<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1994.
REGISTRATION NO. 33-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
FIRST FINANCIAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
----------------------
TEXAS 6712 75-0944023
(STATE OR OTHER JURISDICTION (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: [_]
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock..................... 232,550 $30.55 $7,104,403 $2,452
========================================================================================================
</TABLE>
(1) The registration fee has been computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended (the "Securities Act"), based on the book
value of the shares of Common Stock of Concho Bancshares, Inc. at September
30, 1993 that may be exchanged for the securities being registered. The
proposed maximum offering price per share has been determined by dividing
the maximum aggregate offering price by the number of shares being
registered.
----------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
================================================================================
<PAGE>
FIRST FINANCIAL BANKSHARES, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
- -------------------------------- ------------------
<C> <S> <C>
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
</TABLE>
- -----------
* Not applicable.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ 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 JANUARY 10, 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 _________, 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 ___________, 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 January 6, 1994, the closing price of the First
Financial Common Stock, as reported by NASDAQ, was $________.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
The date of this Prospectus is ___________, 1994
<PAGE>
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 _______________, 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
<PAGE>
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 fillings 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
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
</TABLE>
4
<PAGE>
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 99.8% 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 for a November 1993
stock issuance by Concho, 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
<PAGE>
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; provided, however, that the rate of exchange (the "Exchange Rate") shall
be subject to adjustment under certain conditions discussed herein. 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 the
date which is ten days prior to the later of (i) the date First Financial
receives written notice that the Board of Governors of the Federal Reserve
System has given final approval of the application filed by First Financial to
acquire all of the Concho Common Stock and (ii) the date upon which the
Registration Statement of which this Prospectus is a part becomes effective.
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 ______________, 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 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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
FIRST FINANCIAL AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ---------------------------
1988 1989 1990 1991 1992 1992 1993
-------- -------- -------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ----------------------------
</TABLE>
(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
<PAGE>
CONCHO AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ------------------
1988 1989 1990 1991 1992 1992 1993
---------- ------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
- -------------------------------------
(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
<PAGE>
FIRST FINANCIAL AND SUBSIDIARIES AND
CONCHO AND SUBSIDIARIES
PRO FORMA COMBINED SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1990 1991 1992 1992 1993
----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
- ----------------------------------
(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
<PAGE>
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.
<TABLE>
<CAPTION>
FIRST FINANCIAL CONCHO
----------------------- ------------------------------
PRO FORMA EQUIVALENT
HISTORICAL COMBINED HISTORICAL(2) PRO FORMA(3)
---------- ---------- ------------ --------------
<S> <C> <C> <C> <C>
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
</TABLE>
- ----------------------------
(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
<PAGE>
(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
<PAGE>
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
<PAGE>
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 approve the Stock Exchange Agreement so that Concho
Shareholders would have the opportunity to accept or reject the Exchange Offer.
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
<PAGE>
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.
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; and further
provided, that the Exchange Rate shall be adjusted if, as of December 31, 1993,
the Book Value of Concho Common Stock (as defined below) shall be less than
$31.25 or if the Market Value of First Financial Common Stock (as defined below)
shall be less than $40.00 per share as of the date which is ten (10) days prior
to the later of (i) the date First Financial receives written notice that the
Board of Governors of the Federal Reserve System has given final
17
<PAGE>
approval of the application filed by First Financial to acquire all of the
Concho Common Stock or (ii) the date upon which the Registration Statement of
which this Prospectus is a part becomes effective.
If, as of the date specified above, the Market Value of First Financial Stock
shall be less than $40.00 per share, then the Exchange Rate shall be adjusted by
multiplying the Exchange Rate by a fraction, the numerator of which is $40.00
and the denominator of which is the Market Value of First Financial Common
Stock. If, as of December 31, 1993, the Book Value of Concho Common Stock shall
be less than $31.25 per share, then the Exchange Rate shall be adjusted by
multiplying the Exchange Rate by a fraction, the denominator of which is $31.25
and the numerator of which is the Book Value of Concho Common Stock. If, as of
December 31, 1993, the Book Value of Concho Common Stock is less than $31.25 and
---
if, as of the date specified above, the Market Value of First Financial Stock
shall be less than $40.00, the Exchange Rate shall be adjusted by multiplying
the Exchange Rate of 1.15 by each of the fractions defined above.
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. For purpose hereof, the
"BOOK VALUE" of Concho Common Stock means the consolidated shareholders' equity
of Concho determined in accordance with generally accepted accounting principles
divided by the number of issued and outstanding shares of Concho Common Stock;
provided, that for purposes of determining the Book Value of Concho Common Stock
as of December 31, 1993, as required above, the number of issued and outstanding
shares of Concho Common Stock shall be deemed to include 564 new shares of
Concho Common Stock that are expected to be issued prior to consummation of the
Exchange Offer, and also the consideration paid or to be paid for such shares,
irrespective of whether such shares are, in fact, issued and the consideration
therefor paid prior to December 31, 1993.
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 later of (i) the date
First Financial receives written notice that the Board of Governors of the
Federal Reserve System has given final approval of the application filed by
First Financial to acquire all of the Concho Common Stock and (ii) the date upon
which the Registration Statement of which this Prospectus is a part becomes
effective.
THE EXPIRATION DATE
Unless otherwise extended by First Financial, the Exchange Offer shall
terminate at 5:00 p.m., Texas time on ______________, 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
<PAGE>
(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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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 later
of (i) the date First Financial receives written notice that the Board of
Governors of the Federal Reserve System has given final approval of the
application filed by First Financial to acquire all of the Concho Common Stock
and (ii) the date upon which the Registration Statement of which this Prospectus
is a part becomes effective. 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.
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<PAGE>
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
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<PAGE>
(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
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<PAGE>
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.
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<PAGE>
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
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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)
<TABLE>
<CAPTION>
Pro Forma
As of: First Financial Concho Combined
- ------ ---------------- ---------- ---------
<S> <C> <C> <C>
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
</TABLE>
Total Capital To Risk-Weighted Assets Ratio
(in each case calculated pursuant to the
risk-based capital guidelines)
<TABLE>
<CAPTION>
Pro Forma
As of: First Financial Concho Combined
- ------ ---------------- ---------- ---------
<S> <C> <C> <C>
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
</TABLE>
Tier 1 Leverage Ratio
<TABLE>
<CAPTION>
Pro Forma
As of: First Financial Concho Combined
- ------ ---------------- ---------- ---------
<S> <C> <C> <C>
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
</TABLE>
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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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<PAGE>
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."
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.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------ ------ --------
<S> <C> <C> <C>
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
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C>
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......... 45.00 40.00 0.32
1994:
First Quarter (through
January 6, 1994)....... 41.50 41.50 --
</TABLE>
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 __________, 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 $____________ 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. [ANY DEBT
INSTRUMENT RESTRICTIONS ON DIVIDENDS?] 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 99.8% 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
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<PAGE>
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.
<TABLE>
<CAPTION>
Shares of Concho Percentage of
Common Stock Outstanding
Name and Address of Beneficial Owner Beneficially Owned(1) Concho Common Stock
- --------------------------------------- ----------------------- --------------------
<S> <C> <C>
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
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
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
</TABLE>
- --------------------------------
(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.
<TABLE>
<CAPTION>
Shares of Concho
Common Stock Percentage of Concho
Name Beneficially Owned(1) Common Stock Outstanding
- ---- --------------------- ------------------------
<S> <C> <C>
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%
</TABLE>
- --------------------
* 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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
(dollars in thousands, except per share data)
Nine Months
Years Ended December 31, Ended
-------------------------------------------------------------- September 30,
1988 1989 1990 1991 1992 1993
-------- -------- ------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
(Footnotes appear on following page)
37
<PAGE>
_____________________
(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
<PAGE>
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
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
<PAGE>
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 4.32%, 4.25% and
4.43%, 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 $81,245,690. Transaction account balances grew by
$7,718,459 while time deposits declined by $308,015.
Nonperforming assets totaled $1,497,305 at December 31, 1992, a total that was
$198,821 below the previous year-end balance.
40
<PAGE>
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):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
ASSETS 1990 1991 1992
- --------------------------- ------- ------------ -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
41
<PAGE>
[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:
<TABLE>
<CAPTION>
1990 1991 1992
----------------- ----------------- -----------------
INCOME YIELD INCOME YIELD INCOME YIELD
(EXPENSE) (RATE) (EXPENSE) (RATE) (EXPENSE) (RATE)
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
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%
===== ===== ====
</TABLE>
- -----------------------
(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
<PAGE>
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):
<TABLE>
<CAPTION>
1991 Compared to 1990 1992 Compared to 1991
---------------------------- ---------------------------------------
Volume Rate Total Volume Rate Total
------- ------ ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
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
---- ----- ----- ---- ------- ------
</TABLE>
- -----------------------------
(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
<PAGE>
TABLE 4 - COMPOSITION OF INVESTMENT SECURITIES -- CONCHO
The table below sets forth the composition of investment securities at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1990 1991 1992
----------- ----------- -----------
<S> <C> <C> <C>
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>
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:
<TABLE>
<CAPTION>
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
----------- ------ ----------- ------ -------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
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):
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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>
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
<PAGE>
<TABLE>
<CAPTION>
After one year
In one year but within After
or less five years five years
------------ ---------- ----------
<S> <C> <C> <C>
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
===========
</TABLE>
III. ASSET QUALITY
TABLE 8 - RISK ELEMENTS -- CONCHO
<TABLE>
<CAPTION>
PAST DUE AND NON-ACCRUAL LOANS: 1988 1989 1990 1991 1992
---------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
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 .. -- -- -- -- --
</TABLE>
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:
<TABLE>
<CAPTION>
RATIO OF LOAN
ALLOWANCE AMOUNT TO TOTAL
DECEMBER 31, 1992 AMOUNT LOANS OUTSTANDING
- ------------------ --------- -----------------
<S> <C> <C>
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
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
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%
======== ======
</TABLE>
46
<PAGE>
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:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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%
=========== =========== =========== =========== ===========
</TABLE>
- ----------------------------
(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
<PAGE>
<TABLE>
<CAPTION>
1990 1991 1992
--------------- ----------------- --------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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>
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):
<TABLE>
<S> <C>
Under 3 months $ 5,910
3 to 6 months 3,157
6 to 12 months 2,841
Over 12 months 1,100
-------
$13,008
=======
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1990 1991 1992
-------- -------- --------
<S> <C> <C> <C>
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
</TABLE>
48
<PAGE>
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
<TABLE>
<CAPTION>
1990 1991 1992
------ ------ ------
<S> <C> <C> <C>
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%
</TABLE>
49
<PAGE>
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
<TABLE>
<CAPTION>
$(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
--------- -------- -------- -------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======== ========= ======== ======== ========= ======== ========
</TABLE>
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
<PAGE>
IX. 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
<PAGE>
AVERAGE BALANCES, INCOME AND EXPENSES, YIELDS AND RATES (1)
$(thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
1992 1993
-------------------------- --------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
- -------------------
(1) Fully taxable equivalent basis
(2) Nonaccrual loans are included in loan balances
52
<PAGE>
RATE VOLUME ANALYSIS (1)(2)
<TABLE>
<CAPTION>
$(thousands)
CHANGE IN RATE VOLUME
-----------------------------
INCOME/EXPENSE EFFECT EFFECT
- --------------------------------------------------------------
<S> <C> <C> <C>
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
==== ====== ====
</TABLE>
- ------------------
(1) Fully taxable equivalent basis
(2) The unallocated portion of the total change has been prorated into rate and
volume components
53
<PAGE>
Noninterest Income and Expense
<TABLE>
<CAPTION>
$(thousands)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30 CHANGE
------------------------- -----------------
1992 1993 $ %
------ ------ ------- -------
<S> <C> <C> <C> <C>
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%
====== ======
</TABLE>
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
<PAGE>
INDEX TO CONCHO BANCSHARES, INC.'S FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
55
<PAGE>
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
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1992 AND 1991
ASSETS
------
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1992 AND 1991
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES
-----------
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C> <C>
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
----------- -----------
</TABLE>
Commitments and Contingencies (Notes 7 & 12)
SHAREHOLDERS' EQUITY
--------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(Continued)
<TABLE>
<CAPTION>
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
RETAINED INVESTMENTS
COMMON TREASURY EARNINGS IN MUTUAL
STOCK SURPLUS STOCK (DEFICIT) FUNDS TOTAL
----------- ----------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
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
=========== ========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
<TABLE>
<CAPTION>
1992 1991 1990
----------- ----------- ----------
<S> <C> <C> <C>
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
========== ========== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, 1992
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== ======== ========== ===========
</TABLE>
Continued
F-10
<PAGE>
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.
