700 196,032
Effect of dilutive securities:
Stock options 12,286 9,802 4,765
-------- -------- --------
Weighted number of common shares
stock used in primary EPS 219,648 210,502 200,797
======== ======== ========
Fully diluted earnings per share amounts are not presented for 1996, 1995 and
1994 1993 AND 1992because they are not materially dilutive.
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Management17. SUBSEQUENT EVENTS
On August 18, 1997, the Company entered into an Agreement and Plan of Merger
(the "Agreement") whereby First Financial Bankshares, Inc. (First Financial)
will acquire all of the issued and outstanding shares of the Company in exchange
for shares of the voting common stock of First Financial. Each outstanding share
of common stock of the Company will be converted into .894 shares of First
Financial common stock, valued at $39.75 on the market value date. The Company
will be merged with and into First Financial. The closing date is concerned that reasonable comparability between financial
institutions may not be likely dueexpected to
occur during the last forty-five days of 1997. Pursuant to the wide range of permitted valuation
techniques and numerous estimates which must be givenAgreement, the absence of active
secondary markets for many of the financial instruments. This lack of uniform
valuation methodologies also introduces a greater degree of subjectivity to
these estimated fair values.
F-19
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
Board of Directors Weatherford Nationalof the Company shall adopt, prior to closing, resolutions to
terminate the Bank Executives' Supplemental Income Plan, the Bank Directors'
Deferred Income Plan, and the Bank Officers' Bonus Plan and eliminate all
liability under these plans. Additionally, a resolution to freeze and terminate
the employee stock ownership plan will be adopted prior to the closing date.
On August 29, 1997, the Company redeemed all of its outstanding preferred stock
from its shareholders for $7,200.
As of September 16, 1997, all of the stock options outstanding as of December
31, 1996, had been exercised. The Company received proceeds totaling $352,400
from the exercise of these options.
F-21
[JUDD, THOMAS, SMITH & COMPANY, P.C. LETTERHEAD APPEARS HERE]
- --------------------------------------------------------------------------------
Board of Directors and Stockholders
Southlake Bancshares, Inc.
Weatherford,Southlake, Texas
We have compiled the accompanying consolidated balance sheets of Weatherford
NationalSouthlake
Bancshares, Inc. (a Texas corporation) and subsidiariesSubsidiary as of SeptemberJune 30, 19951997 and 1994,1996, and the related
consolidated statements of earnings,income, changes in stockholders' equity and cash
flows for the ninesix months then ended and the consolidated statementstatements of earningsincome
for the three months ended SeptemberJune 30, 19951997 and 1994,1996, in accordance with StatementStatements
on Standards for Accounting and Review Services issued by the American Institute
of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying consolidated financial statements and, accordingly, do
not express an opinion or any other form of assurance on them.
However, we did become aware
of a departure from generally accepted accounting principles that is described
in the following paragraph.
StatementsConsolidated statements of cash flows for the three month periods ended SeptemberJune 30,
19951997 and 19941996 have not been presented. Generally accepted accounting principles
require a statement of cash flows to be presented for each period for which
results of operations are provided when financial statements report both
financial position and results of operations.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operations, and
cash flows. Accordingly, these financial statements are not designed for those
who are not informed about such matters.
The consolidated balance sheet as of December 31, 19941996 was audited by us as part
of an audit of Weatherford NationalSouthlake Bancshares, Inc.'s consolidated financial statements, and
we expressed an unqualified opinion on those financial statements in our report
dated January 7, 1995,September 19, 1997 but we have not performed any auditing procedures since
that date.
/s/ GEORGE, MORGANJUDD, THOMAS, SMITH & SNEED, P.C.
Weatherford, Texas
October 27, 1995
F-20COMPANY
September 19, 1997
F-22
WEATHERFORD NATIONALSOUTHLAKE BANCSHARES, INC. AND SUBSIDIARIESSUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
--------------------------- ------------
September-Unaudited- -Audited-
June 30, June 30, December 31,
--------------------------- ------------
1995 1994 1994
------------- ------------ ------------
ASSETS
Cash and due from banks $ 2,439,343 $ 2,330,276 $ 2,335,321
Federal funds sold 2,725,000 1,000,000
Securities available-for-sale 4,796,598 1,622,005 3,853,812
Securities held-to-maturity 24,614,459 24,168,140 23,852,058
Loans, less allowance for credit losses of
$171,652 and $181,373 at September 30, 1995
and 1994 and $181,259 at December 31, 1994
(notes A, C, D, K, L and M) 25,005,068 20,066,927 21,151,227
Bank premises and equipment (notes A and E) 1,879,498 1,418,142 1,555,245
Accrued interest receivable 566,664 421,511 506,088
Foreclosed real estate (note A) 46,698 45,785 45,785
Other assets (note F) 68,479 86,260 69,326
----------- ----------- -----------
$62,141,807 $50,159,046 $54,368,862
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Non-interest bearing $ 9,363,198 $ 9,030,244 $ 8,499,298
Interest bearing (note G) 47,178,305 36,256,001 40,821,258
----------- ----------- -----------
Total deposits 56,541,503 45,286,245 49,320,556
Accrued expenses and liabilities 242,397 225,623 208,543
Deferred income taxes (notes A and J) 112,219 106,878 118,794
Note payable (note H) 112,500 112,500
----------- ----------- -----------
Total liabilities 57,008,619 45,618,746 49,760,393
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Capital stock, $5.00 par value, 1,000,000
shares authorized, 220,771 shares issued 1,103,855 1,103,855 1,103,855
Paid-in capital 11,245 11,245 11,245
Net unrealized depreciation on available-for-sale
securities, net of tax benefit 1,687 (14,541) (41,877)
Retained earnings 4,058,469 3,481,809 3,577,314
----------- ----------- -----------
5,175,256 4,582,368 4,650,537
Less treasury stock, at cost, 4,783 shares (42,068) (42,068) (42,068)
----------- ----------- -----------
Total stockholders' equity 5,133,188 4,540,300 4,608,469
----------- ----------- -----------
$62,141,807 $50,159,046 $54,368,862
=========== =========== ===========
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-21
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
-------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------
1995 1994 1995 1994
------------ --------- ----------- ----------
Interest Income
Interest and fees on loans (note A) $ 639,043 $469,993 $1,810,665 $1,310,369
Interest on investment securities
Taxable 353,477 301,606 1,008,510 904,567
Exempt from federal income taxes 29,772 31,086 95,508 95,998
Interest on federal funds sold 47,839 13,790 101,721 38,821
Other interest 900 1,163 2,700 3,798
---------- -------- ---------- ----------
Total interest income 1,071,031 817,638 3,019,104 2,353,553
---------- -------- ---------- ----------
Interest Expense
Interest on deposits 486,170 286,123 1,312,160 825,163
Interest on notes and debentures payable 2,269 6,732
---------- -------- ---------- ----------
Total interest expense 488,439 286,123 1,318,892 825,163
---------- -------- ---------- ----------
Net interest income 582,592 531,515 1,700,212 1,528,390
Provision for credit losses (note A and D) 34,000 3,000 34,000 3,000
---------- -------- ---------- ----------
Net interest income after provision for
credit losses 548,592 528,515 1,666,212 1,525,390
---------- -------- ---------- ----------
Noninterest Income
Service charges and fees 181,563 188,100 504,141 527,816
Gain on sale of foreclosed real estate 4,215 4,215
Gain on sale of securities (note B) 1,832 1,832
Gain on sale of other assets 19,000 700
---------- -------- ---------- ----------
Total other income 185,778 189,932 527,356 530,348
---------- -------- ---------- ----------
Noninterest Expenses
Employee compensation and benefits 206,554 169,821 588,570 502,246
Net occupancy and equipment expense 70,497 59,279 188,767 174,726
Net cost of operations of foreclosed
real estate 8,189 (1,500) 6,987 (3,207)
Other operating expenses 188,438 160,535 544,918 450,425
---------- -------- ---------- ----------
Total other expenses 473,678 388,135 1,329,242 1,124,190
---------- -------- ---------- ----------
Earnings before income taxes 260,692 330,312 864,326 931,548
Federal tax provision (note J) 119,151 172,721 275,177 287,490
---------- -------- ---------- ----------
NET EARNINGS $ 141,541 $157,591 $ 589,149 $ 644,058
========== ======== ========== ==========
Earnings per share $ 0.66 $ 0.73 $ 2.73 $ 2.98
========== ======== ========== ==========
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-22
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Unaudited
--------------------------------------------------------------------
Net Unrealized
Depreciation on
Common Paid-in Available-for- Retained Treasury
Stock Capital Sale Securities Earnings Stock
---------- ------- ---------------- ----------- ----------------
Balances at January 1, 1994 $1,103,855 $11,245 $ $2,945,745 $(42,068)
Initial unrealized gain recorded
on investment in securities
available-for-sale (net of
deferred tax benefit) 24,908
Net earnings year to date 644,058
Dividends declared ($.50 per share) (107,994)
Change in unrealized depreciation on
available-for-sale securities (net
of deferred tax benefit) (39,449)
---------- ------- -------- ---------- --------
Balance at September 30, 1994 $1,103,855 $11,245 $(14,541) $3,481,809 $(42,068)
========== ======= ======== ========== ========
Balances at January 1, 1995 $1,103,855 $11,245 $(41,877) $3,577,314 $(42,068)
Net earnings year to date 589,149
Dividends declared ($.50 per share) (107,994)
Change in unrealized depreciation on
available-for-sale securities
(net of deferred tax benefit) 43,564
---------- ------- -------- ---------- ---------
Balances at September 30, 1995 $1,103,855 $11,245 $ 1,687 $4,058,469 $ (42,068)
========== ======= ======== ========== =========
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-23
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
-------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1995 1994
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings $ 589,149 $ 644,058
----------- -----------
Adjustments to reconcile net earnings to cash provided by operating
activities
Depreciation and amortization 103,349 101,634
Provision for credit losses 34,000 3,000
Premium amortization, net of discount accretion (70,675) 59,582
Net gain on sale of available-for-sale securities (1,832)
Gain on sale of foreclosed real estate (4,215)
Gain on sale of other assets (19,000) (700)
Change in other assets (81,302) (13,213)
Change in other liabilities 26,410 (15,356)
----------- -----------
Total adjustments (11,433) 133,115
----------- -----------
Net cash provided by operating activities 577,716 777,173
----------- -----------
Cash flows from investing activities
Changes in federal funds sold (1,725,000) 3,800,000
Proceeds from maturities of held-to-maturity securities 400,000 1,527,730
Proceeds from maturities of available-for-sale securities 4,389,021 245,359
Proceeds from sales of available-for-sale securities 1,156,152
Net increase in loans (3,934,539) (3,673,085)
Proceeds from sale of other assets 19,000 700
Proceeds from sale of foreclosed real estate 50,000
Purchase of bank premises and equipment (427,602) (16,383)
Purchase of held-to-maturity securities (1,206,094) (2,094,618)
Purchase of available-for-sale securities (5,151,433)
----------- -----------
Net cash used by investing activities (7,586,647) 945,855
----------- -----------
Cash flows from financing activities
Change in non-interest bearing activities 863,900 472,835
Change in interest bearing activities 6,357,047 (2,225,589)
Proceeds from long-term debt
Dividends declared (107,994) (107,994)
----------- -----------
Net cash provided by financing activities 7,112,953 (1,860,748)
----------- -----------
Net change in cash and cash equivalents 104,022 (137,720)
Cash and cash equivalents at beginning of year 2,335,321 2,467,996
----------- -----------
Cash and cash equivalents at end of year $ 2,439,343 $ 2,330,276
=========== ===========
Supplemental schedule of non-cash investing and financing activities
Unrealized appreciation (depreciation) on available-for-sale securities $ 66,006 $ (22,030)
Assets acquired through foreclosure $ 46,698 $
Cash paid during the year for
Interest $ 1,225,361 $ 811,715
Income taxes $ 281,926 $ 352,048
See accountants' compilation report.
