SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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First Financial Bankshares, Inc.
(Name of Registrant As Specified in its Charter)
------------------------------------------------------------------------
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FIRST FINANCIAL BANKSHARES, INC.
400 Pine Street
Abilene, Texas 79601
325.627.7155
NOTICE OF THE 2006 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2006
To our shareholders:
We cordially invite you to attend the annual meeting of our shareholders,
which will be held in the Abilene Civic Center, 1100 North 6th Street, Abilene,
Texas, at 10:30 a.m., Central time, on Tuesday, April 25, 2006, for the
following purposes:
(1) To elect 12 directors;
(2) To ratify the appointment by our audit committee of Ernst & Young LLP
as our independent auditors for the year ending December 31, 2006;
(3) To adopt an Amended and Restated Certificate of Formation and
voluntarily elect to adopt and become subject to the Texas Business
Organization Code;
(4) To change the par value of our Common Stock from $10.00 to $0.01 per
share;
(5) To act on such other business as may properly come before the annual
meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 15, 2006, are
entitled to notice of and to vote at the annual meeting or any continuation of
the meeting if it is adjourned.
We have included, along with this notice and proxy statement, our 2005
annual report, which describes our activities during 2005, and our Form 10-K for
the year ended December 31, 2005. The annual report and Form 10-K do not form
any part of the material for solicitation of proxies.
We hope that you will be present at the annual meeting and the luncheon to
be held immediately afterward. We respectfully urge you, whether or not you plan
to attend the annual meeting, to sign, date and mail the enclosed proxy card in
the envelope provided in order to eliminate any question of your vote being
counted. You can revoke your proxy in writing at any time before the annual
meeting, so long as your written request is received by our corporate secretary
before your proxy is voted. Alternatively, if you submitted a proxy and attend
the annual meeting in person, you may revoke the proxy and vote in person on all
matters submitted at the annual meeting. If you plan to attend the annual
meeting and luncheon, we request that you confirm your attendance by calling
325.627.7155.
By order of the Board of Directors,
KENNETH T. MURPHY, Chairman
March __, 2006
FIRST FINANCIAL BANKSHARES, INC.
400 Pine Street
Abilene, Texas 79601
325.627.7155
PROXY STATEMENT
2006 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2006
INTRODUCTION
Your board of directors hereby solicits your proxy for use at the 2006
annual meeting of our shareholders and any continuation of this meeting if it is
adjourned. The annual meeting will be held in the Abilene Civic Center, 1100
North 6th Street, Abilene, Texas, at 10:30 a.m., Central time, on Tuesday, April
25, 2006.
Our principal executive office is located at 400 Pine Street, Abilene,
Texas 79601. Our telephone number is 325.627.7155.
We mailed this proxy statement and the accompanying proxy card on March __,
2006. The date of this proxy statement is March __, 2006.
VOTING OF SECURITIES
Record Date
Your board of directors has established the close of business on March 15,
2006, as the record date for determining the shareholders entitled to notice of,
and to vote at, the annual meeting. On the record date, we had 20,716,882 shares
of our common stock outstanding.
Quorum
In order for any business to be conducted at the annual meeting, a quorum
consisting of shareholders having voting rights with respect to a majority of
our outstanding common stock on the record date must be present in person or by
proxy. You may only vote if you hold your shares directly in your name. If your
shares are held in "street name" by your broker, your broker will send you
instructions on how you can instruct your broker to vote your shares. Your
broker generally cannot vote your shares on non-routine matters without
instructions from you. Shares that are represented at the annual meeting but
abstain from voting on any or all matters and shares that are "broker non-votes"
will be counted in determining whether a quorum is present at our annual
meeting. A "broker non-vote" occurs when a broker or nominee votes on some
matters on the proxy card but not others because he does not have authority to
do so from the beneficial owner of the underlying shares.
Required Vote
The affirmative vote of a plurality of the shares cast at the annual
meeting is required to elect a nominee for director. The affirmative vote of the
holders of at least two-thirds of our outstanding shares entitled to vote is
required to approve the amendment and restatement to our certificate of
formation (including the election to become subject to the Texas Business
Organization Code) and to reduce our par value from $10.00 per share to $0.01
per share. The affirmative vote of a majority of shares entitled to vote is
required to approve the ratification of Ernst & Young LLP as our independent
accountants or any other matter that may come before the meeting. If you abstain
from voting or withhold authority to vote in the election of a director, your
abstention or withholdings will have no effect. However, as to other matters,
you abstention or withholding authority will have the effect of a vote against
such matters because approval is premised on the affirmative vote of at least
two-thirds or a majority (as the case may be) of all shares entitled to vote.
Broker non-votes will have no effect on the outcome of director elections, but
will count as negative votes for all other matters.
Shareholder List
A list of shareholders entitled to vote at the annual meeting, which will
show each shareholder's address and the number of shares registered in his or
her name, will be open to any shareholder to examine for any purpose related to
the annual meeting. Any shareholder may examine this list during ordinary
business hours commencing March __, 2006, and continuing through the date of the
annual meeting at our principal office, 400 Pine Street, Abilene, Texas 79601.
SOLICITATION AND REVOCABILITY OF PROXIES
Solicitation
We will bear the expense to solicit proxies, which will include
reimbursement of expenses incurred by brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials regarding the annual
meeting to beneficial owners. Our officers and directors may further solicit
proxies from shareholders and other persons by telephone or oral communication.
We will not pay these officers any extra compensation for participating in this
solicitation.
Proxies and Revocation
Each executed and returned proxy card will be voted according to the
directions indicated on that proxy card. If no direction is indicated, the proxy
will be voted according to the board of directors' recommendations, which are
contained in this proxy statement. Your board of directors does not intend to
present, and has no information that others will present, any business at the
annual meeting that requires a vote on any other matter. If any other matter
requiring a vote properly comes before the annual meeting, the proxies will be
voted in the discretion of the proxyholders named on the proxy.
Each shareholder giving a proxy has the power to revoke it at any time
before the shares of our common stock it represents are voted. This revocation
is effective upon receipt, at any time before the annual meeting is called to
order, by our corporate secretary of either (1) an instrument revoking the proxy
or (2) a duly executed proxy bearing a later date than the preceding proxy.
Additionally, a shareholder may change or revoke a previously executed proxy by
voting in person at the annual meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
General
Your board of directors currently consists of 14 directors. At the annual
meeting, 12 directors are to be elected, each for a term of one year. Under our
bylaws, an individual may not stand for election or reelection as a director
upon attaining 72 years of age, unless he owns at least 1% of the outstanding
shares of our common stock and is less than 75 years of age. Three of our
current directors (Mr. McDaniel, Dr. Ramsey and Mr. Parker) will not stand for
reelection at the annual meeting due to these bylaw provisions. While our bylaws
fix the number of directors at a number not less than three nor more than 30,
the board of directors has fixed the number of directors at 12 for 2006.
Although we do not contemplate that any of the nominees will be unable to serve,
if such a situation arises before the annual meeting, the proxies will be voted
to elect any substitute nominee or nominees designated by your board of
directors.
Under Nasdaq rules, a majority of your board of directors must be comprised
of independent directors. The board has determined that each director nominated,
except Messrs. Dueser and Murphy, is independent under applicable Nasdaq rules.