<TABLE>
<CAPTION>
Carrying Approximate
Value Market Value
----------- ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1991
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
=========== =========== ========== ===========
</TABLE>
Continued
F-11
<PAGE>
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.
<TABLE>
<CAPTION>
Carrying Approximate
Value Market Value
----------- ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
LENGTH OF SERVICE VESTING
----------------- -------
<S> <C>
2 years 20%
3 years 30%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
</TABLE>
F-12
<PAGE>
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
<TABLE>
<CAPTION>
Major classifications of loans are as follows:
December 31, December 31,
1992 1991
------------ ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
F-13
<PAGE>
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:
<TABLE>
<CAPTION>
Beginning of End of
the Year the Year
Unamortized Capitalized Unamortized
Loan Costs Loan Costs Amortization Loan Costs
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
========= ======== ========= =========
</TABLE>
Loans, net of participations sold, at variable and fixed interest rates
as of December 31, 1992 are as follows:
<TABLE>
<CAPTION>
Variable Fixed
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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-
========== ========= =======
</TABLE>
A reconciliation of income tax expense at the statutory rate to income tax
at the bank's effective rate is as follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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-
========== ========== ==========
</TABLE>
F-16
<PAGE>
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:
<TABLE>
<CAPTION>
Year of December 31, December 31, December 31,
Expiration 1992 1991 1990
---------- ------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year of
Expiration 1992 1991 1990
---------- ------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>
F-17
<PAGE>
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:
<TABLE>
<CAPTION>
Year of
Expiration 1992 1991 1990
---------- ------ --------- ---------
<S> <C> <C> <C>
1992 $ -0- $ 13,474 $ 13,474
1993 -0- 7,453 7,453
</TABLE>
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.
<TABLE>
<CAPTION>
Contract
Amount
----------
<S> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $4,740,485
Letters of Credit 726,980
----------
$5,467,465
==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
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
<PAGE>
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:
<TABLE>
<S> <C>
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.
</TABLE>
Following are the maturities of this note over the next five years:
<TABLE>
<S> <C>
1993 $ 88,178
1994 96,857
1995 106,392
1996 116,865
1997 830,872
----------
Total $1,239,164
==========
</TABLE>
The mortgage payable at December 31, 1991 represents a note payable to a
local financial institution. The terms of this note are as follows:
<TABLE>
<S> <C>
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)
</TABLE>
Following are the maturities of this note over the next five years:
<TABLE>
<S> <C>
1992 $1,167,622
==========
Total $1,167,622
==========
</TABLE>
F-20
<PAGE>
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:
<TABLE>
<CAPTION>
Computer
Computer Computer Equipment
Equipment Equipment ---------
#1 #2 Automobile #3
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
NOTE 12: LEASES (CONTINUED)
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
Lease expense under all operating leases is as follows:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
ESTIMATED RECORDED
FAIR BOOK
VALUE BALANCE
----------- ----------
<S> <C> <C>
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
</TABLE>
*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.
<TABLE>
<CAPTION>
ESTIMATED RECORDED
FAIR BOOK
VALUE BALANCE
----------- ----------
<S> <C> <C>
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
</TABLE>
F-23
<PAGE>
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)
<TABLE>
<CAPTION>
ESTIMATED RECORDED
FAIR BOOK
VALUE BALANCE
----------- -----------
<S> <C> <C>
Net loans $ 43,125,697 $ 42,596,605
</TABLE>
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
<PAGE>
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
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
UNAUDITED AUDITED
----------------------------- -------------
SEPTEMBER 30, DECEMBER 31,
----------------------------- ------------
1993 1992 1992
-------------- ------------- -------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-26
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
<TABLE>
<CAPTION>
UNAUDITED
------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
1993 1992 1993 1992
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
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
---------- ---------- ---------- -------------
</TABLE>
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED
----------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -----------------------
1993 1992 1993 1992
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
*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
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
---------------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED
----------------------------------------------
CAPITAL STOCK
-------------- CAPITAL RETAINED
SHARES AMOUNT SURPLUS EARNINGS
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
======== ========== ========== ===========
</TABLE>
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-29
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
- -----------------------------------------------------------
TREASURY STOCK UNREALIZED TOTAL
- -------------------------- LOSS ON STOCKHOLDERS'
SHARES AMOUNT SECURITIES EQUITY
- ---------- --------- ------------ -------------
<S> <C> <C> <C>
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
====== ========== ============ =============
</TABLE>
F-30
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
UNAUDITED
----------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1993 1992
---------------- ----------------
<S> <C> <C>
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
============= ==============
</TABLE>
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-31
<PAGE>
CONCHO BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
UNAUDITED
-------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1993 1992
----------- -----------
<S> <C> <C>
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
</TABLE>
See accountants' compilation report.
The accompanying notes are an integral part of this statement.
F-32
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
DECEMBER 31, 1992
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
============ ========= ========== ============
</TABLE>
Continued
See accountants' compilation report.
F-34
<PAGE>
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.
<TABLE>
<CAPTION>
CARRYING APPROXIMATE
VALUE MARKET VALUE
------------ -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
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
============= ============== ============== =============
</TABLE>
Continued
See accountants' compilation report.
F-35
<PAGE>
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.
<TABLE>
<CAPTION>
Carrying Approximate
Value Market Value
------------- -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
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
=========== =========== ========= ===========
</TABLE>
Continued
See accountants' compilation report.
F-36
<PAGE>
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.
<TABLE>
<CAPTION>
CARRYING APPROXIMATE
VALUE MARKET VALUE
----------- ------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
LENGTH OF SERVICE VESTING
----------------- -------
<S> <C>
2 years 20%
3 years 30%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
</TABLE>
See accountants' compilation reports.
F-37
<PAGE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 31,
1993 1992 1992
----------- ----------- -------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
See accountants' compilation reports.
F-38
<PAGE>
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:
<TABLE>
<CAPTION>
BEGINNING OF END OF
THE PERIOD THE PERIOD
UNAMORTIZED CAPITALIZED UNAMORTIZED
LOAN COSTS LOAN COSTS AMORTIZATION LOAN COSTS
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
Loans at variable and fixed interest rates as of September 30, 1993 and
1992 are as follows:
<TABLE>
<CAPTION>
December 31, 1992 September 30, 1993 September 30, 1992
------------------------ ------------------------ ------------------------
Variable Fixed Variable Fixed Variable Fixed
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== =========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1993 1992 1992
------------- ------------- -------------
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, December 31,
1993 1992
-------------- -------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1993 1992 1992
------------- ------------- ------------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
LENDER
----------------------------------------------
Bank of the West 13-Various
---------------- ----------------------------
<S> <C> <C>
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
</TABLE>
Following are the maturities of these notes over the next five years:
<TABLE>
<S> <C>
1993-94 $ 224,611
1994-95 103,924
1995-96 114,154
1996-97 860,900
1997-98 -0-
-----------
Total $ 1,303,589
===========
</TABLE>
See accountants' compilation reports.
F-43
<PAGE>
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:
<TABLE>
<CAPTION>
Computer Computer Computer
Equipment Equipment Equipment
Lease #1 Lease #2 Lease #3
--------- --------- ---------
<S> <C> <C> <C>
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
</TABLE>
See accountants' compilation reports.
F-44
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, December 31,
1992 1992
------------- ------------
<S> <C> <C>
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
============= ============
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
1994 $ 82,680
1995 82,680
1996 82,680
1997 82,680
1998 27,560
---------
Total $ 358,280
=========
</TABLE>
See accountants' compilation reports.
F-45
<PAGE>
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:
<TABLE>
<CAPTION>
September 30, September 30,
1993 1992
------------- -------------
<S> <C> <C>
Non-cancelable operating leases $ 64,987 $ 88,706
Other leases 26,588 21,256
------------- -------------
Total $ 91,575 $ 109,962
============= =============
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
ESTIMATED RECORDED
FAIR BOOK
VALUE BALANCE
--------------------------- ---------------------------
September 30, December 31, September 30, December 31,
1993 1992 1993 1992
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
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
</TABLE>
*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.
<TABLE>
<CAPTION>
ESTIMATED RECORDED
FAIR BOOK
VALUE BALANCE
--------------------------- ---------------------------
September 30, December 31, September 30, December 31,
1993 1992 1993 1992
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
Annex A
January 7, 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
<PAGE>
The Board of Directors
Concho Bancshares, Inc.
January 7, 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
<PAGE>
The Board of Directors
Concho Bancshares, Inc.