F-24
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of Weatherford
National Bancshares, Inc. (Weatherford) its wholly owned subsidiary, Parker
Bancshares, Inc. (Parker) (a Delaware corporation), and its wholly owned
subsidiary, the Weatherford National Bank (the Bank). All material intercompany
transactions and accounts have been eliminated upon consolidation.
Weatherford was incorporated on February 21, 1984. Parker was incorporated on
December 13, 1988, and commenced to do business on December 28, 1988. The Bank
was incorporated on November 5, 1983, and received approval from the Board of
Governors of the Federal Reserve System to open for business on July 16, 1984.
On December 28, 1988, Weatherford exchanged all of the shares it owned in the
Bank for all of the stock in Parker.
2. Basis of Accounting
-------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and conform with practices within the
banking industry.
3. Trading Securities
------------------
Bonds, notes, and debentures held principally for resale in the near term are
classified as trading account securities and are recorded at their fair values.
Unrealized gains and losses on trading account securities are included
immediately in other income. The Bank does not have an investment department
and does not actively engage in securities trading, hence no securities are
classified as trading securities.
4. Securities Held-to-Maturity
---------------------------
Bonds, notes, and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
5. Securities Available-for-Sale
-----------------------------
Available-for-sale securities consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses, net of tax, on available-for-
sale securities are reported as a net amount in a separate component of
shareholders' equity until realized. Gains and losses on the sale of available-
for-sale securities are determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary have resulted in
write-downs of the individual securities to their fair value. The related
write-downs have been included in earnings as realized losses. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
6. Loans
-----
Loans are reported at the principal amount outstanding, net of unearned income
and the allowance for credit losses. Unearned discount on installment loans is
recognized as income over the terms of the loans by using principal amounts
outstanding. Interest on other loans is calculated by using the simple interest
method on the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated as
non-accrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
See accountants' compilation report.
F-25
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
with respect to interest or principal. When a loan is placed on non-accrual
status, all interest previously accrued, but not collected, is reversed against
current period income. Income on such loans is then recognized only to the
extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are
brought fully current with respect to interest and principal and when, in the
judgement of management, the loans are estimated to be fully collectible as to
both principal and interest.
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
7. Premises and Equipment
----------------------
Bank premises and equipment are carried at original cost less accumulated
depreciation. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the assets. Costs incurred for maintenance
and repairs are expensed currently. For income tax purposes, the accelerated
cost recovery system of depreciation is used.
8. Allowance for Credit Losses
---------------------------
The allowance for credit losses is maintained at a level considered adequate to
provide for potential credit losses. The allowance is increased by provisions
charged to operating expense and reduced by net charge-offs. The level of the
allowance is based on management's evaluation of potential losses, the risk
characteristics of various categories of loans, review of individual credits,
recent loss experience, as well as prevailing and anticipated economic
conditions and other pertinent factors.
9. Foreclosed Real Estate
----------------------
Real estate properties acquired through, or in lieu of, loan foreclosure are
carried at the lower of the recorded investment in the property or its fair
value less estimated selling costs. Prior to foreclosure, the value of the
underlying loan is written down to the fair market value of the real estate to
be acquired by a charge to the allowance for credit losses, if necessary. Any
subsequent write-downs are charged against earnings. Operating expenses of such
properties, net of related income are included in net cost of operations of
foreclosed real estate.
10. Income Taxes
------------
The Bank, Parker and Weatherford file a consolidated federal income tax return.
The Bank receives a charge or credit from Bancshares equivalent to its federal
income tax computed on a separate return basis and allocating all of the surtax
exemption to the Bank.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the items listed in Note J
for financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes also are recognized for operating losses that are
available to offset future taxable income and tax credits that are available to
offset future federal income taxes.
11. Per Share Data
--------------
Earnings per share at December 31, 1994, September 30, 1995 and 1994 are based
on the weighted average number of common shares and common share equivalents
outstanding of 215,988.
See accountants' compilation report.
F-26
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
12. Statement of Cash Flows
-----------------------
For purposes of the statement of cash flows, the Bank considers only cash and
due from banks to be cash equivalents.
13. Reclassification of Amounts
---------------------------
To effectively provide comparative information, certain amounts in the
prior year were reclassified for financial statement presentation.
NOTE B - INVESTMENT SECURITIES
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (FASB Statement 115), "Accounting for Certain Investments in
Debt and Equity Securities" FASB Statement 115 requires the Bank to account for
their investment securities as either trading securities, securities held-to-
maturity, or securities available-for-sale. The adoption of this statement
effective January 1, 1994 resulted in an after-tax adjustment to equity of
$24,908 and increasing investments by $37,739. FASB Statement 115 does not
permit retroactive application of the statement.
Debt and equity securities have been classified in the statements of financial
condition according to management's intent. The carrying value, approximate
fair value and unrealized gains (losses) of the securities are as follows:
SEPTEMBER 30, 1995
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
----------- ----------- ----------- -----------
Securities held-to-maturity
U.S. Treasury securities $ 6,564,349 $ $ (111,474) $ 6,452,875
U.S. Government agencies and
corporations 7,028,286 (130,040) 6,898,246
Obligations of state and political
subdivisions 2,054,538 69,982 2,124,520
Mortgage-backed securities 8,967,286 97 (190,483) 8,776,900
----------- --------- ---------- -----------
Total investment in securities
held-to-maturity $24,614,459 $ 70,079 $ (431,997) $24,252,541
=========== ========= ========== ===========
Securities available-for-sale
U.S. Government agencies
and corporations $ 2,419,715 $ 2,976 $ (6,387) $ 2,416,304
Mortgage-backed securities 2,313,923 14,717 (8,346) 2,320,294
----------- --------- ---------- -----------
Total investment in debt
securities available-
for-sale 4,733,638 17,693 (14,733) 4,736,598
Other securities 60,000 60,000
----------- ----------
Total investment in securities
available-for-sale $ 4,793,638 $ 17,693 $ (14,733) $ 4,796,598
=========== ========= ========== ===========
See accountants' compilation report.
F-27
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE B - INVESTMENT SECURITIES (continued)
SEPTEMBER 30, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
----------- ----------- ------------ -----------
Securities held-to-maturity
U.S. Treasury securities $ 7,001,969 $ 573 $ (331,813) $ 6,670,729
U.S. Government agencies
and corporations 7,038,553 (383,818) 6,654,735
Obligations of state and
political subdivisions 2,362,575 50,755 (4,389) 2,408,941
Mortgage-backed
securities 7,765,043 (541,534) 7,223,509
----------- ---------- ----------- -----------
Total investment in securities
held-to-maturity $24,168,140 $ 51,328 $(1,261,554) $22,957,914
=========== ========== =========== ===========
Securities available-for-sale
U.S. Government agencies
and corporations $ 500,176 $ 140 $ (3,502) $ 496,814
Mortgage-backed
securities 1,083,859 4,659 (23,327) 1,065,191
----------- ---------- ----------- -----------
Total investment in debt
securities available-for-sale 1,584,035 4,799 (26,829) 1,562,005
Other securities 60,000 60,000
----------- ---------- ----------- -----------
Total investment in securities
available-for-sale $ 1,644,035 $ 4,799 $ (26,829) $ 1,622,005
=========== ========== =========== ===========
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
----------- ----------- ------------ -----------
Securities held-to-maturity
U.S. Treasury securities $ 6,691,871 $ $ (432,429) $ 6,259,442
U.S. Government agencies
and corporations 7,036,026 (531,102) 6,504,924
Obligations of state and
political subdivisions 2,360,299 26,504 (16,066) 2,370,737
Mortgage-backed securities 7,763,862 (712,502) 7,051,360
---------- ----------- ----------- ----------
Total investment in securities
held-to-maturity $23,852,058 $ 26,504 $(1,692,099) $22,186,463
=========== ========== =========== ===========
See accountants' compilation report.