-2-
Nominees
The names and principal occupations of the nominees, together with the
length of service as a director and the number of shares of our common stock
beneficially owned by each of them on February 1, 2006, are set forth in the
following table, except as otherwise indicated, the named beneficial owner has
sole voting and investment power with respect to shares held by him or her:
Shares of
Years as Bankshares Percent
Director Principal Occupation Beneficially of Shares
Name Age (1) During Last Five Years Owned Outstanding
---- --- --- ---------------------- ----- -----------
Joseph E. Canon 63 10 Executive Director, 11,447 0.06%
Dodge Jones Foundation, a
private charitable foundation
Mac A. Coalson 66 10 Real Estate and Ranching 226,230 1.09%
David Copeland 50 8 President, Shelton Family 133,946 (2) 0.65%
Foundation, a private
charitable foundation
F. Scott Dueser 52 15 See "Executive Officers" on 225,119 (3)(4) 1.09%
page 6
Murray Edwards 54 - Principal, The Edwards Group 43,923 (5) 0.21%
Derrell E. Johnson 66 6 President, American Council 40,000 0.19%
of Engineering Companies
Life Health Trust
Kade L. Matthews 47 8 Ranching and Investments 189,621 0.92%
Bynum Miers 69 14 Ranching 57,103 (6) 0.28%
Kenneth T. Murphy 68 35 See "Executive Officers" on 157,896 0.76%
page 6
Dian Graves Stai 65 13 Chair, Mansefeldt Investment Inc. 72,593 0.35%
F. L. Stephens 67 8 Retired Chairman and Chief 59,665 0.29%
Executive Officer, Town &
Country Food Stores, Inc.
Johnny E. Trotter 54 3 Ranching, Farming and Cattle 90,481 0.44%
Feeding
Shares beneficially owned by all executive officers and directors* 1,334,720 (4) 6.44%
* See "Security Ownership of Certain Beneficial Owners and Management."
(1) The years indicated are the approximate number of years each person has
continuously served as a director, or, prior thereto, of First National
Bank of Abilene, which became our wholly-owned subsidiary in April 1973,
when all the then directors of First National Bank of Abilene became our
directors.
(2) Includes 123,281 shares that are owned by trusts for which Mr. Copeland
serves as trustee or co-trustee to which he disclaims beneficial ownership.
Mr. Copeland is also a director of Harte-Hanks, Inc.
(3) Includes 2,208 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2006.
Also includes 39,988 shares owned by his wife of which he disclaims
beneficial ownership.
(4) Includes shares indirectly owned as of February 1, 2006 through the
employee stock ownership plan portion of the profit sharing plan which each
participant has sole voting powers, as follows: Mr. Dueser - 23,200 and all
executive officers and directors as a group - 31,973.
(5) Includes 12,642 shares our common stock owned by Mr. Edward's spouse and
minor child. Mr. Edwards and his wife were a 27.5% owner of Clyde Financial
Corporation that was acquired by the Company in February 2005. See Annual
Report on Form 10-K for additional disclosures related to this acquisition.
(6) Includes 8,933 shares of our common stock owned by Mr. Miers' spouse.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU
VOTE "FOR" THE ELECTION OF EACH OF THESE NOMINEES.
-3-
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The audit committee of your board of directors has selected Ernst & Young
LLP to serve as our independent auditors for the year ending December 31, 2006
and to serve until the next annual meeting in April 2007. Ernst & Young LLP has
served as the Company's independent auditors since 2002. We have been advised by
Ernst & Young LLP that neither its firm nor any of its members has any financial
interest, direct or indirect, in us, nor has had any connection with us or any
of our subsidiaries in any capacity other than independent auditors. Your board
of directors recommends that you vote for the ratification of the selection of
Ernst & Young LLP. Shareholder ratification of the selection of Ernst & Young
LLP as our independent auditors is not required by our articles of
incorporation, bylaws or otherwise. Nevertheless, your board of directors is
submitting this matter to the shareholders as what we believe is a matter of
good corporate practice. If the shareholders do not ratify the appointment of
Ernst & Young LLP, then the appointment of independent auditors will be
reconsidered by our audit committee. Even if the appointment is ratified, the
audit committee in its discretion may direct the appointment of a different
independent audit firm at any time during the year if it is determined that such
a change would be in the best interests of the Company and its shareholders.
Representatives of Ernst & Young LLP are expected to be present at the annual
shareholders meeting, and they may have the opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE YEAR 2006
-4-
PROPOSAL 3
PROPOSAL TO ADOPT
AN AMENDED AND RESTATED CERTIFICATE OF FORMATION
TO REFLECT CHANGES IN TEXAS LAW
Background
Your board of directors has approved the Amended and Restated Certificated
of Formation in the form attached hereto as Appendix A, subject to shareholder
approval. Our current restated articles of incorporation were filed with the
Texas Secretary of State in 1972 and have been amended several times in the
intervening decades. We refer to the restated articles of incorporation and all
amendments as the "Current Articles." Since the original date of adoption of the
Current Articles, Texas law governing corporations has been amended numerous
times, most recently by the adoption of the new Texas Business Organizations
Code, or TBOC. The TBOC will eventually replace the Texas Business Corporation
Act, or TBCA, and the other miscellaneous Texas corporate statutes that
currently govern our affairs.
The TBOC became effective on January 1, 2006, for all entities formed in
Texas on or after that date. Unless existing entities elect early adoption to be
governed by the TBOC, the TBOC will not apply to them until January 1, 2010.
After January 1, 2010, all entities formed in Texas will be governed by the
TBOC. Because we were originally incorporated in 1956, we are currently subject
only to the TBCA and the other miscellaneous Texas corporate statutes.
Accordingly, unless we elect to become subject to the TBOC, we will continue to
be subject to the TBCA and other miscellaneous Texas corporate statutes until
January 1, 2010.
Enacted during the Texas Legislature's 2003 regular session and refined
during its 2005 regular session, the TBOC has been adopted as part of an ongoing
legislative mandate to reorganize all Texas statutes into centralized codes
grouped by subject matter. The TBOC's stated purpose is to rearrange the
disparate business statutes into a more logical order, employ a consistent
format and numbering system, eliminate duplicative and ineffective provisions,
and restate the law in modern American English. For the most part, the TBOC is
not intended to effect substantive changes in the Texas law governing business
organizations. Nevertheless, there are some substantive differences between the
TBCA and the provisions of the TBOC applicable to business corporations that are
relevant to a public company such as us. For example:
o Section 3.104 of the TBOC permits a corporation to remove officers with
or without cause. The TBCA permitted the board of directors to remove an officer
only if the best interests of the corporation would be served by such removal.
o Section 6.053 of the TBOC is derived from provisions of the TBCA that
enable a corporation to have a valid meeting without giving notice to a
shareholder when certain previous notices or distributions mailed to that
shareholder's address have been returned undeliverable. The revised law in
Section 6.053(b), however, departs from the TBCA and incorporates by reference
SEC rules that permit a publicly traded company not to provide notice to a "lost
security holder." Under the SEC's rules, a "lost security holder" means a
securityholder to whom an item of correspondence that was sent to the
securityholder at the address contained in the transfer agent's master
securityholder file has been returned as undeliverable, and for whom the
transfer agent has not received information regarding the securityholder's new
address.
o Section 8.103 of the TBOC provides that a determination that the standard
for indemnification has been met may be made by a committee of one disinterested
director if no quorum of disinterested directors can be obtained. The TBCA
requires two such directors.
o Sections 11.201 and 11.202 of the TBOC extend the ability to reinstate a
voluntarily terminated corporation from 120 days under the TBCA to three years
under the TBOC, though the ability to reinstate is limited to specified
circumstances.
o Section 21.352 of the TBOC adds the requirement that a shareholder must
request in writing that an annual meeting be held before attempting to obtain a
court order to force the meeting, if an annual meeting has not been held in the
preceding 13 months. The TBCA does not require such written notice.