January 7, 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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Description
- ------------------ -------------------------------------------------------
<S> <C>
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.).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
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).
</TABLE>
(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
<PAGE>
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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Abilene, State of Texas,
on the 10th day of January, 1994.
FIRST FINANCIAL BANKSHARES, INC.
By: /s/ Kenneth T. Murphy
-----------------------------------------
Kenneth T. Murphy, Chairman of the Board,
President and Chief Executive Officer
The undersigned directors and officers of First Financial Bankshares, Inc.
hereby constitute and appoint Curtis R. Harvey as our true and lawful
attorney-in-fact with full power to execute in our name and behalf in the
capacities indicated below any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement and to file
the same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission and hereby ratify and confirm that
such attorney-in-fact shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 10th day of January, 1994, by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/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
/s/ Robert E. Hitt Director
- ------------------------------
Robert E. Hitt
/s/ Ralph N. Hooks Director
- ------------------------------
Ralph N. Hooks
Director
- ------------------------------
Joe B. Matthews
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
/s/ Raymond A. McDaniel, Jr. Director
- ------------------------------
Raymond A. McDaniel, Jr.
/s/ Bynum Miers Director
- ------------------------------
Bynum Miers
/s/ Kenneth T. Murphy Chairman of the Board, President,
- ------------------------------
Kenneth T. Murphy Chief Executive Officer and Director
/s/ Dian Graves Owen Director
- ------------------------------
Dian Graves Owen
/s/ James Parker Director
- ------------------------------
James Parker
/s/ W.V. Ramsey, Jr., M.D. Director
- ------------------------------
W.V. Ramsey, Jr., M.D.
Director
- ------------------------------
Craig Smith
Director
- ------------------------------
H.T. Wilson
/s/ Stanley P. Wilson Director
- ------------------------------
Stanley P. Wilson
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Item 601
Regulation S-K
Exhibit Reference
Number Description
- ------------------ -------------------------------------------------------
<S> <C>
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.).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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).
</TABLE>
<PAGE>
Exhibit 2
STOCK EXCHANGE AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT is made and effective as of this 7th day of December, 1993,
between (1) FIRST FINANCIAL BANKSHARES, INC. (hereinafter referred to as "FIRST
FINANCIAL"), a Texas corporation with its principal office in the City of
Abilene, Taylor County, Texas; (2) CONCHO BANCSHARES, INC. (hereinafter referred
to as "CONCHO"), a Texas corporation and bank holding company with its principal
office in the City of San Angelo, Tom Green County, Texas; and (3) SOUTHWEST
BANK OF SAN ANGELO (hereinafter referred to as "SOUTHWEST BANK"), a Texas state
bank having its principal office in the City of San Angelo, Tom Green County,
Texas.
First Financial is a registered bank holding company. First Financial owns
all of the issued and outstanding capital stock of First Abilene Bankshares of
Delaware, Inc. ("FAB DELAWARE") which, in turn, owns all of the issued and
outstanding capital stock of First National Bank of Abilene; First National
Bank, Sweetwater, Texas; Eastland National Bank; Hereford State Bank; First
National Bank in Cleburne; and Stephenville Bank & Trust Company.
The issued and outstanding stock of Concho, as of the date of this
Agreement, consists of 201,653 shares of common stock (the "CONCHO STOCK")
having a par value of Fifty Cents ($0.50) each. According to the records of
Concho, the Concho Stock is presently held by those individuals, trusts,
estates, corporations and other entities identified in the Shareholders' List
attached hereto as EXHIBIT A. This Agreement contemplates the issuance by
---------
Concho of an additional 564 shares of Concho Stock prior to consummation of the
transaction described in this Agreement. As used herein, the term "SHAREHOLDERS"
shall mean not only the individuals, trusts, estates, corporations and other
entities set forth in EXHIBIT A, but also those persons to whom such additional
---------
shares of Concho Stock shall be issued subsequent to the date of this Agreement,
as contemplated hereby.
Concho owns 119,629 shares (99.7%) of the issued and outstanding capital
stock of Southwest Bank. It is contemplated by this Agreement that, should the
transaction described herein be consummated, Concho shall own all of the issued
and outstanding capital stock of Southwest Bank. Southwest Bank is the only
subsidiary of Concho. Southwest Bank owns all of the issued and outstanding
capital stock of SWB Investment Centre, Inc., a Texas corporation (hereinafter
referred to as "SWB"). There are no other corporations or other business
entities which are considered affiliates of Concho or Southwest Bank.
Pursuant to, and subject to, the provisions hereinafter set forth, First
Financial agrees to acquire from the Shareholders all of the issued and
outstanding shares of Concho Stock in exchange for shares of the voting common
stock of First Financial ("FIRST FINANCIAL STOCK") which shall be issued and
registered by First Financial under the Securities Act of 1933 (the "ACT").
<PAGE>
THEREFORE, in consideration of the premises, and in further consideration
of the mutual covenants and on the basis of the representations and warranties
set forth herein, First Financial, Concho and Southwest Bank have agreed, and by
these presents do hereby agree, as follows:
ARTICLE 1
EXCHANGE OF STOCK
1.1 MEANS OF EXCHANGE. The offer to acquire all of the shares of Concho
-----------------
Stock for shares of First Financial Stock shall be made by means of a Prospectus
delivered to each of the Shareholders upon or following the effective date of a
Registration Statement to be filed by First Financial under the Act covering all
of the shares of First Financial Stock to be issued in exchange for the shares
of Concho Stock.
1.2 RATIO OF EXCHANGE. Subject to all terms and conditions of this
-----------------
Agreement, First Financial shall be obligated to issue and exchange 1.15 shares
of First Financial Stock for each share of Concho Stock tendered by the
Shareholders who accept the exchange offer during the time period the exchange
offer is in effect; PROVIDED, HOWEVER, that if First Financial, prior to
consummation of the proposed exchange offer, shall issue any additional shares
of First Financial Stock pursuant to any stock dividend or stock split approved
by the Board of Directors of First Financial, the ratio of exchange shall be
adjusted so as to prevent dilution of the interest in First Financial to be
received by the Shareholders of Concho; FURTHER PROVIDED, the exchange ratio of
1.15 shares of First Financial Stock for each share of Concho Stock shall be
adjusted if, as of December 31, 1993, the Book Value of Concho Stock (as herein
defined) shall be less than $31.25 or if the Market Value of First Financial
Stock (as herein defined) shall be less than $40.00 per share as of the date
which is ten (10) days prior to the later of (i) the date First Financial
receives written notice that the Board of Governors of the Federal Reserve
System has given final approval of the application filed by First Financial to
acquire all of the Concho Stock or (ii) the date upon which the registration
with the Securities and Exchange Commission of the First Financial Stock to be
issued hereunder becomes effective, or if such date be a Saturday, Sunday or
holiday, the next succeeding business day.
If, as of the date specified in the preceding paragraph of this Section
1.2, the Market Value of First Financial Stock shall be less than $40.00 per
share, then the exchange ratio shall be adjusted by multiplying the exchange
ratio by a fraction, the numerator of which is $40.00 and the denominator of
which is the Market Value of First Financial Stock. If, as of December 31,
1993, the Book Value of Concho Stock shall be less than $31.25 per share, then
the exchange ratio shall be adjusted by multiplying the exchange ratio by a
fraction, the denominator of which is $31.25 and the numerator of which is the
Book Value of Concho Stock. If, as of December 31, 1993, the Book Value of
Concho Stock is less than $31.25 and if, as of
---
- 2 -
<PAGE>
the date specified in the preceding paragraph of this Section 1.2, the Market
Value of First Financial Stock shall be less than $40.00, the exchange ratio
shall be adjusted by multiplying the exchange ratio of 1.15 by each of the
fractions defined above.
As used herein, the "MARKET VALUE" of First Financial Stock shall mean the
per share closing bid price of the First Financial Stock in the over-the-counter
market in accordance with quotations supplied by The Principal - Eppler Guerin &
Turner or other authoritative source. As used herein, the "BOOK VALUE" of
Concho Stock shall mean the consolidated shareholders' equity of Concho
determined in accordance with generally-accepted accounting principles ("GAAP")
divided by the number of issued and outstanding shares of common stock of
Concho; provided, that for purposes of determining the Book Value of Concho
Stock as of December 31, 1993, as required above, the number of issued and
outstanding shares of common stock of Concho shall be deemed to include the 564
new shares of Concho Stock to be issued subsequent to the date of this
Agreement, and also the consideration paid or to be paid for such shares,
irrespective of whether such shares are, in fact, issued and the consideration
therefor paid prior to December 31, 1993.
1.3 MEANS OF ACCEPTANCE OF EXCHANGE OFFER. A form of certificate and
-------------------------------------
acceptance of the exchange offer (the "EXCHANGE FORM") shall accompany the
Prospectus delivered to each Shareholder of Concho. Once the Exchange Form has
been signed by a Shareholder (which shall certify that such Shareholder's stock
is fully paid and non-assessable and is being assigned to First Financial free
and clear of all liens, options and encumbrances), and delivered to the Transfer
Agent named below, the same shall be deemed to constitute an acceptance of the
exchange offer to the extent of the number of shares of Concho Stock
accompanying such Exchange Form. Shares of Concho Stock delivered by the
Shareholders to the Transfer Agent pursuant to the exchange offer may not be
withdrawn. If, for any reason, the exchange offer is terminated and the
exchange of Concho Stock for First Financial Stock is not consummated, then all
shares tendered by the Shareholders for exchange shall be promptly returned by
the Transfer Agent.
1.4 MEANS OF CONSUMMATING THE EXCHANGE. The Transfer Agent, during the
----------------------------------
pendency of the exchange offer, shall notify First Financial and Concho daily of
the number of shares of Concho Stock tendered for exchange under properly
executed Exchange Forms. If First Financial receives written notice from the
Transfer Agent that the Required Amount of Concho Stock (as herein defined) has
been tendered and assigned to First Financial, then, within ten (10) days after
the Closing Date, First Financial shall issue and mail to those Shareholders who
have tendered their shares of Concho Stock, by registered mail, certificates for
the First Financial Stock representing 1.15 shares of First Financial's stock
for each share of Concho Stock received by the Transfer Agent, or such other
number of shares as may be required under Section 1.2 above. For purposes of
this Agreement, the "CLOSING DATE" shall be the later of (i) the date First
-----
Financial receives notice from the Transfer Agent that the Required Amount of
Concho Stock (as herein defined) has been tendered, (ii) the expiration date of
the exchange
- 3 -
<PAGE>
offer, or (iii) the date when all conditions precedent to consummation of the
exchange have been satisfied (or, if not satisfied, have been waived in writing
by First Financial).
