First Financial Bankshares Annual Report 2004

Plain-text annual report

A family of community banks SM TM Annual Report 2004 Smart Choices. Better Banking. At First Financial Bankshares, we’re executing our strategy to introduce new products and services, complete acquisitions, open new locations and increase earnings. By creating an interconnected family of community banks in North and West Texas, we are able to offer big-bank services without sacriﬁcing the personal relationships and small-town focus that set us apart. Profile First Financial Bankshares, Inc. is a ﬁnancial holding company headquartered in Abilene, Texas, with consolidated assets of $2.3 billion as of December 31, 2004. Currently, the corporation has 10 afﬁliate banks, which provide services from 38 full-service locations in the Central, West and High Plains regions of Texas. The Company also operates a trust company and a technology services company. The common stock of First Financial Bankshares, Inc. is beneﬁcially held by approximately 5,300 shareholders and is listed on The NASDAQ Stock Market® under the symbol FFIN. Financial Highlights 2003 Changes For the Year Net Income Basic Earnings per Share Dividends Declared Dividends per Share Averages for the Year Assets Securities Loans Deposits Shareholders’ Equity At Year-End Assets Securities Loans Deposits Shareholders’ Equity Book Value per Share Trust Assets Key Ratios Return on Average Assets Return on Average Equity Equity/Assets at Year-End Efficiency 2004 $39,171 2.53 20,613 1.33 $2,148,341 906,652 1,044,010 1,816,461 259,502 $2,315,224 854,334 1,164,223 1,994,312 265,545 17.12 1,067,730 $35,305 2.28 18,746 1.21 $2,020,185 886,719 946,173 1,739,232 245,128 $2,092,571 910,302 987,523 1,796,271 251,487 16.25 991,896 1.82% 15.09 11.47 51.78 1.75% 14.40 12.02 52.52 11.0% 11.0% 10.0% 9.9% 6.3% 2.2% 10.3% 4.4% 5.9% 10.6% (6.1)% 17.9% 11.0% 5.6% 5.4% 7.6% _ _ _ _ 1 Dear Fellow Shareholders: In 2004, First Financial Bankshares continued to add to its strong track record of accomplishment. The Company produced higher earnings for the 18th consecutive year, introduced new products and services, improved its efﬁciency, and grew both internally and through acquisitions. Solid Financial Performance Net income rose 11% in 2004, to $39.2 million from $35.3 million in 2003. Basic earnings per share also grew by 11%, to $2.53 from $2.28. Both net interest income and noninterest income contributed to the earnings increase. Net interest income rose 7%, to $83.9 million from $78.2 million in 2003. The gain reflected rising interest rates and growth in our loan volumes (trends that were partly offset, however, by an increase in the provision for loan losses). Noninterest income grew by 13.8%, to $38.8 million from $34.1 million in 2003. The growth reflected a 30% increase in revenue from deposit account service fees (to $20.4 million from $15.7 million) due to the introduction of new products and enhancement of an overdraft product. Partly offsetting these factors was a 32% decline in real estate mortgage fees (to $2.0 million from $2.9 million). The improvement in noninterest income was partly offset by an 8% increase in noninterest expense (to $66.1 million from $61.2 million). Key proﬁtability ratios also improved during the year. Return on average assets increased to 1.82% from 1.75% in 2003. The 2004 ratio compares very favorably with the average of 1.13% recorded by our peer group (bank holding companies of similar size). Return on average equity increased to 15.09% from 14.40% in 2003. The efﬁciency ratio (the share of revenues consumed by operating expenses) declined to 51.78% from 52.52% in 2003 and continued to compare very favorably with our peer group average of 59.11%. Consolidated assets at year-end totaled $2.32 billion, up 11% from $2.09 billion at the end of 2003. Loans increased 18%, to $1.l6 billion from $987.5 million at year-end 2003. Total deposits increased 11%, to $1.99 billion from $1.80 billion. 2 The two banks we acquired during 2004 accounted for $75 million of the $177 million in loan growth, and for $97 million of the $198 million in deposit growth. The balance sheet at year-end was again marked by strong asset quality and capital strength. Classiﬁed loans (those at risk to some degree) decreased to 3.51% of total loans from 3.95% a year earlier. While total nonperforming assets increased to 0.43% of total loans from 0.32% at the end of 2003, the 2004 percentage still compared very favorably with the peer group average of 0.79%. The increase in nonperforming assets was due primarily to certain loans acquired as part of our two bank acquisitions last year. At December 31, 2004, the allowance for loan losses amounted to 1.19% of total loans, compared to 1.17% at the end of 2003. Shareholders’ equity at year-end was $265.5 million in 2004 compared to $251.5 million in 2003. Based on our earnings performance and strong capital position, in April 2004 the Board of Directors approved an increase in the quarterly cash dividend, raising it 10% to $0.34 per share from $0.31 per share. The total cash dividend for 2004 was $1.33 per share. The market price of our common stock at year-end was $44.81 per share, up 9% from $41.12 at the end of 2003. The combination of share price appreciation and dividends paid produced a total return to shareholders of 12.21% for 2004. Our technology subsidiary, First Technology Services, Inc., continued to strengthen our infrastructure during the year. It played an important role in bringing our new products to market and converting our newly acquired banks to our technology. Our trust unit, First Financial Trust & Asset Management Company, also had a good year, achieving solid growth in its assets and investment returns. I encourage you to read about these two companies on pages 6 and 7 of this annual report. Acquisitions and Branch Expansions On July 26, 2004, we completed the acquisition of Liberty National, a $60 million