-5-
In addition to these differences between the TBOC and the TBCA, the TBOC
clarifies certain provisions in current law. For instance, under the TBOC,
shareholders may by resolution approve indemnification and advancement of
expenses of any officer, employee, agent or delgate of the corporation who is
not also a director, which was only implied in existing law. Also, the TBOC
clarifies that permitted self-insurance includes implementation by an indemnity
contract, and harmonizes certain provisions, including dissenters' rights, for
short-form and other mergers. Moreover, the TBOC revises the procedures for
making filings with the Texas Secretary of State and changes many of the filing
fees.
Your board of directors believes it to be in our best interest to elect
early adoption of the TBOC to take advantages of these changes in Texas law.
Additionally, your board of directors believes it to be a convenient time to
consolidate the provisions of the Current Articles into one document for easier
reference.
Purpose
This proposal is primarily intended to modernize the Current Articles by
conforming them to the TBOC and by deleting provisions that are unnecessary,
ineffective or otherwise inappropriate as a result of the adoption of the TBOC.
If this proposal is approved, the Amended and Restated Certificate of Formation
will become effective upon filing with the Texas Secretary of State. We will
also file a brief statement with the Texas Secretary of State electing to be
governed by the TBOC. If this proposal is not approved, then the Amended and
Restated Certificate of Formation will not become effective and the TBOC will
not apply to us until January 1, 2010, at the latest.
Description of Amended and Restated Certificate of Formation
The following table sets forth a general description of the changes to our
Current Articles effected by the proposed Amended and Restated Certificate of
Formation. The full text of the proposed Amended and Restated Certificate of
Formation is set forth in Appendix A.
Change Effected by Amended and
Current Articles Restated Certificate of Formation
---------------- --------------------------------------------
Article One This provision is unchanged.
(Name)
Article Two The TBOC provides that perpetual existence
(Duration) is the default rule for Texas corporations.
Therefore, current language concerning
perpetual duration is redundant and has
been deleted. This provision has also been
updated to clarify under the TBOC that the
we are a domestic, for-profit corporation.
Article Three Current drafting practice is to provide
(Purposes) that a corporation may engage "in any
lawful activity for which a corporation
may be incorporated" rather than to
enumerate permitted activities, and the
language has been modified appropriately.
Article Four The number of authorized shares remains
(Capital Stock) unchanged but the par value has been
reduced to one cent ($0.01). The draft
proposed Amended and Restated Certificate
of Formation included as Appendix A assumes
the approval of Proposal 4 to reduce the par
value of our shares to one cent ($0.01). If
Proposal 4 is not approved then the draft
language will be revised to reflect the
current par value of ten dollars ($10.00).
-6-
Article Five The TBOC does not require this provision to
(Minimum Capital) be included and it has been deleted.
Article Six (New Article Five) This provision has been
(Registered Agent & updated to reflect our current registered
Registered Office) agent and registered office.
Article Seven (New Article Six) This provision will be
(Board of Directors) updated to include our current roster of
directors at the time of the filing.
Article Eight This provision is not required to be
(Incorporators) repeated under the TBOC and has been
deleted.
Article Nine (New Article Seven) This provision has been
(Cumulative Voting) revised to use modern language, but its
substance--the denial of cumulative voting--
is unchanged.
Article Ten (New Article Eight) This provision is
(Denial of Preemptive Rights) unchanged.
Article Eleven (New Article Nine) This provision has
(Liability and Indemnification) been revised to use terminology
consistent with the rest of the Amended and
Restated Certificate of Formation
and to update section references, but its
substance is otherwise unchanged.
Impact of Proposal 4
Proposal 4 set forth below relates to the reduction of the par value of our
authorized shares from ten dollars ($10.00) to one cent ($0.01). If Proposal 4
is not approved, and this Proposal 3 is approved, then the Amended and Restated
Certificate of Formation will be adopted in the form set forth as Appendix A,
except that the draft language will be revised to reflect the current par value
of ten dollars ($10.00) per share.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE
AMENDED AND RESTATED CERTIFICATE OF FORMATION, INCLUDING ADOPTION OF THE
TEXAS BUSINESS ORGANIZATIONS CODE
-7-
PROPOSAL 4
AMENDMENT TO CURRENT ARTICLES
TO CHANGE THE PAR VALUE OF OUR COMMON STOCK
TO $0.01 PER SHARE
Historically, par value served as a stated price at which a corporation's
stock would be issued. Nevertheless, we believe the protection par values may
have provided investors has become less important over time. Regulation of the
securities markets and increased financial transparency has contributed to this
trend. Also, as markets have become more liquid, with prices responding more
rapidly to market developments, it has became increasingly difficult for a
corporation to commit in advance to issue securities at their par value.
Instead, for public companies, the market sets the price at which stock may be
issued or otherwise sold. For this reason, par value is generally considered to
be an anachronistic concept, and many corporations today set their par value at
$0.01 per share or even less. In fact, under Texas law, stock without par value
is permissible.
Our Current Articles authorize 40,000,000 shares, par value $10.00 per
share. Although the ten-dollar par value may have had merit in 1956 when we were
incorporated, we no longer believe it is a meaningful metric. In fact, in recent
years our ability to split our stock or issue stock dividends has been hampered
because of the $10.00 par value. In addition, we have surveyed the charter
documents of regional bank holding companies in the Southwest area of the United
States and have found that substantially all of them set par value at $0.01 per
share or less. Accordingly, your board of directors has determined that it is in
our best interests to reduce the par value of our authorized shares, which we
refer to as our common stock, from $10.00 per share to $0.01 per share.
A change in the par value of our stock will have no effect on the total
dollar amount of our total shareholders' equity and no substantive effect on our
balance sheet. If the change is approved, the common stock account on our
balance sheet at $10.00 per share will be reduced to reflect the product of the
number of shares outstanding and the new par value of $0.01 per share, and the
difference will be transferred to the capital surplus account.
Proposal 3 relates to the approval of an Amended and Restated Certificate
of Formation. If the Amended and Restated Certificate of Formation is approved
pursuant to Proposal 3 and this Proposal 4 is also approved, then the reduction
in par value will be effected by adoption of the Amended and Restated
Certificate of Formation. If Proposal 3 is not approved, but this Proposal 4 is
approved, then the decrease in par value will be effected by adoption of an
amendment to our Current Articles. A draft of the proposed amendment to the
Current Articles is set forth in Appendix B.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE REDUCTION OF
OUR PAR VALUE TO $0.01 PER SHARE
-8-
Executive Officers
Set forth in the following table are our executive officers, and the shares
of our common stock beneficially owned by each of them as of February 1, 2006,
except as otherwise indicated, the named executive officer has sole voting and
investment power with respect to the shares he holds:
Years Shares of
Served Bankshares Percent of
in Such Principal Occupation Beneficially Shares
Name Age Office Office During Past 5 Years Owned Outstanding
---- --- ------ ------ ------------------- ----- -----------
Kenneth T. Murphy 68 Chairman 19 Chairman, First Financial 157,896 0.76%
Bankshares, Inc.;
Chairman, President and
Chief Executive Officer,
First Financial
Bankshares, Inc.