Notwithstanding the foregoing provisions of this Section and of Section
1.3, First Financial shall not issue any fractional shares of its common stock.
Shareholders of Concho who would otherwise be entitled to receive fractional
shares of First Financial Stock shall be paid in cash for such fractional shares
based upon the Market Value of First Financial Stock (as defined in Section 1.2)
as of the date specified in the first paragraph of Section 1.2 for determining
such Market Value. Any cash payment to which a Shareholder of Concho may be
entitled shall be included with such Shareholder's certificate for First
Financial Stock when such certificate is mailed to such Shareholder.
1.5 TRANSFER AGENT. The Transfer Agent for purposes of this transaction
--------------
shall be First National Bank of Abilene - Trust Department, Third Floor, 400
Pine Street, Abilene, Texas 79601.
1.6 EFFECTIVE DATE OF EXCHANGE OFFER. The effective date for commencement
--------------------------------
of the exchange offer (the "EFFECTIVE DATE") contemplated by this Agreement
shall be the later of:
(A) The date upon which the Prospectus is mailed by First Financial
to the Shareholders of Concho pursuant to the Registration Statement (but
on or following the effective date thereof) filed by First Financial with
the Securities and Exchange Commission with respect to the First Financial
Stock to be issued hereunder; or
(B) Such other date as may be mutually agreed upon by First Financial
and Concho.
1.7 OFFER TERMINATION DATE. Unless otherwise extended by First Financial,
----------------------
the offer by First Financial to exchange its stock for the Concho Stock shall
terminate twenty-one (21) business days after the Effective Date.
1.8 MERGER. If the Required Amount of Concho Stock (as herein defined) is
------
tendered in exchange for First Financial Stock, and if all other conditions
precedent to consummation of the exchange are satisfied (or, if not satisfied,
are waived by First Financial) and First Financial shall consummate the exchange
by delivering to the tendering Shareholders the shares of First Financial Stock
(and, with regard to any fractional shares, the cash payments) to which such
Shareholders are entitled hereunder, it is the intent of First Financial to
immediately thereafter merge Concho with and into FAB Delaware pursuant to
applicable law. If the exchange offer is consummated, but less than all of the
Concho Stock is tendered in exchange for First Financial Stock, then as part of
the proposed merger of Concho into FAB Delaware, those Shareholders of Concho
who did not tender their shares pursuant to the exchange offer made under this
Agreement will be required to accept First Financial Stock (and
- 4 -
<PAGE>
cash for any fractional shares of First Financial Stock) upon the same basis
(exchange rate and cash) as the exchange of Concho Stock for First Financial
Stock (and cash for fractional shares) will be made under this Agreement,
subject only to the rights, if any, afforded by Delaware or Texas law (whichever
shall apply) to any Shareholders of Concho who dissent from the merger and
refuse to accept First Financial Stock (and cash for fractional shares) in
return for their Concho Stock.
ARTICLE 2
CONDITIONS PRECEDENT TO EXCHANGE OFFER
AND CONSUMMATION OF TRANSACTION
Unless otherwise agreed in writing by First Financial and Concho, the
obligations of First Financial to offer First Financial Stock to the
Shareholders pursuant to this Agreement and, thereafter, the obligations of
First Financial and Concho to consummate the exchange of stock contemplated by
this Agreement shall be expressly subject to the satisfaction of the following
conditions:
2.1 REGULATORY APPROVALS. (1) The Board of Governors of the Federal
--------------------
Reserve System shall have approved, in writing, the acquisition by First
Financial of all of the issued and outstanding capital stock of Concho; (2) all
other approvals and authorizations of, filings and registrations with, and
notifications to, all federal, state and local authorities required for the
consummation of the transaction contemplated hereby shall have been obtained or
made and shall be in full force and effect; and (3) all mandatory waiting
periods shall have elapsed.
2.2 TAX RULINGS. (1) Concho shall have received a written opinion from
-----------
its independent accountants and/or tax counsel stating that the exchange of
their Concho Stock by the Shareholders will not be considered a taxable event
for federal income tax purposes; and (2) First Financial shall have received a
written opinion from its independent accountants, Arthur Andersen & Company, in
form and substance satisfactory to First Financial, stating that the acquisition
by First Financial of the Concho Stock will be treated for accounting purposes
as a "pooling-of-interests". For purposes of this Agreement, the term "REQUIRED
AMOUNT OF CONCHO STOCK" shall mean that number of shares of Concho Stock (as
determined by First Financial's independent accountants) which must be tendered
by the Shareholders in exchange for First Financial Stock in order for the
acquisition by First Financial to be treated for accounting purposes as a
"pooling-of-interests", and which number of shares, for this purpose of this
transaction, shall be at least 90% of the issued and outstanding shares of
Concho Stock.
2.3 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
------------------------------------------
expressly provided herein, all of the representations and warranties of First
Financial, Concho and Southwest Bank contained in this Agreement shall be true
on and as of both the Effective Date
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<PAGE>
and the Closing Date, with the same force and effect as though made on the
Effective Date and Closing Date, respectively, and there shall be delivered on
the Effective Date and the Closing Date appropriate certificates of authorized
officers of First Financial, Concho and Southwest Bank to such effect.
2.4 PERFORMANCE OF AGREEMENTS. First Financial, Concho and Southwest Bank
-------------------------
shall have performed all obligations and agreements, and shall have complied
with all covenants and conditions, contained in this Agreement to be performed
and complied with by it or them on or prior to the effective date of the
exchange offer contemplated hereby.
2.5 NO GOVERNMENTAL PROCEEDING OR LITIGATION. No order, judgment or
----------------------------------------
decree of any competent court, governmental body or regulatory authority shall
be outstanding which declares or seeks a declaration that this Agreement is
invalid or which restrains, or seeks to restrain, the consummation of the
exchange offer contemplated hereby; and no action or proceeding shall be pending
which questions the validity or legality of, or seeks to restrain the
consummation of, the exchange offer contemplated by this Agreement.
2.6 INDEPENDENT AUDIT. Concho's delivery to First Financial of its
-----------------
consolidated reports audited by its independent accountants covering the length
of time and prepared in such manner as will satisfy the requirements and
regulations governing the preparation and furnishing of financial statements in
connection with an effective registration with the Securities and Exchange
Commission under the Act of the shares of First Financial Stock to be issued and
exchanged for the Concho Stock.
2.7 SECURITIES LAWS. (1) The declaration by the Securities and Exchange
---------------
Commission that the Registration Statement filed by First Financial pursuant to
the Act covering the shares of First Financial stock to be issued pursuant to
this Agreement is effective and the furnishing of a Prospectus to the
Shareholders of Concho; (2) all approvals and authorization of, filings and
registrations with, and notifications to, all regulatory authorities under state
securities or Blue Sky laws required for the offer, sale, exchange or
qualification of the First Financial Stock in connection with the exchange offer
shall have been obtained or made and shall be in full force and effect; (3)
except as reflected in Disclosure Schedule D, First Financial, Concho and
Southwest shall have complied with all federal and state securities laws,
statutes, rules and regulations applicable to the exchange offer contemplated by
this Agreement; and (4) no stop order has been issued or threatened by the SEC
or any state securities authority with respect to the offer, sale, issuance or
exchange of stock contemplated hereby.
2.8 TENDER OF SHARES. The delivery by Shareholders owning the Required
----------------
Amount of Concho Stock of duly and properly executed Exchange Forms effectively
transferring and assigning their shares of Concho Stock to First Financial free
and clear of all liens, options and encumbrances and with all of such stock
being fully paid and non-assessable at the time of transfer.
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<PAGE>
2.9 NO MATERIAL CHANGES. Except as reflected in Disclosure Schedule C,
-------------------
the absence of any material adverse change in the financial conditions of First
Financial, Concho, Southwest Bank or SWB between July 31, 1993 and the Closing
Date.
2.10 OPINION OF CONCHO'S COUNSEL. First Financial shall have received the
---------------------------
written opinion of counsel for Concho and Southwest Bank, dated at or as of the
Closing Date and in form and substance satisfactory to First Financial and its
counsel, that Concho, Southwest Bank and SWB have good and merchantable title to
all of their assets and properties; that all shares of Concho Stock, the capital
stock of Southwest Bank and the capital stock of SWB have been validly issued
and are non-assessable and fully paid; that, except as reflected in Disclosure
Schedules B and D, there are no known material liabilities, claims or lawsuits
pending against Concho, Southwest Bank or SWB or any of their respective
properties or assets; that there has been no increase in the number of shares of
Concho Stock issued and outstanding; and that Concho owns all of the issued and
outstanding shares of Southwest Bank capital stock free and clear of all liens,
security interests, transfer restrictions and other encumbrances.
2.11 OPINION OF FIRST FINANCIAL'S COUNSEL. Concho shall have received the
------------------------------------
written opinion of counsel for First Financial, dated at or as of the Closing
Date and in form and substance satisfactory to Concho and its counsel, that
First Financial is duly organized, validly existing and in good standing under
the laws of the State of Texas; that First Financial has all requisite power and
authority to execute and deliver the Agreement and to consummate the transaction
contemplated thereby; that the execution and delivery by First Financial of the
Agreement does not and the consummation of the transaction contemplated thereby
will not contravene or violate any provision of or constitute a default under
the (a) articles of incorporation or bylaws of First Financial, or (b) any law,
regulation, rule, decree, order or judgment of any court, governmental agency or
public body applicable to First Financial or its assets or properties; and that
all consents, approvals, authorizations, actions or filings with any court,
governmental agency or public body required in connection with the execution,
delivery and performance by First Financial of the Agreement have been obtained.
2.12 BUILDING/PREMISES. Concho shall have obtained a written agreement
-----------------
signed by the holders of the thirteen (13) individual promissory notes given by
Concho in connection with the purchase by Concho of the third, fourth and fifth
floors (the "CONCHO PROPERTY") of the office tower building in the City of San
Angelo, Tom Green County, Texas, wherein the banking premises of Southwest Bank
are located (Southwest Bank owning the remaining two (2) floors and basement of
the office tower and the land upon which the office tower is located), and
payment of which promissory notes is secured by a deed of trust covering the
Concho Property and further secured by a security interest in, and pledge of,
119,504 shares of Southwest Bank common stock owned by Concho, that the holders
of the notes, immediately following (but subject to) consummation of the stock
exchange offer to be made by First Financial to the Shareholders under this
Agreement, will:
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<PAGE>
(1) consent to the transfer and conveyance of the Concho Property by
Concho to Southwest Bank;
(2) consent to assumption by Southwest Bank of the obligation to pay,
in accordance with the terms thereof, the outstanding principal balance,
plus accrued unpaid interest, due and owing under each and all of the
thirteen (13) promissory notes;
(3) release Concho from any further obligations under or by reason of
said notes, deed of trust and any other documents or instruments executed
in connection therewith; and
(4) release all liens, security interests and pledges of the
Southwest Bank common stock held by the holders of said notes to secure
payment thereof.
