-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BJhDcobd72McioqR2J6iSxAB934pEoObkbC+600uqIxpiOEHZmV5CRFRmJ+dkMli hKEIn+0sM7W+ahkAHBsGUw== 0000950109-94-000130.txt : 19940208 0000950109-94-000130.hdr.sgml : 19940208 ACCESSION NUMBER: 0000950109-94-000130 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANKSHARES INC CENTRAL INDEX KEY: 0000036029 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 750944023 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 33 SEC FILE NUMBER: 033-51861 FILM NUMBER: 94504830 BUSINESS ADDRESS: STREET 1: 400 PINE STREET THIRD FL STREET 2: P O BOX 701 CITY: ABILENE STATE: TX ZIP: 79601-0701 BUSINESS PHONE: 9156757155 S-4/A 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1994. REGISTRATION NO. 33-51861 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- AMENDMENT NO. 1 TO 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 (PRIMARY STANDARD (I.R.S. EMPLOYER OF INCORPORATION INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.) OR ORGANIZATION) CODE NUMBER) 400 PINE STREET ABILENE, TEXAS 79601 (915) 675-7155 (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) 675-7155 (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 PATRICK J. KENNEDY, JR. AKIN, GUMP, STRAUSS, MCMAHON, SUROVIK, SUTTLE, KENNEDY & BARIS, L.L.P. HAUER & FELD, L.L.P. BUHRMANN, COBB & HICKS, P.C. 112 EAST PECAN STREET 1700 PACIFIC AVENUE, P.O. BOX 3679 SUITE 1775 SUITE 4100 ABILENE, TX 79604 SAN ANTONIO, TX 78205 DALLAS, TEXAS 75201-4618 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: [_] ---------------------- 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 LOCATION IN THE PROSPECTUS 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. Ratio of Earnings to Fixed Charges and Other Information.................................. Prospectus Summary; Summary Financial Data; 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..................................... * 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 Concho; 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 Concho
- ----------- * 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 State. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1994 OFFERING CIRCULAR/ - ------------------ PROSPECTUS - ---------- OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF COMMON STOCK OF CONCHO BANCSHARES, INC. FOR SHARES OF COMMON STOCK OF FIRST FINANCIAL BANKSHARES, INC. ---------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., TEXAS TIME, ON March 10, 1994 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 stock of Concho Bancshares, Inc., a Texas corporation ("Concho"), par value $0.50 per share ("Concho Common Stock"). Upon consummation of the Exchange Offer, each outstanding share of Concho Common Stock tendered in the Exchange Offer will, subject to certain provisions with respect to fractional shares, be exchanged (the "Exchange") for 1.15 shares of First Financial Common Stock, subject to certain adjustments. Subject to the terms and conditions of the Exchange Offer, First Financial will accept for exchange all shares of Concho Common Stock that are validly tendered on or prior to 5:00 p.m., Texas time, on the date the Exchange Offer expires, which will be March 10, 1994 (the "Expiration Date"), unless the Exchange Offer is extended. Once shares of Concho 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% of the outstanding Concho 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 Concho will be merged (the "Merger") with and into a wholly-owned subsidiary of First Financial and that any remaining Concho 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 to 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 Concho Common Stock. The First Financial Common Stock is traded in the over-the-counter market and reported on the NASDAQ National Market under the trading symbol "FFIN." On February 1, 1994, the closing price of the First Financial Common Stock, as reported by NASDAQ, was $43.50. ---------------- 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 February 8, 1994 THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL FIRST FINANCIAL ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF CONCHO 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"). The reports and other information filed by the Company with the Commission can be inspected and copied at the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 10549, and at the following regional offices of the Commission: 7 World Trade Center, New York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such information can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 10549, at prescribed rates. This Prospectus constitutes a part of a registration statement (the "Registration Statement") filed by the Company with the Commission under the Securities Act. As permitted by the rules and regulations of the Commission, 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 Company 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 Commission 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 CONCHO 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, ABILENE, TEXAS 79604, TELEPHONE NUMBER (915) 675-7155. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 1, 1994. First Financial's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, First Financial's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993 and First Financial's Current Reports on Form 8-K dated April 23, 1993, September 23, 1993, October 26, 1993, and December 7, 1993, in each case filed with the Commission 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, 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 incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded 2 for purposes of 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 Concho. 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 Concho has been obtained from the management of Concho. 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 CONCHO AND SUBSIDIARIES SELECTED FINANCIAL DATA........................ 11 FIRST FINANCIAL AND SUBSIDIARIES AND CONCHO AND SUBSIDIARIES PRO FORMA COMBINED SELECTED FINANCIAL DATA..................................... 12 COMPARATIVE PER SHARE DATA............................................. 13 THE EXCHANGE OFFER..................................................... 15 General.............................................................. 15 Background of the Exchange Offer..................................... 15 First Financial Reasons for the Exchange Offer....................... 16 Concho's Reasons for the Exchange Offer.............................. 16 Operations After the Merger.......................................... 17 The Exchange Rate.................................................... 17 The Expiration Date.................................................. 18 Conditions to Consummation of the Exchange Offer; Termination........ 18 Exchange of Shares and Certificates.................................. 20 Guaranteed Delivery Procedures....................................... 21 Fractional Shares.................................................... 21 No Withdrawal Rights................................................. 22 Regulatory Approvals Required........................................ 22 Federal Income Tax Consequences...................................... 22 Exchange Agent....................................................... 23 Resale by Concho Affiliates.......................................... 23 Anticipated Merger and Dissenting Shareholders' Rights............... 24 Accounting Treatment................................................. 25 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
3
PAGE ---- FDIC Insurance Assessments........................................... 28 FDICIA............................................................... 28 DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK........................... 29 COMPARISON OF SHAREHOLDER RIGHTS....................................... 30 Board of Directors................................................... 30 Indemnification and Limitation of Liability of Directors and Officers............................................................ 30 Special Meetings of Shareholders..................................... 31 INFORMATION ABOUT FIRST FINANCIAL...................................... 31 General.............................................................. 31 1993 Fourth Quarter Results.......................................... 32 Market Prices of and Dividends Paid on First Financial Common Stock.. 32 INFORMATION ABOUT CONCHO............................................... 33 General.............................................................. 33 Market Area.......................................................... 33 Services............................................................. 33 Competition.......................................................... 34 Employees............................................................ 34 Properties........................................................... 34 Market for and Dividends Paid on Concho Common Stock................. 34 Security Ownership of Certain Beneficial Owners...................... 34 Security Ownership of Management..................................... 35 SELECTED CONSOLIDATED FINANCIAL DATA OF CONCHO......................... 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF CONCHO....................................... 39 LEGAL MATTERS.......................................................... 54 EXPERTS................................................................ 54 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF CONCHO................... 55 ANNEX A - OPINION OF ARMSTRONG, BACKUS & CO., L.L.P. ANNEX B - ARTICLE 5.16 OF THE TEXAS BUSINESS CORPORATION ACT
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 Concho are urged to read the Prospectus and the Annexes hereto in their entirety. THE PARTIES The Company 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-owned Delaware subsidiary, First Financial Bankshares of Delaware, Inc., all of the capital stock of six 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; and Stephenville Bank and Trust Co., Stephenville, 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 enable them to provide expanded banking services while continuing their local activity and autonomy. 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. While all First Financial Banks, with the exception of Eastland National Bank, have trust powers, only First National Bank of Abilene, First National Bank, Sweetwater and Stephenville Bank and Trust Co. have active trust departments. As of September 30, 1993, First Financial and its consolidated subsidiaries had total assets of approximately $906.8 million, total deposits of approximately $809.1 million, total loans (net of allowance for loan losses) of approximately $359.1 million and total shareholders' equity of approximately $88.7 million. First Financial's principal executive offices are located at 400 Pine Street, Abilene, Texas 79601, and its telephone number is (915) 675-7155. See "Information About First Financial." Concho Bancshares, Inc. ("Concho") is a one bank holding company formed in 1979 and incorporated in the State of Texas. Concho owns all of the capital stock of Southwest Bank of San Angelo, Texas ("Southwest Bank" or "SWB"). Southwest Bank is chartered in the State of Texas, began operations in 1975, and its deposits are insured by the Federal Deposit Insurance Corporation. Southwest Bank's wholly owned subsidiary, SWB Investment Centre, Inc. ("SWB Investment"), operates as a registered investment advisor. Southwest Bank conducts business principally in Tom Green County through its location in San Angelo, Texas. The market area of SWB Investment is also Tom Green County, with a small amount derived from other area counties. Southwest Bank 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. SWB Investment offers investment advice to customers who may execute trades with the bank through its discount brokerage operation or through its affiliation with Stephens, Inc. of Little Rock, Arkansas. As of September 30, 1993, as adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860, Concho and its consolidated subsidiaries had total assets of approximately $89.5 million, total deposits of approximately $80.9 million, total loans (net of allowance for loan losses) of approximately $43.4 million and total shareholders' equity of approximately $6.2 million. Concho's principal executive offices are located at 3471 Knickerbocker, San Angelo, Texas 76906-0410 and its telephone number is (915) 944-2502. See "Information about Concho". 5 SUMMARY OF THE TRANSACTION THE EXCHANGE OFFER Pursuant to a Stock Exchange Agreement and Plan of Reorganization dated as of December 7, 1993 by and among First Financial, Concho and Southwest Bank (the "Exchange Agreement"), First Financial is offering to acquire from the shareholders of Concho (the "Concho Shareholders") all outstanding shares of Concho Common Stock in exchange for shares of First Financial Common Stock at the exchange rate specified below. THE CONCHO BOARD OF DIRECTORS HAS DETERMINED THAT THE EXCHANGE OFFER IS FAIR TO THE CONCHO SHAREHOLDERS. See "The Exchange Offer." THE EXCHANGE RATE First Financial will issue and exchange 1.15 shares of First Financial Common Stock for each share of Concho Common Stock tendered by the Concho Shareholders who accept the Exchange Offer during the time period the Exchange Offer is in effect (the "Exchange Rate"). See "The Exchange Offer -- The Exchange Rate." First Financial will not issue any fractional shares of First Financial Common Stock. Concho 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 the Market Value (as defined herein) per share of First Financial Common Stock as of January 28, 1994, the date which is ten days prior to the date upon which the Registration Statement of which this Prospectus is a part became effective. As of such date, the Market Value per share of First Financial Common Stock was $41.50. THE EXPIRATION DATE Unless otherwise extended by First Financial, the offer by First Financial to exchange First Financial Common Stock for Concho Common Stock shall terminate at 5:00 p.m., Texas time on March 10, 1994 (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 Concho Shareholders of at least ninety percent (90%) of Concho 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 Concho 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 Concho of the written agreement of the holders of thirteen promissory notes issued by Concho of such holders' willingness to consent to the transfer of such obligations and certain collateral securing them to Southwest Bank; the receipt of opinion of counsel as to certain corporate matters; the absence of material changes in the financial condition of either Concho or Southwest Bank; and the absence of legal or governmental action with respect to the Exchange Offer. The Exchange Offer may be terminated at any time (a) by mutual consent of First Financial and Concho, (b) by either party if the other party shall have breached a representation or warranty 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, or (c) by either party if a court or governmental body shall have taken any action restraining, enjoining or otherwise prohibiting the Exchange or the Merger 6 (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 Concho Common Stock tendered, all shares so tendered will be promptly returned to the tendering Concho Shareholders. See "The Exchange Offer - -Conditions to Consummation of the Exchange; Termination." EXCHANGE OF SHARES AND CERTIFICATES The Concho Shareholders are receiving with this Prospectus a letter of transmittal for acceptance of the Exchange Offer (the "Letter of Transmittal"). Each Concho 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 Concho Common Stock (the "Concho Common Stock Certificates") to be exchanged and any other required documentation to the Exchange Agent at the address set forth herein and therein. The delivery of the Letter of Transmittal with the Concho Common Stock Certificates shall be deemed to constitute an acceptance of the Exchange Offer to the extent of the number of shares of Concho Common Stock reflected on the Concho 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%) of the outstanding shares of Concho Common Stock have been validly tendered to First Financial, then First Financial will promptly cause to be issued and mailed to Concho Shareholders who have tendered shares of Concho Common Stock, by registered mail, certificates of First Financial Common Stock ("First Financial Common Stock Certificates") representing 1.15 shares of First Financial Common Stock for each share of Concho Common Stock received by the Exchange Agent. Any cash payment to which a Concho 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 Concho Shareholders. Any beneficial holder whose shares of Concho 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 Concho Common Stock Certificates, either make appropriate arrangements to register ownership of the shares of Concho 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." GUARANTEED DELIVERY PROCEDURES Concho Shareholders who wish to tender their shares of Concho Common Stock and whose Concho Common Stock Certificates are not immediately available or who cannot deliver their Concho 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 Concho Common Stock according to the guaranteed delivery procedures set forth in "The Exchange Offer -- 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 Concho of a written opinion from its independent accountants and/or tax counsel that the exchange of shares of Concho Common Stock will not be considered a taxable event for federal income tax purposes. Concho has received an opinion to such effect from its independent accountants, Armstrong, Backus & Co., L.L.P. A copy of their opinion, which is subject to certain qualifications and assumptions, is attached hereto as Annex A. See "The Exchange Offer -- Federal Income Tax Consequences." ANTICIPATED MERGER AND DISSENTING SHAREHOLDERS' RIGHTS First Financial anticipates that, upon consummation of the Exchange Offer, Concho will be merged (the "Merger") with and into a wholly-owned Delaware subsidiary of the Company with any remaining Concho 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 --Anticipated Merger and Dissenting Shareholders' Rights." REGULATORY APPROVALS The Exchange Offer and Merger are subject to prior approval by the Federal Reserve Board. The approval of the Federal Reserve Board has been obtained. See "The Exchange Offer--Regulatory Approvals Required." INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE As of December 15, 1993, the directors and executive officers of Concho beneficially owned 49,465 shares of Concho Common Stock, representing approximately 25% of Concho Common Stock outstanding. See "Information about Concho--Security Ownership of Management." 8 SUMMARY FINANCIAL DATA The following tables present on a historical basis selected consolidated financial data for (i) First Financial, (ii) Concho, and (iii) combined pro forma data for First Financial and Concho. The financial data are based on the consolidated financial statements of First Financial and Concho, respectively, incorporated herein by reference or contained elsewhere in this Prospectus and should be read in conjunction with the applicable financial statements, including the notes thereto. As noted in the tables, certain historical financial data for Concho for the nine months ended September 30, 1993 have been adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock. 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 Concho Common Stock into 1.15 shares of First Financial Common Stock. All per share data of First Financial have been adjusted to reflect the ten percent (10%) stock dividend paid to First Financial shareholders in the second quarter of 1993. 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. 9 FIRST FINANCIAL AND SUBSIDIARIES SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------ --------------------------- 1988 1989 1990 1991 1992 1992 1993 -------- -------- -------- ----------- ----------- ------------- ------------ CONSOLIDATED SUMMARY OF INCOME STATEMENT DATA: Interest income............... $ 55,329 $ 58,062 $ 57,804 $ 61,822 $ 55,574 $ 42,126 $ 40,789 Interest expense.............. 31,168 32,233 31,443 32,238 21,415 16,828 13,494 -------- -------- -------- -------- -------- -------- -------- Net interest income........... 24,161 25,829 26,361 29,584 34,159 25,298 27,295 Provision for loan losses..... 3,743 3,767 2,695 1,120 940 623 352 Noninterest income............ 6,052 6,669 7,953 8,371 8,649 6,418 7,095 Noninterest expense........... 20,189 20,587 21,280 24,413 25,881 19,101 20,607 -------- -------- -------- -------- -------- -------- -------- Income before income taxes.... 6,281 8,144 10,339 12,422 15,987 11,992 13,431 Provision (benefit) for income taxes ....................... 1,011 1,824 2,756 3,777 4,998 3,728 4,340 -------- -------- -------- -------- -------- -------- -------- Net income before cumulative effect of accounting change . 5,270 6,320 7,583 8,645 10,989 8,264 9,091 Cumulative effect of accounting change(1) ........ -- -- -- -- -- -- 1,255 -------- -------- -------- -------- -------- -------- -------- Net income.................... $ 5,270 $ 6,320 $ 7,583 $ 8,645 $ 10,989 $ 8,264 $ 10,346 ======== ======== ======== ======== ======== ======== ======== Net income per First Financial Common Share before cumulative effect of accounting change ........... $ 1.35 $ 1.67 $ 2.06 $ 2.35 $ 2.95 $ 2.22 $ 2.43 ======== ======== ======== ======== ======== ======== ======== Net income per First Financial Common Share...... $ 1.35 $ 1.67 $ 2.06 $ 2.35 $ 2.95 $ 2.22 $ 2.76 ======== ======== ======== ======== ======== ======== ======== CONSOLIDATED PER SHARE DATA APPLICABLE TO FIRST FINANCIAL COMMON STOCK: Net income.................... $ 1.35 $ 1.67 $ 2.06 $ 2.35 $ 2.95 $ 2.22 $ 2.76 Cash dividends declared....... 0.55 0.60 0.70 0.82 0.95 0.70 0.88 Book value at period end...... 15.83 17.06 18.44 19.94 21.87 21.38 23.70 CONSOLIDATED BALANCE SHEET DATA AT PERIOD END: Investment securities......... $256,210 $263,067 $287,533 $356,222 $370,633 $359,182 $407,261 Loans, net of allowance for loan losses ................. 277,630 271,213 312,060 303,461 323,591 307,291 359,095 Total assets.................. 672,025 688,588 794,863 834,500 839,474 798,546 906,788 Deposits...................... 601,857 609,443 709,007 751,172 750,445 709,594 809,126 Total liabilities............. 611,386 625,654 727,037 760,972 758,041 718,983 818,098 Total shareholders' equity.... 60,638 62,935 67,826 73,528 81,433 79,563 88,690 - ----------------------------
(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. 10 CONCHO AND SUBSIDIARIES SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------- ------------------ 1988 1989 1990 1991 1992 1992 1993 ---------- ------- -------- -------- --------- -------- -------- CONSOLIDATED SUMMARY OF INCOME STATEMENT DATA: Interest income............. $ 5,714 $ 6,118 $ 6,437 $ 6,305 $ 5,867 $ 4,514 $ 4,479 Interest expense............ 3,585 4,050 4,028 3,674 2,788 2,172 1,758 -------- -------- -------- -------- -------- -------- -------- Net interest income......... 2,129 2,068 2,409 2,631 3,079 2,342 2,721 Provision for loan losses... 590 247 195 120 205 67 105 Noninterest income.......... 634 405 714 861 1,116 835 857 Noninterest expense......... 2,079 2,235 2,609 2,894 3,054 2,310 2,519 -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes ..................... 94 (9) 319 478 936 800 954 Provision (benefit) for income taxes .............. -- -- -- 47 191 225 348 -------- -------- -------- -------- -------- -------- -------- Net income before cumulative effect of accounting change ........................... 94 (9) 319 431 745 575 606 Cumulative effect of accounting change(1) ...... -- -- -- -- -- -- (231) -------- -------- -------- -------- -------- -------- -------- Net income (loss)........... $ 94 $ (9) $ 319 $ 431 $ 745 $ 575 $ 375 ======== ======== ======== ======== ======== ======== ======== Net income (loss) per Concho Common Share before cumulative effect of accounting change ....... $ 0.45 $ (0.04) $ 1.52 $ 2.05 $ 3.70 $ 2.84 $ 3.01(2) ======== ======== ======== ======== ======== ======== ======== Net income (loss) per Concho Common Share..... $ 0.45 $ (0.04) $ 1.52 $ 2.05 $ 3.70 $ 2.84 $ 1.86(2) ======== ======== ======== ======== ======== ======== ======== CONSOLIDATED PER SHARE DATA APPLICABLE TO CONCHO COMMON STOCK: Net income (loss)........... $ 0.45 $ (0.04) $ 1.52 $ 2.05 $ 3.70 $ 2.84 $ 1.86(2) Cash dividends declared..... -- 0.25 0.25 0.25 0.25 -- -- Book value at period end.... 19.14 20.58 21.79 24.21 28.30 27.70 30.55(2) CONSOLIDATED BALANCE SHEET DATA AT PERIOD END: Investment securities....... $ 20,006 $ 18,220 $ 21,813 $ 28,697 $ 33,807 $ 32,018 $34,798 Loans, net of allowance for loan losses ............... 33,518 33,734 34,627 39,158 42,597 43,458 43,364 Total assets................ 66,360 71,396 72,089 80,808 88,864 84,447 89,455(2) Deposits.................... 58,953 65,082 65,535 73,665 81,097 76,867 80,903 Short-term borrowings....... Long-term debt.............. Total liabilities........... 62,354 67,071 67,506 75,720 83,158 78,861 83,294 Total shareholders' equity.. 4,006 4,325 4,583 5,088 5,706 5,586 6,161(2)
- ------------------------------------- (1) As of January 1, 1993, Concho recorded the cumulative effect of the change in accounting for income taxes to comply with Statement of Financial Accounting Standards No. 109. (2) As adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. 11 FIRST FINANCIAL AND SUBSIDIARIES AND CONCHO AND SUBSIDIARIES PRO FORMA COMBINED SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------ ----------------------- 1990 1991 1992 1992 1993 ----------- ---------- ----------- ----------- ---------- CONSOLIDATED SUMMARY OF INCOME STATEMENT DATA: Interest income.............................. $ 64,241 $ 68,127 $ 61,441 $ 46,640 $ 45,268 Interest expense............................. 35,471 35,912 24,203 19,000 15,252 -------- -------- -------- -------- -------- Net interest income.......................... 28,770 32,215 37,238 27,640 30,016 Provision for loan losses.................... 2,890 1,240 1,145 690 457 Noninterest income........................... 8,667 9,232 9,765 7,253 7,952 Noninterest expense.......................... 23,889 27,307 28,935 21,411 23,126 -------- -------- -------- -------- -------- Income before income taxes................... 10,658 12,900 16,923 12,792 14,385 Provision for income taxes................... 2,756 3,824 5,189 3,953 4,688 -------- -------- -------- -------- -------- Net income before cumulative effect of accounting change .......................... 7,902 9,076 11,734 8,839 9,697 Cumulative effect of accounting change(1).... -- -- -- -- 1,024 -------- -------- -------- -------- -------- Net income................................... $ 7,902 $ 9,076 $ 11,734 $ 8,839 $ 10,721 ======== ======== ======== ======== ======== Net income per First Financial Common Share before cumulative effect of accounting change ..................................... $ 2.03 $ 2.31 $ 2.96 $ 2.24 $ 2.44(2) ======== ======== ======== ======== ======== Net income per First Financial Common Share.. $ 2.03 $ 2.31 $ 2.96 $ 2.24 $ 2.70(2) ======== ======== ======== ======== ======== CONSOLIDATED PER SHARE DATA APPLICABLE TO FIRST FINANCIAL COMMON SHARES: Net income................................... $ 2.03 $ 2.31 $ 2.97 $ 2.24 $ 2.70(2) Cash dividends declared...................... 0.70 0.82 0.95 0.70 0.88 Book value at period end..................... 18.42 19.95 21.98 21.54 23.87(2) CONSOLIDATED BALANCE SHEET DATA AT PERIOD END: Investment securities........................ $309,346 $384,919 $404,440 $391,200 $442,059 Loans, net of allowance for loan losses...... 346,687 342,619 366,188 350,749 402,459 Total assets................................. 866,952 915,308 928,338 882,993 996,243(2) Deposits..................................... 774,542 824,837 831,542 786,461 890,029 Short-term borrowings........................ 1,314 2,272 173 450 130 Long-term debt............................... 9,364 -- 1,151 1,260 1,174 Total shareholders' equity 72,409 78,615 87,139 85,149 94,851(2)
- ---------------------------------- (1) As of January 1, 1993, First Financial and Concho recorded the cumulative effect of the change in accounting for income taxes to comply with Statement of Financial Accounting Standards No. 109. (2) As adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. 12 COMPARATIVE PER SHARE DATA (UNAUDITED) The following table sets forth for the First Financial Common Stock and the Concho 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 Concho Common Stock into 1.15 shares of First Financial Common Stock. The pro forma financial data have been included as required by the rules of the Commission 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 Concho, including the applicable notes, included or incorporated by reference elsewhere herein. All per share data of First Financial have been adjusted to reflect the ten percent (10%) stock dividend paid to First Financial shareholders in the second quarter of 1993. Historical Concho financial data for the nine months ended September 30, 1993 have been adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. 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 CONCHO ----------------------- ------------------------------ PRO FORMA EQUIVALENT HISTORICAL COMBINED HISTORICAL(2) PRO FORMA(3) ---------- ---------- ------------ -------------- Common Shareholders' Equity: December 31, 1992.......................... $19.94 $21.98 $28.30 $25.34 September 30, 1993......................... 23.70 23.87 30.55 27.45 Cash Dividends Declared:(1) Year ended December 31: 1990..................................... $ 0.70 $ 0.70 $ 0.25 $ 0.81 1991..................................... 0.82 0.82 0.25 0.94 1992..................................... 0.95 0.95 0.25 1.09 Nine Months ended September 30, 1993..... 0.88 0.88 -- 1.01 Net Income: Year ended December 31, 1990: Primary.................................. $ 2.06 $ 2.02 $ 1.52 $ 2.32 Fully diluted............................ 2.06 2.02 1.52 2.32 Year ended December 31, 1991: Primary.................................. 2.35 2.32 2.05 2.67 Fully diluted............................ 2.35 2.32 2.05 2.67 Year ended December 31, 1992: Primary.................................. 2.95 2.97 3.70 3.41 Fully diluted............................ 2.95 2.97 3.70 3.41 Nine Months ended September 30, 1993:(4) Primary.................................. 2.43 2.44 3.01 2.81 Fully diluted............................ 2.43 2.44 3.01 2.81