(1986-2000); Chairman,
First National Bank of
Abilene* (1993-2000)
F. Scott Dueser 52 President and 5 President and Chief 225,119 (1)(2) 1.09%
Chief Executive Executive Officer of
Officer First Financial
Bankshares, Inc.;
Chairman, First National
Bank of Abilene*;
President and Chief
Executive Officer, First
National Bank of Abilene*
(1991-2001); Executive
Vice President of First
Financial Bankshares,
Inc. (1999-2001)
J. Bruce Hildebrand 50 Executive Vice 3 Executive Vice President 3,249 (1) 0.02%
President and and Chief Financial
Chief Financial Officer of First
Officer Financial Bankshares,
Inc.; Partner, KPMG LLP
(1990-2002)
Robert S. Patterson 65 Executive Vice 12 Executive Vice President 11,643 (1)(3) 0.06%
President of First Financial
Bankshares, Inc.; Senior
Vice President of First
Financial Bankshares,
Inc. (1994 to 2005)
Gary L. Webb 48 Executive Vice 3 Executive Vice President 2,380 (1)(4) 0.01%
President of First Financial
Bankshares, Inc.;
Partner, BearingPoint
(2002); Partner, Arthur
Andersen (2001-2002);
Senior Manager, Arthur
Andersen (1998-2001)
*A bank subsidiary.
(1) Includes shares indirectly owned as of February 1, 2006 through our
employee stock ownership plan portion of the profit sharing plan, which
each participant has sole voting power, as follows: Mr. Dueser - 23,200,
Mr. Hildebrand - 402, Mr. Patterson - 4,244, and Mr. Webb - 287.
(2) Includes 2,208 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2006.
Also includes 39,988 shares owned by his wife of which he disclaims
beneficial ownership.
(3) Includes 4,717 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2006.
(4) Includes 666 shares of our common stock issuable upon exercise of options
presently exercisable or exercisable within 60 days of February 1, 2006.
-9-
MANAGEMENT
Amounts and prices related to shares of our common stock have been adjusted
to give effect to all stock splits and stock dividends.
Executive Compensation
The following table provides individual compensation information on our
chief executive officer and our five most highly compensated executive officers
during 2005 whose total annual salary and bonus was in excess of $100,000.
Summary Compensation Table
Long Term
Compensation
Annual Awards
Compensation ----------------------- All Other
-------------------- Securities Compensation
Name and Principal Position Year Salary ($) Bonus ($) Underlying Options(#)(1) ($)(2)
--------------------------- ----- -------------------- ----------------------- -------------
Kenneth T. Murphy, Chairman of the Board 2005 - - - $145,257 (3)
First Financial Bankshares, Inc. 2004 - - - 234,990 (3)
2003 - - - 345,514 (3)
F. Scott Dueser, President and Chief 2005 385,000 - 5,333 45,918 (2)
Executive Officer 2004 356,000 $19,758 - 33,454 (2)
First Financial Bankshares, Inc. 2003 356,000 - 5,833 14,659 (2)
J. Bruce Hildebrand, Executive Vice President 2005 230,000 - 2,666 27,907 (2)
and Chief Financial Officer 2004 212,000 11,766 - 33,454 (2)
First Financial Bankshares, Inc. 2003 200,000 - 3,333 13,459 (2)
Gary L. Webb, Executive Vice President 2005 218,000 - 2,666 26,513 (2)
First Financial Bankshares, Inc. 2004 208,000 11,544 - 32,164 (2)
2003 166,667 15,000 3,333 -
Robert S. Patterson, Executive Vice President 2005 171,000 - 2,000 27,529 (2)
First Financial Bankshares, Inc. 2004 165,000 9,458 - 20,959 (2)
2003 158,333 - 2,500 12,682 (2)
(1) Adjusted for stock splits and stock dividends.
(2) Represents the contributions we made to our profit sharing plan, 401(k)
match and make whole plan for the benefit of such officer and country club
dues.
(3) Represents amount paid under his consulting agreement, pension plan and
deferred compensation agreement.
Note: Amounts have been reported solely in compliance with applicable SEC
regulations, and may not accurately reflect wages or other compensation
under applicable IRS regulations.
We also provide liability insurance for all of our directors and officers
at an annual cost of approximately $183,000 and have contractual indemnification
arrangements with directors and select officers which may, under certain
circumstance, require us to compensate them for costs and liabilities incurred
in actions brought against them while acting in their official capacities for
the Company.
-10-
The following table sets forth certain information concerning stock options
activity during the last fiscal year by the named executive officers (adjusted
for stock split):
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year End (#) at Fiscal Year End ($)(1)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Kenneth T. Murphy - $ - - - $ - $ -
F. Scott Dueser 1,041 19,134 1,166 11,042 13,945 89,905
J. Bruce Hildebrand 666 10,103 - 5,333 - 37,176
Robert S. Patterson 2,082 54,299 4,217 4,500 81,170 39,170
Gary L. Webb - - 666 5,333 7,965 37,176
(1) Based upon the closing price per share of our common stock of $35.06 on
December 31, 2005.
Compensation pursuant to Employee Benefit Plans
General
We have both a defined benefit pension plan and a profit sharing plan. An
employee is eligible to become a participant in the profit sharing plan on the
January 1 coincident with or immediately following the date his employment
begins. The pension plan was frozen effective January 1, 2004 and new employees
hired after that date are not eligible to participate in the plan. See changes
made to these plans described below. With our subsidiary banks, we adopted a
flexible spending account benefit plan for all employees that became effective
in 1988. First Financial Bank, National Association, Cleburne, adopted these
plans effective in 1991. First Financial Bank, National Association,
Stephenville adopted these plans effective in 1993. San Angelo National Bank
adopted the pension and flexible spending account benefit plan effective in 1994
and profit sharing plan effective in 1995. Weatherford National Bank adopted
these plans effective in 1996. First Financial Bank, National Association,
Southlake, adopted all benefit plans effective in 1998. City National Bank
adopted all benefit plans effective in 2002. First Technology Services, Inc. and
First Financial Trust & Asset Management Company, National Association, adopted
all benefit plans effective in 2003.
Profit Sharing Plan
We, and each of our subsidiaries that participates in the profit sharing
plan, determine by a formula on an annual basis the contribution that it will
make to the profit sharing plan from such employer's operating profits.
Contributions under the profit sharing plan are administered by and at the
discretion of the Compensation Committee. Effective January 1, 2002, we added a
401(k) feature to our profit sharing plan which allows the participants to make
pre-tax contributions to the plan. Effective January 1, 2004, the plan includes
a safe harbor Company match equal to 100% of each Participant's deferral
contributions not exceeding 3% of the participant's compensation, plus 50% of
each participant's deferral contributions in excess of 3% but not in excess of
5% of the participant's compensation. Prior to January 1, 2004, the plan did not
include a mandatory Company match but did provide a safe harbor profit sharing
contribution equal to 3% of the qualifying participant's compensation. Under the
profit sharing plan, contributions by employees are not required as a condition
of participation. Each participating employer's annual contribution is allocated
among the accounts of the active plan participants employed by such employer, in
the ratio that each participant's compensation bears to the total compensation
of all participants of such employer. Compensation is defined as the total
amount paid to an employee during the year, including bonuses, commissions, and
overtime pay, but excluding reimbursed expenses, group insurance benefits and
pension and profit sharing contributions. However, the Internal Revenue Service
limits the compensation amount used to calculate a participant's benefit to a
maximum of $210,000. Additionally, the annual addition amount (which is the
aggregate of employer and employee contributions) that may be allocated to a
participant is limited to $42,000.