ARTICLE 3
WARRANTIES AND REPRESENTATIONS OF CONCHO AND SOUTHWEST BANK
Concho and Southwest Bank hereby jointly and severally make the following
warranties and representations to First Financial:
3.1 ORGANIZATION AND STANDING OF CONCHO. Concho is a Texas corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Texas, with corporate power to own property and carry on its business
as it is now being conducted. Concho is also a registered bank holding company
under the Bank Holding Company Act of 1956, as amended. The copies of the
Articles of Incorporation and Bylaws of Concho, including all amendments
thereto, delivered, or to be delivered, to First Financial are, or will be,
complete and accurate in all respects.
3.2 ORGANIZATION AND STANDING OF SOUTHWEST BANK. Southwest Bank is a
-------------------------------------------
state bank duly organized, validly existing and in good standing under the laws
of the State of Texas, with corporate power to own property and carry on its
business as it is now being conducted. Southwest Bank is an insured bank under
the Federal Deposit Insurance Act. All of the banking business and all of the
banking offices and facilities of Southwest Bank are located within the State of
Texas. The copies of the Articles of Association and Bylaws of Southwest Bank,
including all amendments thereto, delivered, or to be delivered, to First
Financial are, or will be, complete and accurate in all respects.
3.3 SUBSIDIARIES AND AFFILIATES. Concho does not have any subsidiaries
---------------------------
other than Southwest Bank. Southwest Bank does not have any subsidiary other
than SWB. Neither
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<PAGE>
Concho, Southwest Bank nor SWB holds any interest in any other corporation,
firm, joint venture or partnership, except (1) as security for repayment of
loans to customers of Southwest Bank, (2) as acquired by Southwest Bank through
foreclosure or otherwise by reason of debt previously contracted, or (3) for
authorized investment securities purchased by Concho or Southwest Bank for its
own account (but, as a result of which investments, neither Concho nor Southwest
Bank is considered to be an affiliate of the issuer of such securities or
otherwise controls, is controlled by or is under common control with, the issuer
of any such investment securities).
3.4 CAPITALIZATION. As of the date of this Agreement and the Closing
--------------
Date, the authorized capital stock of Concho consists of 500,000 shares of
common stock of a par value of $0.50 each, of which 201,653 are presently issued
and outstanding. Concho also holds 8,478 shares as treasury stock, having
acquired the same in October 1991 in satisfaction of a loan previously
contracted by Southwest Bank. The authorized capital stock of Southwest Bank
consists of 119,937 shares of common stock of a par value of $10.00, of which
119,937 are presently issued and outstanding; and the authorized capital stock
of SWB consists of 5,000 shares of common stock of a par value of $100.00, of
which 10 are presently issued and outstanding. Concho now owns all but 308
shares of the issued and outstanding common stock of Southwest Bank, but as of
the Closing Date shall own all of the issued and outstanding common stock of
Southwest Bank. Southwest Bank owns all of the issued and outstanding common
stock of SWB. All rights, privileges, restrictions (if any), terms and
provisions governing the shares of common stock of Concho, Southwest Bank and
SWB are described in the Articles of Association and Bylaws (as amended) of
Concho, Southwest Bank and SWB, respectively; and, except for shares of
Southwest Bank pledged to secure the debt of Concho (as described in Section
2.12) or as otherwise reflected in Disclosure Schedule F, there are not (nor
shall be on the Closing Date) any outstanding or authorized subscriptions,
options, warrants, calls, rights or commitments of any kind restricting the
transfer of, requiring the issuance or sale of, or otherwise relating to, any of
the capital stock of Concho, Southwest Bank or SWB.
3.5 AUTHORITY OF CONCHO AND SOUTHWEST BANK. This Agreement has been duly
--------------------------------------
executed and delivered by, and has been duly authorized by all necessary
corporate action on the part of, Concho and Southwest Bank, respectively, and,
subject to the conditions precedent to closing of this transaction set forth
herein, is a valid, legally binding and enforceable obligation of Concho and
Southwest Bank. Subject to First Financial's obtaining the approval of the Board
of Governors of the Federal Reserve System, neither the execution, delivery or
performance of this Agreement in its entirety, nor the consummation of all of
the transactions contemplated hereby, will violate (with or without the giving
of notice or the passage of time), be in conflict with, result in a breach of
any provision of, or constitute a default under, any provision in the Articles
of Incorporation, Articles of Association or Bylaws of, or any provision of law
applicable to, Concho, Southwest Bank or SWB, or any agreement or understanding,
order, judgment, award, decree, statute, ordinance, regulation or other
restriction of any kind
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<PAGE>
or character to which Concho, Southwest Bank or SWB is a party or by which any
of the respective assets or properties of Concho, Southwest Bank or SWB are
subject or bound.
3.6 LICENSES, PERMITS AND CONTRACTS. To their knowledge, none of the
-------------------------------
assets, licenses, permits, authorizations and contracts of Concho, Southwest
Bank or SWB will be terminated or impaired by reason of execution, delivery or
performance by Concho or Southwest Bank of this Agreement or consummation of the
transactions contemplated hereby.
3.7 CLAIMS, SUITS AND PROCEEDINGS. Except as reflected in Disclosure
-----------------------------
Schedule D, there are no actions, suits, proceedings or claims pending or, to
their knowledge, threatened against Concho, Southwest Bank or SWB, at law or in
equity, or before any federal, state, municipal or other governmental court,
department, commission, board, bureau, agency, instrumentality or other person
which would result in liability to Concho, Southwest Bank or SWB upon
consummation of the transaction contemplated hereby or which would prevent or
delay such consummation. In particular, and without in any way limiting the
foregoing, neither Concho, Southwest Bank nor SWB is subject to, or a party to,
any cease-and-desist, supervisory or other agreement with any banking or other
regulatory authority which requires the consent or approval of such authority or
which is otherwise applicable to the transaction contemplated by this Agreement.
3.8 CONSENTS AND APPROVALS. No consent, approval or authorization of, or
----------------------
declaration, filing or registration with, any person or governmental authority
is required in connection with the execution and delivery of this Agreement by
Concho or Southwest Bank, and consummation of the transactions contemplated
hereby, except for (1) such approvals as may be required for First Financial to
acquire the Concho Stock and for such approvals by the Boards of Directors of
Concho and Southwest Bank as have been given prior to execution of this
Agreement and (2) such approvals and consents as may be required in order to
obtain and carry out the agreement described in Section 2.12 relative to the
Concho Property and the indebtedness secured thereby.
3.9 REGULATORY REPORTS. To their knowledge, Concho, Southwest Bank and
------------------
SWB have filed all reports, registrations and statements, together with any
amendments required to be made thereto, that are required to be filed with the
Federal Reserve Board (the "FRB"), Texas Department of Banking (the "TDB"), the
Federal Deposit Insurance Corporation (the "FDIC"), the Securities and Exchange
Commission (the "SEC") and any other applicable authorities, and all of such
reports, registrations and statements are true, complete and correct in all
material respects.
3.10 FINANCIAL STATEMENTS. Concho and Southwest Bank have provided,or
--------------------
caused to be provided, to First Financial the Financial Statements and Reports
described in Disclosure Schedule A attached hereto and the notes thereto
(collectively, the "FINANCIAL STATEMENTS"), all of which have been prepared in
accordance with generally accepted accounting principles
- 10 -
<PAGE>
("GAAP") or regulatory accounting principles ("RAP"); and the Financial
Statements, as of their respective dates, conformed in all material respects
with all applicable material rules and regulations promulgated by the FRB, the
TDB and the FDIC.
3.11 UNDISCLOSED LIABILITIES. To their knowledge, and except to the extent
-----------------------
reflected in the Financial Statements or as reflected in Disclosure Schedule B,
Concho, Southwest Bank and SWB have no material liabilities or obligations
(absolute, accrued, contingent or otherwise).
3.12 ABSENCE OF CERTAIN CHANGES. Except as and to the extent reflected in
--------------------------
Disclosure Schedule C, neither Concho, Southwest Bank nor SWB has, from July 31,
1993, until the date of this Agreement:
(A) made any amendment to its articles of association or by-laws or
changed the character of its business in any material manner;
(B) suffered any material adverse change in its financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise) or
business;
(C) incurred, assumed or become subject to, whether directly or by
way of any guarantee or otherwise, any obligations or liabilities
(absolute, accrued, contingent or otherwise) except in the ordinary course
of business;
(D) permitted or allowed any of its property or assets to be subject
to any mortgage, pledge, lien, security interest, encumbrance, restriction
or change of any kind;
(E) cancelled any debts in excess of $25,000, waived any claims or
rights of material value, or sold, transferred, or otherwise disposed of
any of its properties or assets, except in the ordinary course of business;
(F) other than in the ordinary course of business, disposed of or
permitted to lapse any rights to the use of any material trademark, trade
name or copyright, or disposed of or disclosed to any person other than its
employees any material trade secret not theretofore a matter of public
knowledge;
(G) granted any increase in compensation, or paid or agreed to pay or
accrue any bonus or like benefit, to or for the credit of any director,
officer or employee except in the ordinary course of business, or entered
into any employment or consulting contract or other agreement for personal
services with any director, officer or employee, or adopted, amended or
terminated any Employee Benefit Plan, except as authorized by Section 4.3;
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<PAGE>
(H) declared, paid or set aside for payment any dividend or other
distribution or payment in respect of its capital stock [other than (i)
normal, regular dividends or distributions of SWB to Southwest Bank and
Southwest Bank to Concho, and (ii) Concho's regular annual cash dividend of
$0.25 per share payable to its Shareholders], or directly or indirectly
redeemed, purchased or otherwise acquired, or arranged for the redemption,
purchase or acquisition of, any shares of its capital stock or other of its
securities;
(I) organized or acquired, except through foreclosure, the exercise
of creditors remedies or in a fiduciary capacity, any capital stock or
other equity securities of any corporation or acquired any equity or
ownership interest in any partnership or business enterprise;
(J) issued, reserved for issuance, granted, or authorized the
issuance of any shares of its capital stock or subscriptions, options,
warrants, calls, rights or commitments of any kind relating to the issuance
of or conversion into shares of its capital stock, except for the 564 new
shares of Concho Stock to be issued by Concho in order to acquire the
remaining shares of Southwest Bank stock not previously owned by Concho;
(K) made any change in any method of accounting or accounting
practice, except as required by applicable law, regulation or GAAP;
(L) except for the transactions contemplated by this Agreement, or as
otherwise permitted hereunder, entered into any transaction, or entered
into, modified or amended any contract or commitment, other than in the
ordinary course of business; or
(M) agreed, whether in writing or otherwise, to take any action the
performance of which would be prohibited by this Section 3.12.