bank in Granbury, Texas, for $12.3 million. On December 1, 2004, we acquired the $46 million First National Bank, Glen Rose, for $13.4 million. Both of these acquisitions ﬁt well with our growth strategy of moving into vibrant, growing suburban communities that are located less than an hour from the Dallas-Fort Worth Metroplex. We combined Liberty National and First National Bank with our Stephenville Bank & Trust unit – and renamed them First Financial Bank – to form a $260 million institution serving Erath, Hood and Somervell counties. On February 16, 2005, First Financial Bank broke ground on a second location in Granbury to better serve the needs of its customers and to capture additional market share. We are off to a good start in 2005 with additional branch expansions. On January 20, 2005, Weatherford National Bank held the grand opening for its new location in Willow Park, a fast-growing bedroom community 14 miles west of Fort Worth. We are very pleased with the initial growth of this new branch, located at I-20 and Mikus Road. On February 16, 2005, First Financial Bank, Cleburne, broke ground on the construction of a new facility in Midlothian, a town of 7,500 people located 20 miles south of Dallas-Fort Worth. The population of this area is expected to double in size this decade from the continued expansion of distribution and construction-related industries. When construction of the facility is completed, First Financial Bank, Cleburne, will have ﬁve locations – two in Cleburne and one each in Burleson, Alvarado and Midlothian. We have also completed another acquisition. On February 1, 2005, First Financial Bankshares purchased the $113 million Peoples State Bank in Clyde for $25.4 million. The bank has locations in Clyde, Moran, Rising Star and Ranger. Clyde, located 12 miles east of Abilene on I-20, is a suburban community that ﬁts in well with our core market around Abilene. We have consolidated Peoples State Bank with First National Bank of Abilene under the new name of First Financial Bank. On April 1, 2005, the Peoples State Bank locations in Rising Star and Ranger will join Eastland National Bank to form a $110 million bank under the new name of First Financial Bank, Eastland, Ranger, Rising Star. Changing the name of our 115-year-old flagship bank, First National Bank of Abilene, was not done without considerable thought. However, the change is in line with our larger corporate strategy, which is to build our franchise value using a name that (1) reflects the name of our holding company; (2) is a registered trademark with the State of Texas; (3) may be customized to ﬁt each community we serve; and (4) better reflects who we are today – a one-stop, full-service provider of ﬁnancial products and services. At the same time, we remain a family of community banks. We continue to believe that our one-bank, ten-charter concept works well by retaining ten individual boards and management teams who keep our banks locally oriented, make sure we meet the needs of the community, help us to make better loan decisions and help us to more effectively market each bank. However, behind the teller line, we operate as one bank through our consolidation of operations, which keeps our efﬁciency ratio down. To our customers, we appear as one bank because of the agency agreements among our banks that permit customers to use any of the 38 locations or 58 ATMs in our system. What’s Ahead Having begun 2005 with an acquisition and the announcement of two new locations, we will continue to seek out good opportunities for expansion in higher-growth areas. Our focus will also be on integrating the new acquisitions into our corporate template by introducing new products and technology, and by increasing efﬁciency. Additionally, we plan to continue to grow our mortgage and trust services in both existing and new markets. The continued introduction of our new product menu across all of our banks will give our customers smart choices and better banking, while giving us a competitive edge. We are sad to report that Walter Johnson, former Chairman of the Board, passed away on December 21, 2004. His loss marks the end of an era for our Company. Walter was the father of the holding company, and through his counsel, wisdom and integrity, he laid the solid foundation we have to work from today. Our greatest assets in this Company are our associates, customers and stockholders. I am honored to work with our experienced and professional management team consisting of Bruce Hildebrand, Gary Webb, Robert Patterson, Gary Gragg and each of our bank presidents. We are pleased that Matt Reynolds has joined our team as president of First Financial Bank, Cleburne. Matt comes to us with 25 years of experience, a great deal of energy and enthusiasm, and a desire to be a great community banker. As we look back on a good year, we cannot help but thank our ofﬁcers, employees and board members for their hard work, expertise and leadership. It is through this team, working diligently together, that we have become a high-performing ﬁnancial company that has won national recognition and possesses a bright future. We realize that we are here for two reasons: to serve our customers and reward our stockholders. You are the focus of what we do every day, and we certainly do not forget that we work for you. Thank you for your investment in and support of First Financial Bankshares. F. Scott Dueser President and Chief Executive Ofﬁcer, First Financial Bankshares, Inc. 3 A Record of Growth First Financial Bankshares is proud of its track record of sound ﬁnancial management and consistent growth. In 2004, the Company was one of only 31 banks nationwide named to the Honor Roll by Keefe, Bruyette and Woods, Inc. The KBW Honor Roll recognizes banks that have continually achieved annual increases in earnings per share. Fiscal 2004 was the Company’s 18th consecutive year of earnings growth. First Financial outperforms its peer group on many of the key ﬁnancial measurements used in the banking industry.