F-28
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE B - INVESTMENT SECURITIES (continued)
DECEMBER 31, 1994
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST BASIS GAINS LOSSES VALUE
---------- ----------- ----------- ----------
Securities available-for-sale
U.S. Government agencies
and corporations $2,835,117 $ $ (14,685) $2,820,432
Mortgage-backed securities 1,022,145 (48,765) 973,380
---------- ---------- ---------- ----------
Total investment in debt
securities available-
for-sale 3,857,262 (63,450) 3,793,812
Other securities 60,000 60,000
---------- ---------- ---------- ----------
Total investment in securities
available-for-sale $3,917,262 $ $ (63,450) $3,853,812
========== ========== ========== ==========
Other securities include Federal Reserve Bank stock for which there is no
readily determinable fair value and on which there is contractual restrictions
on the sale and transfer of the stock. These stocks are carried at amortized
cost and evaluated for declines in value.
The amortized cost and approximate market value of the investment portfolio at
September 30, 1995 and 1994 and December 31, 1994, by contractual maturity are
shown above. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
The amortized cost and estimated market value of debt securities held-to-
maturity at September 30, 1995, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
Due within one year $ 3,999,702 $ 3,985,803
Due after one year through five years 10,695,793 10,489,088
Due after five years through ten years 951,678 1,000,750
Mortgage-backed securities 8,967,286 8,776,900
----------- -----------
$24,614,459 $24,252,541
=========== ===========
The amortized cost and estimated market value of debt securities available-for-
sale at September 30, 1995, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
Due within one year $1,820,965 $1,815,034
Due after one year through five years 100,000 100,296
Due after five years through ten years 498,750 500,975
Due after ten years 2,320,293
Mortgage-backed securities 2,313,923
---------- ----------
Total debt securities available-for-sale $4,733,638 $4,736,598
========== ==========
See accountants' compilation report.
F-29
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE B - INVESTMENT SECURITIES (continued)
The amortized cost and estimated market value of debt securities held-to-
maturity at September 30, 1994, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
Due within one year $ 1,700,850 $ 1,685,770
Due after one year through five years 13,344,717 12,669,095
Due after five years through ten years 1,242,813 1,266,557
Due after ten years 114,717 112,983
Mortgage-backed securities 7,765,043 7,223,509
----------- -----------
Total debt securities held-to-maturity $24,168,140 $22,957,914
=========== ===========
The amortized cost and estimated market value of debt securities available-for-
sale at September 30, 1994, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
Due within one year $ 300,000 $ 299,927
Due after one year through five years 200,176 204,360
Mortgage-backed securities 1,083,859 1,057,718
---------- ----------
Total debt securities available-for-sale $1,584,035 $1,562,005
========== ==========
The amortized cost and estimated market value of debt securities held-to-
maturity at December 31, 1994, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
Due within one year $ 1,901,544 $ 1,865,674
Due after one year through five years 13,466,338 12,546,165
Due after five years through ten years 720,314 723,264
Mortgage-backed securities 7,763,862 7,051,360
----------- -----------
$23,852,058 $22,186,463
=========== ===========
The amortized cost and estimated market value of debt securities available-for-
sale at December 31, 1994, by contractual and expected maturity, are shown
below.
AMORTIZED ESTIMATED
COST FAIR VALUE
---------- ----------
Due within one year $2,635,107 $2,627,039
Due after one year through five years 200,010 193,393
Mortgage-backed securities 1,022,145 973,380
---------- ----------
Total debt securities available-for-sale $3,857,262 $3,793,812
========== ==========
Gross realized gains and gross realized losses on sales of available for sale
securities for the period ended September 30, 1994 were as follows.
GROSS REALIZED
---------------------
GAINS LOSSES
-------- --------
U.S. Treasury securities $ 308 $(313)
U.S. Government agencies and corporations 2,024 (187)
------ -----
$2,332 $(500)
====== =====
See accountants' compilation report.
F-30
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE B - INVESTMENT SECURITIES (continued)
Securities carried at approximately $4,508,155, $3,315,791 and $5,044,032 with
market values of approximately $4,468,643, $3,213,282 and $4,899,766 at
September 30, 1995 and 1994 and December 31, 1994, respectively, were pledged to
secure public and trust funds.
NOTE C - LOANS
At the end of each period, the Bank's loan portfolio was categorized as follows:
SEPTEMBER 30 DECEMBER 31
------------------------- -----------
1995 1994 1993
----------- ------------ -----------
Commercial and industrial $ 3,814,019 $ 2,987,319 $ 3,101,385
Real estate - construction 1,500,220 1,243,242 1,655,538
Real estate - mortgage 8,891,321 7,065,583 6,978,530
Real estate - other 5,201,401 4,212,256 4,355,267
Loans held for sale 380,786 334,400
Installment loans 4,538,496 3,755,939 3,921,847
Agricultural 1,044,995 1,071,187 1,074,564
Credit card loans 433,726 445,659 461,906
Overdrafts 36,277 45,589 40,167
----------- ----------- -----------
25,841,241 20,826,774 21,923,604
Less:
Unearned discount 664,521 578,474 591,118
Allowance for credit losses 171,652 181,373 181,259
----------- ----------- -----------
$25,005,068 $20,066,927 $21,151,227
=========== =========== ===========
Non-accrual loans are as follows:
Principle balances on non-accrual status $ 69,204 $ 0 $ 26,924
=========== =========== ===========
Approximate interest foregone related to
non-accrual loans $ 3,779 $ 0 $ 369
=========== =========== ===========
Loans, excluding credit card loans, non-accrual loans and overdrafts, at fixed
interest rates and variable interest rates are as follows:
SEPTEMBER 30 DECEMBER 31
------------------------- -----------
1995 1994 1994
------------ ----------- -----------
Fixed rates $18,025,951 $13,505,039 $15,115,646
Variable rates 7,276,082 6,830,487 6,278,961
----------- ----------- -----------
$25,302,033 $20,335,526 $21,394,607
=========== =========== ===========
The following table shows the maturity distribution of the fixed rate loans:
SEPTEMBER 30 DECEMBER 31
------------------------- -----------
1995 1994 1994
----------- ----------- -----------
Three months or less $ 2,525,601 $ 1,967,663 $ 2,635,622
Three through twelve months 3,768,947 2,415,341 2,703,516
One year through five years 8,137,222 7,212,137 7,212,225
Over five years 3,594,181 1,909,898 2,564,283
----------- ----------- -----------
$18,025,951 $13,505,039 $15,115,646
=========== =========== ===========
See accountants' compilation report.
F-31
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE D - ALLOWANCE FOR CREDIT LOSSES
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114 (FASB Statement 114), "Accounting by Creditors for Impairment
of a Loan" as it was amended by Financial Accounting Standards No. 118
"Accounting by Creditors for Impairment of a Loan - Loan Recognition and
Disclosures." These statements require that impaired loans, with the scope of
the statements, be measured based on the expected future cash flows discounted
at the loan's effective interest rate or market price or the fair value of the
collateral if the loan is collateral dependent. The allowance for any impaired
loans as of the effective date was considered insignificant and was included in
the Company's normal allowance for credit losses.
An analysis of the allowance for credit losses is shown below:
SEPTEMBER 30 DECEMBER 31
--------------------------- ---------
1995 1994 1994
------------- ------------ ---------
Balance at beginning of year $181,259 $184,810 $184,810
Provision charged to operating expense 34,000 3,000 3,000
Recoveries credited to allowance 13 2,166 3,224
Losses charged to allowance (43,620) (8,603) (9,775)
-------- -------- --------
Balance at end of period $171,652 $181,373 $181,259
======== ======== ========
Impairment of loans having carrying values of $69,204 as of September 30, 1995
has been recognized in conformity with FASB Statement 114. The allowance for
credit losses related to these loans was considered insignificant and was
included in the Company's normal allowance for credit losses.
See accountants' compilation report.
F-32
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE E - PREMISES AND EQUIPMENT
The composition of bank premises and equipment for the periods is summarized
below:
SEPTEMBER 30 DECEMBER 31
------------------------ -----------
1995 1994 1994
---------- ------------ -----------
Land $ 505,958 $ 353,439 $ 505,958
Land improvements 65,078 54,990 54,990
Building 1,004,053 765,528 765,528
Furniture and fixtures 739,370 570,802 582,255
Automobiles 28,874 25,755 25,755
Leasehold improvements 8,984 8,984 8,984
Construction in progress 1,000 7,000
---------- ---------- ----------
2,352,317 1,780,498 1,950,470
Less accumulated
depreciation 472,819 362,356 395,225
---------- ---------- ----------
$1,879,498 $1,418,142 $1,555,245
========== ========== ==========
Depreciation expense $ 103,349 $ 101,634 $ 135,152
========== ========== ==========
The Bank capitalized interest expense of $16,284 in 1984 as part of the cost of
construction of banking facilities in accordance with Financial Accounting
Standards Board Statement No. 34, "Capitalization of Interest".
NOTE F - OTHER ASSETS
Other assets are composed of the following:
SEPTEMBER 30 DECEMBER 31
------------------------- ----------
1995 1994 1994
------------ ----------- ----------
Prepaid expenses $ 53,905 $ 63,771 $ 24,959
Organization and start-up costs 84,838 84,838 84,838
Deferred income tax benefit 7,489 21,573
Federal income tax receivable 4,433
Other assets 14,574 15,000 18,361
----------- ----------- ----------
153,317 171,098 154,164
Less accumulated amortization 84,838 84,838 84,838
----------- ----------- ----------
$ 68,479 $ 86,260 $ 69,326
=========== =========== ==========
Amortization expense $ $ 842 $ 842
=========== =========== ==========
See accountants' compilation report.