- ---------------------------- (1) The First Financial pro forma combined dividends per share amounts represent historical dividends declared per share only on First Financial Common Stock. (2) Historical Concho financial data for the nine months ended September 30, 1993 have been adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. 13 (3) The Concho pro forma equivalent per share amounts are calculated by multiplying the First Financial pro forma per share amounts by the Exchange Rate of 1.15. See "The Exchange Offer." (4) For the nine months ended September 30, 1993, per share data is based on continuing operations before cumulative effect of the change in accounting for income taxes. 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 Concho Shareholders all of the issued and outstanding Concho Common Stock. In exchange for each share of Concho Common Stock, the Concho Shareholders shall receive 1.15 shares of First Financial Common Stock, unless certain conditions require adjustments to the Exchange Rate. See "-- The Exchange Rate." At least ninety percent (90%) of the Concho Common Stock must be tendered by the Concho Shareholders in order for the Exchange to occur. The Exchange Offer is also subject to certain other conditions. See "-- Conditions to Consummation of the Exchange Offer." BACKGROUND OF THE EXCHANGE OFFER Southwest Bank is a correspondent bank customer of First National Bank of Abilene. Through that relationship, Mr. Kenneth Murphy, the Chairman, President and Chief Executive Officer of First Financial, visited with Mr. David Drake, the Chairman and Chief Executive Officer of Concho, in December 1992 to obtain information about the brokerage operation at Southwest Bank. Southwest Bank provided brokerage services through an arrangement with the Stephens Co., and First Financial was considering establishing a similar operation. Over the next several months there were additional discussions about brokerage services. First Financial had been interested in the San Angelo market for several years and during a visit on April 30, 1993, Mr. Murphy asked Mr. Drake if Concho would have any interest in discussing the possibility of becoming associated with First Financial. Following several telephone discussions, Mr. Murphy and Curtis Harvey, Executive Vice President and Chief Financial Officer of First Financial, met with Concho's Executive Committee on June 1, 1993. During the meeting Mr. Murphy stated that First Financial considered Southwest Bank an attractive acquisition candidate and inquired as to whether Concho would be interested in entertaining an offer. Prior to the approach by First Financial, the Board of Directors of Concho had adopted and was following a strategic business plan that called for growth primarily through internal means. The plan included the possibility of Concho acquiring other banks, but did not contemplate Concho being acquired. In light of First Financial's indication of interest, Concho's Executive Committee decided to proceed with further discussions. Messrs. Murphy and Harvey met with the Concho Executive Committee again on June 22, 1993. During the meeting Mr. Murphy presented various alternative initial proposals for structuring an acquisition of Concho by First Financial, including a one-for-one stock exchange. Subsequent to the meeting, Mr. Drake contacted Mr. Murphy and informed him that Concho would entertain an offer which included a stock exchange valued at 1.5 times Concho book value. Messrs. Murphy and Harvey met with Mr. Drake in San Angelo on July 12, 1993, to discuss further the possible offer by First Financial. The Concho Board of Directors held several meetings in late July and early August to discuss the possible transaction and ultimately concluded, with the assistance of its outside advisors, that an exchange offer valued at 1.5 times Concho's book value was fair. In reaching its conclusion, the Concho Board of Directors relied in part on the advice of its financial consulting firm, FinSer Corporation, which evaluated the financial condition of First Financial and the relative benefits of the offer to Concho Shareholders. FinSer Corporation informally advised the Concho Board that, in its opinion, the offer was fair and reasonable in light of current market conditions. 15 On August 17, 1993, First Financial and Concho executed a Letter of Intent which contemplated a stock exchange ratio of 1.2 shares of First Financial stock for each share of Concho stock. During the period August 19, 1993, through September 24, 1993, First Financial performed a due diligence review at Southwest Bank and the parties began negotiating a definitive agreement. Following execution of the Letter of Intent, Concho informed First Financial that a former stockholder of Concho had asserted a claim against Concho with respect to Concho's purchase in May 1993 of 16,267 shares of Concho Common Stock from such former stockholder. On November 29, 1993, Concho and the former stockholder resolved the matter by rescinding the May 1993 stock purchase. As a result of the additional shares outstanding following the rescission, First Financial and Concho agreed to adjust the exchange ratio from 1.2 to 1.15, and First Financial and Concho executed the Stock Exchange Agreement on December 7, 1993. In agreeing to the adjustment in the exchange ratio, the Concho Board of Directors noted that since the date of execution of the Letter of Intent, the market value of First Financial Common Stock had increased approximately $2.00 per share based on the NASDAQ quoted bid price. The Concho Board considered this increase and the fact that the exchange ratio is 1.5 times the book value of Concho in approving the Stock Exchange Agreement. For these and other reasons described below, the Concho Board believed it was in the best interest of the Concho Shareholders to have the opportunity to accept or reject the Exchange Offer. In early February 1994, Mr. Tim Turner, who is a director of Concho and owner of 232 shares of Concho Common Stock, together with his wife sent a letter to other Concho Shareholders informing them that they oppose the Exchange Offer and requesting Concho Shareholders not to tender their shares to First Financial. The Turners stated that they opposed the Exchange Offer primarily because Concho would lose its independent status which, they believe, is the primary reason for Concho's success. On February 7, 1994, the Board of Directors of Concho met to discuss the Turners' concerns. The Board of Directors reviewed the due diligence it had conducted with respect to First Financial and its other subsidiary banks and also First Financial's plans to leave Southwest Bank's existing Board substantially intact and to retain the existing officers and staff of Southwest Bank. See "The Exchange Offer--Operations After the Exchange Offer and Merger." The Board of Directors concluded that it was satisfied that although Concho would become part of a larger holding company, it would retain sufficient local control and involvement so as to maintain its community bank character. FIRST FINANCIAL 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. First Financial recently acquired two other community banks which has enabled First Financial to increase its penetration of the Texas banking markets. The acquisition of Concho will allow First Financial to continue its expansion and enter the San Angelo market which is larger than those served by recent acquisitions, thereby providing even greater asset and earnings growth opportunities. First Financial also views favorably the perceived compatibility of the Concho management team with management of First Financial and its demonstrated 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. CONCHO 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 Concho and their respective representatives. Concho consulted with its own legal counsel and financial advisors during the course of negotiations. The Concho Board of Directors believes that the Exchange Offer is fair to the shareholders of Concho. In reaching a conclusion to approve the Exchange Offer, Concho's Board of Directors considered a number of factors. Concho's Board of Directors did not assign any relative or specific weights to the factors considered. Among other things, the Concho Board of Directors considered: 1. The financial terms of the Exchange Offer. In this regard, Concho's Board of ----------------------------------------- Directors took into account the premium represented by the consideration offered to Concho Shareholders in relation to the book value per share of Concho's Common Stock. Concho's Board of Directors was of the view that the Exchange Rate represented a fair multiple of Concho's per share book value and historical and projected earnings. Concho's Board of Directors also considered the financial terms of other recent business combinations 16 in the banking industry and determined that the financial terms of the Exchange Offer compared favorably to such other transactions; 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; 3. The terms, other than the financial terms, and structure of the Exchange ------------------------------------------------------------------------ Offer. In particular, the Concho Board of Directors considered the ----- anticipated tax-free nature of the Exchange Offer to Concho Shareholders receiving First Financial Common Stock in exchange for the shares of Concho Common Stock. In addition to the above factors, the proposed Exchange Offer and Merger reflect the judgment of the Board of Directors of Concho that Concho's business can be benefitted 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 Concho could provide operational benefits and efficiencies. The Concho Board of Directors believes that the Exchange Offer would allow shareholders of Concho to exchange their shares for a security in a company which has a broader market appeal and thus a more liquid investment. In addition, while Concho has been in the position to pay cash dividends to Concho Shareholders during the past several years at the rate of $.25 per annum, First Financial has declared cash dividends per share of $1.20, $.96 and $.82 during the years ended December 31, 1993, 1992 and 1991, respectively. Shareholders of Concho would hold shares in a larger banking organization which would tend to lessen the risk that local market factors in San Angelo would affect the value of their investment. In addition, the resources of a larger banking organization would tend to benefit Concho Shareholders as a result of its ability to compete in the larger marketplace. The Concho Board of Directors also believes that, if the exchange is consummated, its subsidiary, Southwest Bank, will continue to retain its community bank character even though it will be a subsidiary of a substantially larger bank holding company. First Financial has grown through acquisition of community banks, and its acquisition strategy is to allow these independent community banks to continue to operate as such even though they are part of a larger holding company. In this regard, it is anticipated that the existing Board of Directors of Southwest Bank would remain essentially the same and that the officers and staff would continue to be employed and to manage Southwest Bank. This should enable the continuation of local control, decision making and a presence in the community which Southwest Bank serves. Finally, in addition to the strategic location of Southwest Bank in the San Angelo market being a major contribution to First Financial, Southwest Bank's subsidiary, SWB Investment Company, would be provided with an attractive opportunity to expand its business to the customer base of First Financial and its other subsidiary banks. This should provide an attractive growth opportunity for Concho Shareholders. OPERATIONS AFTER THE EXCHANGE OFFER AND MERGER If the Exchange Offer is consummated, First Financial will own at least 90% of the outstanding Concho Common Stock. If the subsequent Merger is consummated as presently anticipated, Concho will become a wholly-owned subsidiary of First Financial. See "The Exchange Offer--Anticipated Merger and Dissenting Shareholders' Rights." First Financial's acquisition strategy is to allow the independent community banks acquired by it to continue to operate with substantial autonomy even though they are part of a larger holding company. First Financial presently anticipates that the existing Board of Directors of Southwest Bank would remain essentially the same other than for the additions of Messrs. Murphy and Harvey. First Financial also intends to retain the existing officers and staff of Southwest Bank. THE EXCHANGE RATE First Financial will issue and exchange 1.15 shares of First Financial Common Stock for each share of Concho Common Stock tendered by the Concho 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 approved by the Board of Directors of First Financial, the Exchange Rate shall be appropriately adjusted to reflect such stock dividend or split. 17 First Financial will not issue any fractional shares of First Financial Common Stock. Concho 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 the Market Value per share of First Financial Common Stock as of the date which is ten days prior to the date upon which the Registration Statement of which this Prospectus is a part became effective. For purposes hereof, the "MARKET VALUE" of First Financial Common Stock means the per share closing bid price of the First Financial Common Stock in the over-the-counter market in accordance with quotations supplied by The Principal - -- Eppler Guerin & Turner or other authoritative source. As of such date, the Market Value per share of First Financial Common Stock was $ 41.50. THE EXPIRATION DATE Unless otherwise extended by First Financial, the Exchange Offer shall terminate at 5:00 p.m., Texas time on March 10, 1994 (the "Expiration Date"). CONDITIONS TO CONSUMMATION OF THE EXCHANGE OFFER; TERMINATION Consummation of the Exchange Offer is subject to the satisfaction of a number of conditions, including: (1) the expiration of all mandatory waiting periods and the existence in full force and effect of all regulatory approvals, filings, registrations and notifications; (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 Concho from its independent accountants and/or tax counsel that the Exchange by the Concho Shareholders will not be considered a taxable event for federal income tax purposes; 18 (3) the accuracy of all the respective representations and warranties of Concho, Southwest Bank and First Financial in the Exchange Agreement as of the date of consummation of the Exchange Offer (the "Consummation Date"); (4) the performance of all of the respective obligations and agreements and compliance with all covenants and conditions by Concho, Southwest Bank and First Financial contemplated by the Exchange Agreement prior to or on the Consummation Date; (5) the absence of any proceeding or litigation by any court, governmental body or regulatory authority pertaining to the Exchange Offer; (6) the declaration by the Commission 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 granted and that First Financial, Concho and Southwest Bank shall have complied with all applicable state and federal securities laws relating to the Exchange Offer; (7) the absence of any material adverse change in the financial conditions of Concho, Southwest Bank or SWB Investment between July 31, 1993 and the Consummation Date; (8) receipt by First Financial and Concho of certain legal opinions in form and substance satisfactory to the respective parties; (9) the valid tender of ninety percent (90%) of the issued and outstanding shares of Concho Common Stock to First Financial; and (10) the written agreement of certain noteholders to consent to the transfer of certain property by Concho to Southwest Bank, the assumption by Southwest Bank of certain debt owed by Concho and the release and removal of various liens, security interests and pledges of common stock of Southwest Bank pursuant to the terms of the Exchange Agreement. The Exchange Agreement and the Exchange Offer may be terminated at any time prior to the Consummation Date: (a) by mutual written consent of First Financial and Concho; (b) by First Financial if there is a breach of a representation or warranty made by Concho which constitutes a material adverse change from that represented in the Exchange Agreement or if any of the conditions to closing are not satisfied or waived by First Financial; (c) by Concho 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 or waived by Concho; (d) by First Financial or Concho if the Exchange Offer shall not have commenced by April 30, 1994 or such later date agreed to in writing by First Financial or Concho; or (e) by First Financial or Concho 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. 19 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. EXCHANGE OF SHARES AND CERTIFICATES A Concho Shareholder's delivery of a properly completed and executed Letter of Transmittal and Concho 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 registered on the Concho Common Stock Certificates surrendered. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States (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 Concho 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 Concho Common Stock are tendered for the account of an Eligible Institution. See Instructions 1 and 3 of the Letter of Transmittal. THE METHOD OF DELIVERY OF CONCHO 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 CONCHO SHAREHOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT CONCHO SHAREHOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. CONCHO 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 Concho 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 Concho 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 Concho Common Stock Certificates, either make appropriate arrangements to register ownership of the Concho 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 Concho Common Stock listed therein, the Concho Common Stock Certificates reflecting ownership of Concho Common Stock must be endorsed or accompanied by appropriate stock powers which authorize such person to tender the Concho Common Stock on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the Concho Common Stock Certificates. If the Letter of Transmittal or any Concho 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. 20 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%) of the outstanding shares of Concho Common Stock have been validly tendered, each outstanding share of Concho 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 Exchange Rate," and First Financial Common Stock Certificates reflecting the Exchange shall be delivered to the Concho Shareholders by registered mail. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of the tendered shares of Concho 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 Concho Common Stock not properly tendered or any shares of Concho 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 Concho Common Stock. Unless waived, any defects or irregularities in connection with tenders of shares of Concho 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 Concho Common Stock nor shall any of them incur any liability for failure to give such notification. Tenders of shares of Concho Common Stock will not be deemed to have been made until such irregularities have been cured or waived. Any Concho 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 Concho Common Stock Certificates unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Concho Shareholders who wish to tender their shares of Concho Common Stock and (i) whose Concho Common Stock Certificates are not immediately available, or (ii) who cannot deliver their Concho 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 Concho Common Stock, the certificate number or numbers of such Concho Common Stock and the amount of Concho 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 Concho Common Stock Certificates registering the Concho 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 Concho 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 Concho Common Stock. In lieu thereof, each Concho Shareholder having a fractional interest resulting from the exchange of Concho Common Stock for First Financial Common Stock will be paid by First Financial an amount in cash 21 for such fractional share based upon the Market Value (as defined) per share of First Financial Common Stock as of the date which is ten days prior to the date upon which the Registration Statement of which this Prospectus is a part became effective. As of such date, the Market Value per share of First Financial Common Stock was $41.50. Any cash payment to which a Concho Shareholder may be entitled will be included with such Concho Shareholder's First Financial Common Stock Certificates when such certificates are mailed to the Concho Shareholder. NO WITHDRAWAL RIGHTS Tenders of shares of Concho Common Stock pursuant to the Exchange Offer are irrevocable, and once such shares are tendered, they may not be withdrawn. REGULATORY APPROVALS REQUIRED The Board of Governors of the Federal Reserve System (the "Federal Reserve Board") must approve First Financial's acquisition of Concho and Southwest Bank under Section 3 of the Bank Holding Company Act of 1956, as amended. The Federal Reserve Board has approved the acquisition. FEDERAL INCOME TAX CONSEQUENCES The following is a summary of certain material U.S. Federal income tax consequences of the Exchange, including certain consequences to holders of Concho Common Stock who are citizens or residents of the United States and who hold their shares as capital assets. It does not discuss all tax consequences that may be relevant to the Concho 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 Concho Shareholders who acquired their shares of Concho 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. Concho has received an opinion from its independent public accountants, Armstrong, Backus & Co., L.L.P., 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, Armstrong, Backus & Co., L.L.P. are 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, Concho and First Financial Bankshares of Delaware, Inc. 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 Concho Shareholders upon receipt of First Financial Common Stock in exchange for their Concho Common Stock, except for any gain or loss recognized with respect to Concho Shareholders who receive cash in lieu of fractional share interests in First Financial Common Stock or pursuant to the exercise of statutory dissenter rights. 3. The aggregate Federal income tax basis of the shares of First Financial Common Stock received by the Concho Shareholders in exchange for their shares of Concho Common Stock will be the same as the aggregate adjusted tax basis of their Concho Common Stock exchanged therefor, less the tax basis, if any, allocated to fractional share interests. 22 4. The holding period of the First Financial Common Stock received by the Concho Shareholders in exchange for their shares of Concho Common Stock in the hands of the Concho Shareholders will include the holding period of their Concho Common Stock exchanged therefor. A Concho Shareholder who receives 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 capital gain or loss to the holder equal to the difference between the amount of cash received and the portion of the holder's Federal income tax basis in the Concho Common Stock allocable to the fractional share interest. 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. A Concho Shareholder who dissents from the Merger and receives cash in exchange for shares of Concho 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. Such capital gain or loss will be long-term capital gain or loss if the holder has held the shares for more than one year as of the effective time of the merger. 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. CONCHO 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 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) 675-7342 For confirmation by telephone: (915) 675-7100 RESALE BY CONCHO AFFILIATES The shares of First Financial Common Stock issuable to Concho 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 Concho ("Concho Affiliates"). First Financial Common Stock received and beneficially owned by those Concho Shareholders who are deemed to be Concho Affiliates may be resold without registration as provided for by Rule 145 under the Securities Act, or as otherwise permitted. The term Concho Affiliate is defined to include any person who, directly or indirectly, controls, or is controlled by, or is under common control with Concho at or during the time period covered by the Exchange Agreement. Each Concho Affiliate who desires to resell the First Financial Common Stock must sell such First Financial Common Stock either 23 (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 Concho Affiliate or as described in a "no-action" or interpretive letter from the Commission, 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 Concho 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 (2) years after the receipt thereof. After two (2) years if such person is not an affiliate of First Financial and First Financial is current in the filing of its periodic securities law reports, a former Concho Affiliate may freely resell the First Financial Common Stock received in the Exchange Offer without limitation. After three (3) 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 (3) 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. Each Concho 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 Concho 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 Concho 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 Financial will contribute the shares of Concho Common Stock acquired in the Exchange Offer to First Financial Bankshares of Delaware, Inc., a wholly-owned subsidiary of First Financial ("FFB Delaware"), and Concho will then be merged (the "Merger") with and into FFB Delaware pursuant to Article 5.16 of the Texas Business Corporation Act (the "TBCA"). In the event that not all of the outstanding Concho Common Stock is tendered for exchange in the Exchange Offer, within ten (10) days after the effective date of the Merger, FFB Delaware shall provide notice of the Merger to the Concho 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 Concho 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 Delaware for the fair value of their shares of Concho 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 Delaware shall either accept such demand or reject it and make a counter-offer as to the fair value of the Concho Common Stock. Upon the agreement between FFB Delaware and the Dissenting Shareholder as to the fair value of the Concho Common Stock, FFB Delaware shall pay the agreed fair value of the shares of Concho Common Stock owned by such Dissenting Shareholder in exchange for endorsed Concho Common Stock Certificates representing such shares. The Dissenting Shareholder shall, at that time, cease to have any interest in FFB Delaware. If a Dissenting Shareholder is unable to reach an agreement with FFB Delaware as to the fair value of the Concho Common Stock, the specific remedies provided in Article 5.16 of the TBCA for determination of fair 24 value by a court of law shall be available to such shareholder. Article 5.16 of the TBCA is attached to this Prospectus as Annex B. ACCOUNTING TREATMENT First Financial expects to account for the Exchange as a pooling-of-interests and expects to receive the written opinion of Arthur Andersen & Co. that it is appropriate to do so. 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, subject to certain exceptions. 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 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. 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"), 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). Under the Texas Banking Code of 1943, as amended, before any dividend may be paid to First Financial by an affiliated state bank, the 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 is not required to certified surplus of a sum which would increase the certified surplus to more than the capital of the bank. Under the foregoing dividend restrictions, in 1993 the First Financial Banks, without obtaining governmental approvals, could have declared aggregate dividends of approximately $18.5 million from retained net profits. During 1993, the First Financial Banks paid $8.9 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. 25 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") have issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. 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. 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%). From year-end 1991 until year-end 1992, the minimum ratio was 7.25%. 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 total assets, 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). Furthermore, the guidelines indicate that the Federal Reserve Board has indicated that it will continue to consider a "tangible Tier 1 Capital leverage ratio" (deducting all intangibles) in evaluating proposals for expansion or new activities. As of September 30, 1993, the "tangible Tier 1 Capital leverage ratios" of First Financial, Concho and pro 26 forma (giving effect to the Exchange and the Merger) for First Financial and Concho combined were 9.63%, 6.89% and 9.38% respectively. 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 Concho 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 Concho at September 30 or December 31 for each of the periods presented below and gives effect to the Exchange and the Merger. Tier 1 Capital to Risk-Weighted Assets Ratio (in each case calculated pursuant to the risk-based capital guidelines)
Pro Forma As of: First Financial Concho Combined - ------ ---------------- ---------- --------- September 30, 1993... 17.14% 12.17% 16.69% December 31, 1992.... 17.22 13.39 16.90 December 31, 1991.... 15.73 11.64 15.38
Total Capital To Risk-Weighted Assets Ratio (in each case calculated pursuant to the risk-based capital guidelines)
Pro Forma As of: First Financial Concho Combined - ------ ---------------- ---------- --------- September 30, 1993... 18.39% 13.35% 17.93% December 31, 1992.... 18.72 14.75 18.38 December 31, 1991.... 17.23 12.90 16.86
Tier 1 Leverage Ratio
Pro Forma As of: First Financial Concho Combined - ------ ---------------- ---------- --------- September 30, 1993... 9.63% 6.89% 9.38% December 31, 1992.... 9.59 6.89 9.28 December 31, 1991.... 8.69 6.30 8.48
In addition to the Federal Reserve Board capital standards, Texas-chartered banks must comply with the capital requirements imposed by the Texas Banking Department. Although neither the Texas Banking Code 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, 1993, all Texas-chartered banks owned by First Financial, as well as Concho, exceeded the minimum ratio. 27 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. 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 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-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 are subject to FDIC deposit insurance assessments. The FDIC set an assessment rate for the Bank Insurance Fund ("BIF") of 0.195 percent for periods prior to June 30, 1991, and an assessment rate of 0.23 percent effective on June 30, 1991. On September 15, 1992 the FDIC approved the implementation of a transition risk-based deposit premium assessment system under which each depositary institution will be placed in one of nine assessment categories based on certain capital and supervisory measures. The assessment rates under the new system will range from 0.23 percent to 0.31 percent depending upon the assessment category into which the insured institution is placed. The new assessment system became effective January 1, 1993. The First Financial Banks were assessed a weighted average rate of 0.115 percent for the first six-month assessment period. It is possible that BIF assessments will be further increased and it is possible that there may be special additional assessments in the future. A significant increase in the assessment rate or a special additional assessment could have an adverse impact on First Financial's results of operations. 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 28 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, 1992. 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. Undercapitalized depository institutions are subject to growth limitations and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce the total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator. 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. See also "COMPARISON OF SHAREHOLDER RIGHTS" below. The following description should be read carefully by the Concho Shareholders. First Financial's total authorized capital stock consists of 5,000,000 shares of First Financial Common Stock with a par value of $10.00 per share. There is no authorized preferred stock. As of December 31, 1993, there were issued and outstanding 3,746,687 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. 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, Concho Shareholders whose shares of Concho 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 Concho Shareholders and First Financial Shareholders are set forth below. As both Concho 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 Concho Articles of Incorporation (the "Concho Charter") and the Bylaws of Concho (the "Concho 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 Concho Charter and the Concho 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 Concho Bylaws provide that the number of directors constituting the Concho Board of Directors shall be four, but the number of Directors may be increased or decreased (provided such decrease does not shorten the time of service of any incumbent director) from time to time by amendment to the Concho Bylaws; provided, however, that the number of directors shall never be less than one. At any meeting of Concho Shareholders called expressly for the purpose of removing a director, any director or the entire Concho 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 AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS The First Financial Charter provides 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. The First Financial Charter also 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 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. 30 The Concho Bylaws provide that Concho shall indemnify its 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. Neither the Concho Charter nor the Concho Bylaws contain a limitation of liability provision. 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 Concho Bylaws provide that a special meeting of the shareholders may be called by the President, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of shareholders owning not less than 10% of all the shares entitled to vote at the meetings. 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"). First Financial owns, through its wholly-owned Delaware subsidiary, First Financial Bankshares of Delaware, Inc., all of the capital stock of six 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; and Stephenville Bank and Trust Co., Stephenville, Texas (collectively, the "First Financial Banks"). As of September 30, 1993, First Financial and its consolidated subsidiaries had total assets of approximately $906.8 million, total deposits of approximately $809.1 million, total loans (net of allowance for loan losses) of approximately $359.1 million and total shareholders' equity of approximately $88.7 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 and autonomy. Each of the First Financial Banks operates under the day-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 compensation. First Financial provides advice to and specialized services for the First Financial Banks in such areas as taxation, lending techniques, investments, purchasing, advertising, public relations, automation procedures and computer services. In addition, First Financial coordinates various transactions among the First Financial Banks, including loan participations. First Financial makes the services of the Trust Department of First National Bank of Abilene available to customers of the other First Financial Banks, as well as investment 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, including bank credit card services, transmitting funds and performing such other banking services as are usual and customary for commercial banks. 31 In addition to First National Bank of Abilene, 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. Commercial banking in Texas is very competitive. As of December 31, 1992, the latest date of compilation by the Federal Reserve Bank in Dallas, Texas, there were 85 multi-bank holding companies existing or operating in the State of Texas. Representing .64% of the market, First Financial was ranked seventh on the basis of total deposits. The competition from holding companies is largely centered in efforts to obtain larger deposits and procure outlets for funds for available lending. Success is dependent upon being able to compete in these areas, as well as in the areas of interest rates paid or charged and scope of services offered and prices charged therefor. 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. For further information concerning First Financial which is incorporated herein by reference from certain publicly-filed documents, see "Incorporation by Reference." 1993 FOURTH QUARTER RESULTS On January 14, 1994, First Financial announced results of its operations for the year and three months ended December 31, 1993.
