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 - ------ *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. - -------------- *Filed herewith **Incorporated by reference ***To be filed by amendment EXHIBIT INDEX -- PAGE 2