3.13 TITLE TO PROPERTIES; ENCUMBRANCES. Except for the deed of trust,
---------------------------------
mortgage, liens and security interests described in Section 2.12 securing the
indebtedness described therein, Concho, Southwest Bank and SWB have, or will
have upon the Closing Date, unencumbered, good and merchantable title to all
their properties and assets, real and personal, including, without limitation,
all properties and assets reflected in the Financial Statements, except for (i)
easements, reservations, restrictions, rights-of-way, and other encumbrances of
record, other than liens and conveyances, and (ii) those properties and assets
disposed of in the ordinary course of business consistent with safe and sound
banking practices; and, to their knowledge, all uses made of, and activities
conducted upon, any real property owned, leased or used by Concho, Southwest
Bank and/or SWB comply in all respects with applicable state, local or municipal
zoning laws and other laws, rules, regulations and ordinances.
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<PAGE>
3.14 LITIGATION. Except as reflected in Disclosure Schedule D, there are
----------
no actions, suits, proceedings or claims pending or, to their knowledge,
threatened against Concho, Southwest Bank or SWB, or involving any of their
properties or assets, at law or in equity, or before or by any foreign, federal,
state, municipal or other governmental court, department, commission, board,
bureau, agency, instrumentality or other person, which may, in the reasonable
judgment of Concho, Southwest Bank or SWB, result in any material liability to
Concho, Southwest Bank or SWB.
3.15 TAX MATTERS. Concho, Southwest Bank and SWB have each:
-----------
(A) duly filed all tax returns (the "FILED RETURNS") required to be
filed by it involving a tax liability or other material potential detriment
for failure to file, and all of such Filed Returns are true, complete and
correct in all material respects;
(B) paid, or established reasonable reserves for the payment of, all
federal income taxes and all state and local income taxes and all
franchise, property, sales, employment or other taxes required to be paid
in respect to the periods covered by the Filed Returns;
(C) with respect to the periods prior to the date of this Agreement
and subsequent to the last Filed Return, established reasonable reserves
for the payment of all federal income taxes and all material state and
local income taxes and all material franchise, property, sales, employment
or other taxes; and
(D) properly and timely withheld, remitted and/or paid all
withholding taxes, social security taxes, unemployment taxes and other
employment-related taxes which Concho, Southwest Bank and SWB are, by law,
required to withhold, remit or pay.
In addition to the foregoing, neither Concho, Southwest Bank nor SWB (1) is
the subject of, nor is there pending or threatened, any audit with respect to or
arising out of any Filed Return; (2) has previously requested, or has filed a
request for, any extension of time to file any return or pay any tax; and (3)
has agreed or consented to the extension of any statute of limitations
respecting the assessment of taxes, additional taxes, penalty or interest in
connection with any tax liability or Filed Return. No tax liens have been filed
or threatened against Concho, Southwest Bank or SWB or any of their properties.
For the purpose of this Agreement, the term "TAX" shall include all
federal, state and local taxes and related governmental charges and any interest
or penalties payable in connection with the payment of taxes.
3.16 EMPLOYMENT BENEFIT PLANS. Except as reflected in Disclosure Schedule
------------------------
E, neither Concho, Southwest Bank nor SWB maintains or contributes to, nor is
Concho, Southwest
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<PAGE>
Bank or SWB required to maintain or contribute to, (1) any "employee welfare
benefit plan" [as defined in Section 3(1) of the Employee Retirement Income
Security Act ("ERISA")] or (2) any "employee pension benefit plan" [as defined
in Section 3(2) of ERISA]. Except as reflected in Disclosure Schedule E,
neither Concho, Southwest Bank nor SWB maintains or contributes to, nor has
Concho, Southwest Bank or SWB adopted or entered into, any deferred compensation
plan, bonus plan, stock option plan, employee stock option plan or any other
employee benefit plan, agreement, arrangement or commitment (other than normal
policies concerning holidays, vacations, accumulated sick leave, and annual
budgeted incentive bonuses previously disclosed to First Financial.)
3.17 LEASES, CONTRACTS AND AGREEMENTS. Disclosure Schedule F reflects all
--------------------------------
leases, contracts and agreements to which Concho, Southwest Bank or SWB is a
party and which obligate or may obligate Concho, Southwest Bank or SWB to pay
any amount in excess of $25,000 over the entire term of any such lease, contract
or agreement (the "CONTRACTS"), true and correct copies of which have been or
shall be made available to First Financial. For the purposes of this Agreement,
the Contracts shall not be deemed to include loan commitments of, loans made by,
repurchase agreements made by, bankers acceptances of, or deposits taken by
Southwest Bank in the ordinary course of its banking business. Each and all of
the Contracts are legal, valid, binding and enforceable in accordance with their
terms and are in full force and effect. To their knowledge, there are no
existing material defaults by any party to the Contracts and no event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute such default.
3.18 RELATED COMPANY TRANSACTIONS. Except for transactions described in
----------------------------
Disclosure Schedule G, there are no agreements, instruments, commitments,
extensions of credit, tax sharing or allocation agreements or other contractual
agreements of any kind between Concho, Southwest Bank and/or SWB.
3.19 TRANSACTIONS WITH AFFILIATES. Except as reflected in Disclosure
----------------------------
Schedule H, neither Concho, Southwest Bank nor SWB (1) has any loans outstanding
to any of its affiliates, executive officers, or directors, or to any
shareholder owning ten percent (10%) or more of its outstanding shares or (2) is
a party to, or otherwise bound by, any contractual agreement with any of its
affiliates, executive officers, or directors, or with any shareholder owning ten
percent (10%) or more of its outstanding shares.
3.20 COMPLIANCE WITH LAWS. To their knowledge, and except as otherwise
--------------------
disclosed in Disclosure Schedule I, Concho, Southwest Bank and SWB are in
compliance in all material respects with all applicable laws and regulations and
no action is pending or threatened against Concho, Southwest Bank or SWB by any
federal, state or other regulatory authority.
3.21 ACCURACY OF INFORMATION. The factual information relating to Concho,
-----------------------
Southwest Bank and SWB contained in this Agreement and the Disclosure Statements
hereto is, to their
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<PAGE>
knowledge, true, correct and complete in all material respects. The information
relating to Concho, Southwest Bank and SWB supplied for inclusion in the
application of First Financial to the FRB, the Registration Statement filed by
First Financial with the SEC and the Prospectus to be delivered by First
Financial to each of the Shareholders of Concho, as of the date supplied by
Concho and Southwest Bank, will be true, correct and complete in all material
respects.
3.22 INSURANCE. Concho, Southwest Bank and SWB have in effect the
---------
insurance coverage described in Disclosure Schedule J. All insurance policies
described in Disclosure Schedule J are in full force and effect; no breach or
default exists under any such policy; and Concho, Southwest Bank and SWB have
timely filed all claims, if any, under any such insurance policy.
3.23 LOANS. To their knowledge, each loan reflected as an asset in the
-----
Financial Statements, as well as all other extensions of credit, guarantees,
security agreements, deeds of trust and other documents and instruments executed
in connection therewith (whether intended as security or otherwise) is the
legal, valid and binding obligation of the obligor named therein and is
enforceable in accordance with its terms. Concho and Southwest Bank have made
available to First Financial all material information in possession of Concho
and Southwest Bank concerning all outstanding loans of Concho and Southwest
Bank.
3.24 FIDUCIARY RESPONSIBILITIES. To their knowledge, Concho, Southwest
--------------------------
Bank and SWB have each performed in all material respects all of its duties as a
trustee, executor, grantor, escrow agent or other fiduciary in a manner which
complies in all material respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
3.25 REGULATORY ACTIONS. Except as disclosed in Disclosure Schedule K,
------------------
there are no actions or proceedings pending or, to their knowledge, threatened
against Concho, Southwest Bank or SWB by or before the FRB, the TDB, the FDIC,
the SEC or any other governmental agency or authority.
3.26 BROKER'S FEES. No person or entity acting on behalf of Concho,
-------------
Southwest Bank or SWB is or shall be entitled, directly or indirectly, to any
brokerage fee, commission, finder's fee or financial advisory fee in connection
with the transaction contemplated by this Agreement.
3.27 ENVIRONMENTAL MATTERS. To their knowledge, and except as disclosed in
---------------------
Disclosure Schedule L, there are no material adverse environmental problems or
conditions affecting any of the properties of Concho, Southwest Bank or SWB. In
particular, and without in any way limiting the foregoing, Concho, Southwest
Bank and SWB, after due inquiry, warrant and represent that all hazardous and
toxic chemicals, substances and materials located or used upon any of their
respective properties have been and are being stored, used, transported and
disposed of in compliance with applicable state and federal environmental laws;
that there are no underground storage tanks located upon any of their
properties; and that no action or
- 15 -
<PAGE>
investigation is pending or threatened by any governmental or regulatory
authority, or by any person, firm or corporation, arising out of any failure, or
alleged failure, to comply with applicable environmental laws, statutes, rules
or regulations.