For the Three Months For the Year Ended Ended December 31 December 31 -------------------- ------------------ 1992 1993 1992 1993 ------ ------ ------ ------ (Dollars in thousands, except per share data) Net Interest Income After Provision for Loan Losses............................ $ 8,544 $ 9,132 $33,219 $36,075 Earnings before Income Taxes.................................. 3,995 4,294 15,987 17,725 Net Earnings before Cumulative Adjustment for Change in Accounting for Income Taxes............ 2,725 2,888 10,989 11,978 Net Earnings After Cumulative Adjustment for Change in Accounting for Income Taxes........................... 2,725 2,887 10,989 13,233 Earnings Per Share before Cumulative Adjustment.................. $ 0.74 $ 0.77 $ 2.95 $ 3.20 Earnings Per Share after Cumulative Adjustment.................. $ 0.74 $ 0.77 $ 2.95 $ 3.53
MARKET PRICES OF AND DIVIDENDS PAID ON FIRST FINANCIAL COMMON STOCK First Financial Common Stock is traded in the over-the-counter market. Since November 1, 1993, the First Financial Common Stock has been reported 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/Eppler, Guerin & Turner, Inc. of Abilene, Texas, a securities brokerage firm ("Eppler Guerin"), and have been adjusted to reflect a three for two stock split effective June 1, 1992 and a ten percent (10%) stock dividend paid to First Financial shareholders in the second quarter of 1993.
DIVIDENDS HIGH LOW DECLARED ------ ------ -------- 1991: First Quarter.......... $16.00 $15.50 $0.19 Second Quarter......... 16.50 16.00 0.21 Third Quarter.......... 17.50 16.50 0.21 Fourth Quarter......... 18.00 17.50 0.21 1992: First Quarter.......... 20.00 18.00 .21 Second Quarter......... 23.00 20.00 .25 Third Quarter.......... 31.00 23.00 .25 Fourth Quarter......... 35.50 31.00 .25
32 1993: First Quarter.......... 37.00 35.50 0.25 Second Quarter......... 39.00 37.00 0.32 Third Quarter.......... 40.00 39.00 0.32 Fourth Quarter......... 41.50 40.00 0.32 1994: First Quarter (through February 4, 1994)...... 41.50 41.50 --
On December 6, 1993 (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 $43.50 per share. On February 1, 1994 (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 $43.50 per share. CONCHO 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 December 31, 1993, there were 1,204 holders of record of First Financial Common Stock. INFORMATION ABOUT CONCHO GENERAL Concho is a one bank holding company formed in 1979 and incorporated in the State of Texas. Concho owns all of the capital stock of Southwest Bank. Southwest Bank is chartered in the State of Texas, began operations in 1975, and its deposits are insured by the Federal Deposit Insurance Corporation. SWB's wholly owned subsidiary, SWB Investment, operates as a registered investment advisor. MARKET AREA Southwest Bank conducts business principally in Tom Green County through its location in San Angelo, Texas. The market area of SWB Investment is also Tom Green County, with a small amount derived from other area counties. SERVICES Southwest Bank 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. SWB Investment offers investment advice to customers 33 who may execute trades with the bank through its discount brokerage operation or through its affiliation with Stephens, Inc. of Little Rock, Arkansas. COMPETITION The business of banking in Concho's market area is highly competitive. In San Angelo seven other banks operate with eleven locations. Competition is also high from credit unions, saving and loan associations, investment brokers, insurance companies, and mortgage companies. EMPLOYEES As of September 30, 1993, Concho and its subsidiaries employed 46 full time and 12 part time people. PROPERTIES Southwest Bank's only location is in a five story office tower in San Angelo, Texas. The bank occupies the basement and first and second floors. The third, fourth, and fifth floors, owned by Concho, are leased to non-affiliated tenants. MARKET FOR AND DIVIDENDS PAID ON CONCHO COMMON STOCK There is no established public trading market for Concho Common Stock. Concho Common Stock is not listed on a national securities exchange and is not authorized for quotation on an interdealer quotation system. As of December 15, 1993, there were 239 holders of record of Concho Common Stock. Concho has paid dividends on Concho Common Stock in prior years, but payment of future dividends is not assured. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS As of December 15, 1993, the management of Concho knew of no person, other than those listed below, owning beneficially more than 5% of the Concho Common Stock.
Shares of Concho Percentage of Common Stock Outstanding Name and Address of Beneficial Owner Beneficially Owned(1) Concho Common Stock - --------------------------------------- ----------------------- -------------------- Wilbur Carr Brown 17,830 8.84% 1974 Overhill Drive San Angelo, Texas 76904 First National Bank of West Texas 16,267 8.07% P.O. Box 1241 Lubbock, Texas 79408 Jack Drake & Sons 12,250(2) 6.07% P. O. Box 60410 San Angelo, Texas 76906 H.D. Eakman 9,942 4.93% 1686 La Villa Circle San Angelo, Texas 76904
34 O.L. Schuch 11,047(3) 5.48% 3714 Vista del Arroyo San Angelo, Texas 76904 John W. West 17,876 8.86% P. O. Box 1329 San Angelo, Texas 76902
- -------------------------------- (1) As determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended. (2) 358 shares are in the name of David B. Drake while 11,892 are held by Jack Drake & Sons, a partnership 50% owned by David Drake. (3) 10,333 shares are in the name of O. L. Schuch while 714 shares are held by his wife Dorothy Schuch. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth information as to the shares of Concho Common Stock beneficially owned by each director and executive officer and for all directors and executive officers as a group as of December 15, 1993.
Shares of Concho Common Stock Percentage of Concho Name Beneficially Owned(1) Common Stock Outstanding - ---- --------------------- ------------------------ Michael L. Boyd 845 * David B. Drake 12,250 (2) 6.07% H.D. Eakman 9,942 (3) 4.93% Dan Cravy M.D. 6,368 3.16% Ingram Hartje, III 833 * Joe Mertz 1,400 * William Pfluger 3,572 1.77% Craig Porter 1,727 * O.L. Schuch 11,047 (4) 5.48% Tim Turner, D.V.M. 232 * David Lupton 424 * Doug Eakman 825 * All directors and executive officers as a group: 49,465 24.53%
- -------------------- * Indicates beneficial ownership is less than one percent. (1) Each director and executive of Concho has sole voting and investment powers with respect to all shares of Concho Common Stock shown as beneficially owned by such director or executive officer except as 35 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) 358 shares are in the name of David B. Drake while 11,892 are held by Jack Drake & Sons, a partnership 50% owned by David Drake. (3) 7,617 shares are in the name of H. D. Eakman while 2,325 shares are held by Pecos Street Pharmacy, an entity owned by Mr. Eakman. (4) 10,333 shares are in the name of O. L. Schuch while 714 shares are held by his wife Dorothy Schuch. 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 December 31, 1993, no director or executive officer of Concho will beneficially own more than one percent (1%) of the outstanding First Financial Common Stock immediately 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. 36 SELECTED CONSOLIDATED FINANCIAL DATA OF CONCHO The following tables present selected historical consolidated financial data of Concho, as of the dates and for the periods indicated. As noted in the tables, certain data for the nine months ended September 30, 1993 have been adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. Results of operations for the nine months ended September 30, 1993 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 Concho and related notes included elsewhere herein.
(dollars in thousands, except per share data) Nine Months Years Ended December 31, Ended -------------------------------------------------------------- September 30, 1988 1989 1990 1991 1992 1993 -------- -------- ------------- ------------- ------------ ---------------- OPERATING RESULTS: Net interest income................... $ 2,129 $ 2,068 $ 2,409 $ 2,631 $ 3,079 $ 2,721 Provision for loan losses............. 590 247 195 120 205 105 Noninterest income.................... 634 405 714 861 1,116 857 Noninterest expense................... 2,079 2,235 2,609 2,894 3,054 2,519 ------- ------- ------- ------- ------- ------- Income before income taxes............ 94 (9) 319 478 936 954 Provisions (benefit) for income taxes - - - 47 191 348 ------- ------- ------- ------- ------- ------- Net income before cumulative effect of accounting change ................... 94 (9) 319 431 745 606 Cumulative effect of accounting change ..................................... - - - - - (231) ------- ------- ------- ------- ------- ------- Net income............................ $ 94 $ (9) $ 319 $ 431 $ 745 $ 375 ======= ======= ======= ======= ======= ======= Net income per Concho Common Share before cumulative effect of accounting change ................... $ 0.45 $(0.04A) $ 1.52 $ 2.05 $ 3.70 $ 3.01(2) Net income per Concho Common Share.......................... $ 0.45 $(0.04A) $ 1.52 $ 2.05 $ 3.70 $ 1.86(2) FINANCIAL POSITION: Assets................................ $66,360 $71,396 $72,089 $80,808 $88,864 $ 89,455(2) Loans................................. 33,518 33,734 34,627 39,158 42,597 43,364 Investment Securities................. 20,006 18,220 21,813 28,697 33,807 34,798 Deposits.............................. 58,953 65,082 65,535 73,665 81,097 80,903 Stockholders' equity.................. 4,006 4,325 4,583 5,088 5,706 6,161(2) SIGNIFICANT RATIOS: Return on assets...................... 0.14% -0.01% 0.46% 0.57% 0.89% 0.42% Return on equity...................... 2.18 -0.21 6.88 9.52 15.93 16.24 Net interest margin................... 3.64 3.48 3.93 3.95 4.15 4.45 Earning assets to assets.............. 89.16 86.93 87.71 88.04 89.08 91.66 Book value per share(1)............... $ 19.14 $ 20.58 $ 21.79 $ 24.21 $ 28.30 $30.55(2)
(Footnotes appear on following page) 37 _____________________ (1) At period end (2) As adjusted to reflect the rescission in November 1993 of an earlier treasury stock purchase by Concho of 16,267 shares of Concho Common Stock for $344,860. Without such adjustment, net income per Concho Common Share before cumulative effect of accounting change was $3.12, net income per Concho Common Share was $1.93, assets were $89,110, stockholders' equity was $5,817 and book value per share was $31.38. 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CONCHO 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. Liquidity and Interest Rate Sensitivity VII. Capital VIII. Discussion of First Nine Months of 1993 versus First Nine Months of 1992 IX. Summary Operating Results for the Three Months and Year Ended December 31, 1993 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. 39 I. OVERVIEW OF OPERATIONS General Concho Bancshares, Inc. is a one bank holding company formed in 1979 and owns a majority interest in the Southwest Bank of San Angelo, Texas. Southwest Bank has a wholly owned subsidiary, SWB Investment Centre, Inc., a registered investment advisor. Results of Operations Concho's earnings increased 35.1%, and 72.9%, in the years ended 1991 and 1992, respectively. 1990's net income of $319,114 was a significant increase over the net loss of $9,399 experienced in 1989. The improved earnings trend is attributable to higher net interest income and increases in noninterest income. Net interest income in 1991 was 9.2% over 1990 and 1992 was 17% over 1991. Concho's net interest margins for 1990, 1991 and 1992 were 3.93%, 3.95% and 4.15%, respectively. Asset and Liability Review Total assets at December 31, 1992 amounted to $88,864,346, representing a 10% increase over the year end total of $80,808,176 in 1991. Total investment securities including federal funds sold were $36,356,858 at year end 1992, reflecting a 15% growth over 1991. Investments as a percent of total assets at year's end were 39.1% and 40.9% as of 1991 and 1992. Loans net of reserves and unearned interest grew by 8.8% in 1992 to $42,596,605. The growth was concentrated in commercial real estate loans. Total deposits increased by $7,430,444 to end 1992 at $81,095,173. Transaction account balances grew by $7,738,459 while time deposits declined by $308,015. Nonperforming assets totaled $638,371 at December 31, 1992, a total that was $225,974 below the previous year-end balance. 40 Table 1 - Average Daily Balance Sheets -- Concho The following table shows Concho's consolidated balances of assets, liabilities, and capital computed principally on an average daily basis for the three years ended December 31, 1992 (000's omitted):
Year Ended December 31, ------------------------------ ASSETS 1990 1991 1992 - --------------------------- ------- ------------ ------- Cash and due from banks $ 3,041 $ 3,407 $ 3,801 Interest-bearing deposits in banks 2,089 41 -- Federal funds sold 2,090 2,883 2,767 Taxable investment securities 21,538 25,952 29,701 Tax-exempt investment securities -- -- -- Net loans 35,558 37,682 41,717 Bank premises and equipment 3,277 3,168 3,167 Other assets 2,270 2,463 2,124 ------- ------- ------- Total Assets $69,863 $75,596 $83,277 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY - --------------------------------------- Non-interest-bearing demand deposits $ 8,095 $ 8,284 $11,168 Interest-bearing demand deposits 24,769 26,283 30,007 Time deposits 30,516 34,127 35,982 ------- ------- ------- Total deposits 63,380 68,694 77,157 Federal funds purchased and other 125 1,258 277 short-term borrowings Dividends payable 5 5 5 Long-term debt 1,280 -- 723 Other liabilities 434 616 411 Shareholders' equity 4,639 5,023 5,397 ------- ------- ------- Total Liabilities and Equity $69,863 $75,596 $83,277 ======= ======= =======
41 [II. NET INTEREST INCOME TABLE 2 - INCOME AVERAGE AND YIELD ON INTEREST-EARNING ASSETS AND EXPENSE AND AVERAGE RATE ON INTEREST-BEARING LIABILITIES -- CONCHO The following table shows 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, 1992, (000's omitted). The calculations of average yields and rates are based upon the average daily balances in Table 1. 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:
1990 1991 1992 ----------------- ----------------- ----------------- INCOME YIELD INCOME YIELD INCOME YIELD (EXPENSE) (RATE) (EXPENSE) (RATE) (EXPENSE) (RATE) --------- ------ --------- ------ --------- ------ Federal funds sold $ 187 8.95% $ 221 7.67% $ 120 4.34% Interest-earning deposits 197 9.43 6 8.98 -- -- Taxable investment securities 1,924 8.93 2,158 8.32 1,929 6.49 Tax-exempt investment securities (1) -- -- -- -- -- -- Net loans (1) 4,129 11.61 3,921 10.41 3,818 9.15 ------ ----- ------ ----- ------ ---- Interest income 6,437 10.51 6,306 9.47 5,867 7.91 Interest-bearing deposits 3,869 7.00 3,553 5.88 2,665 4.04 Federal funds purchased and other short-term borrowings 11 8.8 121 9.62 14 5.05 Long-term debt 148 11.56 -- -- 109 9.50 ------ ----- ------ ----- ------ ---- Interest expense 4,028 7.11 3,674 5.96 2,788 4.14 ------ ----- ------ ----- ------ ---- Net interest income and spread $2,409 3.40% $2,632 3.51% $3,079 3.77% ====== ===== ====== ===== ====== ==== Net interest yield (2) 3.93% 3.95% 4.15% ===== ===== ====
- ----------------------- (1) Income and yield on tax-exempt investment securities and tax-exempt loans have been adjusted to a tax-equivalent basis based upon the Federal income tax rate of 34%, adjusted for disallowed interest deductions in accordance with Federal income tax regulations. (2) The net yield on interest-earning assets is computed by dividing net interest income by total interest-earning assets. 42 TABLE 3 - ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE -- CONCHO The following table sets forth the dollar amount of increase (decrease) in interest income resulting from changes in the volume of interest-earning assets and interest-bearing liabilities and from changes in yields and rates (000's omitted):
1991 Compared to 1990 1992 Compared to 1991 ---------------------------- --------------------------------------- Volume Rate Total Volume Rate Total ------- ------ ----------- ----------- ----------------- ------- Federal funds sold and interest- earning deposits ................ $ (120) $ (37) $ (157) $ (12) $ (95) $ (107) Taxable investment securities .............. 394 (160) 234 312 (541) (229) Tax-exempt investment securities(1) ........... -- -- -- -- -- -- Loans(1).................. 244 (452) (208) 420 (523) (103) ---- ----- ----- ---- ------- ------ Interest income........... 518 (649) (131) 720 (1,159) (439) Time deposits............. 361 (677) (316) 326 (1,214) (888) Federal funds purchased and other short-term borrowings .............. 100 10 110 (94) (13) (107) Long-term debt............ (148) -- (148) 109 -- 109 ---- ----- ----- ---- ------- ------ Interest expense.......... 313 (667) (354) 341 (1,227) (886) ---- ----- ----- ---- ------- ------ Net interest income ...... $205 $ 18 $ 223 $379 $ 68 $ 447 ---- ----- ----- ---- ------- ------
- ----------------------------- (1) Income on tax-exempt investment securities and tax-exempt loans has been adjusted to a tax-equivalent basis based upon the Federal income tax rate of 34%, adjusted for disallowed interest deductions in accordance with Federal income tax regulations. Note: Volume/rate variances (changes in volume times changes in rate) have been allocated to amounts attributable to changes in volume and to changes in rates in proportion to the amounts directly attributable to those changes. 43 TABLE 4 - COMPOSITION OF INVESTMENT SECURITIES -- CONCHO The table below sets forth the composition of investment securities at the dates indicated:
DECEMBER 31, ------------------------------------- 1990 1991 1992 ----------- ----------- ----------- U.S. Treasury.............. $ 3,029,425 $ 5,100,869 $17,511,071 U.S. Government agencies... 11,764,443 13,320,280 12,211,810 Other...................... 7,019,625 10,275,665 4,083,940 ----------- ----------- ----------- $21,813,493 $28,696,814 $33,806,821 =========== =========== ===========
TABLE 5 - MATURITY AND YIELD ON SECURITIES -- CONCHO The following table shows the maturities of investment securities at December 31, 1992 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:
MATURING --------------------------------------------------------------------------------------------------- AFTER ONE BUT AFTER FIVE BUT WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS ----------------------- ------------------- ------------------ --------------------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ----------- ------ ----------- ------ -------- ------- ------------- -------- U.S. Treasury $2,545,219 5.08% 14,965,852 5.53% $ -- -- $ -- --% U.S. Government agencies 6,236 11.42 893,425 2.96 325,741 6.92 10,986,409 6.75 Other 1,145,216 4.60 -- -- -- -- 2,938,724 6.74 ---------- ------- ---------- ----- --------- ---- ------------ ------ $3,696,671 4.94% $15,859,277 5.39% $ 325,741 6.92% $ 13,925,133 6.75% ========== ======= ========== ===== ========= ==== ============ ======
TABLE 6 - COMPOSITION OF LOANS -- CONCHO 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):
1988 1989 1990 1991 1992 ------- ------- ------- ------- ------- Real estate loans: Construction.................... $ 2,264 $ 1,400 $ 1,827 $ 1,250 $ 1,659 Mortgage........................ 7,834 8,928 8,471 8,307 7,886 Commercial, financial and agricultural..................... 17,213 18,447 15,650 20,380 22,333 Installment loans to individuals.. 6,820 8,231 8,943 9,574 11,343 ------- ------- ------- ------- ------- Total loans................... $34,131 $37,006 $34,891 $39,511 $43,221 ======= ======= ======= ======= =======
TABLE 7 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES -- CONCHO The amounts of total loans (excluding real estate mortgages and installment consumer loans) outstanding as of December 31, 1992, 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: 44
After one year In one year but within After or less five years five years ------------ ---------- ---------- Real estate construction.......................... $ 1,275,172 $ 383,519 $ -- Commercial, financial and agricultural loans...... 12,598,033 6,632,548 3,102,007 Loans with maturities after one year for which: Interest rates are fixed or predetermined....... $15,293,010 Interest rates are floating or adjustable....... 18,222 ---------- $15,311,232 ===========
III. ASSET QUALITY TABLE 8 - RISK ELEMENTS -- CONCHO
PAST DUE AND NON-ACCRUAL LOANS: 1988 1989 1990 1991 1992 ---------- ----------- ---------- --------- -------- Non-accrual loans................................. $445,834 $237,829 $643,157 $864,345 $638,371 Loans 90+ days past due........................... 153,343 951,318 240,321 454,111 145,105 Restructured loans................................ 753,233 821,122 1,073,088 -- -- Interest accrued and lost on non-accrual loans ... 60,411 28,988 101,317 72,867 96,044 Interest actually received on non-accrual loans .. -- -- -- -- --
Loans in serious doubt to be repaid as of December 31, 1993 - $ 317,931 ========== Outstanding loan & farm & agricultural loans: 3.80% Percentage of total loans ===== At December 31, 1988, 1989, 1990, 1991, and 1992, the allowance for loan losses has been allocated within the categories of loans set forth below, according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred. The amount of such components and the ratio of the corresponding loan amounts to total loans outstanding are as follows:
RATIO OF LOAN ALLOWANCE AMOUNT TO TOTAL DECEMBER 31, 1992 AMOUNT LOANS OUTSTANDING - ------------------ --------- ----------------- Constructions loans $ 17,101 3.84% Mortgage loans 85,592 18.25 Commercial, financial and agricultural loans 332,483 51.67 Installment loans to individuals 163,558 26.24 -------- ----- $598,734 100.00% ======== ====== December 31, 1991 - ------------------ Construction loans $ 14,677 3.16% Mortgage loans 100,902 21.03 Commercial, financial and agricultural loans 304,631 51.58
45 Installment loans to individuals 126,929 24.23 -------- ------ $547,139 100.00% ======== ====== December 31, 1990 - ------------------ Construction loans $ 16,396 5.24% Mortgage loans 88,359 24.28 Commercial, financial and agricultural loans 312,281 44.85 Installment loans to individuals 92,981 25.63 -------- ------ $510,017 100.00% ======== ====== December 31, 1989 - ------------------ Construction loans $ 8,285 3.78% Mortgage loans 38,663 24.12 Commercial, financial and agricultural loans 423,529 49.86 Installment loans to individuals 41,654 22.24 -------- ------ $512,131 100.00% ======== ====== December 31, 1988 - ------------------ Construction loans $ 8,572 6.63% Mortgage loans 43,367 22.95 Commercial, financial and agricultural loans 497,693 50.44 Installment loans to individuals 62,761 19.98 -------- ------ $612,393 100.00% ======== ======
46 TABLE 9 - LOAN LOSS EXPERIENCE AND ALLOWANCE FOR LOAN LOSSES -- CONCHO 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:
1988 1989 1990 1991 1992 ------------ ------------ ------------ ------------ ------------ Daily average amount of net loans outstanding ............ $33,185,480 $33,543,512 $35,557,501 $37,682,141 $41,716,845 =========== =========== =========== =========== =========== Balance of allowance for loan losses at beginning of period .................................................. $ 505,264 $ 612,393 $ 512,131 $ 510,016 $ 547,139 Loans charged off - ------------------ Commercial, financial and agricultural.................... 463,593 364,648 267,039 72,000 127,696 Loans to individuals...................................... 39,625 10,905 14,365 17,620 53,260 All other loans........................................... 13,694 -- 12,387 3,225 -- ----------- ----------- ----------- ----------- ----------- Total loans charged off................................... 516,912 375,553 293,791 92,845 180,956 Recoveries of loans previously charged off - -------------------------------------------- Commercial, financial and agricultural.................... 32,263 24,058 95,095 6,946 26,117 Loans to individuals...................................... 1,778 4,723 1,581 3,022 1,434 All other loans........................................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total recoveries.......................................... 34,041 28,791 96,676 9,968 27,551 ----------- ----------- ----------- ----------- ----------- Net loans charged off..................................... 482,871 346,762 197,115 82,877 153,405 Additions to allowance charged to operating expense (1)... 590,000 246,500 195,000 120,000 205,000 ----------- ----------- ----------- ----------- ----------- Balance at end of period.................................. $ 612,393 $ 512,131 $ 510,016 $ 547,139 $ 598,734 =========== =========== =========== =========== =========== Ratio of net charge offs to the daily average amount of loans outstanding ....................................... 1.46% 1.03% 0.55% 0.22% 0.37% =========== =========== =========== =========== ===========