* Our shareholders can rest assured that the Company will continue to pursue growth through new locations and acquisitions while we manage for maximum efﬁciency and customer service. Asset Growth (in millions) Loan Growth (in millions) Net Income Growth (in thousands) Nonperforming Assets as a Percentage of Loans Plus Foreclosed Assets Net Interest Margin Efficiency Ratio *Based on the September 30, 2004, Bank Holding Company Performance Report for First Financial Bankshares, Inc. prepared by the Federal Financial Institution Examination Council. 4 Dividends Per Share Growth Return on Average Assets Return on Average Equity The First Financial Family of Communities (by county) as of February 28, 2005 Deaf Smith Hereford (1) Shackelford Moran (1) Fisher Roby (1) Nolan Sweetwater (1) Taylor Abilene (9), Trent (1) Callahan Clyde (1) Eastland Eastland (1), Ranger (1), Rising Star (1) Palo Pinto Mineral Wells (1) Parker Weatherford (3), Willow Park (1), Aledo (1) Tarrant Southlake (1), Trophy Club (1), Keller (1) Johnson Cleburne (2), Burleson (1), Alvarado (1) Ellis Midlothian (1) (under construction) Hood Granbury (2) (second location under construction) Somervell Glen Rose (1) Tom Green San Angelo (2) Erath Stephenville (3) 5 First Technology Services, Inc. Senior Officers Leo Dennis Executive Vice President Michelle McDonald Senior Vice President Dennis Steckly Senior Vice President Larry Williams Senior Vice President • Upgraded our voice response telephone banking system to provide our customers with greater functionality. This upgrade enables our family of community banks to absorb increasing call volumes and provides scalability as we continue to grow and add customer groups through acquisitions. • Completed the integration of Liberty National Bank, Granbury, and First National Bank, Glen Rose, into First Financial Bank, Stephenville. In 2005, FTS will complete its three-year effort to upgrade systems and infrastructure while addressing new business opportunities through: • Completion of our system-wide voice and data infrastructure upgrade project. • Expansion of our data center operations to a second location to ensure the business continuity of critical systems in the event of disruption. • Implementation of systems that will capitalize on the beneﬁts of Check 21 legislation and realize gains in operational efﬁciency. • Completion of the transition of Peoples State Bank into First Financial Bank, Abilene, and First Financial Bank, Eastland. First Technology Services continues to evolve beyond its role as technology provider into a true shared-services center supporting all common operations throughout the Company. Functioning in this capacity, FTS has the ability to deliver superior products and services to our employees and customers in the most cost-effective manner possible. Gary L. Webb Chairman Gary Tucker President and CEO First Technology Services, Inc. (FTS) continued to signiﬁcantly upgrade our core banking applications and technology infrastructure in 2004. This ongoing initiative has created a standard operating platform across our family of community banks that will facilitate day-to- day maintenance, support future growth and expand operating leverage. As a result, our banks can harness the competitive advantage of streamlined operations and fully developed technology behind the teller line, while maintaining the high service standards and local market character that deﬁne a community bank. The infrastructure now in place extends our capacity to rapidly deploy network services at a minimal cost and positions First Financial Bankshares for continued growth by acquisition and expansion. Our signiﬁcant achievements for 2004 were: • Implemented bank agency agreements making it possible for First Financial customers to bank seamlessly at any location across our family of community banks. • Launched a new company-wide set of deposit products that simpliﬁed internal support, facilitated common marketing and sales training and increased our capability to support customers across our banks. • Continued consolidation of shared services, including wire transfer and exception item processing, to reduce costs and to ensure the consistency and integrity of these complex processes. • Added software and personnel to monitor fraud detection systems for all First Financial banks. • Created a corporate marketing and communications position to support all banks in developing a common First Financial brand and in producing marketing and promotional materials. 6 First Financial Trust & Asset Management Company, N.A. Robert S. Patterson President and CEO Kirk Thaxton Executive Vice President Abilene David Byrd Executive Vice President San Angelo Joe Ayres Senior Vice President Stephenville Michael Sheehan Senior Vice President Sweetwater First Financial Trust & Asset Management Company completed its ﬁrst full year of operation with good asset growth, investment returns and fee revenue even though the stock market went through another year of fluctuation. Trust Fee revenue increased 5.9%, to $6.37 million from $6.02 million the prior year. The after-tax income contribution was $1.60 million, up slightly from the previous year. Our operations in Abilene, San Angelo, Stephenville, Sweetwater and the Metroplex grew assets by $76 million to $1.07 billion, an increase of 7.6% over the $992 million at the end of 2003. Investment returns continued to be outstanding. Last year we reported Jerry Nelson’s average yearly equity return for his ﬁrst nine years with the Company at 12.01%, some 171 basis points above our historic benchmark, the Lipper Large Cap Growth & Value Index. We are very pleased to inform you his average yearly equity return for 10 years is 12.17%, 207 basis points above our historic benchmark. Signiﬁcant events in 2004: • Our investment philosophy of a properly asset allocated, well-diversiﬁed portfolio has produced