ARTICLE 4
CONDUCT OF BUSINESS OF CONCHO, SOUTHWEST BANK
AND SWB PENDING CLOSING DATE
4.1 AFFIRMATIVE COVENANTS. From and after the date of this Agreement
---------------------
and until the Closing Date, Concho and Southwest Bank shall each, and each of
them shall cause SWB to:
(A) operate and conduct its business in the ordinary course and
consistent with its prior practices;
(B) preserve intact its corporate existence, business organization,
assets, licenses, permits, authorizations, and business opportunities;
(C) maintain its books, accounts and records in accordance with
generally accepted accounting principles and/or banking practices, as
applicable, and comply with all of its contractual obligations;
(D) maintain all of its properties in good repair, order and
condition, reasonable wear and tear excepted, and maintain insurance
coverage upon all such properties with reputable insurers which are
adequate, in its reasonable judgment, for the business conducted by it;
(E) in good faith and in a timely manner (i) cooperate with First
Financial in satisfying the conditions in this Agreement; (ii) diligently
assist First Financial, to the extent it may reasonably require, in
obtaining as promptly as possible all consents, approvals, authorizations
and rulings, whether regulatory or corporate, as are necessary for First
Financial to carry out and consummate the transaction contemplated by this
Agreement; (iii) furnish, or cause to be furnished, to First Financial such
information as First Financial may reasonably require for inclusion in any
filings or applications that may be necessary in that regard; and (iv)
perform all acts and execute and deliver all documents reasonably necessary
to cause the transaction contemplated by this Agreement to be consummated
at the earliest possible date;
(F) timely file with the FRB, TDB, FDIC, SEC and other regulatory
authorities all financial statements and other reports to be filed by it
and promptly
- 16 -
<PAGE>
thereafter deliver to First Financial copies of all financial statements
and other reports required to be so filed;
(G) comply with all applicable laws and regulations, noncompliance
with which would have a material adverse effect upon its financial
condition, assets, liabilities (absolute, accrued, contingent or otherwise)
or business; and
(H) promptly give written notice to First Financial upon obtaining
knowledge of any event or fact that would cause any of the representations
or warranties of Concho or Southwest Bank contained in or referred to in
this Agreement to be untrue in any material respect, and use its best
efforts to prevent or promptly remedy the same.
4.2 NEGATIVE COVENANTS. Except with the written consent of First
------------------
Financial, neither Concho nor Southwest Bank shall, and neither of them shall
permit SWB to, from the date of this Agreement and until the Closing Date,
(A) make or permit any amendment to its Articles of Association or
By-laws;
(B) make or permit any changes in allocating or charging costs which
in the aggregate would cause a material detriment, except as may be
required by applicable regulation or GAAP, and after notice to First
Financial;
(C) except for negotiations and discussions between the parties
hereto relating to the transactions contemplated by this Agreement, (i)
directly or indirectly initiate contact with any person or entity in an
effort to solicit an acquisition, merger or consolidation proposal relating
to Concho, Southwest Bank or SWB, (ii) enter into negotiation of the terms
of an agreement relating to the acquisition, merger or consolidation of
Concho, Southwest Bank or SWB, (iii) permit access to the premises of
Concho, Southwest Bank or SWB for the review of its business or operations
(except as required by law), (iv) except in the ordinary course of
business, enter into any oral or written agreement to sell the assets of
Concho, Southwest Bank or SWB or to merge, consolidate, liquidate or
dissolve Concho, Southwest Bank or SWB, or (v) authorize or engage any
officer, employee, agent or representative of Concho, Southwest Bank or SWB
(including but not limited to investment bankers and financial advisers) to
enter into any such solicitation, negotiation or any such oral or written
agreement;
(D) make any change in the number of shares of its capital stock
issued and outstanding, or issue, reserve for issuance, grant, or authorize
the issuance of any shares of their capital stock or subscriptions,
options, warrants, calls, rights or commitments of any kind relating to the
issuance or conversion into shares of their capital stock, other than the
564 new shares of Concho Stock to be issued by Concho to acquire the
remaining stock of Southwest Bank;
- 17 -
<PAGE>
(E) incur, assume or become subject to, whether directly or by way of
any guarantee or otherwise, any obligation or liability (absolute, accrued,
contingent or otherwise) except in the ordinary course of business;
(F) permit or allow any of its property or assets to become subject
to any mortgage, pledge, lien, security interest or encumbrance,
restrictions or change of any kind;
(G) cancel any debts in excess of $25,000.00, waive any claims or
rights of material value or sell, transfer, or otherwise dispose of any of
its properties or assets, except in the ordinary course of business;
(H) other than in the ordinary course of business, dispose of or
permit to lapse any of its rights to the use of any material trademark,
trade name or copyright, or dispose of or disclose to any person any
material trade secret not theretofore a matter of public knowledge;
(I) except in the ordinary course of business, grant or permit any
increase in compensation, or pay or agree to pay or accrue any bonus or
like benefit, to or for the credit of any its directors, officers or
employees, or enter into, or permit, of any employment or consulting
agreement or other agreement for personal services with any of its
directors, officers or employees, or adopt, amend or terminate any Employee
Benefit Plan or change or modify the period of vesting or retirement age
for any participant of any such plan (except as required by or to comply
with any law or regulation);
(J) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock except
for (i) normal, regular dividends or other distributions of SWB to
Southwest Bank and Southwest Bank to Concho, and (ii) Concho's regular
annual cash dividend of $0.25 per share payable to its Shareholders;
(K) acquire the capital stock or other equity securities of any
corporation or any equity or ownership interest in any partnership or other
business enterprise, except through foreclosure, the exercise of creditors'
remedies or in a fiduciary capacity;
(L) make aggregate capital expenditures and commitments in excess of
$50,000 for additions to its premises or equipment;
(M) except as disclosed in Disclosure Schedule M, modify any
outstanding loans, make any new loans or acquire any loan participations,
unless such modifications, new loans, or participations are made in the
ordinary course of business; or
- 18 -
<PAGE>
(N) knowingly do, or cause or permit to be done, or knowingly take,
or cause or permit to be taken, any action that would disqualify the
acquisition by First Financial of the Concho Stock to be treated for
accounting purposes on a pooling-of-interests basis.
4.3 CERTAIN ACTIVITIES IN ORDINARY COURSE. For the purposes of Section
-------------------------------------
4.2(i), it shall be considered to be in the ordinary course of business for
Southwest Bank and SWB to award reasonable bonuses for 1993, to grant reasonable
salary increases to officers and employees for 1994, and make its usual and
customary matching contribution to contributions made by employees of Concho,
Southwest Bank or SWB under its or their 401(k) Plan, but First Financial shall
be notified in writing of any such increases, bonuses or contributions to be
paid after the date of this Agreement.
4.4 COVENANTS. From and after the date of this Agreement and until
---------
consummation or termination of the transaction contemplated by this Agreement,
neither Concho nor Southwest Bank shall, nor shall Concho or Southwest Bank
cause or permit SWB to, take any action which would cause Concho or Southwest
Bank to be in breach of any of the covenants contained in this Article 4; and
Concho and Southwest Bank shall, within their ability to do so, cause Concho,
Southwest Bank and SWB to keep and perform all of the covenants contained in
this Article 4.
ARTICLE 5
WARRANTIES, REPRESENTATIONS
AND COVENANTS OF FIRST FINANCIAL
First Financial warrants and represents to, and covenants and agrees with,
Concho and Southwest Bank as follows:
5.1 ORGANIZATION AND STANDING OF FIRST FINANCIAL. First Financial is a
--------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas, with corporate power to own property and carry on
its business as it is now being conducted.
5.2 CAPITALIZATION. First Financial has an authorized capitalization of
--------------
5,000,000 shares of common stock of the par value of $10.00 per share, of which
3,741,802 shares are issued, outstanding, and fully paid as of the date of this
Agreement.
5.3 AUTHORITY OF FIRST FINANCIAL. This Agreement has been duly executed
----------------------------
and delivered by First Financial and, subject to the conditions precedent to
Closing of the transactions set forth herein, is a valid, legally binding and
enforceable obligations of First Financial. Neither the execution, delivery or
performance of this Agreement in its entirety, nor the consummation of all of
the transactions contemplated hereby, will violate (with or without the giving
of notice or the passage of time), be in conflict with, result in a breach of
any
- 19 -
<PAGE>
provision of, or constitute a default under, any provision of law applicable to
First Financial, or any agreement or understanding, order, judgement, award,
decree, statute, ordinance, regulation or other restriction of any kind or
character to which First Financial is a party or by which any of its or their
assets or properties is subject or bound. There are no actions, suits,
proceedings or claims pending or, to its knowledge, threatened against First
Financial, at law or in equity, or before or by any foreign, federal, state,
municipal or other government court, department, commission, board, bureau,
agency, instrumentality or other person which may result in liability to or of
First Financial upon the consummation of the transactions contemplated hereby or
which would prevent or delay such consummation.
5.4 NO ADVERSE CHANGE. From the date of this Agreement until the Closing
-----------------
Date, First Financial shall not have suffered any material adverse change in its
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise) or business.
5.5 DUE DILIGENCE. The officers, employees or other representatives of
-------------
First Financial have reviewed and examined the assets, property (real and
personal), leases and all other contractual arrangements to which Concho,
Southwest Bank or SWB is a party and all business records of Concho, Southwest
Bank and SWB, including, but not limited to, committee and directors' minutes,
reports of condition, reports of income, tax returns, deposit agreements, loan
portfolios, documents pertaining to legal matters, and financial statements, all
of which review and examination was conducted upon the premises of Concho,
Southwest Bank or SWB and First Financial hereby confirms the acceptability of
such due diligence review.
5.6 COVENANTS. First Financial covenants and agrees that it shall:
---------
(A) use its best efforts in good faith and in a timely manner to (i)
cooperate with Concho and Southwest Bank in satisfying the conditions in
this Agreement, (ii) obtain as promptly as possible all consents,
approvals, authorizations and rulings, whether regulatory or corporate, as
are necessary for First Financial to carry out and consummate the
transactions contemplated by this Agreement, including specifically (but
without limitation) the approval called for by Section 5.5, and (iii)
furnish information concerning First Financial and its subsidiaries not
previously provided to Concho and Southwest Bank required for inclusion in
any filing or applications that may be necessary in that regard;
(B) perform all acts and execute and deliver all documents necessary
to cause the transactions contemplated by this Agreement to be consummated
at the earliest possible date;
(C) promptly give written notice to Concho upon obtaining knowledge
of any event or fact that would cause any of the representations or
warranties of First Financial
- 20 -
<PAGE>
contained in or referred to in this Agreement to be untrue in any material
respect, and use its best efforts to prevent or promptly remedy the same;
and
(D) cause its officers, directors and representatives to treat as
confidential any and all information concerning Concho, Southwest Bank or
SWB which is furnished to First Financial, its directors, officers,
employees, shareholders, agents, representatives or advisors, in connection
with this Agreement, or which was furnished prior to the execution of this
Agreement for the purpose of First Financial reviewing and evaluating the
transaction contemplated by this Agreement, except insofar as disclosure to
certain parties is necessary to meet the conditions of this Agreement. In
the event this Agreement is terminated pursuant to Section 7.1 prior to the
consummation of the transaction, First Financial shall promptly return to
Concho, Southwest Bank or SWB all written material containing or reflecting
such confidential information, and in such event, the covenants of First
Financial with respect to such confidential information contained in this
Section 5.4(d) shall survive such termination.