- ---------------------------- (1) Additions to the allowance were based primarily on historical experience, current economic conditions, and the condition of the loan portfolio at year-end. IV. DEPOSITS TABLE 10 - COMPOSITION OF DEPOSITS -- CONCHO The following table presents the average daily amount and the average rate paid on deposits (000's omitted): 47
1990 1991 1992 --------------- ----------------- -------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ------- ------ ------- -------- ------ ------ Noninterest bearing demand deposits $ 8,095 $ 8,284 $ 9,568 Interest bearing demand deposits 20,359 6.61% 21,708 5.06% 23,170 3.27% Savings and money market accounts 4,410 4.97 4,575 5.01 6,837 3.33 Time deposits Less than $100,000 17,850 21,590 23,118 $100,000 or more 12,666 12,537 12,864 ------- ------- ------- Total time deposits 30,516 7.55 34,127 6.52 35,982 4.67 ------- ------- ------- Total deposits $63,380 $68,694 $75,557 ======= ======= =======
TABLE 11 - MATURITY DISTRIBUTION OF TIME CERTIFICATES OF $100,000 OR MORE -- CONCHO Time certificates of $100,000 or more outstanding at December 31, 1992 will mature as follows (000's omitted): Under 3 months $ 5,910 3 to 6 months 3,157 6 to 12 months 2,841 Over 12 months 1,100 ------- $13,008 =======
V. RETURN ON EQUITY AND ASSETS TABLE 12 - RETURN ON EQUITY AND ASSETS -- CONCHO The ratio of net earnings to average shareholders' equity and daily average total assets and certain other ratios are presented below:
Year ended December 31, ---------------------------- 1990 1991 1992 -------- -------- -------- Percentage of net earnings to: Average total assets 0.46% 0.57% 0.90% Average shareholders' equity 6.92 8.62 12.73 Percentage of dividends declared per common share to earnings per common share 16.39 12.12 7.02 Percentage of average shareholders' equity to daily average total assets 6.64 6.64 7.06
48 VI. NONINTEREST INCOME AND EXPENSE AND INCOME TAXES Noninterest income in 1992 was $1,118,654, representing a 29.8% improvement over 1991. The consistent rise in noninterest income is due primarily to increases in service charge revenues and from improved volumes in the subsidiary bank's investment center. Service charge income increased from $448,156 in 1990 to $517,572 in 1991 and $630,855 in 1992 and resulted from volume and pricing increases. The reserve for loan losses is reviewed by management and the board of directors on a monthly basis and maintained at levels determined by analyzing the risk of losses in the loan portfolio. This risk is calculated by rating individual loans and applying quantitative and subjective considerations to arrive at an adequate level of reserves. As the quality of the loan portfolio improved, the provision dropped from $195,000 in 1990 to $120,000 in 1991. The provision rose to $205,000 in 1992 due to an increase in consumer loan losses. The reserve balance at year end 1992 totalling $598,734 represents 1.41% of net loans as compared to 1.40% in 1991 and 1.47% in 1990. Noninterest expenses totalled $3,053,852 in 1992 for a 5.5% increase over the $2,893,116 incurred in 1991. The increase reflects a $152,107 increase in salaries and a $50,413 increase in employee benefits. Employee benefits rose principally due to a $8,187 increase in matching of the 401(k) pension plan and a $25,000 contribution to the profit sharing plan. FDIC deposit insurance expense in 1992 amounted to $165,847 as compared to $135,700 in 1991 and $73,877 in 1990. These increases reflect the higher rates assessed by the FDIC. In 1991, a non-recurring expense of $50,000 was incurred from a settlement of a disputed claim by the Internal Revenue Service resulting from the failure by a bank customer to pay federal withholding taxes. A consulting firm, employed in 1990 to make recommendations regarding profit improvement opportunities, completed its work in 1992 resulting in a one-time expense of $69,975. There was a non-recurring gain of $67,500 in 1992 due to the resignation of a director and the corresponding cancellation of the director's deferred compensation plan. Concho has benefited from a tax loss carryforward in each of the years discussed. The benefits, which amounted to $108,477, $164,469, and $67,727 in 1990, 1991 and 1992, respectively, were fully exhausted in 1992. NONINTEREST INCOME AND NONINTEREST EXPENSE -- CONCHO
1990 1991 1992 ------ ------ ------ Noninterest income Service charges on deposit accounts. $ 448 $ 518 $ 631 Securities gains (losses)........... (48) (5) (85) Other............................... 316 349 573 ------ ------ ------ Total noninterest income.......... 716 862 1,119 ------ ------ ------ Noninterest expense Salaries and related costs.......... 1,195 1,198 1,401 Net occupancy....................... 282 303 318 Equipment expense................... 113 114 125 Professional services............... 110 249 218 Data processing..................... 105 115 118 Stationery and supplies............. 65 62 66 Business development................ 89 91 62 Foreclosed asset expense............ 170 249 181 Other expense....................... 480 512 565 ------ ------ ------ Total noninterest expense......... 2,609 2,893 3,054 ------ ------ ------ Net noninterest expense........... 1,893 2,031 1,935 Net noninterest expense as percent of average assets ................ 2.71% 2.69% 2.32%
49 VII. LIQUIDITY AND INTEREST RATE SENSITIVITY The cash flow requirements of Concho are satisfied through lease income and dividends from the bank subsidiary. The bank subsidiary maintains a high level of liquidity within its asset mix by continually monitoring maturing investment securities and loans. The bank also has a $1,000,000 unfunded line of credit for short term liquidity needs. Through active asset/liability management, interest rate risk is controlled to minimize the impact of fluctuating interest rates on earnings and the market values of assets. Although interest rates changed significantly from 1990 to the end of 1992, Concho's net interest margin remained very stable. This stability is attributable to successfully matching volumes of assets and liabilities in similar maturities. ASSET AND LIABILITY MATURITY REPRICING SCHEDULE
$(thousands) DECEMBER 31, 1992 ---------------------------------------------------------------------------------------------- RATE-SENSITIVE WITHIN ---------------------------------------------------------------------------------------------- FLOATING 1-30 31-60 61-90 91-180 181-365 1-5 OVER RATE DAYS DAYS DAYS DAYS DAYS YEARS 5 YEARS TOTAL --------- -------- -------- -------- -------- -------- ------- ------- ------ ASSETS Short-term investments. $ 2,550 $ $ $ $ $ $ $ $ 2,550 Investment securities.. 9,117 1,378 222 212 576 1,302 15,866 5,134 33,807 Loans: Commercial........... 14,210 2,632 1,127 1,451 2,871 2,679 6,542 31,512 R/E Construction..... 1,035 35 113 141 297 628 475 1,357 4,081 Consumer............. 4,102 145 127 125 367 671 914 1,151 7,602 ------- -------- ------- ------- -------- ------- -------- ------- ------- Total loans........ 19,347 2,812 1,367 1,717 3,535 3,978 7,931 2,508 43,195 ------- -------- ------- ------- -------- ------- -------- ------- ------- Total earning assets............ 31,014 4,190 1,589 1,929 4,111 5,280 23,797 7,642 79,552 Loan loss reserve.... (599) (599) Cash & due from banks 4,747 4,747 Other assets....... 5,164 5,164 ------- -------- ------- ------- -------- ------- ------- ------- ------- Total assets....... $35,761 $ 4,190 $ 1,589 $ 1,929 $ 4,111 $ 5,280 $23,797 $12,207 $88,864 ======= ======== ======= ======= ======== ======= ======= ======= ======= LIABILITIES & EQUITY Deposits: Demand deposits...... $13,002 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $13,002 NOW, Savings & MMDA.. 32,187 -- -- -- -- -- -- -- 32,187 CD's less-than $100,000............ -- 2,891 1,831 3,004 6,630 5,667 2,891 -- 22,914 CD's greater-than $100,000............ 101 2,445 1,632 1,732 3,750 2,232 1,100 -- 12,992 ------- -------- ------- ------- -------- ------- ------- ------- ------- Total deposits..... 45,290 5,336 3,463 4,736 10,380 7,899 3,991 -- 81,095 Other borrowings....... 85 -- -- -- -- -- 1,154 -- 1,239 Other liabilities...... -- -- -- -- -- -- -- 824 824 Equity................. -- -- -- -- -- -- -- 5,706 5,706 ------- --------- ------- ------- -------- ------- ------- ------- ------- Total liab. & equity............ $45,375 $ 5,336 $ 3,463 $ 4,736 $ 10,380 $ 7,899 $ 5,145 $ 6,530 $88,864 ======= ======== ======== ======= ======== ======= ======= ======= ======= Interest sensitivity gap. (9,614) $ (1,146) (1,874) $(2,807) $ (6,269) $(2,619) $18,652 $ 5,677 Cumulative gap........... (9,614) (10,760) (12,634) (15,441) (21,710) (24,329) (5,677) Cumulative gap to total assets.................. -10.82% -12.11% -14.22% -17.38% -24.43% -27.38% -6.39% ======== ========= ======== ======== ======== ======== ======== December 31, 1991: Cumulative gap........... (2,493) $(10,691) $(12,288) $(15,350) $(19,278) $(21,827) $(12,897) Cumulative gap to total assets.................. -3.09% -13.23% -15.21% -19.00% -23.86% -27.01% -15.96% ======== ========= ======== ======== ========= ======== ========
VIII. CAPITAL At year end 1992, total shareholders' equity was $5,706,199, an increase of $618,544 over December 31, 1991. Concho's risk based capital ratio has risen from 12.79% in 1990 to 14.30% at year end 1992. This ratio is well above the minimum 8.00% required by federal regulations. Book value of Concho's stock at year-end 1992 was $28.30 per share, or a 16.9% increase over 1991's $24.21 per share. Concho has declared an annual cash dividend of $.25 per share each of the past three years. 50 VIII. DISCUSSION OF NINE MONTHS ENDED SEPTEMBER 30, 1993 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1992 GENERAL Net interest income for the first nine months of 1993 was $2,720,676, which represents a 16.2% increase over the same period in 1992 due primarily to an improving net interest margin. Net earnings were reduced by $231,213 as a result of an accounting change conforming with the requirements of FAS No. 109. This one-time adjustment reduced net earnings to $375,026 for the nine months, down 35% from the $574,673 for the same period in 1992. Total assets were $89,110,076, up 5.5%, and total deposits showed a similar increase to $80,902,873. While total outstanding loans have declined less than one percent, investment securities have increased almost 9% to $34,795,540. Nonperforming assets have declined during 1993 by $367,351 to $1,129,954. Shareholders' equity has increased to $5,816,604, up 4.1% from 1992's $5,586,083. This increase in equity is after a purchase into treasury of 16,267 shares at a cost of $344,860. In November 1993, the purchase of these shares was rescinded, resulting in the shares being reissued and $344,860 being refunded to Concho. As adjusted to reflect such rescission, shareholders' equity at September 30, 1993 would have been $6,161,464. 51 AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (1) $(thousands)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------ 1992 1993 -------------------------- -------------------------- Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate ------- -------- ------- -------- ------- ------- ASSETS Short-term investments................ $ 2,717 $ 97 4.77% $ 2,838 $ 74 3.49% Investment securities: Taxable............................. 28,667 1,459 6.80 34,077 1,444 5.67 Tax exempt.......................... -- -- -- -- -- -- ------- ------ ------- ------ Total securities................... 28,667 1,459 6.80 34,077 1,444 5.67 Loans: (2) Commercial.......................... 27,856 2,027 9.73 31,149 2,052 8.81 R/E construction.................... 1,978 125 8.45 2,160 136 8.42 R/E mortgage........................ 4,868 307 8.4 3,871 266 9.19 Consumer............................ 7,016 499 9.51 6,624 508 10.25 ------- ------ ------- ------ Total loans........................ 41,718 2,958 9.48 43,804 2,962 9.04 ------- ------ ------- ------ Total earning assets............... 73,102 4,514 8.26 80,719 4,480 7.42 Other assets.......................... 9,164 8,497 ------- ------- Total assets....................... 82,266 89,216 ======= ======= LIABILITIES AND EQUITY Deposits: Noninterest-bearing deposits........ 8,932 12,636 Interest checking................... 23,412 593 3.39 25,521 506 2.65 Savings............................. 2,775 67 3.23 3,182 59 2.48 Money market accounts............... 3,850 108 3.75 5,293 115 2.90 Time deposits: CD's less-than $100,000............. 23,318 864 4.95 22,944 652 3.80 CD's greater-than $100,000:......... 12,634 450 4.76 11,652 339 3.89 ------- ------ ------- ------ Total deposits..................... 74,921 2,082 3.72 81,228 1,671 2.75 Other borrowings.................... 1,263 90 9.53 1,272 88 9.25 ------- ------ ------- ------ Total interest-bearing liabilities. 67,252 2,172 4.32 69,864 1,759 3.37 ------ ------ Other liabilities..................... 685 955 ------- ------ Total liabilities................... 76,869 83,455 Stockholders' equity.................. 5,397 5,761 ------- ------- Total liabilities and equity....... $82,266 $89,216 ======= ======= Net interest income................... 2,342 4.28 2,721 4.51 Provision for loan losses............. (67) -0.12 (105) -0.17 ------ ------ ------ ------ Net funds function.................... $2,275 4.16 $2,616 4.34 ====== ====== ====== ======
- ------------------- (1) Fully taxable equivalent basis (2) Nonaccrual loans are included in loan balances 52 RATE VOLUME ANALYSIS (1)(2)
$(thousands) CHANGE IN RATE VOLUME ----------------------------- INCOME/EXPENSE EFFECT EFFECT - -------------------------------------------------------------- Earning assets: Short-term investments........ (23) (26) $ 3 Investment securities: Taxable..................... (15) (244) 229 Tax exempt.................. -- ---- ------ ---- Total investments......... (15) (244) 229 Loans: Commercial.................. 25 (192) 217 R/E construction............ 11 (0) 11 R/E mortgage................ (41) 28 (69) Consumer.................... 9 39 (30) ---- ------ ---- Total loans............... 4 (137) 141 ---- ------ ---- Total interest income... (34) (457) 423 ---- ------ ---- Interest bearing liabilities: Interest checking............. (87) (129) 42 Savings....................... (8) (16) 8 Money market accounts......... 7 (24) 31 Time deposits CD's less-than $100,000..... (212) (201) (11) CD's greater-than $100,000:. (111) (82) (29) ---- ------ ---- Total deposits............ (411) (541) 130 Other borrowings.............. (2) (3) 1 ---- ------ ---- Total interest expense........ (413) (479) 66 ---- ------ ---- Net interest income........... $379 $22 $357 ==== ====== ====
- ------------------ (1) Fully taxable equivalent basis (2) The unallocated portion of the total change has been prorated into rate and volume components 53 Noninterest Income and Expense
$(thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30 CHANGE ------------------------- ----------------- 1992 1993 $ % ------ ------ ------- ------- Noninterest Income............. Service charges on deposits.. $ 425 $ 474 $ 49 11.53% Trust fees................... Securities gains (losses).... Other........................ 409 383 (26) -6.36 ------ ------ ---- ------- Total noninterest income... 834 857 23 2.76 ------ ------ ---- ------- Noninterest Expense Salaries and related costs... 1,061 1,155 94 8.86 Net occupancy................ 234 267 33 14.10 Equipment expense............ 182 176 (6) -3.30 Professional services........ 121 211 90 74.38 Data processing.............. 94 82 (12) -12.77 Stationery and supplies...... 52 76 24 46.15 Business development......... 48 59 11 22.92 Foreclosed asset expense..... 139 120 (19) -13.67 Other expense................ 379 373 (6) -1.58 ------ ------ ---- ------- Total noninterest expense.. 2,310 2,519 209 9.05 ------ ------ ---- ------- Net noninterest expense.. $1,476 $1,662 $186 12.60% ====== ====== ==== ======= Net noninterest expense as a percent of average assets .................. 1.78% 1.86% ====== ======
IX. SUMMARY OPERATING RESULTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 1993
For the Three Months For the Year Ended Ended December 31 December 31 -------------------- ------------------- 1992 1993 1992 1993 ------- ------- ------- ------- (Dollars in thousands, except per share data) Net Interest Income $ 625 $ 672 $ 2,874 $ 3,287 After Provision for Loan Losses Earnings before Income 140 152 939 1,106 Taxes Net Earnings before 174 157 748 763 Cumulative Adjustment due to Change in Accounting Principle Net Earnings After 174 157 748 532(1) Cumulative Adjustment due to Change in Accounting Principle Earnings per Share before $ 0.86 $ 0.78 $ 3.71 $ 3.78 Cumulative Adjustment Earnings per Share after $ 0.86 $ 0.78 $ 3.71 $ 2.64 Cumulative Adjustment
- ------------------ (1) Reflects cumulative effect of Concho's adoption of FAS 109 regarding the method of accounting for federal income taxes. The change resulted in a one time charge to income of $231,213 which was recorded during the third quarter of 1993. 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, Cobb & Hicks, P.C. EXPERTS The consolidated financial statements of First Financial as of December 31, 1992 and 1991 and for each of the years in the three-year period ended December 31, 1992, incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen & Co., independent public accountants, as indicated in their report dated January 13, 1993, with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Concho as of December 31, 1992 and 1991 and for each of the years in the three-year period ended December 31, 1992, included in this prospectus and elsewhere in the registration statement have been audited by Armstrong, Backus & Co., L.L.P., independent public accountants, as indicated in their report dated February 12, 1993, with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing. 54 INDEX TO CONCHO BANCSHARES, INC.'S FINANCIAL STATEMENTS
PAGE ---- CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1990, 1991 AND 1992 Report of Independent Public Accountants............................... F-1 Consolidated Balance Sheets as of December 31, 1991 and 1992........... F-2 Consolidated Statements of Income for three years ended December 31, 1990, 1991 and 1992................................................... F-4 Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1990, 1991 and 1992.................... F-6 Consolidated Statements of Cash Flows for the three years ended December 31, 1990, 1991 and 1992...................................... F-7 Notes to Consolidated Financial Statements............................. F-9 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992 AND SEPTEMBER 30, 1993 Compilation Report..................................................... F-25 Consolidated Balance Sheets as of September 30, 1992 and 1993.......... F-26 Consolidated Statements of Earnings for the nine months ended September 30, 1992 and 1993..................................... F-27 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 1992 and 1993......................... F-29 Consolidated Statements of Cash Flows for the nine months ended September 30, 1992 and 1993........................................... F-31 Notes to Consolidated Financial Statements............................. F-33
55 Board of Directors Concho Bancshares, Inc. INDEPENDENT AUDITOR'S REPORT ---------------------------- We have audited the accompanying consolidated balance sheets of Concho Bancshares, Inc. (a Texas corporation) and subsidiary as of December 31, 1992 and 1991 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1992. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Concho Bancshares, Inc. and subsidiary as of December 31, 1992 and 1991, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. Armstrong, Backus & Co., L.L.P. February 12, 1993 F-1 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS --------------------------- DECEMBER 31, 1992 AND 1991 ASSETS ------
1992 1991 ----------- ----------- Cash and due from banks (Note 1) $ 4,747,085 $ 4,957,032 Federal funds sold (Note 1) 2,550,000 2,900,000 Investment securities: (Notes 1 & 2) United States government 17,511,071 5,100,869 United States agencies 12,211,810 13,320,280 Collateralized mortgage obligations 2,938,724 8,249,479 Corporate bonds -0- 300,215 Stock in Federal Home Loan Bank 303,337 -0- Mutual funds (net of unrealized loss of $ 122,927 and $ 171,297) 841,916 1,725,972 Loans (net of unearned income of $ 373,174 and $ 383,588 and allowance for loan losses of $ 598,734 and $ 547,354) (Notes 1, 42,596,605 39,157,619 4 & 9) Land, building and equipment, net (Notes 1, 2,967,864 2,956,751 5 & 9) Other real estate 853,229 686,225 Accrued interest 844,681 766,894 Other assets (Note 8) 498,024 686,840 Other assets (Note 8) 498,024 686,840 ----------- ----------- TOTAL ASSETS $88,864,346 $80,808,176 =========== ===========
The accompanying notes are an integral part of this statement. F-2 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS --------------------------- DECEMBER 31, 1992 AND 1991 LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ LIABILITIES -----------
1992 1991 ----------- ----------- Deposits: (Note 1) Demand $13,002,139 $ 8,861,389 NOW 29,225,118 25,627,409 Savings 2,961,858 2,342,693 Time, $ 100,000 and over 12,992,397 13,775,576 Other time 22,913,661 23,057,662 Federal funds purchased (Note 1) 85,000 170,000 Accrued interest 210,548 305,496 Federal income tax payable 181,858 47,000 Mortgage payable (Note 10) 1,239,164 1,167,622 Other liabilities (Note 8) 325,782 345,700 Minority interests 20,622 19,974 ----------- ----------- TOTAL LIABILITIES $83,158,147 $75,720,521 ----------- -----------
Commitments and Contingencies (Notes 7 & 12) SHAREHOLDERS' EQUITY --------------------
Common stock, par value $ .50, 500,000 shares authorized, 210,270 shares issued, 201,653 and 210,168 shares outstanding, respectively $ 105,135 $ 105,135 Additional paid-in capital 4,660,218 4,660,218 Retained earnings (Note 11) 1,189,750 496,807 Treasury stock (126,356) (3,825) Unrealized loss on investment in mutual funds (Note 2) (122,548) (170,680) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY $ 5,706,199 $ 5,087,655 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $88,864,346 $80,808,176 =========== ===========
The accompanying notes are an integral part of this statement. F-3 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME --------------------------------- YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990 ----------- ----------- ----------- INTEREST INCOME (Notes 1, - --------------- 4 & 9) Interest and fees on loans $3,818,426 $3,921,071 $4,129,104 Interest on Federal funds 119,555 215,081 187,083 Interest on deposits with banks -0- 6,136 197,262 Interest on investment securities: United States government 618,308 264,546 212,494 United States agencies 928,353 1,092,400 978,479 Corporate bonds 23,556 46,935 121,670 Mutual funds 78,716 193,403 307,234 Collateralized mortgage obligations 280,111 566,257 303,858 ---------- ---------- ---------- $5,867,025 $6,305,829 $6,437,184 ---------- ---------- ---------- INTEREST EXPENSE - ---------------- Interest on deposits $2,665,097 $3,553,188 $3,868,666 Interest on Federal funds 2,933 5,081 10,417 Interest on mortgage payable (Note 10) 119,512 115,766 148,660 ---------- ---------- ---------- $2,787,542 $3,674,035 $4,027,743 ---------- ---------- ---------- Net interest income $3,079,483 $2,631,794 $2,409,441 Provision for loan losses (Notes 1 & 4) 205,000 120,000 195,000 ---------- ---------- ---------- Net Interest Income After Provision for Loan Losses $2,874,483 $2,511,794 $2,214,441 ---------- ---------- ---------- OTHER OPERATING INCOME - ---------------------- Pension administration fees $ 7,700 $ 20,000 $ 24,000 Gain (loss) on sale of assets (9,939) (57,072) 6,578 Securities gains (losses) (85,405) (4,495) (48,738) Service charges 630,855 517,572 448,156 Rents 88,717 96,162 61,956 FHLB dividends 3,587 -0- -0- Other 483,139 289,513 223,593 ---------- ---------- ---------- $1,118,654 $ 861,680 $ 715,545 ---------- ---------- ---------- Total Interest and Other Operating Income $3,993,137 $3,373,474 $2,929,986
The accompanying notes are an integral part of this statement. F-4 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME --------------------------------- YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 (Continued)