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Effective July 1, 2003, we added an employee stock ownership plan (ESOP)
feature to our profit sharing plan. Shares of our common stock held by the
profit sharing plan were allocated to participants generally based on the ratio
that each participant's balance bears to the total balances in the profit
sharing plan. Participants are given the option to receive cash dividends on
these shares in cash or reinvest the dividends in additional shares.
The profit sharing plan provides for benefits to vest in graduated
percentages for the first six years of participation, with benefits being fully
vested after seven years of credited service except for amounts contributed to
an employee's account under the safe harbor provisions and shares resulting from
the reinvestment of dividends in the ESOP which are immediately fully vested.
Generally, an employee's benefit at normal retirement will be the contributions
allocated to his account while a participant, increased by gains and decreased
by losses from investments of the trust, and increased by any forfeitures
allocated to his account. An employee is always fully vested with respect to any
voluntary contributions he makes. The plan also provides for immediate vesting
upon attainment of normal retirement age and upon death or disability. If a
participant terminates employment for any other reason, the total amount of his
employee contribution account and the vested portion of his employer
contribution account become eligible to be distributed.
Effective January 2005, the Company adopted a "make whole" program whereby
executives whose Company contributions to the profit sharing plan and employer
match under the 401(k) feature were limited due to Internal Revenue Service
limitations will now have contributions made to a non-qualified plan equal to
the amount under qualified plans as if there were no Internal Revenue Service
limitations. For 2005, contributions were made for Mr. Dueser, Mr. Hildebrand
and Mr. Webb totaling $20,335, $2,324 and $930, respectively.
Pension Plan
The pension plan requires annual contributions sufficient to provide the
pension benefits accruing to employees under the pension plan. The annual
benefit for a participant in the pension plan who retires on his normal
retirement date is the accrued benefit (as defined in the pension plan) at
December 31, 1988, plus 1.25% of average compensation multiplied by years of
service from January 1, 1989. "Average compensation" is the average compensation
during the 10 years immediately preceding the date of determination.
Compensation means the total amount paid to an employee during the year
including bonuses, commissions, and overtime pay, but excluding reimbursed
expenses, group insurance benefits and pension and profit sharing contributions.
There are provisions in the pension plan for early retirement with reduced
benefits. There is no vesting of benefits until a participant has five or more
years of credited service or upon reaching age 65 without regard to credited
service. Effective January 1, 2004, the pension plan was frozen and no
additional benefits accrue under the plan after this date. New hires to the
Company are not eligible to participate in the frozen pension plan.
The pension plan is subject to the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, or ERISA. Our contributions to
the pension plan, including those of our participating subsidiary banks, have
been $754,416 in 2000; $742,923 in 2001; $726,989 in 2002; and $1,038,031 in
2003. No contribution were made in 2004 or 2005.
The following table illustrates estimated retirement benefits under the
pension plan for persons in specified remuneration and years of service
categories, which benefits are payable annually for life (but in no event less
than 10 years). The benefits listed in the table below are not subject to any
deduction for social security or other offset amounts. This table does not
reflect any benefit that a participant may have accrued at December 31, 1988.
-12-
PENSION PLAN TABLE
Years of Service
----------------------------------------------------------
Remuneration 15 20 25 30 35
------------ ---------- ---------- ---------- ---------- ----------
$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 9,375 $ 10,938
50,000 9,375 12,500 15,625 18,750 21,875
75,000 14,063 18,750 23,438 28,125 32,813
100,000 18,750 25,000 31,250 37,500 43,750
125,000 23,438 31,250 39,063 46,875 54,688
150,000 28,125 37,500 46,875 56,250 65,625
175,000 32,813 43,750 54,688 65,625 76,563
200,000 37,500 50,000 62,500 75,000 87,500
As of December 31, 2002, Mr. Murphy was credited with 32 years of service,
at which time he began receiving payments under the pension plan. As of December
31, 2003, Mr. Dueser was credited with 27 years of service, Mr. Hildebrand was
credited with one year of service and Mr. Patterson was credited with nine years
of service. The covered compensation of Mr. Dueser and Mr. Hildebrand during
2003 was $200,000, and for Mr. Patterson was $158,333. The maximum covered
compensation was $200,000 in 2003. Mr. Webb began employment in March 2003 and
was not credited with any years of service. As the pension plan was frozen
effective January 1, 2004, no additional years of service accrued from that
date.
Flexible Spending Account Benefit Plan
With our subsidiaries, we have a flexible spending account benefit plan. An
employee is eligible to become a participant in this plan on the first day of
the month following completion of two months of service. The flexible spending
account benefit plan allows each participant to redirect a portion of his/her
salary, before taxes, to pay certain medical and/or dependent care expenses.
Deferred Compensation Agreement
In 1992, your board of directors approved a deferred compensation
agreement, which was amended in 1995, between Mr. Murphy and us. We entered into
this agreement in recognition of Mr. Murphy's contribution to our success and as
an inducement to him to remain, subject to the discretion of your board of
directors, in our employ. This agreement provided that, following his retirement
in December 2002, we would pay him, or his beneficiary, the sum of $8,750 per
month for a period of 84 months. The monthly amount was considered to be an
appropriate level of supplemental income to partially offset Mr. Murphy's
reduction in personal income following retirement and was based on an analysis
of the difference in projected final year compensation and retirement
compensation. Effective January 1, 2003, Mr. Murphy began receiving monthly
payments of $8,750 as provided under the terms of this agreement through
December 1, 2009.
Executive Recognition Plan
In April 1996, our outside directors, who constituted a majority of your
board of directors, unanimously approved an executive recognition plan. This
plan enables us, upon approval of the compensation committee, to offer our key
executive officers and those of our subsidiaries an executive recognition
agreement. Mr. Dueser, Mr. Hildebrand, Mr. Patterson, Mr. Webb and our other
senior officers have entered into executive recognition agreements with us. Each
executive recognition agreement provides severance benefits for each executive
officer if, within two years following a change in control (as defined in the
executive recognition agreements), his employment with us or our subsidiaries is
terminated by us or the subsidiary bank for any reason other than for cause (as
defined in the executive recognition agreements) (except for terminations as a
result of the officer's death, disability or retirement (as such terms are
defined in the executive recognition agreements)) or by the executive officer
for good reason (as defined in the executive recognition agreements). Such
severance benefits provide that the executive officer will receive a payment
equal to a certain percentage (as set forth in his executive recognition
agreement) of his annual base salary immediately preceding the date of
termination and, for two years following the date of termination, the
continuation of all medical, life and disability benefit plans covering the
officer at no cost to the officer. The percentage of annual base salary to be
received upon a change in control pursuant to his executive recognition
agreement is 200%. The total severance payment for the executive officer cannot,
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however, exceed the amount that would cause such payment to be deemed a
"parachute payment" under Section 280G of the Internal Revenue Code.