F-33
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE G - INTEREST BEARING DEPOSITS
Interest bearing deposits are summarized as follows:
SEPTEMBER 30 DECEMBER 31
------------------------ -----------
1995 1994 1994
----------- ----------- -----------
NOW accounts $ 9,414,687 $ 8,366,985 $ 9,235,638
Money market accounts 5,703,383 5,614,800 5,455,104
Savings 4,901,444 6,071,788 5,290,080
Individual retirement accounts
Under $100,000 4,538,810 4,264,625 4,272,187
Over $100,000 586,364 446,909 450,295
Certificates of deposit
Under $100,000 12,765,067 7,261,013 8,355,566
Over $100,000 7,227,781 2,719,916 5,614,352
State and political subdivisions 2,040,769 1,509,965 2,148,036
----------- ----------- -----------
$47,178,305 $36,256,001 $40,821,258
=========== =========== ===========
Certificates of deposit and individual retirement accounts issued in amounts of
$100,000 or more and their remaining maturities are as follows:
SEPTEMBER 30 DECEMBER 31
------------------------ -----------
1995 1994 1994
---------- ----------- -----------
Three months or less $3,769,941 $ 900,000 $3,604,351
Three through twelve months 2,400,834 1,725,890 1,837,007
Over twelve months 1,643,370 540,935 623,289
---------- ---------- ----------
$7,814,145 $3,166,825 $6,064,647
========== ========== ==========
NOTE H - LONG TERM DEBT
On November 15, 1994, the Bank purchased land to be used as a branch location of
the Bank and issued a real estate lien note in the amount of $112,500 payable to
an individual. The principal of the note is payable in annual installment
payments of $37,500 each, on the 15th day of November each year, beginning
November 15, 1995 and continuing regularly and annually until the principal has
been paid. Interest computed at 8% per annum on the unpaid principal balance is
payable annually as it accrues on the same dates as and in addition to the
installments of principal. The Bank agreed that it will not make any prepayment
on the note prior to January 1, 1997 without the written consent of the holder
of the note. The note is secured by a vendor's lien retained in deed of even
date from the Bank to the holder, and by a deed of trust of even date from the
Bank to a trustee which conveys the property described above.
NOTE I - EMPLOYEE BENEFITS
In 1990, the Bank established a defined contribution (401(k)) pension plan which
covers substantially all employees. The eligible employees are allowed to
contribute from three to fifteen percent of their salary to the plan. The Bank
contributes three percent of the participating employees' salaries to the plan.
The Bank makes its contribution semi-monthly. Those contributions totaled
$14,455, $12,807 and $16,580, at September 30, 1995 and September 30, 1994 and
December 31, 1994, respectively.
See accountants' compilation report.
F-34
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE J - INCOME TAXES
The total Federal income tax provision consists of the following components:
SEPTEMBER 30 DECEMBER 31
------------------- -----------
1995 1994 1994
-------- -------- -----------
Current provision $281,752 $274,717 $353,654
Deferred (6,575) 12,773 24,689
-------- -------- --------
$275,177 $287,490 $378,343
======== ======== ========
Deferred income taxes at the appropriate rates are detailed as follows:
SEPTEMBER 30 DECEMBER 31
------------------- -----------
1995 1994 1994
-------- -------- -----------
Net unrealized depreciation on available-for-sale
securities $ 869 $ (7,489) $(21,573)
Excess depreciation charges for tax purposes 28,634 19,803 23,138
Excess provision for credit losses for financial
reporting purposes (34,530) (24,570) (24,570)
Excess expenses for tax purposes using the cash
method of accounting 118,115 111,645 120,226
-------- -------- --------
$113,088 $ 99,389 $ 97,221
======== ======== ========
Applicable income taxes for financial reporting purposes differ from the amount
computed by applying the statutory federal income tax rate for the reasons noted
in the table below:
SEPTEMBER 30 DECEMBER 31
------------------------------------ -----------------
1995 % 1994 % 1994 %
-------- ------ -------- ------ -------- ------
Tax at statutory federal
income tax rate $293,871 34.00 $316,726 34.00 $416,803 34.00
Increase (decrease) in tax
resulting from:
Tax exempt income (29,418) (3.40) (39,787) (4.27) (41,109) (3.35)
Other, net 10,724 1.24 10,551 1.13 2,649 .21
$275,177 31.84 $287,490 30.86 $378,343 30.86
======== ===== ======== ===== ======== =====
NOTE K - TRANSACTIONS WITH RELATED PARTIES
The Bank's officers, directors, and their associates, including corporations and
firms of which they and their families have an ownership interest, are also
customers of the Bank. These persons, corporations, and firms have had
transactions in the ordinary course of business with the Bank, all of which were
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unaffiliated
persons and did not involve more than normal risk of collectibility or present
other unfavorable features. The Bank expects to have such transactions on
similar terms with its officers, directors, and their associates in the future.
The aggregate indebtedness transactions with such related parties were as
follows:
SEPTEMBER 30 DECEMBER 31
-------------------- -----------
1995 1994 1994
--------- --------- -----------
Balance at January 1 $ 492,580 $ 510,285 $ 510,285
New loans or additions to lines of credit 141,350 243,396 300,017
Payment on loans (253,471) (293,946) (317,722)
--------- --------- ---------
Balance at end of period $ 380,459 $ 459,735 $ 492,580
========= ========= =========
See accountants' compilation report.
F-35
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
position. The contract or notional amount of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are as
follows:
SEPTEMBER 30 DECEMBER 31
------------------------- -----------
1995 1994 1994
------------ ----------- -----------
Commitments on interim
construction loans $1,339,976 $ 722,400 $ 958,039
Commitments on lines
of credit 1,490,063 853,636 717,845
Standby letters of credit 321,705 119,655 119,655
Unused credit card lines 1,590,077 1,567,247 1,542,000
---------- ---------- ----------
$4,741,821 $3,262,938 $3,337,539
========== ========== ==========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant, and equipment, and income-
producing commercial properties.
Standby letters of credit are written conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The average collateral value held on
letters of credit is approximately 53.37%.
NOTE M - CONCENTRATION OF CREDIT RISK FOR CERTAIN ENTITIES
The Bank grants agribusiness, commercial, and residential loans to customers
throughout Parker County, Texas and surrounding counties. Although the Bank has
a diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent upon the economic conditions in Parker
County, Texas and the surrounding counties.
NOTE N - REGULATORY MATTERS
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends, as of
September 30, 1995, that the Bank could declare, without approval of the
Comptroller of the Currency, amounted to approximately $1,474,236 The Bank is
also required to maintain minimum amounts of capital to total "risk weighted"
assets, as defined by the Bank Regulators. At September 30, 1995, the Bank is
required to have minimum Tier 1 and total capital ratios of 4.00% and 8.00%,
respectively. The Bank's actual ratios at that date were 17.96% and 18.56%,
respectively. The Bank's leverage ratio at September 30, 1995 was 8.26%.
See accountants' compilation report.
F-36
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE O - CASH AND INVESTMENT SECURITIES
Certain subsidiary banks are required to maintain reserve balances with the
Federal Reserve Bank. For the period ending September 30, 1995 and September
30, 1994 and December 31, 1994, such average balances totaled approximately
$456,000, $410,000 and $412,000, respectively.
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose the estimated
fair value of its financial instrument assets and liabilities. For the Company,
as for most financial institutions, over 90% of its assets and liabilities are
considered financial instruments as defined in Statement No. 107. Many of the
Company's financial instruments, however, lack an available trading market as
characterized by a willing buyer and willing seller engaging in an exchange
transaction.
Estimated fair values have been determined by the Company using the best
available data, as generally provided in the Company's Regulatory Reports, and
an estimation methodology suitable for each category of financial instruments.
For those loans and deposits with floating interest rates, it is presumed that
estimated fair values generally approximate the recorded book balances. The
estimation methodologies used, the estimated fair values, and recorded book
balances at September 30, 1995, September 30, 1994 and December 31, 1994, were
as follows:
See accountants' compilation report.
F-37
WEATHERFORD NATIONAL BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (UNAUDITED)
DECEMBER 31, 1994 (AUDITED)
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Financial instruments actively traded in a secondary market have been valued
using quoted available market prices.
ESTIMATED FAIR VALUE RECORDED BOOK BALANCE
---------------------------------------- ---------------------------------------
SEPTEMBER 30 DECEMBER 31, SEPTEMBER 30 DECEMBER 31,
-------------------------- ------------ -------------------------- ------------
1995 1994 1994 1995 1994 19941997 1996 1996
------------ ------------ ------------
------------ ------------ ------------Assets
Cash and due from banks $ 2,435,9473,774,328 $ 2,264,5473,998,968 $ 2,335,321 $ 2,435,947 $ 2,264,547 $ 2,335,3213,436,740
Interest earning deposits in banks 100,000 100,000 100,000
Federal funds sold 2,725,000 1,000,000 2,725,000 1,000,0005,680,000 1,540,000 7,000,000
Investment in
securities
29,049,139 24,579,919 26,040,275 29,411,057 25,790,145 27,705,870
Financial instruments with stated maturities have been valued using a present
value discounted cash flow with a discount rate approximating current market for
similar assets and liabilities. Financial instrument assets with variable rates
and financial instrument liabilities with no stated maturities have an estimated
fair value equal to both the amount payable on demand and the recorded book
balance.