1992 1991 1990 ----------- ----------- ----------- OTHER OPERATING EXPENSES - ------------------------ Salaries $1,227,319 $1,075,212 $1,055,743 Employee benefits (Note 3) 173,193 122,780 139,511 Occupancy expense (Notes 1, 5 & 9) 318,013 303,254 281,834 Other expenses (Notes 1, 8 & 12) 1,490,746 1,526,134 1,271,694 Capitalized loan costs (Note 4) (155,419) (134,264) (139,891) $3,053,852 $2,893,116 $2,608,891 ---------- ---------- ---------- NET INCOME BEFORE INCOME TAXES $ 939,285 $ 480,358 $ 321,095 ---------- ---------- ---------- FEDERAL INCOME TAX (Note 6) - ------------------ Current $ 191,000 $ 47,000 $ -0- Deferred -0- -0- -0- ---------- ---------- ---------- Total Federal Income Tax $ 191,000 $ 47,000 $ -0- ---------- ---------- ---------- NET INCOME BEFORE MINORITY INTEREST $ 748,285 $ 433,358 $ 321,095 ---------- ---------- ---------- NET INCOME ATTRIBUTABLE TO MINORITY INTEREST $ 2,809 $ 2,100 $ 1,981 ---------- ---------- ---------- NET INCOME (LOSS) $ 745,476 $ 431,258 $ 319,114 ========== ========== ========== EARNINGS PER SHARE (Note 1) $ 3.68 $ 2.05 $ 1.52 ========== ========== ==========
The accompanying notes are an integral part of this statement. F-5 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ---------------------------------------------------------- YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
UNREALIZED LOSS ON RETAINED INVESTMENTS COMMON TREASURY EARNINGS IN MUTUAL STOCK SURPLUS STOCK (DEFICIT) FUNDS TOTAL ----------- ----------- ---------- ---------- ---------- ----- BALANCE, 12-31-89 $ 105,135 $4,660,218 $ (3,825) $(148,455) (288,005) $4,325,068 Dividends $ .25/share (52,568) (52,568) Unrealized appreciation on investment in mutual funds (Note 2) (55,453) (55,453) Loss realized on sale of mutual funds 46,639 46,639 Net income 319,114 319,114 ----------- ---------- ---------- ---------- --------- --------- BALANCE, 12-31-90 $ 105,135 $4,660,218 $(3,825) $ 118,091 $(296,819) $4,582,800 Dividends $ .25/share (52,542) (52,542) Unrealized appreciation on investment in mutual funds (Note 2) 4,297 4,297 Loss realized on sale of mutual funds 121,842 121,842 Net income 431,258 431,258 ----------- ---------- ---------- ---------- --------- --------- BALANCE, 12-31-91 $ 105,135 $4,660,218 $(3,825) $ 496,807 $(170,680) $5,087,655 Dividends $. 25/share (52,533) (52,533) Unrealized depreciation on investment in mutual funds (Note 2) (37,009) (37,009) Loss realized on sale of mutual funds 85,141 85,141 Purchase of 8,515 shares of stock for the treasury (122,531) (122,531) Net income 745,476 745,476 ----------- ---------- ---------- ---------- ---------- --------- BALANCE, 12-31-92 $ 105,135 $4,660,218 $ (126,356) $ 1,189,750 $ (122,548) $5,706,199 =========== ========== ========== =========== ========== ==========
The accompanying notes are an integral part of this statement. F-6 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Interest received from: Loans $ 3,972,863 $ 4,010,129 $ 4,270,969 Investment securities 2,041,812 2,255,816 2,133,031 Federal funds sold 119,555 215,081 187,083 Rental income 88,717 96,162 61,956 Service fees 630,855 552,500 475,356 Other income 434,798 266,693 213,876 Interest paid to depositors (2,783,267) (3,539,487) (3,895,189) Interest paid on Federal funds purchased (2,933) (5,081) (10,417) Interest paid on mortgage indebtedness (100,353) (117,970) (149,395) Cash paid to suppliers and employees (2,926,346) (2,662,218) (2,427,895) Recoveries of bad debts 27,336 9,968 96,676 Redemption of cash value of life insurance 238,274 -0- -0- Federal income tax paid (56,142) -0- -0- ----------- ----------- ----------- Net cash provided by operating activities $ 1,685,169 $ 1,081,593 $ 956,051 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of investment securities $1,060,075 $3,995,054 $ 402,072 Proceeds from maturities of investment securities 8,387,673 2,992,816 6,356,985 Purchase of investment securities (14,851,183) (12,975,169) (7,625,944) Federal funds sold, net 350,000 2,200,000 1,028,000 Federal funds purchased, net (85,000) 80,000 15,000 Net (increase) in loans made to customers (4,050,974) (4,936,416) (2,079,275) Purchase of fixed assets (157,242) (54,370) (10,925) Proceeds from sale of other assets and other real estate owned 252,828 394,749 282,672 Cost incurred on other real estate owned (128,205) -0- -0- ----------- ----------- ----------- Net cash used in investing activities $(9,222,028) $(8,303,336) $(1,631,415) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits, NOW accounts and savings accounts $ 8,357,623 $ 1,806,699 $ 601,980 Net increase (decrease) in time deposits (927,180) 6,322,734 (183,386) Payments on mortgage indebtedness (60,837) (132,001) (70,576) Dividends paid (52,542) (52,568) (52,568) Cash received on refinance of note payable 132,379 -0- -0- Cash paid for treasury stock (122,531) -0- -0- ----------- ----------- ----------- Net cash provided by financing activities $ 7,326,912 $ 7,944,864 $ 295,450 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents $ (209,947) $ 723,121 $ (379,914) Cash and cash equivalents, beginning of year 4,957,032 4,233,911 4,613,825 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 4,747,085 $ 4,957,032 $ 4,233,911 =========== =========== ===========
The accompanying notes are an integral part of this statement. F-7 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
1992 1991 1990 ----------- ----------- ---------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net income $ 745,476 $ 431,258 $319,114 ---------- ---------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization $ 135,910 $ 127,431 $149,069 Amortization of construction period interest 10,219 10,219 10,219 Amortization of intangibles 4,000 4,000 4,000 Provision for loan losses 205,000 120,000 195,000 Loss on sale of investment securities 85,405 4,495 48,738 Loss on sale of assets 9,939 57,072 (6,578) Amortization of loan premium -0- -0- 3,027 Amortization of capitalized loan fees 131,505 126,083 124,257 Accretion of bond discount (39,825) (26,409) (28,606) Amortization of bond premium 296,180 44,487 19,328 Recoveries on bad debts 27,336 9,968 96,676 Capitalized net loan costs (155,419) (134,263) (139,891) Charge-offs - other real estate owned and other assets 113,648 184,290 150,133 Net income attributable to minority interest 2,809 2,100 1,981 (Increase) decrease in interest receivable (77,787) 31,820 34,608 (Increase) decrease in other assets 170,773 (41,359) (60,725) Increase (decrease) in interest payable (99,012) 11,497 (27,258) Increase (decrease) in other liabilities (15,846) 118,904 62,959 Increase in federal income tax payable 134,858 -0- -0- ---------- ---------- -------- Total adjustments $ 939,693 $ 650,335 $636,937 ---------- ---------- -------- Net cash provided by operating activities $1,685,169 $1,081,593 $956,051 ========== ========== ========
The accompanying notes are an integral part of this statement. F-8 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies adopted by Concho Bancshares, Inc., the Company, are summarized below. Consolidation - The consolidated financial statements include Concho ------------- Bancshares, Inc. and its subsidiary, Southwest Bank of San Angelo, after elimination of significant intercompany accounts. A consolidated federal income tax return is filed with Concho Bancshares, Inc.'s subsidiary, Southwest Bank of San Angelo. Concho Bancshares, Inc. owns 99.69% of the outstanding common stock of Southwest Bank of San Angelo. Cash flows - For purposes of reporting cash flows, cash and cash equivalents ---------- include cash on hand and amounts due from banks. Cash flows from loans, demand deposits, NOW accounts, savings accounts, federal funds purchased and sold, and certificates of deposit, are reported net. Investment securities - Securities held for investment, other than mutual --------------------- funds, are stated at cost, adjusted for amortization of premiums and accretion of discounts computed on the straight-line method over the period from date of purchase to date of maturity. This method does not result in amounts that are materially different from that required by generally accepted accounting principles. The investment in mutual funds is stated at the lower of aggregate cost or market as of the balance sheet date. Interest income on loans - Interest on commercial, real estate and student ------------------------ loans is recognized as earned based upon the principal amounts outstanding. Interest on installment loans is recognized as earned based on the rule of seventy-eights method. Building and equipment - Building and equipment are stated at cost less ---------------------- accumulated depreciation computed by the straight-line and accelerated cost recovery system methods. Accumulated depreciation as of December 31, 1992 and 1991 is $ 2,075,690 and $ 1,930,523, respectively. Maintenance and repairs are charged to expense as incurred while improvements are capitalized and depreciated over the useful life of such improvements. Allowance for loan losses - The allowance for loan losses is available for ------------------------- losses incurred on loans and is increased by provisions charged to operating expenses and reduced by charge-offs, net of recoveries. The allowance is based on management's evaluation of the adequacy of the reserve. This evaluation encompasses consideration of past loss experience and other factors, including changes in the composition and volume of the portfolio, the relationship of the allowance to the portfolio, and current economic conditions. F-9 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Amortization - Certain costs associated with the Company's investment services ------------ have been capitalized and are being amortized by the straight-line method over a period of 60 months. Total amortization expense for 1992, 1991 and 1990 was $ 4,000 each year. Per Share Data - Earnings per share are based on the weighted average number of -------------- common shares outstanding in 1992, 1991 and 1990 of 202,387, 210,168 and 210,168, respectively. NOTE 2: INVESTMENT SECURITIES At December 31, 1992 and 1991 the subsidiary held mutual fund investments with a cost basis of $ 964,843 and $ 1,897,269, respectively. The portfolios of these mutual funds consisted of obligations of the United States government and agencies. As of December 31, 1992 and 1991, the aggregate cost of mutual fund investments exceeded their aggregate market value by $ 122,927 and $ 171,297 respectively. Investment securities shown in the balance sheet are reflected net of accumulated accretion and amortization. At December 31, 1992 and 1991, the amortized cost, estimated market values, and the gross unrealized gains and losses of investments in debt securities were as follows:
December 31, 1992 ------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ---------- ----------- ----------- United States government $17,511,071 $277,758 $(25,073) $17,763,756 United States agencies 12,211,810 352,867 (58,156) 12,506,521 Collateralized mortgage obligation 2,938,724 84,839 (91,733) 2,931,830 Corporate bonds and notes -0- -0- -0- -0- ----------- -------- ---------- ----------- Total debt securities $32,661,605 $715,464 $ (174,962) $33,202,107 =========== ======== ========== ===========
Continued F-10 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 2: INVESTMENT SECURITIES (CONTINUED) The carrying value and approximate market value of debt securities at December 31, 1992, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Carrying Approximate Value Market Value ----------- ------------ Due in one year or less $ 2,545,483 $ 2,575,470 Due after one year through five years 18,181,825 18,392,451 Due after five years through ten years -0- -0- Due after ten years 11,934,297 12,234,186 ----------- ----------- $32,661,605 $33,202,107 =========== ===========
December 31, 1991 ---------------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ------------ ----------- United States government $ 5,100,869 $ 151,602 $ -0- $ 5,252,471 United States agencies 13,320,280 540,340 (10,220) 13,850,400 Collateralized mortgage obligation 8,249,479 141,603 (62,403) 8,328,679 Corporate bonds and notes 300,215 8,035 -0- 308,250 ----------- ----------- ---------- ----------- Total debt securities $26,970,843 $ 841,580 $ (72,623) $27,739,800 =========== =========== ========== ===========
Continued F-11 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 2: INVESTMENT SECURITIES (CONTINUED) The carrying value and approximate market value of debt securities at December 31, 1991, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Carrying Approximate Value Market Value ----------- ------------ Due in one year or less $ 300,215 $ 308,250 Due after one year through five years 6,583,200 6,760,060 Due after five years through ten years 504,339 512,538 Due after ten years 19,583,089 20,158,952 ----------- ----------- $26,970,843 $27,739,800 =========== ===========
Obligations of the United States government with par values of $ 3,000,000, were pledged to secure various deposits as of December 31, 1992 and 1991. NOTE 3: PENSION AND PROFIT SHARING PLANS The subsidiary has a non-contributory profit-sharing plan available to all regular employees who have completed six months of service. Contributions to this plan are at the discretion of the subsidiary's board of directors. The subsidiary also sponsors a defined contribution plan, whereby it matches 100% of employee contributions up to 4% of their compensation and 50% of contributions on the next 2% of compensation. Total expense, relating to the defined contribution plan for the years ended December 31, 1992, 1991 and 1990 was $ 42,154, $ 33,967 and $ 34,824, respectively and are included in employee benefits in the consolidated statements of income. For the year ended December 31, 1992 the subsidiary's board of directors elected to contribute $ 25,000 to the profit sharing plan. Administrative fees of the plans are paid by the subsidiary. Employer contributions of both plans vest according to the following schedule:
LENGTH OF SERVICE VESTING ----------------- ------- 2 years 20% 3 years 30% 4 years 40% 5 years 60% 6 years 80% 7 years 100%
F-12 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows: December 31, December 31, 1992 1991 ------------ ------------ Commercial, financial and agricultural $32,561,474 $26,479,060 Real estate 4,162,896 5,659,592 Installment, net of unearned discount 3,821,648 4,825,862 Student loans 4,101,729 3,314,090 Overdrafts 28,742 26,198 Participations sold (1,481,150) (599,829) ----------- ----------- Total loans, net of unearned discount $43,195,339 $39,704,973 Less allowance for loan losses 598,734 547,354 ----------- ----------- NET LOANS $42,596,605 $39,157,619 =========== =========== Non-accrual loans are as follows: Principal balances of loans on non-accrual status $ 638,371 $ 864,346 =========== =========== Approximate interest foregone related to non-accrual loans $ 68,000 $ 66,000 =========== ===========
Changes in the allowance for loan losses were as follows:
December 31, December 31, December 31, 1992 1991 1990 ------------ ------------ ------------ BALANCE, BEGINNING OF YEAR $ 547,354 $ 510,017 $ 512,131 Provision charged to operations 205,000 120,000 195,000 Loans charged off (180,956) (92,631) (293,790) Recoveries 27,336 9,968 96,676 ------------ ------------ ------------ BALANCE, END OF YEAR $ 598,734 $ 547,354 $ 510,017 ============ ============ ============
F-13 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) During the year ended December 31, 1988, the subsidiary changed its method of accounting for nonrefundable fees and costs associated with lending activities to comply with the requirements of Statement of Financial Accounting Standards No. 91. Under the new accounting method, certain lending related costs are capitalized into the loan balance and amortized against interest income over the term of the loan. Total capitalized loan cost and related amortization are as follows:
Beginning of End of the Year the Year Unamortized Capitalized Unamortized Loan Costs Loan Costs Amortization Loan Costs ------------ ----------- ------------ ----------- 1992 $ 156,576 $155,419 $ 131,534 $ 180,461 ========= ======== ========= ========= 1991 $ 148,396 $134,263 $ 126,083 $ 156,576 ========= ======== ========= ========= 1990 $ 132,762 $139,891 $ 124,257 $ 148,396 ========= ======== ========= =========
Loans, net of participations sold, at variable and fixed interest rates as of December 31, 1992 are as follows:
Variable Fixed ----------- ----------- Commercial, including overdrafts $14,807,576 $16,383,126 =========== =========== Real estate $ 1,445,205 $ 2,636,055 =========== =========== Installment $ 428,414 $ 3,393,234 =========== =========== Student $ -0- $ 4,101,729 =========== ===========
Original maturities for each loan category as of December 31, 1992 are as follows: Commercial - less than 1 year to 30 years Real estate - 1 year to 30 years Installment - less than 1 year to 10 years Student - 1 to 2 years F-14 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) The subsidiary routinely sells its student loans to the Panhandle Plains Higher Education Agency prior to the loans reaching repayment stage. These loans are sold at face value. For 1992, 1991 and 1990, the subsidiary sold approximately $ 2,351,013, $ 2,619,000 and $ 2,038,000, respectively, of these loans under this program. NOTE 5: LAND, BUILDING AND EQUIPMENT Major classifications of these assets are as follows:
December 31, December 31, December 31, 1992 1991 1990 ------------ ------------ ------------ Land $ 327,000 $ 327,000 $ 327,000 Buildings 3,711,293 3,691,363 3,688,863 Leasehold improvements 145,077 145,077 141,877 Automobiles 58,528 31,895 14,316 Furniture and fixtures 743,263 691,939 675,163 Assets not in service 58,393 -0- -0- ---------- ---------- ---------- $5,043,554 $4,887,274 $4,847,219 Accumulated depreciation and amortization $2,075,690 $1,930,523 $1,804,829 ---------- ---------- ---------- Land, building and equipment, net $2,967,864 $2,956,751 $3,042,390 ========== ========== ========== Depreciation and amortization expense $ 146,129 $ 137,650 $ 159,288 ========== ========== ==========
NOTE 6: FEDERAL INCOME TAXES Deferred income taxes arise from timing differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. The principal sources of timing differences are different depreciation methods for tax and financial purposes, and differences in tax and financial accounting for deferred compensation arrangements, bad debt losses and bond discount accretion. No deferred federal income taxes have been recorded in these financial statements. F-15 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 6: FEDERAL INCOME TAXES (CONTINUED) The components of income tax expense are:
December 31, December 31, December 31, 1992 1991 1990 ------------ ------------ ------------ Current income taxes: Federal $ 251,629 $ 56,357 $ -0- Minimum tax credit (12,050) -0- -0- General business credit (48,579) (9,357) -0- ---------- --------- ------- Total current taxes $ 191,000 $ 47,000 $ -0- ---------- --------- ------- Deferred tax expense (benefit): $ -0- $ -0- $ -0- ---------- --------- ------- Total income tax expense $ 191,000 $ 47,000 $ -0- ========== ========= =======
A reconciliation of income tax expense at the statutory rate to income tax at the bank's effective rate is as follows:
December 31, December 31, December 31, 1992 1991 1990 ------------ ------------ ------------ Tax at statutory rate $ 319,356 $ 164,469 $ 108,477 Tax benefit from net operating loss carryforward (67,727) (164,469) (108,477) Minimum tax credit (12,050) -0- -0- Tax on limitation of use of net operating loss carryforward for alternative minimum tax purposes -0- 56,357 -0- General business credit (48,579) (9,357) -0- ---------- ---------- ---------- Income tax expense $ 191,000 $ 47,000 $ -0- ========== ========== ==========
F-16 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 6: FEDERAL INCOME TAXES (CONTINUED) A consolidated tax return is filed with the Company's subsidiary, Southwest Bank of San Angelo. The above tax computations are based on the incomes and tax attributes of the consolidated entity. The consolidated entity has available at December 31, 1992, 1991 and 1990, unused net operating loss carryforwards of $ -0-, $ 133,500 and $ 749,908, respectively, which may be applied against future taxable income. These net operating loss carryforwards will expire as follows:
Year of December 31, December 31, December 31, Expiration 1992 1991 1990 ---------- ------------ ------------ ------------ 1991 $ -0- $ -0- $ 96,107 1999 -0- -0- 55,649 2000 -0- -0- 181,303 2001 -0- -0- 142,707 2002 -0- -0- 25,175 2004 -0- 133,500 248,967
Investment tax credit resulting from the purchase of equipment is accounted for using the "flow-through" method, which recognizes the benefit in the period in which the assets which give rise to the credit are placed in service. At December 31, 1992, 1991 and 1990, unused investment tax credits totalling $ -0-, $ 26,032 and $ 37,009, respectively, were available for carryforward which expire as follows:
Year of Expiration 1992 1991 1990 ---------- ------------ ------------ ------------ 1991 $ -0- $ -0- $ 183 1992 -0- -0- 277 1993 -0- -0- 8,116 1994 -0- -0- 1,591 1995 -0- 2,853 3,663 1996 -0- 8,105 8,105 1997 -0- 8,000 8,000 1998 -0- 5,487 5,487 1999 -0- 745 745 2000 -0- 842 842
F-17 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 6: FEDERAL INCOME TAXES (CONTINUED) As of December 31, 1992 , 1991 and 1990, the Company has available for carryforward jobs tax credits of $ -0-, $ 20,927 and $ 20,927, respectively, which expire as follows:
Year of Expiration 1992 1991 1990 ---------- ------ --------- --------- 1992 $ -0- $ 13,474 $ 13,474 1993 -0- 7,453 7,453
NOTE 7: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The subsidiary 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. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the subsidiary has in particular classes of financial instruments. The subsidiary's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The subsidiary uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
Contract Amount ---------- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $4,740,485 Letters of Credit 726,980 ---------- $5,467,465 ==========
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 may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary evaluates each customer's creditworthiness on a case by case basis. The amount of collateral obtained if deemed necessary by the subsidiary upon extension of credit is based upon management's credit evaluation. F-18 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 7: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED) Letters of credit are 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. NOTE 8: DEFERRED COMPENSATION The subsidiary maintains a deferred compensation plan for its directors funded by the purchase of life insurance policies on each participant. Other pertinent financial information relating to the subsidiary's deferred compensation plans is as follows:
December 31, December 31, December 31, 1992 1991 1990 ------------ ------------ ------------ Life insurance premiums paid $ 5,600 $ 4,400 $ 4,800 ============ ============ ============ Cash surrender value of life insurance policies $ 244,957 $ 407,863 $ 369,599 ============ ============ ============ Accrued deferred compensation liability $ 100,548 $ 107,235 $ 78,383 ============ ============ ============ Current year deferred compensation expense $ 22,744 $ 28,852 $ 25,559 ============ ============ ============
The deferred compensation plan of a former director was discontinued during 1992. The subsidiary recognized a gain of $ 67,514 from the discontinuance of this director's plan. NOTE 9: RELATED PARTY TRANSACTIONS As of December 31, 1992 and 1991, certain officers and directors and companies in which they have a beneficial ownership were indebted to the subsidiary in the aggregate amount of $ 789,332 and $ 1,191,456, respectively. On January 21, 1992, the company issued notes to certain customers and directors that are more fully described in Note 10. F-19 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 10: NOTES PAYABLE Notes payable at December 31, 1992 represents 13 individual promissory notes issued to certain of the company's customers and directors. Each note was issued for $ 100,000 and all notes bear the same terms, maturity date and collateral. The collateral for these notes is held at Bank of the West, San Angelo, Texas. The terms of these notes are as follows: Date of notes January 21, 1992 Maturity date January 21, 1997 Collateral Real Estate and 119,504 shares of Southwest Bank common stock Interest rate 9.50% Payments 19 quarterly payments of $ 50,702.86, including interest beginning April 21, 1992; balance due at maturity.