large cap equity returns of 13.54% for the year ending December 31, 2004. • Assets increased 26.8% in Stephenville and 12.7% in San Angelo. • The purchase and integration of the four trust departments previously owned by First National Bank of Abilene, San Angelo National Bank, Stephenville Bank & Trust and First National Bank, Sweetwater, completed a smooth and successful transition on January 1, 2004. Today’s marketplace demands a wide variety of ﬁnancial products. We are meeting our customers’ needs with quality trust administration and estate settlement services, which include inter vivos and testamentary trusts, executorships, custodianships, and rollover and Roth IRAs. Our superior investment returns are available through managed agency accounts, as well as the Trust and IRA accounts. Coupled with farm and ranch and mineral management expertise, we are fulﬁlling our customers’ wishes for not only the present, but also future generations as we always have – one customer at a time. Our investment team, maintaining a focus on the individual’s long-term goals, is well prepared for another successful year. Preserving local values, our highly qualiﬁed administrative team, with access to modern ﬁnancial products and services, will deliver to our customers and future customers the service they desire and deserve. In year two of our operation, we eagerly look forward to providing exceptional service not only in our present locations, but also in our new markets in Clyde, Glen Rose, Granbury, Midlothian, Moran, Ranger and Rising Star. Trust Assets (in millions) Trust Fees (in millions) $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 $986 $992 $1,068 $959 $911 00 01 02 03 04 $6 $5 $4 $3 $2 $1 $0 $6.37 $6.02 $5.89 $5.84 $5.50 Trust Net Income (in millions) $1.6 $1.5 $1.4 $1.3 $1.2 $1.1 $0 $1.600 $1.600 $1.587 $1.424 $1.324 00 01 02 03 04 7 00 01 02 03 04 Abilene, Clyde, Moran First Financial Bank, N.A. (Formerly First National Bank of Abilene) Taylor County Deposit Market Share 47% 718 Elm Clyde, Texas 79510 400 Ground Street Moran, Texas 76464 Joe Crawford President, Abilene Aero, Inc. F. Scott Dueser First Financial Bankshares, Inc. Charles Ezzell Investments Allan D. Frizzell Executive Vice President, Enrich Oil Corporation Raymond A. McDaniel, Jr. Investments Bynum Miers Rancher William D. Minter Vice President, CameraMouse Senior Officers F. Scott Dueser Chairman of the Board Chuck Cowell President and Chief Executive Officer Ron Fogle Executive Vice President, Commercial Loans Ben McAnally Executive Vice President, Treasury Management John Prince Executive Vice President, Personal Loans Stanley Morris, Jr. Investments Mike Reaves Executive Vice President, Chief Financial Officer and Cashier Directors Chuck Cowell President and Chief Executive Officer J. Michael Alexander President, James M. Alexander & Co. Tucker S. Bridwell President and Chief Executive Officer, Mansefeldt Investments, Inc. Joseph E. Canon Executive Director, Dodge Jones Foundation Kenneth T. Murphy First Financial Bankshares, Inc. Dian Graves Stai Investments Michael C. Waters, F.A.C.H.E. Senior Consultant, Hendrick Health System Advisory Bob J. Surovik McMahon, Surovik, Suttle, Buhrmann, Hicks, Gill & Cannon, P.C. Steve Suttle McMahon, Surovik, Suttle, Buhrmann, Hicks, Gill & Cannon, P.C. David Copeland President, Shelton Family Foundation In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $762,941 $753,864 362,096 339,444 680,773 660,824 66,218 13,905 65,827 13,742 1.86% 1.90% Efﬁciency Ratio 47.82 46.90 Chuck Cowell President and Chief Executive Ofﬁcer Main Office 400 Pine Street Abilene, Texas 79601 Chartered 1890 Locations 4400 Buffalo Gap Road Abilene, Texas 79606 4350 Southwest Drive Abilene, Texas 79606 920 N. Willis Abilene, Texas 79603 3300 S. 14th Street Abilene, Texas 79605 1010 N. Judge Ely Blvd. Abilene, Texas 79601 701 Pine Street Abilene, Texas 79601 1345 Barrow Street Abilene, Texas 79605 2617 Antilley Road Abilene, Texas 79606 Follow Interstate 20 to the geographic center of the state and you’ll find Abilene. The city’s military heritage is often on display with sleek B-1B Lancers from Dyess Air Force Base streaking overhead. In addition to modern aviation, Abilene is a center for higher education, banking, healthcare, manufacturing and retail. If you need to cash a check, think about making a stop at FFB’s modern, 10-story headquarters located downtown. 8 Cleburne, Burleson, Alvarado, Midlothian First Financial Bank, N.A. Johnson County Deposit Market Share 22% Matt Reynolds President and Chief Executive Ofﬁcer Main Office 403 N. Main Cleburne, Texas 76033 Chartered 1927 Locations 200 N. Ridgeway Cleburne, Texas 76033 1900 S.W. Wilshire Burleson, Texas 76028 201 E. Highway 67 Alvarado, Texas 76009 1429 Highway 287 Midlothian, Texas 76065 (under construction) In Thousands Assets Loans Deposits Equity Dec. 31, 2004 Dec. 31, 2003 $229,095 $211,094 110,181 104,161 208,446 189,382 19,465 20,043 Net Income 3,739 3,554 Return on Average Assets 1.73% 1.75% Efﬁciency Ratio 53.18 52.69 Jim Easdon Investments J. Bruce Hildebrand First Financial Bankshares, Inc. Hollis E. (Gene) Joslin Investments Brent D. Magers Chief Executive Officer and Administrator, Walls Regional Hospital George Marti Marti Enterprises Senior Officers Matt Reynolds President and Chief Executive Officer Homer S. Pittman, Jr. Executive Vice President and Cashier Derek Schmidt Executive Vice President Directors Perry Elliott Chairman of the Board Matt Reynolds President and Chief Executive Officer Albert A. Archer Chairman of the Board, Walls Industries, Inc. Gary Bennett Bennett Printing & Office Supply F. Scott Dueser First Financial Bankshares, Inc. At the southern edge of the Metroplex sit Johnson and Ellis counties where you’ll ﬁnd Cleburne, Burleson, Alvarado and Midlothian – four more First Financial hometowns. Various industries are booming in these high- growth areas, including manufacturing, oil and gas, home building and concrete. In addition, Midlothian is a major distribution center for the region. 