ESTIMATED FAIR VALUE RECORDED BOOK BALANCE
---------------------------------------- ---------------------------------------
SEPTEMBER 30 DECEMBER 31, SEPTEMBER 30 DECEMBER 31,
-------------------------- ------------ -------------------------- ------------
1995 1994 1994 1995 1994 1994Available-for-sale 4,130,311 7,657,302 2,775,775
Held-to-maturity 10,156,936 7,320,507 7,355,124
Other investment securities 110,500 110,500 110,500
Loans, net 25,427,341 23,272,453 25,975,071
Premises and equipment, net 2,417,808 1,745,500 2,370,478
Accrued interest receivable 403,276 405,554 381,745
Other real estate 362,571 421,296 421,296
Prepaid expenses 75,616 93,567 116,735
Cash surrender value of life insurance 617,378 552,776 603,194
Goodwill, net 165,951 171,453 168,702
Other assets 231,767 241,919 128,558
------------ ------------ ------------
Total assets $ 53,653,783 $ 47,631,795 $ 50,943,918
============ ============ ============
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Noninterest bearing demand $ 17,827,607 $ 15,581,160 16,436,992
Interest bearing 31,228,039 27,894,077 30,303,614
------------ ------------ ------------
49,055,646 43,475,237 46,740,606
Accrued interest payable 61,237 49,946 54,469
Other liabilities 310,840 227,151 220,641
Note payable - 275,000 -
------------ ------------ ------------
Total liabilities 49,427,723 44,027,334 47,015,716
Minority interest 5,367 4,928 5,244
Stockholders' equity
Preferred stock 7,200 7,200 7,200
Common stock 211,820 208,880 208,880
Surplus 1,080,976 1,052,449 1,052,449
Retained earnings 2,922,566 2,406,040 2,658,712
Unrealized loss on available-for-sale securities (1,869) (75,036) (4,283)
------------ ------------ ------------
Total stockholders' equity 4,220,693 3,599,533 3,922,958
------------ ------------ ------------
Total liabilities and stockholders' equity $ 53,653,783 $ 47,631,795 50,943,918
============ ============ ============
Read accountants' compilation report
F-23
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Interest income
Loans (including fees) $ 685,750 $ 610,842 $ 1,350,449 $ 1,162,758
Taxable securities 74,933 105,917 127,645 174,564
Tax-exempt securities 84,216 73,227 155,412 139,617
Deposits in banks 1,443 1,442 2,885 2,884
Federal funds sold 60,556 32,071 115,434 112,588
----------- ----------- ----------- -----------
Total interest income 906,898 823,499 1,751,825 1,592,411
----------- ----------- ----------- -----------
Interest expense
Interest bearing money-market and
savings deposits 17,987 16,863 33,159 32,958
N.O.W. and super N.O.W. deposits 15,348 16,830 31,157 34,288
Time deposits, $100,000 and over 88,552 77,352 172,036 161,183
Other time deposits 171,670 147,459 342,106 299,422
Interest on note payable - 2,403 - 15,010
----------- ----------- ----------- -----------
Total interest expense 293,557 260,907 578,458 542,861
----------- ----------- ----------- -----------
Net interest income 613,341 562,592 1,173,367 1,049,550
Provision for loan losses 18,000 18,000 36,000 36,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 595,341 544,592 1,137,367 1,013,550
----------- ----------- ----------- -----------
Other income
Service charges on deposit accounts 110,054 90,811 207,435 178,365
Other operating revenue 60,723 73,008 107,529 158,787
Net gain (loss) on sale of assets - 272,046 (12,792) 272,046
----------- ----------- ----------- -----------
Total other income 170,777 435,865 302,172 609,198
----------- ----------- ----------- -----------
Other expense
Salaries 200,878 167,766 401,941 338,191
Other employee benefits 29,832 35,845 56,662 72,912
Net occupancy expense 32,243 23,201 64,771 38,040
Other operating expenses 301,920 387,229 597,650 594,204
Minority interest 228 379 360 600
----------- ----------- ----------- -----------
Total other expenses 565,101 614,420 1,121,384 1,043,947
----------- ----------- ----------- -----------
Income before income taxes 201,017 366,037 318,155 578,801
Income taxes (35,741) (83,029) (54,301) (142,959)
----------- ----------- ----------- -----------
Net income $ 165,276 $ 283,008 $ 263,854 $ 435,842
=========== =========== =========== ===========
Read accountants' compilation report.
F-24
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Unrealized
Gain (Loss)
On Investment
Securities
Common Stock Preferred Stock Pain-In Considered
------------------- ----------------- Capital in Retained Available-
Shares Amount Shares Amount Excess of Par Earnings for-Sale Total
------- -------- ------ -------- ------------- ---------- ---------- ----------
Deposits with
stated
maturities $25,210,446 $14,632,325 $18,586,459 $25,118,022 $14,689,603 $18,785,866
Deposits with
no stated
maturities 31,423,481 30,596,642 30,630,515 31,423,481 30,596,642 30,630,515
Balance December 31, 1995 200,700 $200,700 7,200 $ 7,200 $ 959,814 $1,970,198 $ (3,358) $3,134,554
Net loans 24,760,218 19,953,876 20,953,157 25,005,068 20,066,927 21,151,227income 435,842 435,842
Unrealized loss on investment
securities considered
available-for-sale (71,678) (71,678)
Common stock issued 8,180 8,180 92,635 100,815
------- -------- ------ -------- ---------- ---------- -------- ----------
Balance June 30, 1996 208,880 $208,880 7,200 $ 7,200 $1,052,449 $2,406,040 $(75,036) $3,599,533
======= ======== ====== ======== ========== ========== ======== ==========
Balance December 31, 1996 208,880 $208,880 7,200 $ 7,200 $1,052,449 $2,658,712 $ (4,283) $3,922,958
Net income 263,854 263,854
Unrealized gain on investment
securities considered
available-for-sale 2,414 2,414
Common stock issued 2,940 2,940 28,527 31,467
------- -------- ------ -------- ---------- ---------- -------- ----------
Balance June 30, 1997 211,820 $211,820 7,200 $ 7,200 $1,080,976 $2,922,566 $ (1,869) $4,220,693
======= ======== ====== ======== ========== ========== ======== ==========
Changes in assumptions or estimation methodologies may have a material effect on
these estimated fair values.
The Company's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost accounting. No disclosure of the relationship value of the
Company's deposits is required by Statement No. 107 nor has the Company
estimated its value. There is no material difference between the notional
amount and the estimated fair value of off-balance-sheet unfunded loan
commitments which total $4,420,116 and $3,143,283 at September 30, 1995 and
1994, respectively, and $3,217,884 at December 31, 1994, and are generally
priced at market at the time of funding. Letters of credit discussed in Note L
have an estimated fair value based on fees currently charged for similar
agreements. At September 30, 1995 and 1994, and December 31, 1994, fees related
to the unexpired term of the letters of credit are not significant.
Management is concerned that reasonable comparability between financial
institutions may not be likely due to the wide range of permitted valuation
techniques and numerous estimates which must be given the absence of active
secondary markets for many of the financial instruments. This lack of uniform
valuation methodologies also introduces a greater degree of subjectivity to
these estimated fair values.
SeeRead accountants' compilation report.
F-38F-25
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
1997 1996
----------- -----------
Operating activities
Net income $ 263,854 $ 435,842
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 36,000 36,000
Depreciation and amortization 126,389 (5,574)
Other (gains) losses on sale of assets 12,792 (272,046)
Donation of bank property - 137,000
Increase in cash surrender value of life insurance (14,184) (7,216)
Change in prepaid expenses 41,119 17,804
Change in interest receivable (21,531) (18,262)
Change in interest payable 6,768 (13,468)
Change in other liabilities 90,198 70,909
Minority interest 360 600
Change in other - net (104,696) (106,889)
----------- -----------
Net cash provided by operating activities 437,069 274,700
----------- -----------
Investing activities
Net change in time deposits with banks - 15,794
Maturities of held-to-maturity securities 875,000 511,398
Maturities and sales of available-for-sale securities 250,000 950,000
Purchases of held-to-maturity securities (3,702,882) (1,409,211)
Purchases of available-for-sale securities (1,607,245) (5,028,948)
Net change in funding and principal collections on loans 511,730 (1,659,906)
Net change in federal funds sold 1,320,000 4,680,000
Expenditures for premises and equipment (138,524) (428,668)
Proceeds from sale of premises and equipment - 324,339
Proceeds from sale of foreclosed property 45,933 613,227
----------- -----------
Net cash used in investing activities (2,445,988) (1,431,975)
----------- -----------
Financing activities
Net increase in demand and savings deposits 1,297,893 1,633,033
Principal payment on debt - (200,000)
Proceeds from the issuance of common stock 31,467 100,815
Net change in customer time deposits 1,017,147 (1,049,252)
----------- -----------
Net cash provided by financing activities 2,346,507 484,596
----------- -----------
Net increase (decrease) in cash and due from banks 337,588 (672,679)
Cash and due from banks, beginning of year 3,436,740 4,671,647
----------- -----------
Cash and due from banks, end of year $ 3,774,328 $ 3,998,968
=========== ===========
Read accountants' compilation report.
F-26
SOUTHLAKE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
Supplemental schedule of noncash
investing and financing activities:
Other real estate acquired in
settlement of loans $ - $322,600
======== ========
Supplemental cash flow information:
Income tax paid $ 65,910 $207,956
======== ========
Interest paid $571,713 $540,204
======== ========
Read accountants' compilation report.
F-27
ANNEX A
[Letterhead of George, Morgan[LETTERHEAD OF JUDD, THOMAS, SMITH & Sneed,COMPANY, P.C.]
October 30, 1995 APPEARS HERE]
September 19, 1997
The Board of Directors
Weatherford NationalSouthlake Bancshares, Inc.
P.O. Box 1299
Weatherford,3205 E. Highway 114
Southlake, Texas 76086
Dear Sirs:
Pursuant to Section 2.276092
Gentlemen:
We have consulted with Southlake Bancshares, Inc. in connection with the
proposed merger (the "Merger") of Southlake Bancshares, Inc. ("Southlake"), a
Texas corporation, with and into First Financial Bankshares, Inc. ("First
Financial"), a Texas corporation, upon the terms and conditions set forth in the
Stock Exchange Agreement and Plan of Reorganization (the "Exchange Agreement")
dated October 20, 1995 (the "Agreement") among First Financial
Bankshares, Inc. ("First Financial"), Weatherford National Bancshares, Inc.