Following are the maturities of this note over the next five years: 1993 $ 88,178 1994 96,857 1995 106,392 1996 116,865 1997 830,872 ---------- Total $1,239,164 ==========
The mortgage payable at December 31, 1991 represents a note payable to a local financial institution. The terms of this note are as follows: Date of note June 1, 1989 Maturity date May 1, 1992 Collateral Real Estate Interest rate CNB prime, not to exceed 12% Monthly payment $ 15,414 (principal and interest)
Following are the maturities of this note over the next five years: 1992 $1,167,622 ========== Total $1,167,622 ==========
F-20 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 11: RETAINED EARNINGS Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agency. NOTE 12: LEASES The subsidiary leases computer equipment and an automobile under four agreements determined to be operating leases. The provisions of these lease agreements are described as follows:
Computer Computer Computer Equipment Equipment Equipment --------- #1 #2 Automobile #3 --------- --------- ---------- --------- Primary lease term 36 mos 36 mos 30 mos 36 mos Date of lease 12-27-89 08-23-89 10-04-89 01-29-90 Lease renewal option at expiration of primary term 24 mos 24 mos 18 mos 24 mos Primary term: Year one $ 5,664 $ 1,950 $ 531 $ 345 Year two 6,231 2,145 531 380 Year three 6,854 2,359 531 418 Option period: Year one 7,539 2,595 531 459 Year two 8,141 2,846 531 467 Penalty for non-renewal 18,626 6,430 -0- 1,136
Minimum future rental payments under the primary and optional terms of these lease agreements as of December 31, 1992, 1991 and 1990 for each of the next five years and in the aggregate are as follows: F-21 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 12: LEASES (CONTINUED)
1992 1991 1990 -------- -------- -------- 1991 $ -0- $ -0- $ 113,101 1992 -0- 98,478 98,478 1993 122,596 418 418 1994 117,012 -0- -0- 1995 8,141 -0- -0- --------- --------- --------- Total $ 247,749 $ 98,896 $ 211,997 ========= ========= =========
Lease expense under all operating leases is as follows:
1992 1991 1990 -------- -------- -------- Non-cancelable operating leases $ 98,478 $ 113,101 $ 110,843 Other leases 41,008 24,027 16,667 --------- --------- --------- Total $ 139,486 $ 137,128 $ 127,510 ========= ========= =========
The primary terms of the automobile lease expired during 1992. The Subsidiary did not elect to extend the term of the automobile lease. Computer equipment leases #1 and #2 were extended to the optional periods during 1992. Other leases are agreements under which the subsidiary leases certain equipment. The terms of these agreements do not extend for more than one year from the balance sheet date or they are cancelable at the option of the lessee. NOTE 13: CHANGE OF ACCOUNTING PRINCIPLE In February 1992, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards No. 109, Accounting for Income --------------------- Taxes, which supersedes substantially all existing authoritative literature ----- for accounting for income taxes and requires deferred tax balances to be adjusted to reflect the tax rates in effect when those amounts are expected to become payable or refundable. The Statement is required to be applied in the Company's 1993 financial statements (earlier application is permitted), either by restating prior-period financial statements or by recognizing the cumulative effect of the change in the year of adoption. The Company plans to recognize the cumulative effect of the change in 1993 when it adopts the Statement. The Company would have a deferred income tax liability of $ 189,417 under the measurement principles of SFAS No. 109. F-22 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires all entities to disclose the estimated fair value of its financial instrument assets and liabilities. For the Company, as for most financial institutions, approximately 95% of its assets and 99% of its 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. It is also the Company's general practice and intent to hold its financial instruments to maturity and to not engage in trading or sales activities. Therefore, significant estimations and present value calculations were used by the Company for the purpose of this disclosure. 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 December 31, 1992, were as follows: *Financial instruments actively traded in a secondary market have been valued using quoted available market prices.
ESTIMATED RECORDED FAIR BOOK VALUE BALANCE ----------- ---------- Cash and due from banks $ 4,747,085 $ 4,747,085 Federal funds sold 2,550,000 2,550,000 Investment securities (Note 2) 34,347,360 33,806,858
*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 RECORDED FAIR BOOK VALUE BALANCE ----------- ---------- Deposits with stated maturities $ 36,061,445 $ 35,906,058 Deposits with no stated maturities 45,189,115 45,189,115 Mortgage payable 1,334,415 1,239,164
F-23 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990 NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ESTIMATED RECORDED FAIR BOOK VALUE BALANCE ----------- ----------- Net loans $ 43,125,697 $ 42,596,605
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 $ 4,740,485 and are generally priced at market at the time of funding. Letters of credit discussed in Note 7 have an estimated fair value based on fees currently charged for similar agreements. At December 31, 1992, 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 made 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. F-24 Concho Bancshares, Inc. San Angelo, Texas COMPILATION REPORT ------------------ We have compiled the accompanying consolidated balance sheets of Concho Bancshares, Inc. and Subsidiary, as of September 30, 1993 and 1992, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the nine months then ended and the consolidated statements of earnings for the three months ended September 30, 1993 and 1992, in accordance with the standards established 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 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. Statements of cash flows for the three month periods ended September 30, 1993 and 1992 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. The balance sheet as of December 31, 1992 was audited by us as part of an audit of Concho Bancshares, Inc's financial statements, and we expressed an unqualified opinion on those financial statements in our report dated February 12, 1993, but we have not performed any auditing procedures since that date. Armstrong, Backus & Co., L.L.P. December 6, 1993 F-25 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS ---------------------------
UNAUDITED AUDITED ----------------------------- ------------- SEPTEMBER 30, DECEMBER 31, ----------------------------- ------------ 1993 1992 1992 -------------- ------------- ------------- ASSETS: Cash and due from banks (Note 1) $ 3,519,769 $ 3,593,736 $ 4,747,085 Federal funds sold (Note 1) 2,500,000 -0- 2,550,000 Investment securities: (Notes 1 & 2) U. S. Treasury and government agencies 28,563,616 26,619,044 29,722,881 Other 6,231,924 5,399,085 4,083,977 ------------ ------------ ------------ Total investment securities $ 34,795,540 $ 32,018,129 $ 33,806,858 Loans (Notes 1, 4, 7 & 9) 44,219,942 44,399,838 43,568,513 Less: Allowance for loan losses 596,602 559,411 598,734 Unearned discount 259,357 382,651 373,174 ------------ ------------ ------------ Net loans $ 43,363,983 $ 43,457,776 $ 42,596,605 Bank premises and equipment, net (Notes 1, 5 & 9) 2,837,744 2,921,942 2,967,864 Other assets (Note 8) 2,093,104 2,455,566 2,195,934 ------------ ------------ ------------ TOTAL ASSETS $ 89,110,140 $ 84,447,149 $ 88,864,346 ============ ============ ============ LIABILITIES: Non-interest bearing deposits (Note 1) $ 12,701,741 $ 11,391,192 $ 13,002,139 Interest bearing deposits - demand (Note 1) 33,933,148 29,808,496 32,186,976 Interest bearing deposits - time (Note 1 & 2) 34,267,984 35,667,049 35,906,058 ------------ ------------ ------------ Total deposits $ 80,902,873 $ 76,866,737 $ 81,095,173 Short-term borrowings (Note 10) 130,000 -0- -0- Mortgage payable (Note 10) 1,173,589 1,259,703 1,239,164 Other liabilities (Note 8) 1,087,074 734,626 823,810 ------------ ------------ ------------ TOTAL LIABILITIES $ 83,293,536 $ 78,861,066 $ 83,158,147 ------------ ------------ ------------ SHAREHOLDERS' EQUITY: Common stock, $ .50 par value; 500,000 shares authorized, 210,270 shares issued, 185,386, 201,690 and 201,653 shares outstanding, respectively $ 105,135 $ 105,135 $ 105,135 Capital surplus 4,660,218 4,660,218 4,660,218 Retained earnings (Note 11) 1,564,776 1,071,480 1,189,750 Treasury stock, cost (471,216) (125,968) (126,356) Unrealized loss on securities, net (Note 2) (42,309) (124,782) (122,548) ------------ ------------ ------------ TOTAL SHAREHOLDERS' EQUITY $ 5,816,604 $ 5,586,083 $ 5,706,199 ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 89,110,140 $ 84,447,149 $ 88,864,346 ============ ============ ============
See accountants' compilation report. The accompanying notes are an integral part of this statement. F-26 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF EARNINGS -----------------------------------
UNAUDITED ------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------ 1993 1992 1993 1992 ----------- ----------- ----------- ---------- INTEREST INCOME: (Notes 1, 2, 4 & 9) Loans, including fees $ 992,324 $ 993,549 $2,961,602 $2,958,264 Investment income - taxable 464,625 477,927 1,443,962 1,458,478 Interest on federal funds sold and other 36,392 31,183 73,847 97,100 ---------- ---------- ---------- ------------- Total interest income $1,493,341 $1,502,659 $4,479,411 $4,513,842 ---------- ---------- ---------- ------------- INTEREST EXPENSE: Interest bearing deposits $ 548,974 $ 644,014 $1,670,440 $2,082,399 Term and other indebtedness (Note 10) 30,512 30,269 88,295 89,733 ---------- ---------- ---------- ------------- Total interest expense $ 579,486 $ 674,283 $1,758,735 $2,172,132 ---------- ---------- ---------- ------------- NET INTEREST INCOME $ 913,855 $ 828,376 $2,720,676 $2,341,710 Provision for loan losses (Notes 1 & 4) 59,000 37,000 105,000 67,000 ---------- ---------- ---------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 854,855 $ 791,376 $2,615,676 $2,274,710 ---------- ---------- ---------- ------------- OTHER INCOME: Service fees on deposit accounts $ 163,378 $ 144,065 $ 474,432 $ 425,457 Other 135,365 194,442 382,648 409,340 ---------- ---------- ---------- ------------- Total other income $ 298,743 $ 338,507 $ 857,080 $ 834,797 ---------- ---------- ---------- ------------- OTHER EXPENSE: Salaries and employee benefits (Note 3) $ 391,792 $ 370,150 $1,155,421 $1,060,860 Net occupancy and equipment expenses (Notes 5 & 12) 91,220 79,998 267,186 233,579 Equipment rentals, depreciation and maintenance (Notes 5 & 12) 55,781 64,317 176,369 182,450 FDIC assessments 45,954 41,869 134,342 123,978 Correspondent bank service charges 16,034 14,720 44,970 42,130 Other (Notes 1, 4 & 8) 230,232 222,522 740,229 666,837 ---------- ---------- ---------- ------------- Total other expense $ 831,013 $ 793,576 $2,518,517 $2,309,834 ---------- ---------- ---------- ------------- EARNINGS BEFORE INCOME TAXES $ 322,585 $ 336,307 $ 954,239 $ 799,673 Provision for income tax (Note 6) 119,000 110,000 348,000 225,000 ---------- ---------- ---------- -------------
See accountants' compilation report. The accompanying notes are an integral part of this statement. F-27 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF EARNINGS ----------------------------------- (CONTINUED)
UNAUDITED ---------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, --------------------- ----------------------- 1993 1992 1993 1992 ---------- ---------- ---------- ------------ EARNINGS BEFORE CUMULATIVE ADJUSTMENT (Note 13) $ 203,585 $ 226,307 $ 606,239 $ 574,673 Cumulative adjustment - change in accounting principle ( -0-) -0- ( 231,213) -0- ---------- ---------- ---------- ---------- NET EARNINGS AFTER CUMULATIVE ADJUSTMENT DUE TO CHANGE IN ACCOUNTING PRINCIPLE $ 203,585 $ 226,307 $ 375,026 $ 574,673 ========== ========== ========== ========== EARNINGS PER SHARE BEFORE CUMULATIVE ADJUSTMENT* $ 1.10 $ 1.12 $ 3.12 $ 2.84 ========== ========== ========== ========== NET EARNINGS PER SHARE AFTER CUMULATIVE ADJUSTMENT* $ 1.10 $ 1.12 $ 1.93 $ 2.84 ========== ========== ========== ========== DIVIDENDS PER SHARE** $ 0.00 $ 0.00 $ 0.00 $ 0.00 ========== ========== ========== ==========
*Earnings per share are calculated using weighted average shares outstanding for each period presented. **Dividends per share are calculated using actual number of shares outstanding at the end of each period presented. See accountants' compilation report. The accompanying notes are an integral part of this statement. F-28 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY ---------------------------------------------------------
UNAUDITED ---------------------------------------------- CAPITAL STOCK -------------- CAPITAL RETAINED SHARES AMOUNT SURPLUS EARNINGS -------- ---------- ---------- ----------- BALANCES AT JANUARY 1, 1992 210,270 $ 105,135 $4,660,218 $ 496,807 Net earnings - year to date 574,673 Purchase treasury stock Decrease in unrealized loss (Note 2) -------- ---------- ---------- ----------- BALANCES AT SEPTEMBER 30, 1992 210,270 $ 105,135 $4,660,218 $ 1,071,480 ======== ========== ========== =========== BALANCES AT JANUARY 1, 1993 210,270 $ 105,135 $4,660,218 $ 1,189,750 Net earnings - year to date 375,026 Purchase treasury stock Deferred FIT benefit on unrealized loss (Note 13) Decrease in unrealized loss (Note 2) -------- ---------- ---------- ----------- BALANCES AT SEPTEMBER 30, 1993 210,270 $ 105,135 $4,660,218 $ 1,564,776 ======== ========== ========== ===========
See accountants' compilation report. The accompanying notes are an integral part of this statement. F-29
UNAUDITED - ----------------------------------------------------------- TREASURY STOCK UNREALIZED TOTAL - -------------------------- LOSS ON STOCKHOLDERS' SHARES AMOUNT SECURITIES EQUITY - ---------- --------- ------------ ------------- 102 ($ 3,825) ($ 170,680) $ 5,087,655 574,673 8,478 ( 122,143) (122,143) 45,898 45,898 ------ ---------- ------------ ------------- 8,580 ($ 125,968) ($ 124,782) $ 5,586,083 ====== ========== ============ ============= 8,617 ($ 126,356) ($ 122,548) $ 5,706,199 375,026 16,267 ( 344,860) (344,860) 41,688 41,688 38,551 38,551 ------ ---------- ------------ ------------- 24,884 ($ 471,216) ($ 42,309) $ 5,816,604 ====== ========== ============ =============
F-30 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
UNAUDITED ---------------------------------- NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 1993 1992 ---------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 375,026 $ 574,673 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 125,401 105,597 Provision for loan losses 105,000 67,000 Loss on sale/write down of assets 99,363 164,364 Premium amortization, net of discount accretion 253,177 170,342 Changes in other assets and liabilities: Increase (decrease) in other liabilities 367,322 (1,233) (Increase) decrease in other assets ( 327,318) ( 243,695) ------------- -------------- Net cash provided by operating activities $ 997,971 $ 837,048 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investment securities $ 656,621 $ 754,176 Proceeds from maturity of investment securities 4,287,501 6,379,250 Purchase of investment securities (6,182,353) (10,651,159) Net (increase) in loans (494,288) (4,653,370) Purchase of property, plant and equipment (53,619) (70,788) Proceeds from sale of fixed and other assets 46,120 -0- Net (increase) decrease in Fed Funds sold 50,000 2,900,000 ------------- -------------- Net cash (used) by investing activities ($ 1,690,018) ($ 5,341,891) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits $ 1,432,955 $ 3,843,667 Net increase in savings deposits 232,390 524,530 Net (decrease) in time deposits (1,857,645) (1,166,190) Cash received on short-term borrowings 130,000 -0- Net (decrease) in Fed Funds purchased (10,000) (100,000) Principal paid on long-term debt (65,576) (40,297) Cash received on refinance of long-term debt -0- 132,379 Dividends paid (52,533) (52,542) Purchase of treasury stock ( 344,860) -0- ------------- -------------- Net cash provided (used) by financing activities ($ 535,269) $ 3,141,547 ------------- -------------- Net (decrease) in cash and cash equivalents ($ 1,227,316) ($ 1,363,296) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,747,085 4,957,032 ------------- -------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,519,769 $ 3,593,736 ============= ==============
See accountants' compilation report. The accompanying notes are an integral part of this statement. F-31 CONCHO BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
UNAUDITED ------------------------- NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 1993 1992 ----------- ----------- SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Assets acquired through foreclosure $ 75,319 $ 446,561 Parent purchased 8,478 shares of its stock from subsidiary $ -0- $ 122,143 OTHER DISCLOSURES: Interest paid $ 1,772,413 $ 2,268,340 Federal income tax paid $ 298,257 $ 42,106
See accountants' compilation report. The accompanying notes are an integral part of this statement. F-32 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies adopted by Concho Bancshares, Inc., the Company, are summarized below. Consolidation - The consolidated financial statements include Concho ------------- Bancshares, Inc. and its subsidiary, Southwest Bank of San Angelo, after elimination of significant intercompany accounts. A consolidated federal income tax return is filed with Concho Bancshares, Inc.'s subsidiary, Southwest Bank of San Angelo. Concho Bancshares, Inc. owns 99.69% of the outstanding common stock of Southwest Bank of San Angelo. Cash flows - For purposes of reporting cash flows, cash and cash ---------- equivalents include cash on hand and amounts due from banks. Cash flows from loans, demand deposits, NOW accounts, savings accounts, federal funds purchased and sold, and certificates of deposit, are reported net. Investment securities - Securities held for investment, other than mutual --------------------- funds, are stated at cost, adjusted for amortization of premiums and accretion of discounts computed on the straight-line method over the period from date of purchase to date of maturity. The investment in mutual funds is stated at the lower of aggregate cost or market as of the balance sheet date. Interest income on loans - Interest on commercial, real estate and student ------------------------ loans is recognized as earned based upon the principal amounts outstanding. Interest on installment loans is recognized as earned based on the rule of seventy-eights method. Building and equipment - Building and equipment are stated at cost less ---------------------- accumulated depreciation computed by the straight-line and accelerated cost recovery system methods. Accumulated depreciation as of September 30, 1993 and 1992 is $ 2,117,360 and $ 1,949,468, respectively. Maintenance and repairs are charged to expense as incurred while improvements are capitalized and depreciated over the useful life of such improvements. Allowance for loan losses - The allowance for loan losses is available for ------------------------- losses incurred on loans and is increased by provisions charged to operating expenses and reduced by charge-offs, net of recoveries. The allowance is based on management's evaluation of the adequacy of the reserve. This evaluation encompasses consideration of past loss experience and other factors, including changes in the composition and volume of the portfolio, the relationship of the allowance to the portfolio, and current economic conditions. See accountants' compilation report. F-33 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Amortization - Certain costs associated with the Company's investment ------------ services have been capitalized and are being amortized by the straight-line method over a period of 60 months. Total amortization expense for the nine months ended September 30, 1993 and 1992 was $ 3,000 each period. NOTE 2: INVESTMENT SECURITIES At December 31, 1992 and September 30, 1993 and 1992 the subsidiary held mutual fund investments with a cost basis of $ 964,843, $ 715,122 and $ 1,070,889, respectively. The portfolios of these mutual funds consisted of obligations of the United States government and agencies. As of December 31, 1992 and September 30, 1993 and 1992, the aggregate cost of mutual fund investments exceeded their aggregate market value by $ 122,927, $ 84,213 and $ 125,168 respectively. Investment securities shown in the balance sheet are reflected net of accumulated accretion and amortization. At December 31, 1992 and September 30, 1993 and 1992, the amortized cost, estimated market values, and the gross unrealized gains and losses of investments in debt securities were as follows:
DECEMBER 31, 1992 -------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------ ---------- ---------- ----------- United States government $ 17,511,071 $ 277,758 ($ 25,073) $ 17,763,756 United States agencies 12,211,810 352,867 (58,156) 12,506,521 Collateralized mortgage obligation 2,938,724 84,839 (91,733) 2,931,830 Corporate bonds and notes -0- -0- -0- -0- ------------ --------- ---------- ------------ Subtotal $ 32,661,605 $ 715,464 ($ 174,962) $ 33,202,107 FHLB stock 303,337 -0- -0- 303,337 ------------ --------- ---------- ------------ Total $ 32,964,942 $ 715,464 ($ 174,962) $ 33,505,444 ============ ========= ========== ============
Continued See accountants' compilation report. F-34 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 1992 (Audited) Nine Months Ended September 30, 1993 and 1992 (Unaudited) NOTE 2: INVESTMENT SECURITIES (Continued) The carrying value and approximate market value of debt securities at December 31, 1992, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
CARRYING APPROXIMATE VALUE MARKET VALUE ------------ ------------- Due in one year or less $ 2,545,483 $ 2,575,470 Due after one year through five years 18,181,825 18,392,451 Due after five years through ten years -0- -0- Due after ten years 11,934,297 12,234,186 ----------- ----------- $32,661,605 $33,202,107 =========== ===========
SEPTEMBER 30, 1993 ------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ------------- -------------- -------------- ------------- United States government $ 18,939,208 $ 473,763 $ -0- $ 19,412,971 United States agencies 9,624,408 277,011 ( 31,188) 9,870,231 Collateralized mortgage obligation 5,290,015 50,631 ( 36,385) 5,304,261 Corporate bonds and notes -0- -0- -0- -0- ------------- -------------- -------------- ------------- Subtotal $ 33,853,631 $ 801,405 ($ 67,573) $ 34,587,463 FHLB stock 311,000 -0- -0- 311,000 ------------- -------------- -------------- ------------- Total $ 34,164,631 $ 801,405 ($ 67,573) $ 34,898,463 ============= ============== ============== =============
Continued See accountants' compilation report. F-35 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 1992 (Audited) Nine Months Ended September 30, 1993 And 1992 (Unaudited) NOTE 2: INVESTMENT SECURITIES (Continued) The carrying value and approximate market value of debt securities at September 30, 1993, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Carrying Approximate Value Market Value ------------- ------------- Due in one year or less $ 8,093,560 $ 8,195,341 Due after one year through five years 13,442,299 13,795,043 Due after five years through ten years 969,024 969,158 Due after ten years 11,348,748 11,627,923 ----------- ----------- $33,853,631 $34,587,465 =========== ===========
September 30, 1993 ------------------------------------------------------------ Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ------------ ----------- United States government $14,369,400 $ 473,412 $ -0- $14,842,812 United States agencies 12,249,644 467,437 ( 24,725) 12,692,356 Collateralized mortgage obligation 3,852,632 72,615 ( 36,730) 3,888,517 Corporate bonds and notes 300,032 718 -0- 300,750 ----------- ----------- ------------ ----------- Subtotal $30,771,708 $ 1,014,182 ($61,455) $31,724,435 FHLB stock $ 300,700 -0- -0- 300,700 ----------- ----------- ------------ ----------- Total $31,072,408 $ 1,014,182 ($61,455) $32,025,135 =========== =========== ========= ===========
Continued See accountants' compilation report. F-36 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 2: INVESTMENT SECURITIES (CONTINUED) The carrying value and approximate market value of debt securities at September 30, 1992, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