9 Eastland, Ranger, Rising Star First Financial Bank, N.A. (Formerly Eastland National Bank) Eastland County Deposit Market Share 25% Tommy J. Barrow Chairman of the Board, President and Chief Executive Ofﬁcer Main Office 201 E. Main Eastland, Texas 76448 Chartered 1934 Locations (pending regulatory approval) 106 Main Street Ranger, Texas 76470 206 West College Rising Star, Texas 76471 Senior Officers Tommy J. Barrow Chairman of the Board, President and Chief Executive Officer Clint S. Ferguson Executive Vice President Jim Davidson Senior Vice President and Cashier Directors Tommy J. Barrow Chairman of the Board, President and Chief Executive Officer Clint S. Ferguson Executive Vice President J. Bruce Hildebrand First Financial Bankshares, Inc. Jim Keffer President, EBAA Iron Sales, Inc. Mike T. Perry President, Kinnaird, Rossander & Perry Agency, Inc. Dale Squiers, R.Ph. Owner, Eastland Drug Company Tommy Warford Turner, Seaberry and Warford, Attorneys M.D. White, Jr. President and Owner, Ace Hardware Store, Eastland/Cisco Go east on Interstate 20 from Abilene and you’ll run right into Eastland County. Eastland serves as the hub to a multi-county region, providing a center for purchasing, healthcare, transportation and more, and is well-positioned geographically for further growth. Besides the plentiful outdoor activities, you’ll deﬁnitely want to have a look at the town’s beloved mascot, Old Rip the Horny Toad, at the county courthouse, as well as the mural created from 11,217 individual postage stamps. 10 In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $61,798 $58,005 34,507 55,782 5,859 1,151 30,921 52,076 5,921 1,061 1.93% 1.83% Efﬁciency Ratio 52.11 55.01 Hereford Hereford State Bank Deaf Smith County Deposit Market Share 46% Mike Mauldin Chairman of the Board, President and Chief Executive Ofﬁcer Office 212 E. Third Street Hereford, Texas 79045 Chartered 1947 Senior Officers Mike Mauldin Chairman of the Board, President and Chief Executive Officer Kent Jackson Executive Vice President Jeff Brown Senior Vice President Directors Mike Mauldin Chairman of the Board, President and Chief Executive Officer Joe Artho Retired General Manager, Hereford Grain Corp. Terry Bromlow Retired Banker F. Scott Dueser First Financial Bankshares, Inc. Steve Lewis, D.V.M. Manager and Senior Partner, Hereford Veterinary Clinic Kade Matthews Ranching and Investments Garth Merrick President and Chief Executive Officer, Merrick Petfoods, Inc. Steve Gilbert Senior Vice President and Cashier Allen Parson Restaurateur and Investments Craig Smith Retired Banker and Rancher Jerry Stevens Vice President and General Manager, Stevens 5-Star Car and Truck Center Johnny E. Trotter President and Chief Executive Officer, Livestock Investors, Ltd. Roger Williams Farming Advisory Director Terry Langehennig Executive Director and Chief Executive Officer, Panhandle Plains Higher Education In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $107,056 $93,299 65,615 90,003 8,446 1,674 53,549 82,244 8,558 1,311 1.75% 1.53% Efﬁciency Ratio 51.19 56.31 At the crossroads of U.S. Highways 60 and 385 lies Hereford, Texas, named for the registered Hereford cattle brought over from England around the turn of the 20th century. Today, Hereford’s strong agribusiness economy is evident: feedlots on the outskirts of town feed millions of cattle each year. And the Hereford State Bank serves the investors and business owners who run these operations. When you visit, be sure not to miss the beautiful 1910 courthouse, the only marble courthouse in the state. 11 Mineral Wells City National Bank, Mineral Wells Palo Pinto County Deposit Market Share 24% Kenneth A. Williamson Chairman of the Board, President and Chief Executive Ofﬁcer Office 1900 E. Hubbard Mineral Wells, Texas 76067 Chartered 1925 Senior Officers Kenneth A. Williamson Chairman of the Board, President and Chief Executive Officer Brad Seay Executive Vice President, Lending Mike Mearse Senior Vice President Eddie Gregory Senior Vice President Kay Hudspeth Cashier West of Weatherford and 15 miles north of Interstate 20, Mineral Wells is a town built around water. The scenic Brazos River snakes along one edge of the city, complemented by nearby Possum Kingdom Lake, Palo Pinto Lake and Lake Mineral Wells State Park. In addition to its abundant natural resources, the town is now becoming a manufacturing, oil and gas and retail center as well. 12 Directors Kenneth A. Williamson Chairman of the Board, President and Chief Executive Officer David Ramsey, M.D. Family Practice Center Brad Seay Executive Vice President, Lending Jimmy Seay Investments and Ranching Walter Joe Thomas, D.D.S. Dentist F. Scott Dueser First Financial Bankshares, Inc. Doyle Lee Chairman, President and CEO, Weatherford National Bank Paul McGettes Chief Financial Officer, Upham Oil & Gas Company Terry L. Murphy President and Chief Executive Officer, Murphy and Murphy, Inc. Don O’Neal Don O’Neal Distributing Company, Inc., O’Neal Enterprises, Inc. In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $107,052 $98,124 61,236 97,148 9,567 2,203 53,779 86,412 9,628 1,813 2.15% 1.86% Efﬁciency Ratio 43.18 46.12 San Angelo San Angelo National Bank Tom Green County Deposit Market Share 23% Michael L. Boyd Chairman of the Board, President and Chief Executive Ofﬁcer Main Office 301 W. Beauregard San Angelo, Texas 76903 Chartered 1975 Location 3471 Knickerbocker San Angelo, Texas 76904 Senior Officers Michael L. Boyd Chairman of the Board, President and Chief Executive Officer David Byrd Executive Vice President and Trust Officer Robert Pate Executive Vice President Katherine Reeves Executive Vice President and Cashier In Thousands Assets Loans Deposits Equity Dec. 31, 2004 Dec. 31, 2003 $298,289 $323,847 122,649 124,076 261,826 261,590 29,098 29,492 Net Income 5,825 4,783 Return on Average Assets 1.95% 1.55% Efﬁciency Ratio 