("Weatherford Holdings"), Parker Bancshares, Inc. ("Parker"), and Weatherford
National Bank ("Weatherford National"), ourAugust 18, 1997. At your request, in connection with the closing of the
Merger, we are rendering an opinion has been requested with
respect toconcerning certain Federalfederal income tax
consequences of the exchange byMerger.
In arriving at the Weatherford Holdings shareholders of their Weatherford Holdings stock for First
Financial voting common stock (the "Stock Exchange") and the merger of
Weatherford Holdings with and into First Financial Bankshares of Delaware, Inc.
("FFB Delaware"), a wholly-owned subsidiary of First Financial (the "Merger").
This opinion letter supersedes our opinion letter dated September 27, 1995.
In rendering our opinion,opinions expressed below, we have reviewed the Agreement and such other
documents as we have deemed necessary or appropriate. We have relied upon the accuracy
and completeness of the facts, information, covenants,following:
(i) the Exchange Agreement;
(ii) the Prospectus and representations containedProxy Statement (together, the "Prospectus")
included in the AgreementRegistration Statement on Form S-4 filed with the
Securities and Exchange Commission by First Financial in
connection with the Merger, as amended through the date hereof;
and
(iii) such other documents.
Furthermore,corporate records of Southlake and First Financial as we
have deemed appropriate.
Defined terms used but not defined herein have the same meaning as in the
Prospectus.
We have assumed that the Stocktransactions contemplated by the Exchange and MergerAgreement
will be consummated in accordance withtherewith and as described in the AgreementProspectus
and that the Merger will qualify as a statutory merger under applicable laws of
the State law.
In renderingof Texas and the United States.
Based upon and subject to the foregoing, it is our opinion we have consideredthat, under currently
applicable law, the applicable provisionsExchange and Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations
promulgated thereunder, pertinent judicial authorities, interpretive rulingsand that, accordingly, the following will be the material federal
income tax consequences of the Internal Revenue ServiceExchange and such other authorities as we have considered
relevant. It should be noted that statutes, regulations, judicial decisions and
administrative interpretations are subject to change at any time and, in some
circumstances, with retroactive effect.
The Board of Directors
Weatherford National Bancshares, Inc.
October 30, 1995
Page 2
A material change in the authorities upon which our opinion is based could
affect our conclusions. However, we assume no obligation to revise or supplement
this opinion if any subsequent change were to occur.
Requisite to a tax-free reorganization under the Code is a continuity of
interest in the business enterprises on the part of those persons who were the
owners of the enterprise prior to the reorganization. Accordingly, the
Weatherford Holdings shareholders, as a group, will be required to satisfy the
continuity of interest doctrine through a post-exchange continuing ownership of
the First Financial voting common stock received in the Stock Exchange. In this
regard, a disposition by the Weatherford Holdings shareholders of a substantial
portion (in the aggregate) of their post-exchange First Financial shares which
is pursuant to a plan, intention or arrangement existing at the time of the
Stock Exchange will result in a failure to satisfy the continuity of interest
doctrine. The Internal Revenue Service takes the position that 50 percent (in
the aggregate) constitutes a "substantial portion." A failure to satisfy the
continuity of interest doctrine will result in the Stock Exchange being a
taxable transaction to the Weatherford Holdings shareholders. In rendering our
opinion, we have assumed that the continuity of interest doctrine can and will
be satisfied.
Also requisite to a tax-free reorganization under the Code is a continuity of
the business enterprise under the modified corporate form. The continuity of
business enterprise doctrine requires that the acquiring corporation either
continue the acquired corporation's historic business or use a significant
portion of the acquired corporation's historic business assets in a business.
Accordingly, in order to satisfy the continuity of business enterprise doctrine,
First Financial and/or one or more of its controlled subsidiaries will be
required to either continue the historic business of Weatherford Holdings,
Parker and Weatherford National or use a significant portion of the historic
business assets of Weatherford Holdings, Parker, and Weatherford National in a
business. A failure to satisfy the continuity of business enterprise doctrine
will result in the Stock Exchange being a taxable transaction to the Weatherford
Holdings shareholders. In rendering our opinion, we have assumed that the
continuity of business enterprise doctrine will be satisfied.
In addition to the requirements noted in the foregoing for a tax-free
reorganization under the Code, there is the requirement that, immediately after
a stock-for-stock exchange, the acquiring corporation must have control of the
acquired corporation. For purposes of the reorganization provisions of the Code,
the term "control" means the ownership of stock possessing at least 80 percent
of the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares
The Board of Directors
Weatherford National Bancshares, Inc.
October 30, 1995
Page 3
of all other classes of stock of the corporation. Therefore, in order to satisfy
the control requirement, First Financial and/or one or more of its controlled
subsidiaries will have to own at least 80 percent of the outstanding stock of
Weatherford Holdings immediately after the Stock Exchange. If the Stock Exchange
is consummated with First Financial acquiring less than 80 percent of the
outstanding stock of Weatherford Holdings, the Stock Exchange will be a taxable
transaction to the Weatherford Holdings shareholders. In rendering our opinion,
we have assumed that the control requirement will be satisfied.
Based solely upon and subject to foregoing, we are of the opinion that under
current law:Merger:
1. The Stock Exchange and Merger will be treated as a corporate
reorganization within the meaning of Section 368(a) of the Code,
and First Financial Weatherford Holdings, and FFB DelawareSouthlake each will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by the Weatherford Holdings
shareholders upon receiptSouthlake Shareholders
on the exchange of their shares of Southlake Common Stock solely
for shares of First Financial voting common stock inCommon Stock pursuant to the terms
of the Exchange Agreement to the extent of such exchange for their Weatherford Holdings stock, except for any gain or
loss recognized(except
as provided below with respect to the shareholders who receive cash in
lieufractional shares).
A-1
The Board of fractional share interests in First Financial voting common
stock or pursuant to the exercise of statutory dissenter rights.Directors - Southlake Bankshares, Inc.
September 19, 1997
- -------------------------------------------------------------------------------
3. The aggregate Federalfederal income tax basis of the shares of First Financial
voting common stock received by the Weatherford Holdings
shareholders in exchangeCommon Stock for theirwhich shares of Weatherford Holdings
stockSouthlake Common Stock are
exchanged pursuant to the Exchange and Merger will be the same as
the aggregate adjusted tax basis of their
Weatherford Holdings stocksuch shares of Southlake Common Stock exchanged
therefor, less the taxany proportionate part of such basis ifallocable to
any allocated to fractional interest in any share interests.of First Financial Common
Stock.
4. The holding period for the shares of the First Financial voting common stock
received byCommon Stock
for which the Weatherford Holdings shareholders in exchange for
their shares of Weatherford Holdings stock in the hands of the
Weatherford Holdings shareholdersSouthlake Common Stock are exchanged will
include the holding period of their Weatherford Holdings stockthe Southlake Common Stock they are
exchanged therefor.
Excepttherefor, provided that such shares of Southlake Common
Stock were held as a capital asset on the date of the Exchange.
5. Southlake Shareholders who receive cash in lieu of a fractional
share interest in First Financial Common Stock will be treated as
having received the cash in redemption of the fractional share
interest, and gain or loss will be recognized in an amount equal
to the difference between the cash received and the proportionate
part of basis allocable to the fractional share interest, which
gain or loss will be a capital gain or loss if the Southlake
Common Stock was a capital asset in the hands of the shareholder.
Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period for the First Financial Common
Stock received, determined as set forth above, weis longer than one
year.
The effective tax rate on any resulting net long-term capital
gain for Southlake Shareholders who are individuals will
generally depend on the shareholder's holding period for the
shares of First Financial Common Stock received, determined as
set forth above, and the income tax brackets under which the
shareholder is taxed. For individual shareholders, the maximum
capital gains tax rate on property held more than eighteen months
is 20 percent and the maximum capital gains tax rate on property
held more than one year, but not more than eighteen months, is 28
percent.
This opinion may not be applicable to (1) Southlake shareholders who received
their Southlake Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation, or (2) Southlake shareholders who are not citizens
or residents of the United States. We express no opinion as to the laws of any
jurisdiction other than the income tax consequences,
whether Federal, State or local,laws of the Stock Exchange and Merger, or of any
transactions related thereto. We are furnishing this opinion to you solely in
connection with Section 2.2 of the Agreement. This opinion is solely for your
benefit and is not to be
The Board of Directors
Weatherford National Bancshares, Inc.
October 30, 1995
Page 4
used, circulated, quoted or otherwise referred to for any purposes without our
prior consent.United States.
We hereby consent to the references made to us in the Summary and under the
heading "The Exchange Offer - Certain Federal Income Tax Consequences" in the
Offering Circular/Prospectus of First Financial relating to the Stock Exchange,
and to the inclusionfiling of this opinion as an Annex towith the Offering
Circular/ProspectusSecurities and the filing of this opinionExchange
Commission as an exhibit to the Registration Statement, on Form S-4and to the reference to
this opinion under the caption "Summary of whichthe Transaction -- Federal Income Tax
Consequences," under the caption "The Exchange Offer -- Federal Income Tax
Consequences," and elsewhere in the Prospectus. In giving such Offering Circular/Prospectusconsent, we do
not hereby admit that we are in the category of persons whose consent is
a part.required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ GEORGE, MORGANJUDD, THOMAS, SMITH & SNEED,COMPANY
Judd, Thomas, Smith & Company, P.C.
Weatherford, TexasA-2
ANNEX B
ART. 5.12.ART.5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS
AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the shareholder
shall not have voted in favor of the action, the corporation, in the case of
action other than a merger, or the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the action
has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
proceeding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and class
of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the case
of action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the date the
action is effected, mail to each shareholder of recordsrecord as of the effective date
of the action notice of the fact and datadate of the action and that the shareholder
may exercise the shareholder's right to dissent from the action. The notice
shall be accompanied by a copy of this Article and any articles or documents
filed by the corporation with the Secretary of State to effect the action. If
the shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice, make
written demand on the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was delivered
to the corporation pursuant to Section A of Article 9.10 of this Act, excluding
any appreciation or depreciation in anticipation of the action. The demand shall
state the number and class of shares owned by the dissenting shareholder and the
fair value of the shares as estimated by the shareholder. Any shareholder
failing to make demand within the twenty (20) day period shall be bound by the
action.