CARRYING APPROXIMATE VALUE MARKET VALUE ----------- ------------ Due in one year or less $ 808,448 $ 825,594 Due after one year through five years 15,989,021 16,461,594 Due after five years through ten years 423,558 430,376 Due after ten years 13,550,681 14,006,871 ----------- ----------- $30,771,708 $31,724,435 =========== ===========
Obligations of the United States government with par values of $ 3,000,000, $ 2,500,000 and $ 4,025,728, were pledged to secure various deposits as of December 31, 1992 and September 30, 1993 and 1992, respectively. NOTE 3: PENSION AND PROFIT SHARING PLANS The subsidiary has a non-contributory profit-sharing plan available to all regular employees who have completed six months of service. Contributions to this plan are at the discretion of the subsidiary's board of directors. The subsidiary also sponsors a defined contribution plan, whereby it matches 100% of employee contributions up to 4% of their compensation and 50% of contributions on the next 2% of compensation. Total expense, relating to the defined contribution plan for the nine months ended September 30, 1993 and 1992 was $ 33,693, and $ 37,603, respectively and are included in employee benefits in the consolidated statements of income. Administrative fees of the plans are paid by the subsidiary. Employer contributions of both plans vest according to the following schedule:
LENGTH OF SERVICE VESTING ----------------- ------- 2 years 20% 3 years 30% 4 years 40% 5 years 60% 6 years 80% 7 years 100%
See accountants' compilation reports. F-37 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ December 31, 1992 (Audited) Nine Months Ended September 30, 1993 and 1992 (Unaudited) NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES Major classifications of loans are as follows:
SEPTEMBER 30, SEPTEMBER 31, 1993 1992 1992 ----------- ----------- ------------- Commercial $33,191,260 $32,075,609 $32,561,474 Real estate 4,063,054 4,459,462 4,162,896 Installment, net of unearned discount 2,828,785 3,934,979 3,821,648 Student loans 4,791,072 4,304,375 4,101,729 Overdrafts 33,714 22,093 28,742 Participations sold ( 947,300) ( 779,331) ( 1,481,150) ----------- ----------- ----------- Total loans, net of unearned discount $43,960,585 $44,017,187 $43,195,339 Less allowance for loan losses 596,602 559,411 598,734 ----------- ----------- ----------- NET LOANS $43,363,983 $43,457,776 $42,596,605 =========== =========== =========== Non-accrual loans are as follows: Principal balances of loans on non-accrual status $ 701,469 $ 795,417 $ 638,371 =========== =========== =========== Approximate interest foregone related to non-accrual loans $ 42,000 $ 53,000 $ 68,000 =========== =========== =========== Changes in the allowance for loan losses were as follows: BALANCE, BEGINNING OF PERIOD $ 598,734 $ 547,354 $ 547,354 Provision charged to operations 105,000 67,000 205,000 Loans charged off ( 156,246) ( 80,889) ( 180,956) Recoveries 49,114 25,946 27,336 ----------- ----------- ----------- BALANCE, END OF PERIOD $ 596,602 $ 559,411 $ 598,734 =========== =========== ===========
See accountants' compilation reports. F-38 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (Audited) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (Unaudited) NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) During the year ended December 31, 1988, the subsidiary changed its method of accounting for nonrefundable fees and costs associated with lending activities to comply with the requirements of Statement of Financial Accounting Standards No. 91. Under the new accounting method, certain lending related costs are capitalized into the loan balance and amortized against interest income over the term of the loan. Total capitalized loan cost and related amortization are as follows:
BEGINNING OF END OF THE PERIOD THE PERIOD UNAMORTIZED CAPITALIZED UNAMORTIZED LOAN COSTS LOAN COSTS AMORTIZATION LOAN COSTS ------------ ---------- ------------ ----------- December 31, 1992 $156,576 $155,419 $131,534 $180,461 ======== ======== ======== ======== September 30, 1993 $180,461 $115,569 $115,635 $180,395 ======== ======== ======== ======== September 30, 1992 $156,576 $119,000 $ 95,115 $180,461 ======== ======== ======== ========
Loans at variable and fixed interest rates as of September 30, 1993 and 1992 are as follows:
December 31, 1992 September 30, 1993 September 30, 1992 ------------------------ ------------------------ ------------------------ Variable Fixed Variable Fixed Variable Fixed ----------- ----------- ----------- ----------- ----------- ----------- Commercial, including overdrafts $14,807,576 $16,383,126 $12,604,611 $19,748,620 $16,317,339 $15,084,251 =========== =========== =========== =========== =========== =========== Real estate $ 1,445,205 $ 2,636,055 $ 837,375 $ 3,150,122 $ 1,006,537 $ 3,369,706 =========== =========== =========== =========== =========== =========== Installment $ 428,414 $ 3,393,234 $ 113,325 $ 2,715,460 $ 432,848 $ 3,502,131 =========== =========== =========== =========== =========== =========== Student $ -0- $ 4,101,729 $ -0- $ 4,791,072 $ -0- $ 4,304,375 =========== =========== =========== =========== =========== ===========
Original maturities for each loan category as of December 31, 1992 and September 30, 1993 and 1992 are as follows: Commercial - less than 1 year to 30 years Real estate - 1 year to 30 years Installment - less than 1 year to 10 years Student - 1 to 2 years See accountants' compilation reports. F-39 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 4: LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) The subsidiary routinely sells its student loans to the Panhandle Plains Higher Education Agency prior to the loans reaching repayment stage. For the nine months ended September 30, 1993 and 1992, the subsidiary sold approximately $ 2,561,871 and $ 1,619,700, respectively, of these loans under this program. NOTE 5: LAND, BUILDING AND EQUIPMENT Major classifications of these assets are as follows:
September 30, September 30, December 31, 1993 1992 1992 ------------- ------------- ------------- Land $ 327,000 $ 327,000 $ 327,000 Buildings 3,719,533 3,701,945 3,711,293 Leasehold improvements 147,900 145,077 145,077 Automobiles 58,528 49,271 58,528 Furniture and fixtures 732,702 734,768 743,263 Assets not in service -0- -0- 58,393 ----------- ----------- ----------- $ 4,985,663 $ 4,958,061 $ 5,043,554 Accumulated depreciation and amortization 2,147,919 2,036,119 2,075,690 ----------- ----------- ----------- Land, building and equipment, net $ 2,837,744 $ 2,921,942 $ 2,967,864 =========== =========== =========== Depreciation and amortization expense $ 125,401 $ 105,597 $ 146,129 =========== =========== ===========
NOTE 6: FEDERAL INCOME TAXES Concho Bancshares, Inc. files a consolidated tax return with it's sole subsidiary, Southwest Bank of San Angelo. The provisions for federal income taxes for the nine month periods ended September 30, 1993 and 1992 are based on the incomes and tax attributes of the consolidated entity. Income tax expense for the nine months ended September 30, 1993 and 1992, is based on the Company's estimate of the effective tax rates expected to be applicable for the full year. See accountants' compilation reports. F-40 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 7: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The subsidiary 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. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the subsidiary has in particular classes of financial instruments. The subsidiary's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The subsidiary uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The contract amounts of these commitments are as follows:
September 30, December 31, 1993 1992 -------------- ------------- Financial instruments whose contract amounts represent credit risk: Commitments to extend credit $ 6,364,572 $ 4,740,485 Letters of Credit 790,234 726,980 ----------- ----------- $ 7,154,806 $ 5,467,465 =========== ===========
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 may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary evaluates each customer's creditworthiness on a case by case basis. The amount of collateral obtained if deemed necessary by the subsidiary upon extension of credit is based upon management's credit evaluation. See accountants' compilation reports. F-41 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 7: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED) Letters of credit are 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. NOTE 8: DEFERRED COMPENSATION The subsidiary maintains a deferred compensation plan for its directors funded by the purchase of life insurance policies on each participant. Other pertinent financial information relating to the subsidiary's deferred compensation plans is as follows:
September 30, September 30, December 31, 1993 1992 1992 ------------- ------------- ------------ Life insurance premiums paid $ 3,200 $ 4,480 $ 5,600 ========== ========== ========== Cash surrender value of life insurance policies $ 265,487 $ 235,967 $ 244,957 ========== ========== ========== Accrued deferred compensation liability $ 123,174 $ 94,862 $ 100,548 ========== ========== ========== Current year deferred compensation expense $ 22,626 $ 17,298 $ 22,744 ========== ========== ==========
NOTE 9: RELATED PARTY TRANSACTIONS As of December 31, 1992 and September 30, 1993 and 1992, certain officers and directors and companies in which they have a beneficial ownership were indebted to the subsidiary in the aggregate amount of $ 789,332, $ 883,813 and $ 884,207, respectively. On January 31, 1992, the company issued notes to certain customers and directors that are more fully described in Note 10. See accountants' compilation reports. F-42 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 10: NOTES PAYABLE Notes payable represents one note payable to a local financial institution and 13 individual promissory notes issued to certain of the company's customers and directors. Original principal amount of the note payable to the financial institution was $ 130,000. Each of the 13 individual promissory notes was issued for $ 100,000 and all bear the same terms, maturity date and collateral. The collateral for the 13 promissory notes is held at Bank of the West, San Angelo, Texas. The terms of these notes are as follows:
LENDER ---------------------------------------------- Bank of the West 13-Various ---------------- ---------------------------- Date of note(s) June 2, 1993 January 21, 1992 Maturity date June 2, 1994 January 21, 1997 Collateral Unsecured Real estate and 119,504 shares of Southwest Bank common stock Interest rate 7.00% 9.50% Payments Balance due at 19 quarterly payments maturity of $ 50,702.86, including interest, beginning April 21, 1992; balance due at maturity
Following are the maturities of these notes over the next five years: 1993-94 $ 224,611 1994-95 103,924 1995-96 114,154 1996-97 860,900 1997-98 -0- ----------- Total $ 1,303,589 ===========
See accountants' compilation reports. F-43 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 11: RETAINED EARNINGS Banking regulations limit the amount of dividends that may be paid without prior approval of the Bank's regulatory agency. NOTE 12: LEASES As of December 31, 1992 and September 30, 1992, the subsidiary leased computer equipment under agreements determined to be operating leases. The provisions of these lease agreements are described as follows:
Computer Computer Computer Equipment Equipment Equipment Lease #1 Lease #2 Lease #3 --------- --------- --------- Primary lease term 36 mos 36 mos 36 mos Date of lease 12-27-89 08-23-89 01-29-90 Lease renewal option at expiration of primary term 24 mos 24 mos 24 mos Monthly lease amount Primary term: Year one $ 5,664 $ 1,950 $ 345 Year two 6,231 2,145 380 Year three 6,854 2,359 418 Option period: Year one 7,539 2,595 459 Year two 8,141 2,846 467 Penalty for non-renewal 18,626 6,430 1,136
See accountants' compilation reports. F-44 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 12: LEASES (CONTINUED) Minimum future rental payments under the primary and optional terms of these lease agreements as of December 31, 1992 and September 30, 1992 for each of the next five years and in the aggregate are as follows:
September 30, December 31, 1992 1992 ------------- ------------ 1993 $ 126,125 $ 122,596 1994 130,528 117,012 1995 17,683 8,141 1996 -0- -0- 1997 -0- -0- ------------- ------------ Total $ 274,336 $ 247,749 ============= ============
As of September 30, 1993, the subsidiary leased computer equipment under an agreement determined to be an operating lease. The lease agreements that previously existed were terminated and combined into one lease agreement dated February 23, 1993. The provisions of this agreement are described as follows: Primary term 36 mos. Date of lease 2-23-93 Lease renewal option at expiration of primary term 24 mos. Primary term $ 6,890/mo. Option period $ 6,890/mo. Penalty for non-renewal $ 20,150
Minimum future rental payments under the primary and optional terms of this lease agreement as of September 30, 1993 for each of the next five years and in the aggregate are as follows: 1994 $ 82,680 1995 82,680 1996 82,680 1997 82,680 1998 27,560 --------- Total $ 358,280 =========
See accountants' compilation reports. F-45 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 12: LEASES (CONTINUED) Lease expense under all operating leases is as follows:
September 30, September 30, 1993 1992 ------------- ------------- Non-cancelable operating leases $ 64,987 $ 88,706 Other leases 26,588 21,256 ------------- ------------- Total $ 91,575 $ 109,962 ============= =============
Other leases are agreements under which the subsidiary leases certain equipment. The terms of these agreements do not extend for more than one year from the balance sheet date or they are cancelable at the option of the lessee. NOTE 13: CHANGE IN ACCOUNTING PRINCIPLE During the nine month period ended September 30, 1993, the Company changed its method of accounting for federal income taxes to conform with the requirements of Statement of Financial Accounting Standards No. 109. No effect on federal income taxes for the nine months ended September 30, 1993 has been recorded based upon the application of the new accounting principle. Financial statements for periods ended prior to January 1, 1993 have not been restated, and the cumulative effect of the change of $ 231,213 ($ 1.19 per share) is shown as a one-time charge to income in the September 30, 1993 income statement. NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires all entities to disclose the estimated fair value of its financial instrument assets and liabilities. For the Company, as for most financial institutions, approximately 95% of its assets and 99% of its 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. It is also the Company's general practice and intent to hold its financial instruments to maturity and to not engage in trading or sales activities. Therefore, significant estimations and present value calculations were used by the Company for the purpose of this disclosure. 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 December 31, 1992, and September 30,1993 were as follows: See accountants' compilation reports. F-46 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) *Financial instruments actively traded in a secondary market have been valued using quoted available market prices.
ESTIMATED RECORDED FAIR BOOK VALUE BALANCE --------------------------- --------------------------- September 30, December 31, September 30, December 31, 1993 1992 1993 1992 ------------- ------------ ------------- ------------ Cash and due from banks $ 3,519,769 $ 4,747,085 $ 3,519,769 $ 4,747,085 Federal funds sold 2,500,000 2,550,000 2,500,000 2,550,000 Investment securities (Note 2) 35,529,372 34,347,360 34,795,540 33,806,858
*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 RECORDED FAIR BOOK VALUE BALANCE --------------------------- --------------------------- September 30, December 31, September 30, December 31, 1993 1992 1993 1992 ------------- ------------ ------------- ------------ Deposits with stated maturities $ 34,433,825 $ 36,061,445 $ 34,267,984 $ 35,906,058 Deposits with no stated maturities 46,634,889 45,189,115 46,634,889 45,189,115 Mortgage payable 1,268,920 1,334,415 1,173,589 1,239,164 Net loans 43,393,878 43,125,697 43,363,983 42,596,605
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 $ 4,740,485 and $ 6,364,572 at December 31, 1992 and September 30, 1993, respectively, and are generally priced at market at the time of funding. Letters of credit discussed in Note 7 have an estimated fair value based on fees currently charged for similar agreements. At December 31, 1992 and September 30, 1993, fees related to the unexpired term of the letters of credit are not significant. See accountants' compilation reports. F-47 CONCHO BANCSHARES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ DECEMBER 31, 1992 (AUDITED) NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992 (UNAUDITED) NOTE 14: FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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 made 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. NOTE 15: SUBSEQUENT EVENT On November 29, 1993, the Company rescinded the May 1993 purchase of 16,267 shares of stock into the treasury at the original purchase price of $344,860. This agreement was entered into in complete settlement of a claim asserted by the stockholder relating to the possible acquisition of the company by First Financial Bankshares, Inc. The Company agreed to repurchase the shares of stock at the same purchase price in the event that the proposed stock exchange offer by First Financial Bankshares, Inc. is not consummated. See accountants' compilation reports. F-48 Annex A February 4, 1994 The Board of Directors Concho Bancshares, Inc. P. O. Box 60410 San Angelo, Texas 76906 Dear Sirs Pursuant to Section 2.2 of the Stock Exchange Agreement and Plan of Reorganization, dated as of December 7, 1993 (the "Agreement") among First Financial Bankshares, Inc. ("First Financial"), Concho Bancshares, Inc. ("Concho") and Southwest Bank of San Angelo ("Southwest Bank"), our opinion has been requested with respect to certain of the Federal income tax consequences of the exchange by the Concho shareholders of their Concho stock for First Financial voting common stock (the "Stock Exchange") and the merger of Concho 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 December 17, 1993. - ------------------------------------------------------ In rendering our opinion, 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 and representations contained in the Agreement and such other documents. Furthermore, we have assumed that the Stock Exchange and Merger will be consummated in accordance with the Agreement and that the Merger will qualify as a merger under applicable State law. In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service 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. 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 enterprise on the part of those persons who were the owners of the enterprise prior to the reorganization. Accordingly, the Concho shareholders, as a group, will be required to satisfy the continuity of interest doctrine through a post-exchange continuing ownership The Board of Directors Concho Bancshares, Inc. February 4, 1994 Page 2 of the First Financial voting common stock received in the Stock Exchange. In this regard, a disposition by the Concho 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 Concho 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 Concho and Southwest Bank or use a significant portion of the historic business assets of Concho and Southwest Bank 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 Concho 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 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 Concho immediately after the Stock Exchange. If the Stock Exchange is consummated with First Financial acquiring less than 80 percent of the outstanding stock of Concho, the Stock Exchange will be a taxable transaction to the Concho shareholders. In rendering our opinion, we have assumed that the control requirement will be satisfied. Based solely upon and subject to the foregoing, we are of the opinion that under current law: 1. The Stock Exchange and Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and First Financial, Concho and FFB Delaware 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 Concho shareholders upon receipt of The Board of Directors Concho Bancshares, Inc. February 4, 1994 Page 3 First Financial voting common stock in exchange for their Concho stock, except for any gain or loss recognized with respect to shareholders who receive cash in lieu of fractional share interests in First Financial voting common stock or pursuant to the exercise of statutory dissenter rights. 3. The aggregate Federal income tax basis of the shares of First Financial voting common stock received by the Concho shareholders in exchange for their shares of Concho stock will be the same as the aggregate adjusted tax basis of their Concho stock exchanged therefor, less the tax basis, if any, allocated to fractional share interests. 4. The holding period of the First Financial voting common stock received by the Concho shareholders in exchange for their shares of Concho stock in the hands of the Concho shareholders will include the holding period of their Concho stock exchanged therefor. Except as set forth above, we express no opinion as to the tax consequences, whether Federal, State or local, 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 used, circulated, quoted or otherwise referred to for any purpose without our prior consent. 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 inclusion of this opinion as an Annex to the Offering Circular/Prospectus and the filing of this opinion as an exhibit to the Registration Statement on Form S-4 of which such Offering Circular/Prospectus is a part. Very truly yours ARMSTRONG, BACKUS & CO., L.L.P. ANNEX B ARTICLE 5.16 OF TEXAS BUSINESS CORPORATION ACT 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) merger such other domestic or foreign corporation or corporations into itself, (2) merger itself into such other corporation, or (3) merger itself and one or more of such corporations into another of such domestic or foreign corporations: (a) in the event that the corporation having 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, 1 obligations, evidences of ownership, rights, or other securities, to be used, paid or delivery by the surviving corporation upon surrender of each share of the subsidiary corporation or corporations not owned by the parent corporation. (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. 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; 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. 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 2 upon the surrender of such shareholder's shares pursuant to the terms and conditions of the merger, with the following procedure: (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 3 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. 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. 4 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, fines, settlements and reasonable expenses 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 and any inquiry or investigation that could lead to such an action, because the person is or was a director of officer of the corporation. In order to be entitled to such indemnification, the director of 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, (ii) in all other cases, that his conduct was at least not opposed to the corporation's best interest, and (iii) in the case of any criminal proceeding, that 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 or in which the person is found liable to the corporation. 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. 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* Stock Exchange Agreement and Plan of Organization dated as of December 7, 1993 by and between First Financial Bankshares, Inc., Concho Bancshares, Inc. and Southwest Bank of San Angelo. 3.1* Articles of Incorporation, and all amendments thereto, of the Registrant (incorporated by reference from Exhibit 1 of the Registrant's Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994). 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, Cobb & Hicks, P.C. 8.1** Opinion and Consent of Armstrong, Backus & Co., L.L.P. 15.1* Letter from Armstrong, Backus & Co., L.L.P. regarding unaudited interim financial information. 23.1* Consent of McMahon, Surovik, Suttle, Buhrmann, Cobb & Hicks, P.C. (included in Exhibit 5.1). 23.2** Consent of Armstrong, Backus & Co., L.L.P. (included in Exhibit 8.1). 23.3** Consent of Arthur Andersen & Co., independent certified public accountants (auditors for First Financial Bankshares, Inc.).