5.7 FEDERAL RESERVE APPROVAL. Specifically, but without limiting the
------------------------
effect of Section 5.6, promptly upon execution of this Agreement, First
Financial shall make application to the Board of Governors of the Federal
Reserve System (the "FRB") for prior approval to acquire the Concho Stock in
accordance with this Agreement as required by the Bank Holding Company Act of
1956, as amended, and applicable regulations. Promptly upon receipt, First
Financial shall furnish Concho and Southwest Bank with a copy of the notice of
approval or disapproval of the application made by it to the FRB.
5.8 SEC REGISTRATION. Without limiting the effect of Section 5.6, upon
----------------
execution of this Agreement, First Financial shall proceed to file a
Registration Statement with the Securities and Exchange Commission pursuant to
the Act covering the shares of First Financial Stock to be issued pursuant to
this Agreement. Promptly upon receipt of such declaration of the effectiveness
of such Registration Statement from the Securities and Exchange Commission,
First Financial shall furnish Concho and Southwest Bank with a copy of the
approval or disapproval of the effectiveness of such Registration Statement.
ARTICLE 6
SURVIVAL OF WARRANTIES, INDEMNIFICATION AND LIABILITY
6.1 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The covenants,
-----------------------------------------------------
representations and warranties of the parties hereto shall survive the Closing
Date.
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<PAGE>
ARTICLE 7
TERMINATION
7.1 CIRCUMSTANCES AUTHORIZING TERMINATION. Notwithstanding anything
-------------------------------------
herein to the contrary, this Agreement may be terminated and the Exchange Offer
contemplated hereby may be abandoned at any time, but prior to the Closing Date:
(A) by mutual written consent duly authorized by the Boards of
Directors of First Financial and Concho;
(B) by First Financial (i) if First Financial learns or becomes aware
of a state of facts or breach or inaccuracy of any representation or
warranty or covenant of Concho contained in Articles 3 or 4 which
constitute a material adverse change from that represented in this
Agreement, or (ii) if any of the conditions to Closing contained in Article
2 are not satisfied or waived in writing by First Financial;
(C) by Concho (i) if Concho learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty or covenant
of First Financial contained in Article 5 which constitutes a material
adverse change from that represented in this Agreement, or (ii) if any of
the conditions to Closing contained in Article 2 are not satisfied or
waived in writing by Concho;
(D) by First Financial or Concho if the Effective Date shall not have
occurred on or before 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 in the United States (federal or state) or other governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the exchange of shares or
the merger, and such order, decree, ruling or other action shall have been
final and nonappealable.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, neither Concho,
--------------------
Southwest Bank nor First Financial, nor any person affiliated with any of them,
shall, without the prior approval of the other parties, make any written public
announcement, make any written statement or release to the press, or make any
written statement to a competitor, customer or
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<PAGE>
other third party (except to their respective counsel or to regulatory
authorities in connection with applications for governmental approvals) with
respect to this Agreement or the transactions contemplated hereby.
8.2 APPLICABLE LAW. This Agreement and the legal relations between the
--------------
parties hereto shall be governed by and construed in accordance with the laws of
the State of Texas and of the United States of America.
8.3 PARAGRAPH AND OTHER HEADINGS. Article and section headings contained
----------------------------
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
8.4 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified or
----------------------
supplemented only by a written instrument executed by the parties hereto. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
8.5 EXPENSES.
--------
(A) Whether or not the transactions contemplated by this Agreement
are consummated, each of the parties shall be responsible for their
respective fees and expenses incident to the negotiation, preparation,
execution and consummation of the transactions contemplated by this
Agreement, including attorneys' and accountants' fees and expenses.
(B) First Financial consents to payment by Concho, Southwest Bank and
SWB of attorneys' and accountants' fees incurred by them incident to the
negotiation, preparation and execution of this Agreement and consummation
of the transaction contemplated by this Agreement.
8.6 ENTIRE AGREEMENT. This Agreement, including the Exhibits and
----------------
Disclosure Schedules, embodies the entire agreement and understanding of the
parties with respect to the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants or undertaking
other than those expressly set forth or referred to herein.
8.7 NOTICES. All notices, requests, demands or other communications which
-------
are required or may be given under this Agreement shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by registered
or certified mail, return receipt requested, postage prepaid:
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<PAGE>
(A) In the case of First Financial, to:
Mr. Kenneth T. Murphy
Chairman of the Board, President and Chief Executive Officer
First Financial Bankshares, Inc.
P. O. Box 701
Abilene, Texas 79604
with a copy to:
Mr. David L. Buhrmann
McMahon, Surovik, Suttle, Buhrmann,
Cobb & Hicks
P. O. Box 3679
Abilene, Texas 79604
(B) In the case of Concho and/or Southwest Bank, to:
Mr. David B. Drake
Chairman and Chief Executive Officer
Concho Bancshares, Inc.
P. O. Box 60410
San Angelo, Texas 76906
with a copy to:
Patrick J. Kennedy, Jr.
Kennedy & Baris, L.L.P.
1775 NBC Plaza
112 East Pecan Street
San Antonio, Texas 78205
or to such other addresses as any party shall specify by notice to the
others.
8.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same.
8.9 ATTACHMENT OF DISCLOSURE SCHEDULES. Southwest Bank, Concho and First
----------------------------------
Financial acknowledge that the Disclosure Schedules referenced herein may not be
attached hereto at the time of execution of this Agreement. It is the intent of
all parties hereto that the form and content of all such Disclosure Schedules
will be prepared in a form acceptable to First
- 24 -
<PAGE>
Financial and that such Disclosure Schedules shall then be attached to this
Agreement and that such Disclosure Schedules shall then become a part of this
Agreement for all purposes. In the event that such Disclosure Schedules are not
prepared in a form acceptable to First Financial, this Agreement may be
terminated by First Financial by written notice and be of no further force and
effect. Notwithstanding the fact that any such Disclosure Schedule may be
attached hereto at the time of execution, the date of this Agreement or date of
execution of this Agreement shall for all purposes be the date first written
above.
8.10 BINDING EFFECT - ASSIGNMENT. This Agreement is binding upon the
---------------------------
undersigned parties, their heirs, personal representatives, successors and
assigns; however, the rights of First Financial under this Agreement may not be
assigned without the prior written consent of Southwest Bank and Concho except
that, at closing, the Subsidiary may acquire the Shares so long as First
Financial remains liable for its obligations under this Agreement.
8.11 DEFINITIONS. In addition to other definitions contained elsewhere in
-----------
this Agreement, as used in this Agreement:
(A) an "AFFILIATE" means any bank, corporation, partnership or other
entity which, directly or indirectly, controls, is controlled by, or is
under common control with, Concho or Southwest Bank;
(B) "BANKING DAY" means any day, other than a Saturday or Sunday, on
which Southwest Bank is open to the public for carrying substantially all
of its banking functions;
(C) "KNOWLEDGE" means a current actual awareness of a fact or other
information, and "KNOWINGLY" means possessing a current actual awareness of
a fact or other information;
(D) references to a particular "ARTICLE" or "SECTION" are to the
given article or section of this Agreement; and
(E) unless context otherwise requires, words of the singular number
include the plural and of the plural include the singular and words of the
masculine gender include the feminine and neuter.
- 25 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
multiple originals, as of the day and year first above written.
FIRST FINANCIAL BANKSHARES, INC.
ATTEST:
By: /s/ Curtis R. Harvey By: /s/ Kenneth T. Murphy
----------------------------- -----------------------------
Curtis R. Harvey, Kenneth T. Murphy,
Executive Vice President Chairman of the Board, President
and Chief Financial Officer and Chief Executive Officer
CONCHO BANCSHARES, INC.
ATTEST:
By: /s/ Michael L. Boyd By: /s/ David B. Drake
----------------------------- -----------------------------
Name: Michael L. Boyd David B. Drake,
---------------------- Chairman of the Board and
Title: Asst. Sec.-Treas. Chief Executive Officer
---------------------
SOUTHWEST BANK OF SAN ANGELO
ATTEST:
By: /s/ Katherine M. Reeves By: /s/ Michael L. Boyd
----------------------------- -----------------------------
Name: Katherine M. Reeves Michael L. Boyd
---------------------- ---------------------------
Title: Sr. VP & Cashier President
---------------------
- 26 -
<PAGE>
(LETTERHEAD OF MCMAHON, SUROVIK, SUTTLE, BUHRMANN, COBB & HICKS APPEARS HERE)
EXHIBIT 5.1
January 10, 1994
First Financial Bankshares, Inc.
P.O. Box 701
Abilene, TX 79804
Dear Sirs:
We have acted as counsel to First Financial Bankshares, Inc. (the
"Company") in connection with certain matters concerning a Registration
Statement on Form S-4 (the "Registration Statement") relating to an aggregate of
232,550 shares (the "Shares") of the Company's Common Stock, par value $10.00
per share, to be issued in connection with the Exchange Offer by the Company
to the shareholders of Concho Bancshares, Inc. Capitalized terms used herein
that are not otherwise defined have the meaning ascribed to them in the
Prospectus which constitutes a part of the Registration Statement.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law as
we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. During the course of our examination, we have assumed
the genuineness of all signatures and the authenticity of all documents,
instruments, records and certificates submitted to us as originals.
Based upon our examination and review and upon the representations made to
us by the officers and directors of the Company, we are of the opinion that the
Shares have been duly and validly authorized and will, upon issuance and
delivery against payment therefor in the manner contemplated by the Exchange
Offer and Merger, be validly issued, and upon such issuance, the Shares will be
fully paid and nonassessable.
This firm consents to the filing of this opinion as to an exhibit to the
Registration Statement and to the reference to the firm in the Prospectus
constituting a part thereof under the caption "Legal Matters."
Very truly yours,
McMAHON, SUROVIK, SUTTLE,
BUHRMANN, COBB & HICKS, P.C.
By: /s/ David L. Buhrmann
-----------------------------
David L. Buhrmann
DLB/rw
<PAGE>
Exhibit 8.1
January 7, 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
<PAGE>
The Board of Directors
Concho Bancshares, Inc.
January 7, 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
<PAGE>
The Board of Directors
Concho Bancshares, Inc.
January 7, 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.
<PAGE>
EXHIBIT 15.1
INDEPENDENT ACCOUNTANTS' ACKNOWLEDGMENT
We acknowledge and consent to the use in the Registration Statement on Form
S-4 of which this Exhibit 15.1 is a part, of our Compilation Report dated
December 6, 1993 relating to the consolidated balance sheets of Concho
Bankshares, 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.
ARMSTRONG, BACKUS & CO., L.L.P.
<PAGE>
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
January 10, 1994
<PAGE>
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.
January 7, 1994