Each executive recognition agreement has a term of two years. However, if a
change in control occurs during the original term of the executive recognition
agreements, then the executive recognition agreements will continue in effect
for an additional period of two years following the change in control.
Similarly, if a second change in control occurs within two years from the date
of the first change in control, then the executive recognition agreements will
continue in effect for a period of two years from the date of the second change
in control.
These executive recognition agreements are presently being amended to
comply with newly issued Internal Revenue regulations effecting such plans.
Stock Option Plan
At the 2002 annual meeting of shareholders, our 2002 incentive stock option
plan was approved and adopted. The purposes of the stock option plan are to
attract and retain key employees and to encourage employee performance by
providing them with a proprietary interest in us through the granting of stock
options. The maximum aggregate number of shares of our common stock that may be
issued under the 2002 incentive stock option plan is 833,333 subject to
adjustment for stock dividends and similar events. The stock option plan is
administered by our compensation committee. Only incentive stock options (as
defined in the Internal Revenue Code) may be granted under the stock option
plan. Incentive stock options granted under the stock option plan may be
exercised solely by the grantee, or in the case of the grantee's death or
incapacity, by the grantee's executors, administrators, guardians or other legal
representatives and are not assignable or transferable by a grantee. In May
2003, 95,413 stock options were issued to certain of our officers under the 2002
incentive stock option plan. In January 2005, 101,066 stock options were issued
to certain officers under the 2002 incentive stock option plan.
Our 1992 incentive stock plan expired in 2002 and no additional options may
be granted under this plan. Options totaling 67,801 are exercisable as of
December 31, 2005, under the 1992 incentive stock option plan and will be
exercisable through 2012 under the terms of the plan.
Consulting Agreement
Effective January 1, 2003, we entered into a consulting agreement with Mr.
Murphy whereby Mr. Murphy provided various services to us and our subsidiaries
with respect to strategic planning and potential acquisitions among other
things. The term of the original agreement was one year and compensation payable
was $14,583 per month. The agreement was renewed for one year in 2004, 2005 and
2006. The present agreement effective January 1, 2006 compensates Mr. Murphy
$2,500 per month.
Meetings of the Board of Directors
Your board of directors has four regularly scheduled meetings each year.
Each of the directors attended at least 75% of the meetings of the board of
directors and the committees of the board of directors on which such director
served.
Although we do not have a formal policy regarding attendance by members of
the board of directors at our annual meeting of shareholders, we encourage
directors to attend and historically more than a majority have done so. For
example, 100% of the directors attended the 2005 annual meeting of shareholders.
Committees of the Board of Directors
Your board of directors has four committees. The functions and current
members of each committee are as follows:
Executive Committee. The executive committee acts for your board of
directors between board meetings, except to the extent limited by our bylaws or
Texas law. The current members are Messrs. Coalson, Copeland, Dueser, McDaniel,
Murphy, Parker, Ramsey and Stephens. The Executive Committee met three times
during 2005 and in January 2006.
-14-
Nominating Committee. Among other things, the nominating committee selects
and recommends director candidates to the board of directors. The nominating
committee members are Messrs. Coalson, Copeland, McDaniel, Ramsey and Stephens.
All current directors eligible for reelection to the board are being nominated
for election as directors for 2006 in addition to one new nominee, Mr. Edwards.
During 2005, the committee met two times and also in January 2006.
Historically, our goal has been to assemble a board of directors that
brings to us a variety of perspectives and skills derived from high quality
business and professional experience to provide sound and prudent guidance with
respect to our operations and interests. Generally, the committee identifies
candidates through the personal, business and organizational contacts of the
directors and management. Potential directors should possess the highest
personal and professional ethics, integrity and values, and be committed to
representing the interests of all of our shareholders. It is also our policy
that at all times at least a majority of your board of directors meets the
independence standards promulgated by Nasdaq and the SEC. We also require board
members to be able to dedicate sufficient time and resources to ensure diligent
performance of their duties, including attending board and applicable committee
meetings. The committee has also generally considered factors such as:
o representation of a major business, profession, industry or segment of
the economy;
o our needs with respect to the particular talents and experience of our
directors;
o the knowledge, skills and experience of nominees, particularly with
respect to the community banking business in North Central and West
Texas;
o a nominee's experience with accounting rules and practices, finance,
management and leadership opportunities;
o leader in the community and possession of an appreciation of the
relationship of our banking business to the communities we serve; and
o other requirements that may be imposed by the bank regulatory
agencies.
Under our bylaws, an individual may not stand for election or reelection as
a director upon attaining age 72 years of age, unless he owns at least 1% of the
outstanding shares of our common stock and is less than 75 years of age.
Otherwise, there are no stated minimum criteria for director nominees. Based on
the age limitations, Messrs. Parker and McDaniel and Dr. Ramsey are not be
eligible to stand for reelection in 2006.
We expect that the nominating committee will select nominees in the future
by first evaluating the current members of your board of directors willing to
continue in service. Current members of the board with skills and experience
that are relevant to our business and who are willing to continue in service
will be considered for re-nomination, balancing the value of continuity of
service by existing members of the board with that of obtaining a new
perspective. If any member of the board does not wish to continue in service or
if the nominating committee or the board decides not to re-nominate a member for
re-election, we anticipate that the nominating committee will identify the
desired skills and experience of a new nominee in light of the criteria above
and begin a search for appropriately qualified individuals. To date, we have not
engaged third parties to identify or evaluate or assist in identifying potential
nominees, although we reserve the right in the future to retain a third party
search firm, if necessary.
The nominating committee will consider qualified director candidates
recommended by shareholders. To date, no shareholder has ever made such a
recommendation. For the 2007 Annual Shareholders Meeting, any shareholder
wishing to propose a nominee should submit a recommendation in writing to the
Nominating Committee of First Financial Bankshares, Inc. at 400 Pine Street,
Suite 300, Abilene, Texas 79601 at least 90 days in advance of the annual
meeting, including the nominee's resume, qualifications and other relevant
biographical information and providing confirmation of (1) the name and address
of the shareholder, (2) the nominee's consent to serve as a director, (3) a
description of all arrangements or understandings between the shareholder and
the nominee and (4) any other information regarding the nominee or shareholder
that would be required to be included in a proxy statement relating to the
election of directors. Qualified candidates recommended by our shareholders will
be evaluated on the same basis as candidates recommended by our officers,
directors and other sources.
-15-
Audit Committee. The audit committee reviews the scope and results of the
annual audit by our independent auditors, and receives and reviews internal and
external audit reports. The committee also monitors the qualifications,
independence and performance of our independent auditor and internal auditors.
Its members include Messrs. Copeland, Johnson, McDaniel, Miers and Trotter. We
believe that each member of the audit committee is independent under The Nasdaq
National Market listing standards. During 2005, the audit committee met four
times and in February 2006. The board of directors has determined that it
believes all audit committee members are financially literate under the current
listing standards of Nasdaq. The board also determined that it believes Mr.
Copeland qualifies as an "audit committee financial expert" as defined by the
SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002.
Compensation Committee. The compensation committee is responsible for
compensation matters for the Company as well as administering our profit
sharing, pension and flexible spending plans and overseeing our incentive stock
option plan for key employees. The current members are Mrs. Stai, Dr. Ramsey,
Messrs. Canon, Coalson, Matthews and Stephens. The committee met two times
during 2005 and in January 2006.