44.24 45.02 Directors Michael L. Boyd Chairman of the Board, President and Chief Executive Officer W. Dan Cravy, M.D. Physician Rick DeHoyos Attorney Ratliff, Edwards & DeHoyos David B. Drake Investment Advisor, PrimeVest F. Scott Dueser First Financial Bankshares, Inc. Doug Eakman Owner, Pecos Street Pharmacy Ron Giddiens Investments/Business Consulting Joe Henderson President, Porter Henderson Implement Company, Inc. J. Bruce Hildebrand First Financial Bankshares, Inc. Robert D. Housley President and Owner, Housley Communications David F. Lupton President, Angelo Glass & Mirror Company, Inc. Bill Pfluger Rancher Barbara Riley President, Olio, Inc. Richard W. Salmon Investments John E. Schwartz, Sr. Farmer/Rancher Mary Jane Steadman Attorney, Real Estate Investment Management F.L. (Steve) Stephens Retired Chairman and Chief Executive Officer, Town & Country Food Stores, Inc. Advisory Jim Johnson Shannon, Porter, Johnson, Pfluger, Davis & Joynton, LLP Nestled between U.S. Highways 67 and 87 lies the picturesque city of San Angelo. In the 1870s, the town grew up next to Fort Concho – one of the best-preserved frontier forts in the country. Today, the city sustains a diverse economy, with a metro population of over 100,000. San Angelo is also home to Goodfellow Air Force Base, San Angelo State Park and even a beautiful riverwalk. The nation’s fourth-largest planetarium, at Angelo State University, is also deﬁnitely worth a visit. 13 Southlake, Trophy Club, Keller First Financial Bank, N.A., Southlake Cities of Southlake, Keller and Roanoke Deposit Market Share 7% Senior Officers Mark L. Jones President and Chief Executive Officer Mark L. Jones President and Chief Executive Ofﬁcer F. Mills Shallene Senior Vice President J. Sean Shope Senior Vice President Directors Perry D. Elliott Chairman of the Board James E. Burger Burger Construction Jack Dortch Jack Dortch Insurance Agency Main Office 3205 E. Highway 114 Southlake, Texas 76092 Chartered 1985 Locations 95 Trophy Club Drive Trophy Club, Texas 76262 891 E. Keller Parkway Suite 100 Keller, Texas 76248 With convenient access to DFW Airport, it’s no wonder that Southlake and neighboring Grapevine, Colleyville, Trophy Club and Keller have experienced phenomenal residential and commercial growth. Southlake features one of the state’s top-rated school systems; its Southlake Carroll Dragons’ high school football team won a national No. 1 ranking. Grapevine is home to one of the Metroplex’s largest shopping complexes and the new Gaylord Texan, a sprawling resort and convention center. 14 Joe Stubbs Senior Vice President and Cashier F. Scott Dueser First Financial Bankshares, Inc. Derrell E. Johnson President, American Council of Engineering Companies Life Health Trust Mark L. Jones President and Chief Executive Officer K. Wayne Lee President, DDFW Properties Jim Ridenour President, Sunbelt Station Service In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $92,205 $74,410 69,240 81,937 6,829 779 54,441 64,478 6,297 661 0.98% 0.94% Efﬁciency Ratio 71.42 75.54 Stephenville, Granbury, Glen Rose First Financial Bank, N.A. (Formerly Stephenville Bank & Trust Co.) Erath, Hood and Somervell Counties Deposit Market Share 23% Ron Butler President and Chief Executive Ofﬁcer Main Office 2201 W. South Loop Stephenville, Texas 76401 Chartered 1923 Locations 1875 Lingleville Road Stephenville, Texas 76401 199 N. Columbia Stephenville, Texas 76401 400 Big Bend Trail Glen Rose, Texas 76043 2007 Highway 377 East Granbury, Texas 76049 1600 S. Morgan Granbury, Texas 76048 (under construction) In Thousands Assets Loans Deposits Equity Dec. 31, 2004 Dec. 31, 2003 $256,228 $147,980 159,079 76,814 234,651 134,317 19,086 13,310 Net Income 3,109 2,008 Return on Average Assets 1.75% 1.42% Efﬁciency Ratio 50.95 49.11 Senior Officers Ron Butler President and Chief Executive Officer Perry D. Elliott Vice Chairman John Power Glen Rose President Bart Rodgers Granbury President Dereece Howell Executive Vice President and Cashier Ken Luker Executive Vice President Brenda Davis Senior Vice President Robert Lemons Senior Vice President Terry McCoy Senior Vice President Guy Miller Senior Vice President Robert Reeves Senior Vice President Directors James C. Terrell, Jr., M.D. Chairman of the Board Perry D. Elliott Vice Chairman Ron Butler President and Chief Executive Officer William L. Corbin Investments F. Scott Dueser First Financial Bankshares, Inc. J. Bruce Hildebrand First Financial Bankshares, Inc. Bill Hooks President, Hooks Lakeside Motors Garry Z. Luker President, Sunchase Development Co. Bill Parham Parham & Parham, CPAs Jerry Parham Investments Jack Parks Farmer Royce Swaim Owner, Swaim Farm & Ranch Frank Terrell, M.D. Ophthalmologist John Terrill Attorney Stephenville lies at the crossroads of U.S. Highways 67, 281 and 377. The town, which is home to Tarleton State University, is also the county seat of Erath County – the top dairy- producing county in the state. Stephenville, however, is not the only spot to visit in the area. Nearby Glen Rose is known for Dinosaur Valley State Park, featuring 100-million-year-old dinosaur tracks. Farther north, in Granbury, you’ll want to visit the charming town square and courthouse and cool off at Lake Granbury. 15 Sweetwater, Roby, Trent First National Bank, Sweetwater Nolan and Fisher Counties Deposit Market Share 42% J.V. Martin Chairman of the Board, President and Chief Executive Ofﬁcer Main Office 201 Elm Street Sweetwater, Texas 79556 Chartered 1948 Locations 123 N. Concho Roby, Texas 79543 117 N. Main Trent, Texas 79561 At the intersection of Interstate 20 and Highway 70 is Sweetwater, which made its beginnings as a cattle shipping point. Its wealth of history is evident from the 90 separate entries on the National Register of Historic Places. Today, the town is active in construction, farming, ranching and renewable energy. Sweetwater is home to the world’s largest Rattlesnake Roundup. The event draws as many as 30,000 visitors from all 50 states and as far away as Asia and Europe. 