II-2 23.4** Consent of Armstrong, Backus & Co., L.L.P., independent certified public accountants (auditors for Concho Bancshares, Inc.). 24* Powers of Attorney (see the signature pages to this Form S-4 Registration Statement). 99** Form of Letter of Transmittal and related Exchange Offer documents. -------------------------------------------- * Previously filed. ** Filed herewith.
(b) Financial Statement Schedules. Schedules have been omitted because they are not required. 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 section 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 section 13(a) or section 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 section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement related to the securities II-3 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 Items of the applicable form. (d) The undersigned registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet the requirements of section 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. (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, the Registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Abilene, State of Texas, on the 7th day of February, 1994. FIRST FINANCIAL BANKSHARES, INC. By: * ----------------------------------------- Kenneth T. Murphy, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to Registration Statement has been signed on the 7th day of February, 1994, by the following persons in the capacities indicated.
Signature Title - --------- ----- /s/ Curtis R. Harvey Executive Vice President and - ------------------------------ Curtis R. Harvey Chief Financial and Accounting Officer Director - ------------------------------ J. Allen Baird Director - ------------------------------ F. Scott Dueser Director - ------------------------------ Patrick N. Gerald * Director - ------------------------------ Robert E. Hitt * Director - ------------------------------ Ralph N. Hooks Director - ------------------------------ Joe B. Matthews
II-5 * Director - ------------------------------ Raymond A. McDaniel, Jr. * Director - ------------------------------ Bynum Miers * Chairman of the Board, President, - ------------------------------ Kenneth T. Murphy Chief Executive Officer and Director * Director - ------------------------------ Dian Graves Owen * Director - ------------------------------ James Parker * Director - ------------------------------ W.V. Ramsey, Jr., M.D. Director - ------------------------------ Craig Smith Director - ------------------------------ H.T. Wilson * Director - ------------------------------ Stanley P. Wilson *By: /s/ Curtis R. Harvey -------------------------- Curtis R. Harvey Attorney in Fact
II-6
Exhibit Index Item 601 Regulation S-K Exhibit Reference Number Description - ------------------ ------------------------------------------------------- 8.1 Opinion and Consent of Armstrong, Backus & Co., L.L.P. 23.2 Consent of Armstrong, Backus & Co., L.L.P. (included in Exhibit 8.1). 23.3 Consent of Arthur Andersen & Co., independent certified public accountants (auditors for First Financial Bankshares, Inc.).
23.4 Consent of Armstrong, Backus & Co., L.L.P., independent certified public accountants (auditors for Concho Bancshares, Inc.). 99 Form of Letter of Transmittal and related Exchange Offer Documents
EX-8.1 2 OPINION AND CONSENTS ARMSTRONG, BACKUS & CO. Exhibit 8.1 February 4, 1994 The Board of Directors Concho Bancshares, Inc. P. O. Box 60410 San Angelo, Texas 76906 Dear Sirs Pursuant to Section 2.2 of the Stock Exchange Agreement and Plan of Reorganization, dated as of December 7, 1993 (the "Agreement") among First Financial Bankshares, Inc. ("First Financial"), Concho Bancshares, Inc. ("Concho") and Southwest Bank of San Angelo ("Southwest Bank"), our opinion has been requested with respect to certain of the Federal income tax consequences of the exchange by the Concho shareholders of their Concho stock for First Financial voting common stock (the "Stock Exchange") and the merger of Concho 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 December 17, 1993. - ------------------------------------------------------ In rendering our opinion, 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 and representations contained in the Agreement and such other documents. Furthermore, we have assumed that the Stock Exchange and Merger will be consummated in accordance with the Agreement and that the Merger will qualify as a merger under applicable State law. In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service 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. 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 enterprise on the part of those persons who were the owners of the enterprise prior to the reorganization. Accordingly, the Concho shareholders, as a group, will be required to satisfy the continuity of interest doctrine through a post-exchange continuing ownership The Board of Directors Concho Bancshares, Inc. February 4, 1994 Page 2 of the First Financial voting common stock received in the Stock Exchange. In this regard, a disposition by the Concho 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 Concho 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 Concho and Southwest Bank or use a significant portion of the historic business assets of Concho and Southwest Bank 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 Concho 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 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 Concho immediately after the Stock Exchange. If the Stock Exchange is consummated with First Financial acquiring less than 80 percent of the outstanding stock of Concho, the Stock Exchange will be a taxable transaction to the Concho shareholders. In rendering our opinion, we have assumed that the control requirement will be satisfied. Based solely upon and subject to the foregoing, we are of the opinion that under current law: 1. The Stock Exchange and Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code, and First Financial, Concho and FFB Delaware 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 Concho shareholders upon receipt of The Board of Directors Concho Bancshares, Inc. February 4, 1994 Page 3 First Financial voting common stock in exchange for their Concho stock, except for any gain or loss recognized with respect to shareholders who receive cash in lieu of fractional share interests in First Financial voting common stock or pursuant to the exercise of statutory dissenter rights. 3. The aggregate Federal income tax basis of the shares of First Financial voting common stock received by the Concho shareholders in exchange for their shares of Concho stock will be the same as the aggregate adjusted tax basis of their Concho stock exchanged therefor, less the tax basis, if any, allocated to fractional share interests. 4. The holding period of the First Financial voting common stock received by the Concho shareholders in exchange for their shares of Concho stock in the hands of the Concho shareholders will include the holding period of their Concho stock exchanged therefor. Except as set forth above, we express no opinion as to the tax consequences, whether Federal, State or local, 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 used, circulated, quoted or otherwise referred to for any purpose without our prior consent. 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 inclusion of this opinion as an Annex to the Offering Circular/Prospectus and the filing of this opinion as an exhibit to the Registration Statement on Form S-4 of which such Offering Circular/Prospectus is a part. Very truly yours ARMSTRONG, BACKUS & CO., L.L.P. EX-23.3 3 CONSENT A & A Exhibit 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated January 13, 1993, (and to all references to our Firm) included in or made a part of this registration statement. ARTHUR ANDERSEN & CO. Dallas, Texas February 4, 1994 EX-23.4 4 CONSENT ARMSTRONG BACKUS Exhibit 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Experts" and to use of our report dated February 12, 1993, with respect to the financial statements of Concho Bancshares, Inc. included in the Registration Statement (Form S-4) and related prospectus. ARMSTRONG, BACKUS & CO., L.L.P. February 4, 1994 EX-99 5 L/T EXHIBIT 99 LETTER OF TRANSMITTAL To Tender Shares of Common Stock of CONCHO BANCSHARES, INC. Pursuant to the Offer for all Outstanding Shares of Common Stock of Concho Bancshares, Inc. by FIRST FINANCIAL BANKSHARES, INC. ================================================================ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., TEXAS TIME, ON MARCH 10, 1994, UNLESS EXTENDED (THE "EXPIRATION DATE"). ================================================================ ------------------------------ PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED FEBRUARY 8, 1994 TO: TRUST DEPARTMENT OF FIRST NATIONAL BANK OF ABILENE, The Exchange Agent By Hand, Mail or Overnight Courier: Trust Department First National Bank of Abilene Third Floor 400 Pine Street Abilene, Texas 79601 For information call: (915) 675-7100 -------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. The undersigned acknowledges that he or she has received the Offering Circular/Prospectus dated February 8, 1994 (the "Prospectus") of First Financial Bankshares, Inc. ("First Financial") and this letter of transmittal (the "Letter of Transmittal"), which constitutes First Financial's offer (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 of which the Prospectus is a part, for all of the issued and outstanding shares of Concho Bancshares, Inc. ("Concho"), par value $0.50 per share ("Concho Common Stock"). Other capitalized terms used but not defined herein have the meaning given to them in the Prospectus. This Letter of Transmittal is to be used by Concho Shareholders (as defined below) if certificates representing Concho Common Stock are to be physically delivered herewith or if the guaranteed delivery procedures described in the -1- Prospectus are to be utilized pursuant to the procedures set forth in "The Exchange Offer -- Exchange of Shares and Certificates" and "--Guaranteed Delivery Procedures" in the Prospectus. The term "Concho Shareholder" with respect to the Exchange Offer means any person in whose name shares of Concho Common Stock are registered on the books of Concho or any other person who has obtained a properly completed stock power from the registered Concho Shareholder. The undersigned has completed, executed and delivered this Letter of Transmittal to indicate the action that the undersigned desires to take with respect to the Exchange Offer. Concho Shareholders who wish to tender their Concho Common Stock must complete this Letter of Transmittal in its entirety. NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE CHECKING ANY BOX BELOW. ================================================================================ DESCRIPTION OF SHARES OF CONCHO COMMON STOCK TENDERED - --------------------------------------------------------------------------------
Total Number of Shares of Concho Common Stock Name(s) and Address(es) of Registered Holder(s) Certificate Represented by (Please fill in, if blank) Number(s) Certificates - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed schedule and affix the list to this Letter of Transmittal. ================================================================================
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Tendering Shareholder(s): -------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ----------------------- Name of Institution which Guaranteed Delivery: ---------------------------- Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer set forth in the Prospectus (receipt of which is hereby acknowledged), the undersigned hereby tenders to First Financial the shares of Concho Common Stock described herein. Subject to and effective upon the acceptance for exchange of the shares of Concho Common Stock tendered in accordance with this Letter of Transmittal, the undersigned sells, assigns and transfers to, or upon the order of, First Financial all right, title and interest in and to all the shares of Concho Common Stock tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its true and lawful agent and attorney-in-fact -2- with respect to the tendered shares of Concho Common Stock with full power of substitution to (i) deliver certificates for such shares of Concho Common Stock with all accompanying evidences of transfer and authenticity to, or upon the order of, First Financial and (ii) present such shares of Concho Common Stock for transfer on the books of Concho and receive all benefits and otherwise exercise all rights of beneficial ownership of such shares of Concho Common Stock all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. For purposes of the Exchange Offer, First Financial shall be deemed to have accepted validly tendered shares of Concho Common Stock when, as and if First Financial has given oral or written notice thereof to the Exchange Agent. If any tendered shares of Concho Common Stock are not accepted for exchange pursuant to the Exchange Offer for any reason, certificates for any such unaccepted shares of Concho Common Stock will be returned, without expense, to the undersigned at the address shown below or at a different address as may be indicated herein under "Special Delivery Instructions" as promptly as practicable after the Expiration Date. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the shares of Concho Common Stock tendered hereby and that when the same are accepted for exchange by First Financial, First Financial shall acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or First Financial to be necessary or desirable to complete the sale, assignment and transfer of the shares of Concho Common Stock tendered hereby. The undersigned hereby irrevocably appoints Curtis R. Harvey the attorney and proxy of the undersigned, with full power of substitution, to exercise all voting and other rights of the undersigned in such manner as such attorney and proxy or his substitute shall in his sole discretion deem proper, with respect to all of the shares of Concho Common Stock tendered hereby which have been acquired by First Financial pursuant to the Exchange Offer prior to the time of any vote or other action, at any meeting of Concho Shareholders (whether annual or special and whether or not an adjourned meeting), by written consent or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acquisition of such shares of Concho Common Stock by First Financial in accordance with the terms of the Exchange Offer. Such acquisition shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such shares of Concho Common Stock, and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed to be effective). All authority conferred or agreed to be conferred by this Letter of Transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Except as stated in the Exchange Offer, this tender is irrevocable. The undersigned understands that tenders of shares of Concho Common Stock pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and First Financial upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated under "Special Exchange Instructions," please issue the certificates representing the shares of First Financial Common Stock issued in exchange for the shares of Concho Common Stock accepted for exchange and any cash payment in lieu of fractional shares, as discussed -3- in the Prospectus, and return any shares of Concho Common Stock not exchanged, in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions," please send the certificates representing the shares of First Financial Common Stock issued in exchange for the shares of Concho Common Stock accepted for exchange and any certificates for shares of Concho Common Stock not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signatures. In the event that both "Special Exchange Instructions" and "Special Delivery Instructions" are completed, please issue the certificates representing the shares of First Financial Common Stock issued in exchange for the shares of Concho Common Stock accepted for exchange and return any shares of Concho Common Stock not exchanged in the name(s) of, and send said certificates to, the person(s) so indicated. The undersigned recognizes that First Financial has no obligation pursuant to the "Special Exchange Instructions" and "Special Delivery Instructions" to transfer any shares of Concho Common Stock from the name of the registered holder(s) thereof if First Financial does not accept for exchange any of the shares of Concho Common Stock so tendered. ================================================================================ SPECIAL EXCHANGE INSTRUCTIONS (See Instructions 3, 4 and 5) To be completed ONLY if certificates for shares of First Financial Common Stock or the check for any cash payment in lieu of fractional shares of First Financial Common Stock are to be issued in the name of someone other than the undersigned. Issue certificate(s) to: Name ---------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) ================================================================================ ================================================================================ SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3, 4 and 5) To be completed ONLY if certificates for shares of First Financial Common Stock, the check for any cash payment in lieu of fractional shares of First Financial Common Stock, or certificates for shares of Concho Common Stock not accepted are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail to: Name ---------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) ================================================================================ Concho Shareholders who wish to tender their shares of Concho Common Stock and (i) whose shares of Concho Common Stock are not immediately available, or (ii) who cannot deliver their shares of Concho Common Stock, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date, may tender their shares of Concho Common Stock according to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the completion of this Letter of Transmittal. -4- PLEASE SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) X - ------------------------------------------- ---------------------- Date X - ------------------------------------------- ---------------------- Signature(s) of Registered Holder(s) Date or Authorized Signatory Area Code and Telephone Number: ------------------------------- The above lines must be signed by the registered holder(s) of shares of Concho Common Stock as their name(s) appear(s) on the certificates reflecting shares of Concho Common Stock or by person(s) authorized to become registered holder(s). If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. See Instruction 3 regarding the completion of this Letter of Transmittal. Name(s): -------------------------------------------------------------- -------------------------------------------------------------- (Please Print) Capacity: -------------------------------------------------------------- Address: -------------------------------------------------------------- (Include Zip Code) SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED BELOW): (IF REQUIRED BY INSTRUCTION 3) -------------------------------------------------------------- (Authorized Signature) -------------------------------------------------------------- (Title) -------------------------------------------------------------- (Name of Firm) -------------------------------------------------------------- (Address, Including Zip Code) -------------------------------------------------------------- (Area Code and Telephone Number) Dated: , 1994 ----------------------- -5- Under the federal income tax laws, the Exchange Agent may be required to withhold 31% of the amount of any payments made to certain Concho Shareholders pursuant to the Exchange Offer. In order to avoid such backup withholding, each tendering Concho Shareholder must provide the Exchange Agent with such Concho Shareholder's correct taxpayer identification number by completing the Substitute Form W-9 set forth below. In general, if a Concho Shareholder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent is not provided with the correct taxpayer identification number, the Concho Shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. CERTAIN CONCHO SHAREHOLDERS (INCLUDING, AMONG OTHERS, ALL CORPORATIONS AND CERTAIN FOREIGN INDIVIDUALS) ARE NOT SUBJECT TO THESE BACKUP WITHHOLDING AND REPORTING REQUIREMENTS. In order to satisfy the Exchange Agent that a foreign individual qualifies as an exempt recipient, such Concho Shareholder must submit a statement, signed under penalties of perjury, attesting to that individual's exempt status. A form for such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if securities are held in more than one name), consult the enclosed Guideline of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. Failure to complete the Substitute Form W-9 will not, by itself, cause shares of Concho Common Stock to be deemed invalidly tendered, but may require the Exchange Agent to withhold 31% of the amount of any payments made pursuant to the Exchange Offer. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PAYER'S NAME: TRUST DEPARTMENT OF FIRST NATIONAL BANK OF ABILENE ================================================================================ SUBSTITUTE Form W-9 Department of the Treasury REQUEST FOR TAXPAYER Internal Revenue Service IDENTIFICATION NUMBER AND CERTIFICATION Payer's Request for Taxpayer Identification No. - -------------------------------------------------------------------------------- PART I Taxpayer Identification Number (TIN) PART II For Payees Exempt from Backup Withholding (see enclosed Guidelines) - -------------------------------------------------------------------------------- Enter your TIN on the Social security number: appropriate line. For individuals, this is ------------------------------- your social security OR number (SSN). For other Employer identification number: entities, it is your employer identification ------------------------------- number (EIN). - -------------------------------------------------------------------------------- CERTIFICATION.--Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), AND 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item 2. Name (if joint names, list first and circle the name of the person or entity whose number you enter in Part I below. ---------------------------------------- Address (number and street) ---------------------------------------------------- City, state, and ZIP code ------------------------------------------------------ Signature Date --------------------------------------- ----------------------- ================================================================================ -6- IF YOU CHECKED THE BOX IN PART II OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND DATE THE FOLLOWING CERTIFICATION: CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER ================================================================================ I certify, under penalties of perjury, that a Taxpayer Identification Number has not been issued to me, and that I mailed or delivered an application to receive a Taxpayer Identification Number to the appropriate IRS Center or Social Security Administration Office (or I intend to mail or deliver an application in the near future). I understand that if I do not provide a Taxpayer Identification Number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. SIGNATURE DATE -------------------------------------- ---------------- ================================================================================ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. -7- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SHARES OF CONCHO COMMON STOCK. The certificates for the tendered shares of Concho Common Stock, as well as a properly completed and duly executed copy of this Letter of Transmittal and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein prior to 5:00 P.M., Texas time, on the Expiration Date. Subject to certain conditions to the consummation of the Exchange Offer, the exchange of shares of First Financial Common Stock for shares of Concho Common Stock will be promptly made with respect to all shares of Concho Common Stock properly tendered on or prior to 5:00 p.m., Texas time, on the Expiration Date, if First Financial receives notice from the Exchange Agent that at least 90% of the outstanding shares of Concho Common Stock have been tendered. The method of delivery of the tendered shares of Concho Common Stock, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the Concho Shareholder and, except as otherwise provided below, the delivery will be deemed made only when actually received by the Exchange Agent. Instead of delivery by mail, it is recommended that the Concho Shareholder use an overnight or hand delivery service. If certificates for shares of Concho Common Stock are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure timely delivery. Concho Shareholders who wish to tender their shares of Concho Common Stock and (i) whose shares of Concho Common Stock are not immediately available, or (ii) who cannot deliver their shares of Concho Common Stock, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their shares of Concho Common Stock pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or correspondent in the United States (an "Eligible Institution"); (ii) prior to the Expiration Date, the Exchange Agent must have received from the 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 the shares of Concho Common Stock, the certificate number for the certificates representing such shares of Concho Common Stock and the amount of shares of Concho Common Stock tendered, stating that the tender is being made thereby and guaranteeing that, within 5 business days after the Expiration Date, this Letter of Transmittal together with the certificate(s) representing the shares of Concho Common Stock and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all tendered shares of Concho Common Stock in proper form for transfer, must be received by the Exchange Agent within 5 business days after the Expiration Date, all as provided in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." Any Concho Shareholder who wishes to tender his or her shares of Concho Common Stock pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00 P.M., Texas time, on the Expiration Date. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered shares of Concho 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 Concho Common Stock not properly tendered or any shares of Concho -8- Common Stock First Financial's acceptance of which would, in the opinion of counsel for First Financial, be unlawful. First Financial also reserves the right to waive any irregularities or conditions of tender as to particular shares of Concho Common Stock. Unless waived, any defects or irregularities in connection with tenders of shares of Concho Common Stock must be cured within such time as First Financial shall determine. Neither First Financial, 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 Concho Common Stock, nor shall any of them incur any liability for failure to give such notification. Tenders of shares of Concho Common Stock will not be deemed to have been made until such defects or irregularities have been cured or waived. Any shares of Concho Common Stock 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 Concho Shareholders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 2. NO PARTIAL TENDERS. All shares of Concho Common Stock represented by certificates delivered to the Exchange Agent will be deemed to have been tendered. 3. SIGNATURES ON THE LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the shares of Concho Common Stock tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates representing the shares of Concho Common Stock without alteration, enlargement or any change whatsoever. If this Letter of Transmittal is signed by the registered holder(s) of shares of Concho Common Stock tendered and the certificate(s) for shares of First Financial Common Stock issued in exchange therefor is to be issued to the registered holder, such holder need not and should not endorse any certificates for tendered shares of Concho Common Stock, nor provide a separate stock power. In any other case, such holder must either properly endorse the certificates representing shares of Concho Common Stock tendered or transmit a properly completed separate stock power with this Letter of Transmittal, with the signatures on the endorsement or stock power guaranteed by an Eligible Institution. If any shares of Concho Common Stock tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any certificates for shares of Concho Common Stock tendered hereby, such certificates for shares of Concho Common Stock must be endorsed or accompanied by appropriate stock powers signed exactly as the name of the registered holder(s) appears on the certificates representing such shares of Concho Common Stock. If this Letter of Transmittal or any certificates for shares of Concho Common Stock or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by First Financial, evidence satisfactory to First Financial of their authority so to act must be submitted with this Letter of Transmittal. Endorsements on certificates for shares of Concho Common Stock and signatures on stock powers required by this Instruction 3 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the shares of Concho Common Stock tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box set forth herein entitled "Special Exchange Instructions" or the box entitled "Special Delivery Instructions" or (ii) for the account of an Eligible Institution. 4. SPECIAL EXCHANGE AND DELIVERY INSTRUCTIONS. If the certificates for shares of First Financial Common Stock or checks for any cash payment in lieu of payment of fractional shares of First Financial Common Stock are to be issued, or any shares of Concho Common Stock not accepted for -9- exchange are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that provided herein, the appropriate boxes on this Letter of Transmittal should be completed. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 5. TRANSFER TAXES. First Financial will pay all transfer taxes, if any, applicable to the exchange of shares of Concho Common Stock pursuant to the Exchange Offer unless such payment would jeopardize the tax-free nature of the Exchange Offer or the Merger (as defined in the Prospectus) for Federal income tax purposes. If, however, certificates representing shares of First Financial Common Stock or checks for any cash payment in lieu of fractional shares of First Financial Common Stock are issued, or certificates for shares of Concho Common Stock not accepted for exchange are to be returned, in the name of any person other than the registered holder of the shares of Concho Common Stock tendered hereby, or if tendered shares of Concho Common Stock are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of shares of Concho Common Stock pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be deducted from the consideration to be received by such holder (i.e., the number of shares of First Financial Common Stock to be issued to such holder will be reduced). 6. WAIVER OF CONDITIONS. First Financial reserves the absolute right to amend, waive or modify specified conditions in the Exchange Offer in the case of any shares of Concho Common Stock tendered. 7. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF CONCHO COMMON STOCK. Any tendering holder whose shares of Concho Common Stock have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instruction. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address specified in the Prospectus. Concho Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. -10- (DO NOT WRITE IN SPACE BELOW) Date Received Accepted By Checked By ----------- ----------- ----------- ================================================================================
Shares Surrendered Shares Accepted Shares Returned Certificate No. - ------------------ --------------- --------------- --------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Delivery Prepared by Checked by ----------------------- ----------------- Date -------------------- ================================================================================ -11- -----END PRIVACY-ENHANCED MESSAGE-----