1B-1
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall be
made within ninety (90) days after the date on which the action was effected
and, in the case of shares represented by certificates, upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
shall cease to have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The appraisers
shall have power to examine any of the books and records of the corporation the
B-2
shares of which they are charged with the duty of valuing, and they shall make
2
a
determination of the fair value of the shares upon such investigation as to them
may seem proper. The appraisers shall also afford a reasonable opportunity to
the parties interested to submit to them pertinent evidence as to the value of
the shares. The appraisers shall also have such power and authority as may be
conferred on Masters in Chancery by the Rules of Civil Procedure or by the order
of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
If the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, complies with the requirements of this Article, any shareholder who
fails to comply with the requirements of this Article shall not be entitled to
bring suit for the recovery of the value of his shares or money damages to the
shareholder with respect to the action.
3B-3
ARTICLE 5.13.ART.5.13. PROVISIONS AFFECTING REMEDIES
OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name orof the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shareshares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn
as hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12 or
5.16, the court shall determine that such shareholder is not entitled to the
relief provided by those articles, then, in any such case, such shareholder and
all persons claiming under him shall be conclusively presumed to have approved
and ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without prejudice
to any corporate proceedings which may have been taken during the interim, and
such shareholder shall be entitled to receive any dividends or other
distributions made to shareholders in the interim.
4B-4
ARTICLE 5.16 OF TEXAS BUSINESS CORPORATION ACTART.5.16. MERGER OF SUBSIDIARY OR SUBSIDIARIES
INTO PARENT CORPORATION
QUALIFICATIONS
A. In any case in which at least ninety (90%) percent of the outstanding
shares of each class and series of a domestic or foreign corporation or
corporations is owned by another domestic or foreign corporation, and at least
one of such corporations is a domestic corporation and the other or others are
domestic corporations or foreign corporations organized under the laws of a
jurisdiction that permit such a merger, the corporation having such share
ownership may (1) merge such other domestic or foreign corporation or
corporations into itself, (2) merge itself into such other corporation, or (3)
merge itself and one or more of such corporations into another of such domestic
or foreign corporations:
(a) in the event that the corporation having such share ownership will be
a surviving corporation in the merger, by executing and filing articles of
merger in accordance with Section B of this Article; or
(b) in the event that the corporation having such share ownership will
not be a surviving corporation in the merger, by the corporation having such
share ownership adopting a plan of merger in the manner required by Article 5.03
of this Act, except that no action under Section 5.03 shall be required to be
taken by the corporation or corporations whose shares are so owned, and
executing and filing articles of merger in accordance with Section B of this
Article.
SIGNATURE OF ARTICLES; CONTENTS
B. The articles of merger shall be signed on behalf of the parent
corporation by an officer and shall set forth:
(1) The name of the parent corporation, and the name or names of the
subsidiary corporations and the respective jurisdiction under which each such
corporation is organized.
(2) The number of outstanding shares of each class of each subsidiary
corporation and the number of such shares of each class owned by the parent
corporation.
(3) A copy of the resolution adopted by the board of directors of the
parent corporation to so merge and the date of the adoption thereof. If the
parent corporation does not own all the outstanding shares of each class of each
subsidiary corporation that is a party to the merger, the resolution shall state
the terms and conditions of the merger, including the cash or other property,
including shares, obligations, evidences of ownership, rights to purchase
securities, or other securities of any person or entity or any combination of
the shares, obligations, evidences of ownership, rights, or other securities, to
be used, paid or deliverydelivered by
5
the surviving corporation upon surrender of each
share of the subsidiary corporation or corporations not owned by the parent
corporation.
B-5
(4) If the surviving corporation is a foreign corporation, the address,
including street number if any, of its registered or principal office in the
jurisdiction under whose laws it is governed. If the surviving corporation is a
foreign corporation, on the merger taking effect the surviving foreign
corporation is deemed to (a) appoint the Secretary of State of this state as its
agent for service of process to enforce an obligation or the rights of
dissenting shareholders of each domestic corporation that is a party to the
merger, and (b) agree that it will promptly pay to the dissenting shareholders
of each domestic corporation that is a party to the merger the amount, if any,
to which they are entitled under this Article.
(5) If a plan of merger is required by Section A of this Article to be
adopted in the manner required by Article 5.03 of this Act, the information
required by Section A of Article 5.04 of this Act.
C. Delivery to Secretary of State; Duties.DELIVERY TO SECRETARY OF STATE; DUTIES. The original and a copy of the
articles of merger shall be delivered to the Secretary of State. If the
Secretary of State finds that such articles conform to law;law, he shall, when all
fees and franchise taxes have been paid as required by law:
(1) Endorse on the original and the copy the word "Filed," and the month,
day and year of the filing thereof.
(2) File the original in his office.
(3) Issue a certificate of merger to which he shall affix the copy and
deliver them to the surviving corporation or its representative.
D. Effective Date and Effect.EFFECTIVE DATE AND EFFECT. The effective date and the effect of such
merger shall be the same as provided in Articles 5.05 and 5.06 of this Act if
the surviving corporation is a domestic corporation. If the surviving
corporation is a foreign corporation, the effective date and the effect of such
merger shall be the same as in the case of the merger of domestic corporations
except in so far as the laws of such other jurisdiction provide otherwise.
REMEDY OF MINORITY SHAREHOLDERS
E. In the event all of the shares of a subsidiary domestic corporation that
is a party to a merger effected under this Article are not owned by the parent
corporation immediately prior to the merger, the surviving corporation (foreign
or domestic) shall, within ten (10) days after the effective date of the merger,
mail to each shareholder of record of each subsidiary domestic corporation a
copy of the articles of merger and notify the shareholder that the merger has
become effective. Any such shareholder who holds shares of a class or series
that would have been entitled to vote on the merger if it had been effected
pursuant to Article 5.03 of this Act shall have the right to dissent from the
merger and demand payment of the fair value for his shares in lieu of the cash
or other property to be used, paid or delivered to such shareholder 6
upon the
surrender of such shareholder's shares pursuant to the terms and conditions of
the merger, with the following procedure:
B-6
(1) Such shareholder shall within twenty (20) days after the mailing
of the notice and copy of the articles of merger make written demand on the
surviving corporation, domestic or foreign, for payment of the fair value of his
shares. The fair value of the shares shall be the value thereof as of the day
before the effective date of the merger, excluding any appreciation or
depreciation in anticipation of such act. The demand shall state the number and
class of the shares owned by the dissenting shareholder and the fair value of
such shares as estimated by him. Any shareholder failing to make demand within
the twenty (20) day period shall be bound by the corporate action.
(2) Within ten (10) days after receipt by the surviving corporation
of a demand for payment by the dissenting shareholder of the fair value of his
shares in accordance with Subsection (1) of this section, the corporation
(foreign or domestic) shall deliver or mail to the dissenting shareholder a
written notice which shall either set out that the corporation (foreign or
domestic) accepts the amount claimed in the demand and agrees to pay such amount
within ninety (90) days after the date on which the corporate action was
effected and, in the case of shares represented by certificates, upon the
surrender of the shares certificates duly endorsed, or shall contain an estimate
by the corporation of the fair value of such shares, together with an offer to
pay the amount of that estimate within ninety (90) days after the date on which
such corporate action was effected, upon receipt of notice within sixty (60)
days after that date from the shareholder that the shareholder agrees to accept
that amount and, in the case of shares represented by certificates, upon the
surrender of the shares certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
dissenting shareholder and the surviving corporation (foreign or domestic),
payment for the shares shall be made within ninety (90) days after the date on
which the corporate action was effected and, in the case of shares represented
by certificates, upon surrender of his certificate or certificates representing
such shares. Upon payment of the agreed value, the dissenting shareholder shall
cease to have any interest in such shares or in the corporation.
(4) If, within sixty (60) days after the date on which such corporate
action was effected, the shareholder and the surviving corporation (foreign or
domestic) do not so agree, then the dissenting shareholder or the corporation
(foreign or domestic) may, within sixty (60) days after the expiration of the
sixty (60) day period, file a petition in any court of competent jurisdiction in
the county in which the principal office of the corporation is located, asking
for a finding and determination of the fair value of the shareholder's shares as
provided in Section B of Article 5.12 of this Act and thereupon the parties
shall have the rights and duties and follow the procedure set forth in Sections
B to D inclusive of Article 5.12.
(5) In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to the corporate action is the exclusive
remedy for the recovery of the value of his shares or money damages to the
shareholder with respect to the corporate action. If the surviving corporation
(foreign or domestic) complies with the requirements of this Article, any such
shareholder who fails to comply with the requirements of this Article shall not
be 7
entitled to bring suit for the recovery of the value of his shares or money
damages to such shareholder with respect to such corporate action.
B-7
DISSENTING SHAREHOLDERS
F. If a plan of merger is required by Section A of this Article to be adopted
in the manner required by Article 5.03 of this Act, the provisions of Articles
5.11 and 5.12 of this Act shall apply to the rights of the shareholders of the
parent corporation to dissent from such merger. Except as otherwise provided in
this Article, the provisions of Articles 5.11 and 5.12 of this Act shall not be
applicable to a merger effected under the provisions of this Article. The
provisions of Article 5.13 of this Act shall be applicable to any merger
effected under the provisions of this Article to the extent provided in Article
5.13 of this Act.
8B-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
Item 20. Indemnification of Officers and Directors.