16 Senior Officers J.V. Martin Chairman of the Board, President and Chief Executive Officer Directors J.V. Martin Chairman of the Board, President and Chief Executive Officer Kirby Andrews Executive Vice President, Lending Glenn D. Bennett Bennett & Associates Donnie Ruppert Executive Vice President and Controller Louis Brooks, Jr. Ranching Rodney Foster Senior Vice President, Lending Bill W. Burns President, Bill Burns Oil Co., Inc. Ronnie Cox Owner, Cox Jewelry J. Bruce Hildebrand First Financial Bankshares, Inc. Cecil J. King Retired President, Citizens State Bank, Roby Thomas L. Rees, Sr. Rees and Rees, Attorneys In Thousands Assets Loans Deposits Equity Net Income Return on Average Assets Dec. 31, 2004 Dec. 31, 2003 $120,986 $121,055 55,282 49,012 104,031 109,253 10,730 2,227 11,053 2,145 1.78% 1.79% Efﬁciency Ratio 48.11 51.37 Weatherford, Aledo, Willow Park Weatherford National Bank Parker County Deposit Market Share 26% Senior Officers Doyle Lee Chairman of the Board and Chief Executive Officer Doyle Lee Chairman of the Board and Chief Executive Ofﬁcer Jay Gibbs President Bob Bradberry Executive Vice President Paul Baker Senior Vice President Jean Bryan Senior Vice President Directors Doyle Lee Chairman of the Board and Chief Executive Officer Stephen G. Brogdon, D.D.S. General and Cosmetic Dentistry Mac A. Coalson Real Estate and Ranching F. Scott Dueser First Financial Bankshares, Inc. Jay Gibbs President Main Office 101 N. Main Street Weatherford, Texas 76086 Chartered 1984 Locations 101 College Park Drive Weatherford, Texas 76086 1214 N. Main Street Weatherford, Texas 76086 505 Farm Road 1187 Aledo, Texas 76008 4100 E. I-20 South Service Road Willow Park, Texas 76087 In Thousands Assets Loans Deposits Equity Dec. 31, 2004 Dec. 31, 2003 $243,866 $219,303 124,339 101,326 222,426 198,561 19,604 20,117 Net Income 4,320 3,934 Return on Average Assets 1.94% 1.95% Efﬁciency Ratio 48.40 49.11 Larry Mangrem Senior Vice President and Cashier Clay Hicks Oil and Gas Investments Louis Sneed Senior Vice President Nan Kingsley President, Bluestem Studios, Inc. Mike White, O.D. Therapeutic Optometrist Greg L. Barron President, G.L. Barron Co. Weatherford, 25 miles west of Fort Worth on Interstate 20, is undergoing dramatic economic growth as retail and service industries continue to expand. In fact, the construction of new homes in the entire Parker County area is skyrocketing, especially in areas like Aledo and Willow Park, which are only minutes from Fort Worth. If you’re in town in July, check out the Peach Festival, which has been known to attract over 25,000 people. Anytime, however, is a good time to view the magniﬁcent county courthouse of 1885. 17 Board of Directors The board is pictured with “Crossing Catclaw Creek,” a 16-foot bronze work by T.D. Kelsey. The sculpture was donated to the Frontier Texas! Museum in Abilene by First Financial Bank, N.A. From left: Mr. Johnson, Mr. Coalson, Mr. Copeland, Mr. Dueser, Mr. McDaniel, Dr. Ramsey, Mr. Matthews, Mr. Murphy, Mr. Miers, Mr. Trotter, Mrs. Stai, Mr. Canon, Mr. Parker, Mr. Stephens Kenneth T. Murphy Chairman of the Board Board Member, First National Bank of Abilene since 1971 Former President, First National Bank of Abilene Former President and CEO, First Financial Bankshares Former Class A Director, Federal Reserve Bank of Dallas Former Chairman, Texas Bankers Association Joseph E. Canon, J.D. Executive Director, Dodge Jones Foundation Board Member, First National Bank of Abilene since 1982 Board Member, First Financial Trust & Asset Management Company Former Executive Vice President and Trust Officer, First National Bank of Abilene Former President, Conference of Southwest Foundations Mac A. Coalson Real Estate and Ranching Principal Broker – Mac A. Coalson Real Estate Founding Director, Weatherford National Bank since 1984 David Copeland President, SIPCO, Inc. and Shelton Family Foundation Board Member, First National Bank of Abilene since 1993 Board Member, First Financial Trust & Asset Management Company Board Member and Audit Committee Chairman, Harte-Hanks, Inc. F. Scott Dueser President and Chief Executive Officer Board Member, First National Bank of Abilene since 1987 Board Member, First Financial Trust & Asset Management Company Former President and CEO, First National Bank of Abilene Former Chairman, Texas Bankers Association Derrell E. Johnson President, American Council of Engineering Companies Life Health Trust Founding Director, Texas National Bank, Southlake (now First Financial Bank, Southlake) since 1985 Registered Professional Engineer in Texas Former President and CEO, Rady and Associates Kade Matthews Ranching and Investments Board Member, Hereford State Bank since 2004 Director, Dodge Jones Foundation Board of Trustees, Texas Christian University Year Elected Appointment* Committee 1971 1 1996 3 1996 1, 3, 4 1998 1, 2, 4 1991 2000 1 2 1998 3 Year Elected Appointment* Committee 1992 1, 2, 4 1992 1972 2 1 1997 1, 3, 4 1993 3 1998 1, 3, 4 2003 2 Raymond A. McDaniel, Jr. Investments Board Member, First National Bank of Abilene since 1976 Former President, Texas Coca-Cola Bottling Co. Former Chairman, Bottlers Systems, Inc. Former Chairman, Board of Trustees, McMurry University Bynum Miers Ranching Board Member, First National Bank of Abilene since 1975 Former Chairman of the Board, Sears Methodist Retirement System Former Chairman, Board of Trustees, McMurry University Former Chairman of the Board, Texas Methodist Foundation James M. Parker President, Parker Properties, Inc. Former Board Member, First National Bank of Abilene 1972-2004 Former President, Super Duper Food Stores, Inc. Former Director, West Texas Utilities Company Former Trustee, Hardin-Simmons University Jack D. Ramsey, M.D. Physician Radiologist and former President, Radiology & Associates of Abilene Chairman of the Board, Abilene Aero, Inc. Former Board Member, First National