Director Compensation
Directors who are our executive officers or employees receive no
compensation as such for service as members of either the board of directors or
committees thereof. Directors who are not our officers receive $2,000 for each
board meeting attended. The directors who serve on committees and who are not
our officers receive $1,000 for each committee meeting attended.
Compensation Committee Interlocks and Insider Participation
No person who served as a member of the compensation committee was, during
2005, an officer or employee of us or any of our subsidiaries, or had any
relationship requiring disclosure in this proxy statement. However, committee
member Mr. Coalson maintained loans from subsidiaries during 2005. The loans
were made in the ordinary course of business, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions on an arms-length basis and did not involve more than
the normal risk of collectibility or present other unfavorable features to the
subsidiary bank. None of our executive officers served as a member of the
compensation committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) or
director of another entity, one of whose executive officers served as a member
of our board of directors.
Corporate Governance
We have long believed that good corporate governance is important to ensure
that the Company is managed for the long-term benefit of our shareholders.
During the past year, we have been reviewing our corporate governance policies
and practices and comparing them to those suggested by various authorities in
corporate governance and the practices of other public companies. We also
monitor new and proposed rules of the Securities and Exchange Commission, the
Nasdaq National Market and the bank regulatory guidelines. We may amend our
governance policies and procedures when required by law, Nasdaq rules or when we
otherwise deem it prudent to do so. Our corporate governance policies, including
our code of conduct applicable to all our employees, officers and directors, as
well as the charters of our audit and nominating committees, are available at
www.ffin.com under the "Corporate Governance" caption.
-16-
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The compensation committee reviews the compensation program for the Chief
Executive Officer and other members of senior management, including the named
executive officers listed on the Summary Compensation Table appearing on page 6,
and determines and administers their compensation. In the case of the Chief
Executive Officer, the compensation determination made by the compensation
committee is also subject to approval by the entire board of directors. The
compensation committee also oversees the administration of employee benefits and
benefit plans for the Company and its subsidiaries. The committee has retained
an independent consultant, from time to time, to assist the Committee in
fulfilling its responsibilities.
The compensation committee's philosophy is to provide a compensation
package that attracts and retains executive talent and delivers higher rewards
for superior performance and consequences for underperformance. It is also the
compensation committee's practice to provide a balanced mix of cash and
equity-based compensation that the committee believes appropriate to align the
short- and long-term interests of the Company's executives with that of its
shareholders and to encourage executives to act as equity owners of the Company.
The compensation committee seeks to attract executive talent by offering
competitive base salaries, annual performance incentive opportunities, and the
potential long-term rewards under the Company's long-term incentive programs
(including our profit sharing, flexible spending and incentive stock option
plans). It is the committee's practice to provide incentives that promote both
the short- and long-term financial objectives of the Company. Achievement of
short-term objectives is rewarded through base salary and annual bonuses, while
long-term incentive programs encourage executives to focus on the Company's
long-term goals as well. These incentives are based on financial objectives of
importance to the Company, including revenue and earnings growth, return on
assets, and creation of shareholder value. The Company's compensation program
also accounts for individual performance, which enables the compensation
committee to differentiate among executives and emphasize the link between
personal performance and compensation.
The compensation committee compares the Company's senior management
compensation levels with those of a group of peer companies and competitors. The
committee periodically reviews the effectiveness and competitiveness of the
Company's executive compensation structure with the assistance of an independent
consultant. This consultant is engaged by, and reports directly to, the
committee.
The key elements of executive compensation are base salary, profit sharing
contributions, and incentive stock options. In setting Mr. Dueser's base salary
and eligibility for stock options, the compensation committee considered, among
other things:
o the scope of the Chief Executive Officer's responsibilities and
experience;
o base salary compared to several compensation surveys;
o the overall performance of the Company and a subjective evaluation of
Mr. Dueser's contribution to its overall success; and
o tenure with the Company.
Mr. Dueser's compensation program also includes a bonus plan that calls for
Mr. Dueser to receive a cash bonus based on a sliding scale. The scale considers
net income growth times the Company's return on average assets. No bonus was
earned in 2005. The maximum to be earned approximated $60,000.
The annual base salaries, bonuses and stock option grants for the other
named executive officers and subsidiary bank presidents and senior officers are
adjusted annually by the committee. The compensation committee considers the
following factors when approving annual base salaries, bonuses and eligibility
for stock options:
-17-
o attainment of planned goals and objectives;
o scope of responsibility (asset size of subsidiary bank and/or degree
of influence on our profitability and operations);
o tenure with the Company;
o evaluation input from subsidiary directors and executive management of
Company; and
o relationship of base salary to the base salaries of other members of
the executive officer group.
During the course of the year, the compensation committee has at various
times reviewed the different components of the Chief Executive Officer and the
named executive officers' compensation, including salary, bonus, accumulated
realized and unrealized stock option gains, the dollar value to the executive
and cost to the Company of all perquisites and other personal benefits, payout
obligations under the Company's new non-qualified "make whole" program, the
actual projected payout obligations under the Company's pension plan and under
potential change-in-control scenarios. Based on this review, the committee has
found the Chief Executive Officer's and named executive officers' total
compensation in the aggregate to be reasonable and not excessive.
The committee believes that the relative difference between the Chief
Executive Officer's compensation and the compensation of the Company's other
executives has not increased significantly over the years. The comparisons in
the Company's internal pay equity study go back to the early 1980's and the
percentage differences are not significantly different today from then. Over the
period reviewed, the Chief Executive Officer's total compensation has generally
been in the range of 1.5 to 2 times the compensation of the next highest paid
executive officer.
Section 162(m) of the Internal Revenue Code generally limits the annual
corporate tax deduction for compensation paid to the chief executive officer and
the four other most highly compensated executive officers unless the
compensation is performance-based. One condition to qualify compensation as
performance-based is to establish the amount of the award on an objective
formula that precludes any discretion. The compensation committee continues to
review the impact of this tax provision on our incentive plans and has
determined that Section 162(m) is currently inapplicable because no named
executive officer receives compensation in excess of $1 million.
COMPENSATION COMMITTEE
F. L. Stephens, Chairman
Joseph E. Canon
Mac A. Coalson
Kade L. Matthews
Jack D. Ramsey, M.D.
Dian Graves Stai
-18-
REPORT OF THE AUDIT COMMITTEE
The audit committee oversees our financial reporting process on behalf of
your board of directors. Management has the primary responsibility for the
financial statements and the reporting process including the system of internal
controls. In fulfilling its oversight responsibilities, the committee, which is
composed of independent directors in compliance with Rule 4200 of the Nasdaq
listing standards, reviewed and discussed the audited financial statements in
the Annual Report with management. The committee also discussed with management
the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
The committee reviewed with Ernst & Young LLP, our independent auditors for
2005, who were responsible for expressing an opinion on the conformity of those
audited financial statements with generally accepted accounting principles,
their judgments as to the quality, not just the acceptability, of our accounting
principles and such other matters as are required to be discussed with the
committee under generally accepted auditing standards and, as applicable, the
standards of the Public Company Accounting Oversight Board. The Committee also
discussed with the independent auditors their audit of management's assessment
that the Company maintained effective internal control over financial reporting
as of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. In addition, the committee has discussed with the
independent auditors the auditors' independence from management and the company,
including the matters required by the Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, and the matters in the written
disclosures required by the Independence Standards Board, and considered the
compatibility of non-audit services with the auditors' independence. The audit
committee has received the written disclosures and the letter from our
independent auditors required by Independence Standards Board Standard No. 1
concerning the independence of the independent auditors.