------------------------------------------
Article 2.02-1 of the Texas Business Corporation Act (the "TBCA") provides
that a Texas corporation, such as First Financial Bankshares, Inc. ("First
Financial"), may indemnify a director or officer of the corporation against
judgments, penalties (including excise and similar taxes), fines, settlements
and reasonable expenses (including court costs and attorneys' fees) incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such an action, suit or proceeding, and any inquiry or investigation
that could lead to such an action, suit or proceeding, because the person is or
was a director ofor officer of the corporation. In order to be entitled to such
indemnification, the director ofor officer must have conducted himself in good
faith and reasonably believed (i) in the case of conduct in his official
capacity with the corporation, that his conduct was in the corporation's best
interest,interests, (ii) in all other cases, that his conduct was at least not opposed to
the corporation's best interest,interests, and (iii) in the case of any criminal
proceeding, thathe had no reasonable cause to believe his conduct was not unlawful.
Article 2.02-1 of the TBCA provides that a director or officer may not be
indemnified for proceedings in which the person is found liable on the basis
that a personal benefit was improperly received by him or in which the person is
found liable to the corporation. Article 2.02-1 of the TBCA provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under the corporation's
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise.
The First Financial Articles of Incorporation provide that, to the fullest
extent permitted by applicable law, each director, officer, employee and agent
of First Financial shall be indemnified for all expenses incurred in connection
with any action, suit, proceeding or claim to which he or she is named a party
or otherwise by virtue of holding such position; provided, however, that no
indemnification of employees or agents (other than directors or officers) will
be made without express authorization of the Board of Directors.
The First Financial Articles of Incorporation also provide that, to the
fullest extent permitted by applicable law, no First Financial director shall be
liable to First Financial or the First Financial shareholders for monetary
damages for or with respect to any acts or omissions in his or her capacity as a
director, except in the case of liability for (i) a breach of a duty of loyalty
to First Financial or its shareholders, (ii) an act or omission not in good
faith or that involves intentional misconduct or a knowing violation of the law,
(iii) a transaction from which a director received an improper benefit, (iv) an
act or omission for which the liability of a director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or payment of a
dividend.
II-1
Item 21. Exhibits and Financial Statement Schedules.
------------------------------------------
(a) Exhibits. The following exhibits are filed as part of this
Registration Statement.
II-1
Item 601
Regulation S-K
Exhibit Reference
Number Description
- ----------------- -----------------------------------------------------------------------
*2.1 Stock Exchange Agreement and Plan of Reorganization
dated as of October 20, 1995 by andAugust 18, 1997 between First Financial
Bankshares, Inc., Weatherford NationalSouthlake Bancshares, Inc., Parker Bancshares, Inc. and WeatherfordTexas
National Bank.
*2.2 Purchase and Assumption Agreement dated May 27, 1997 by
and between Southwest Bank of San Angelo and Texas
Commerce Bank - San Angelo, National Association.
**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, of the Registrant, 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).
**4 Specimen certificate for 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).
***5.1 Opinion and Consent of McMahon, Surovik, Suttle,
Buhrmann, Hicks & Gill, P.C.
*8.1 Opinion and Consent of George, MorganJudd, Thomas, Smith & Sneed,Company,
P.C.
*15.1 Letter from George, MorganJudd, Thomas, Smith & Sneed,Company, P.C.
regarding unaudited interim financial information.
*21 Subsidiaries of the Registrant.
***23.1 Consent of McMahon, Surovik, Suttle, Buhrmann, Hicks &
Gill, P.C. (included in Exhibit 5.1).
*23.2 Consent of George, MorganJudd, Thomas, Smith & Sneed,Company, P.C.
(included in Exhibit 8.1).
*23.3 Consent of Arthur Andersen LLP, independent public
accountants (auditors for First Financial Bankshares,
Inc.).
II-2
*23.4 Consent of George, MorganJudd, Thomas, Smith & Sneed,Company, P.C.,
independent public accountants (auditors for Weatherford NationalSouthlake
Bancshares, Inc.).
*24 Powers of Attorney (see the signature pages to this
Form S-4 Registration Statement).
*99 Form of Letter of TransmittalTransmittal.
- --------------
*Filed herewith
**Incorporated by reference
***To be filed by amendment
(b) Financial Statement Schedules. Financial Statement Schedules are not
applicable.
Item 22. Undertakings.
------------
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by sectionSection 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to II-3
sectionSection 13(a) or sectionSection 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
sectionSection 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to
II-3
be a new registration statement relatedrelating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Itemsitems of the applicable form.
(d) The undersigned registrant undertakes that every prospectusprospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of sectionSection 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-4
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Abilene,
State of Texas, on the 21st30th day of November, 1995.September, 1997.
FIRST FINANCIAL BANKSHARES, INC.
By: /s/ KennethKENNETH T. Murphy
----------------------MURPHY
------------------------------------------
Kenneth T. Murphy, Chairman of the Board,
President and Chief Executive Officer
The undersigned directors and officers of First Financial Bankshares, Inc.
hereby constitute and appoint Curtis R. Harvey, aswith full power to act and with
full power of substitution and resubstitution, our true and lawful attorney-in-factattorney-in-
fact with full power to execute in our name and behalf in the capacities
indicated below any and all amendments (including post-effective amendments and
amendments thereto) to this Registration Statement and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratify and confirm all that such
attorney-in-fact or his substitute shall lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the 21st30th day of November, 1995,September, 1997, by
the following persons in the capacities indicated.
Signature Title
--------- -----
/s/ CurtisCURTIS R. HarveyHARVEY Executive Vice President, Chief Financial
- --------------------------------------------------
Curtis R. Harvey Officer, Controller and Chief Accounting Officer
Curtis R. Harvey
/s/ JOE CANON Director
- ------------------------------
Joe Canon
/s/ MAC A. COALSON Director
- ------------------------------
Mac A. Coalson
/s/ F. SCOTT DUESER Director
- ------------------------------
F. Scott Dueser
Director
- -------------------
F. Scott Dueser------------------------------
Patrick N. Gerald
II-5
/s/ Patrick N. GeraldROBERT E. HITT Director
- ---------------------
Patrick N. Gerald
/s/------------------------------
Robert E. Hitt
/s/ RAYMOND A. McDANIEL, JR. Director
- ------------------
Robert E. Hitt
Director
- --------------------------
Joe B. Matthews
/s/ Raymond A. McDaniel, Jr. Director
- ----------------------------------------------------------
Raymond A. McDaniel, Jr.
/s/ Bynum MiersBYNUM MIERS Director
- ---------------------------------------------
Bynum Miers
/s/ KennethKENNETH T. MurphyMURPHY Chairman of the Board, President,
- ---------------------------------------------------
Kenneth T. Murphy Chief Executive Officer and Director
Kenneth T. Murphy
/s/ Dian Graves Owen Director
- --------------------------------------------------
Dian Graves Owen
/s/ JamesJAMES M. ParkerPARKER Director
- -------------------------------------------------
James M. Parker
/s/ W. V. Ramsey, Jr.,JACK D. RAMSEY, M.D. Director
- ---------------------------
W.V.------------------------------
Jack D. Ramsey, Jr., M.D.
Director
- ---------------------------
O. L. Schuch
Director
- ---------------------------------------------------------
Craig Smith
Director
- ---------------------------------------------------------
H.T. Wilson
/s/ WALTER F. WORTHINGTON Director
- ------------------------------
Walter F. Worthington
II-6
EXHIBIT INDEX
ITEM 601
REGULATION S-K SEQUENTIAL
EXHIBIT REFERENCE NUMBERING
NUMBER PAGE NO.
_________________ __________
*2.1 Stock Exchange Agreement and Plan of Reorganization dated as of
October 20, 1995 by and between First Financial Bankshares, Inc.,
Weatherford National Bancshares, Inc., Parker Bancshares, Inc. and
Weatherford National Bank.
**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 of the Registrant, and all amendments
thereto (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).
**4 Specimen certificate for 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).
***5.1 Opinion and Consent of McMahon, Surovik, Suttle, Buhrmann, Hicks &
Gill, P.C.
*8.1 Opinion and Consent of George, Morgan & Sneed, P.C.
*15.1 Letter from George, Morgan & Sneed,Item 601
Regulation S-K
Exhibit Reference
Number
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*2.1 Stock Exchange Agreement and Plan of Reorganization
dated as of August 18, 1997 between First Financial
Bankshares, Inc., Southlake Bancshares, Inc., and Texas
National Bank.
*2.2 Purchase and Assumption Agreement dated May 27, 1997 by
and between Southwest Bank of San Angelo and Texas
Commerce Bank - San Angelo, National Association.
**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).
**4 Specimen certificate for 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).
***5.1 Opinion and Consent of McMahon, Surovik, Suttle,
Buhrmann, Hicks & Gill, P.C.
*8.1 Opinion and Consent of Judd, Thomas, Smith & Company,
P.C.
*15.1 Letter from Judd, Thomas, Smith & Company, P.C.
regarding unaudited interim financial information.
*21 Subsidiaries of the Registrant.
***23.1 Consent of McMahon, Surovik, Suttle, Buhrmann, Hicks &
Gill, P.C. (included in Exhibit 5.1).
EXHIBIT INDEX -- PAGE 1
*23.2 Consent of George, MorganJudd, Thomas, Smith & Sneed,Company, P.C.
(included in Exhibit 8.1).
*23.3 Consent of Arthur Andersen LLP, independent certified public
accountants (auditors for First Financial Bankshares,
Inc.).
*23.4 Consent of George, MorganJudd, Thomas, Smith & Sneed,Company, P.C.,
independent certified public accountants (auditors for Weatherford NationalSouthlake
Bancshares, Inc.).
*24 Powers of Attorney (see the signature pages to this
Form S-4 Registration Statement).
*99 Form of Letter of TransmittalTransmittal.
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*Filed herewith
**Incorporated by reference
***To be filed by amendment
EXHIBIT INDEX -- PAGE 2