Bank of Abilene 1996-2004 Former Chairman, Hendrick Medical Center Department of Radiology Dian Graves Stai Board Member, First National Bank of Abilene since 1984 Former Chairman, Owen Healthcare, Inc. Former Savvy Magazine Top 60 Business Women in America Former Working Women Top 25 Business Women in America F. L. (Steve) Stephens Board Member, San Angelo National Bank since 1997 Retired Chairman and CEO, Town & Country Food Stores, Inc. Former Chairman, National Association of Convenience Stores Former Chairman, Texas Retail Grocers Association Johnny E. Trotter President and CEO, Livestock Investors, Ltd. President, XCL Feeders, Inc. President, Bar-G Cattle Company President, Texas Auto Investors, Inc. Board Member, Hereford State Bank since 1995 Board Member, American Quarter Horse Association *Committee Appointments 1. Executive Committee – F. Scott Dueser, Chairman 2. Audit Committee – David Copeland, Chairman 3. Compensation Committee – F. L. (Steve) Stephens, Chairman 4. Nominating Committee – Jack D. Ramsey, M.D., Chairman 18 In Memoriam WA LT E R F R E D J O H N S O N , S R . 1916 – 2004 On December 21, 2004, the First Financial Bankshares family lost a dear friend with the passing of Walter Johnson. The Banker’s Banker, Dedicated Civic and Business Leader, Mentor. Walter was considered one of the leading bankers in the state. From being President of the Texas Bankers Association to a member of the National Advisory Committee of the Comptroller of the Currency, he drew the respect of all and helped shape the industry to what it is today. He was the one that bankers would call for advice because of his great intelligence and knowledge of the industry. As a civic leader, he was focused on the betterment of Abilene and was a catalyst to make things happen. His chairmanship of the 100-person blue-ribbon committee in 1966 helped bring about the new city hall, civic center, airport, courthouse, coliseum and zoo. Even after retirement, he served as Campaign Chairman for the Abilene Intercollegiate School of Nursing. As a Christian businessman, he only had one way to do business – the right way. While we trace our roots back to 1890, it was Walter Johnson’s vision that transformed us from Abilene’s leading bank into a company that would grow to today’s family of banks serving communities across Texas. After leading First National Bank of Abilene for nearly two decades, Mr. Johnson founded First Abilene Bankshares in 1973 and served as our Chairman until his retirement in 1986. He continued his contributions as a valued board member until 1992. Walter Johnson’s wisdom, counsel and integrity laid the solid foundation we follow today. Our sympathy and love are extended to his wife, Virginia, and sons, Walt and Chris, along with their families. We will all miss him greatly. 19 Selected Financial Data In Thousands (except per share data) Year-End Total Assets(1) Shareholders’ Equity(1) Net Income(1) Basic Earnings per Share(2) Cash Dividends per Share(2) Stock Dividends and Splits Year-End Book Value per Share(2) Year-End Market Value per Share(2) 2004 $2,315,224 $265,545 $39,171 $2.53 $1.33 – $17.12 $44.81 2003 2002 2001 2000 1999 1998 1997 1996 1995 2,092,571 251,487 35,305 1,993,183 238,768 33,953 1,929,694 213,654 29,355 1,753,814 196,121 28,316 1,723,369 178,663 25,690 1,686,647 169,449 23,254 1,573,509 148,226 20,063 1,262,041 131,161 18,122 1,062,325 114,917 16,355 2.28 2.20 1.91 1.82 1.65 1.50 1.36 1.26 1.22 1.21 1.08 0.93 0.82 0.72 0.64 0.56 0.50 0.45 Ten-Year Compound Growth Rate 8.75% 9.79% 11.57% 9.95% 12.50% 5/4 split – 5/4 split – – 16.25 15.45 13.86 12.74 11.46 10% dividend 10.90 9.97 9.09 8.53 5/4 split 5/4 split – – 41.12 30.40 24.08 20.12 19.68 22.40 24.95 18.62 12.47 8.26% 16.24% (1) As originally reported at the close of each year and prior to restatements for pooling-of-interests. (2) Adjusted for stock dividends and splits. 2004 Common Stock Market Value and Dividend Data Quarter High Low Close Dividends Fourth Third Second First $45.95 $40.00 $44.81 $0.34 43.04 42.63 43.90 38.01 38.04 37.75 40.16 41.93 40.19 0.34 0.34 0.31 2003 Common Stock Market Value and Dividend Data Quarter High Low Close Dividends Fourth Third Second First $43.89 $37.12 $41.12 $0.31 41.02 38.80 32.34 32.38 28.01 27.27 36.96 33.46 28.40 0.31 0.31 0.28 20 Corporate Information Mr. Hildebrand, Mr. Webb, Mr. Dueser, Mr. Patterson and Mr. Gragg Officers Kenneth T. Murphy Chairman of the Board F. Scott Dueser President and Chief Executive Officer J. Bruce Hildebrand Executive Vice President and Chief Financial Officer Gary L. Webb Executive Vice President, Operations Gary S. Gragg Senior Vice President Robert S. Patterson Senior Vice President, Trust Services Chris Jensen Vice President, Marketing and Communications William A. Rowe Vice President, Investment Securities Gaila Kilpatrick Assistant Secretary Barbara Wright Compliance Ofﬁcer Annual Meeting Tuesday, April 26, 2005 Abilene Civic Center 1100 N. Sixth Street Abilene, Texas 79601 Corporate Offices 400 Pine Street Abilene, Texas 79601 325.627.7155 http://www.ffin.com Corporate Mailing Address P.O. Box 701 Abilene, Texas 79604 Common Stock Listing The NASDAQ Stock Market® Symbol: FFIN For Financial and Investor Information, Contact: J. Bruce Hildebrand Executive Vice President and CFO 325.627.7167 David A. Hogan Director, Investor Relations 325.627.7114 investorrelations@ffin.com Transfer Agent The Bank of New York 866.828.8173 Address Shareholder Inquiries to: Shareholder Relations Dept. P.O. Box 11258 Church Street Station New York, NY 10286 E-mail Address: shareowner-svcs@bankofny.com The Bank of New York Stock Transfer Website: http://www.stockbny.com Send Certificates for Transfer and Address Changes to: Receive and Deliver Dept. P.O. Box 11002 Church Street Station New York, NY 10286 Independent Public Auditors Ernst & Young LLP 400 Pine Street, Abilene, Texas 79601 • www.ffin.com TM

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