The committee discussed with our independent auditors the overall scope and
plans for their audit. The committee meets with the independent auditors, with
and without management present, to discuss the results of their examinations,
their evaluations of our internal controls, and the overall quality of our
financial reporting. The committee held four meetings during the year ended
December 31, 2005.
The committee has relied, without independent verification, on management's
representation that the financial statements have been prepared with integrity
and objectivity and in conformity with generally accepted accounting principles.
The committee's oversight does not provide it with an independent basis to
determine that management has in fact maintained appropriate accounting and
financial reporting principles or policies. Furthermore, the committee's
considerations and discussions with management and the independent auditors do
not ensure that our company's financial statements are presented in accordance
with generally accepted accounting principles, that the audit of our company's
financial statements has been carried out in accordance with generally accepted
auditing standards or the standards of the Public Company Accounting Oversight
Board or that our company's independent accountants are in fact independent.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the executive committee of the board of directors that
the audited financial statements be included in the annual report on Form 10-K
for the year ended December 31, 2005, for filing with the Securities and
Exchange Commission. Acting on behalf of the board of directors, the executive
committee approved the audit committee's recommendation. Your board of directors
has adopted a charter for the audit committee, a copy of which is filed as an
appendix to this definitive proxy statement filed with the Securities and
Exchange Commission. The members of the committee are considered independent
because we believe they satisfy the independence requirements for audit
committee members prescribed by Nasdaq and the SEC.
AUDIT COMMITTEE
David Copeland, Chairman
Raymond A. McDaniel, Jr.
Bynum Miers
Derrell E. Johnson
Johnny E. Trotter
-19-
PERFORMANCE GRAPH
The following performance graph compares cumulative total shareholder
return for our common stock, the Russell 3000 Index, and the SNL Banks Index,
which is a banking index prepared by SNL Financial LC and is comprised of banks
with $1 billion to $5 billion in total assets, for a five-year period (December
31, 2000 to December 31, 2005). The performance graph assumes $100 invested in
our common stock at its closing price on December 31, 2000, and in each of the
Russell 3000 Index and the SNL Bank Index on the same date. The performance
graph also assumes the reinvestment of all dividends. The dates on the
performance graph represent the last trading day of each year indicated. The
amounts noted on the performance graph have been adjusted to give effect to all
stock splits and stock dividends.
[GRAPHIC OMITTED]
Year Ended
----------------------------------------------------------------------
Index 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 12/31/05
---------------------------------------------------------------------------------------------------------------
First Financial Bankshares, Inc. 100.00 124.62 163.17 228.33 257.08 276.77
Russell 3000 100.00 88.54 69.47 91.04 101.92 108.16
SNL $1B-$5B Bank Index 100.00 121.50 140.26 190.73 235.40 231.38
*Source:SNL Financial LC, Charlottesville, VA, 434-977-1600, www.snl.com (C)2006
-20-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 1, 2006, we were not aware of any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934) who is the beneficial owner of more than 5% of our common stock.
However, as of February 1, 2006, First Financial Trust & Asset Management
Company, National Association held of record in various fiduciary capacities an
aggregate of 3,536,780 shares of our common stock. Of the total shares held,
First Financial Trust & Asset Management Company, National Association had sole
power in its fiduciary capacity to vote 1,990,787 shares (9.61%), shared with
others the power to vote 58,929 shares (0.28%) and had no authority to vote
1,487,064 shares (7.18%). All the shares held by this subsidiary entity, which
are registered in its name as fiduciary or in the name of its nominee, are owned
by many different accounts, each of which is governed by a separate instrument
that sets forth the powers of the fiduciary with regard to the securities held
in such accounts. The board of directors historically has not attempted to, and
does not intend to attempt to in the future, exercise any power to vote such
shares. See "Proposal 1--Election of Directors--Nominees" and "--Executive
Officers" for information with respect to the beneficial ownership of our common
stock by each director nominee and named executive officers as of February 1,
2006. In the aggregate, all director nominees and executive officers as a group
(17 individuals) beneficially owned 1,334,720 shares of our common stock, or
6.44%, as of February 1, 2006.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers, and
persons who own more than 10% of our common stock, to file with the Securities
and Exchange Commission initial reports of our common stock ownership and
reports of changes in such ownership. A reporting person must file a Form 3,
Initial Statement of Beneficial Ownership of Securities, within 10 days after
such person becomes a reporting person. A reporting person must file a Form 4,
Statement of Changes of Beneficial Ownership of Securities, within two business
days after such person's beneficial ownership of securities changes, except for
certain changes exempt from the reporting requirements of Form 4. A reporting
person must file a Form 5, Annual Statement of Beneficial Ownership of
Securities, within 45 days after the end of the issuer's fiscal year to report
any changes in ownership during such year not reported on a Form 4, including
changes exempt from the reporting requirements of Form 4.
The Securities and Exchange Commission's rules require our reporting
persons to furnish us with copies of all Section 16(a) reports that they file.
Based solely upon a review of the copies of such reports furnished to us, we
believe that the reporting persons have complied with all applicable Section
16(a) filing requirements for 2005 and through the date of this statement on a
timely basis with the following exceptions: Mr. Parker and Dr. Ramsey each filed
a Form 4 in 2005 and Mr. Coalson filed a Form 5 in 2006 to amend previously
filed reports. Mr. Parker (1 report - 1 transaction), Dr. Ramsey (1 report - 1
transaction), Mr. Trotter (1 report - 8 transactions), Mr. Copeland (1 report -
2 transactions) and Mr. Canon (1 report - 1 transaction) filed Forms 4 during
2005 and through the date of this statement past the required two-business day
deadline.
The Company conducted a review of its Section 16 reporting process to
determine whether transactions in the Company's stock were timely reported and
to evaluate proper reporting of all beneficial holdings. All three amendments
filed were due to clerical error and were filed to correct the error either on
the same day or the following day. As disclosed above, the review also revealed
transactions that were not timely reported and, as these transactions were
identified, the Company undertook to file corrected forms throughout the year.
The Company continues to emphasize to its section 16 reporters the importance of
timely and accurate filings and seeks means to improve compliance on an ongoing
basis.
INDEPENDENT AUDITORS
We retained Ernst & Young LLP to serve as our independent auditors for
2005.
The aggregate fees billed for each of the last two fiscal years for
professional services rendered by Ernst & Young, LLP, the principal auditors who
performed the audit of our annual financial statements, review of the quarterly
financial statements and audit of internal controls, follows:
-21-
Year ended December 31,
-----------------------
2005 2004
---- ----
Audit Fees $297,645 $310,458
Audit Related Fees None None
Tax Fees None None
All Other Fees None None
Our audit committee has adopted a policy that requires advance approval of
all audit, audit-related, tax services, and other services performed by the
independent auditor. The policy provides for pre-approval by the audit committee
of specifically defined audit and non-audit services. Except as permitted under
Rule 2-01 of SEC Regulation S-X, unless the specific service has been previously
pre-approved with respect to that year, the audit committee must approve the
permitted service before the independent auditor is engaged to perform it. The
audit committee has delegated to its Chairman to approve permitted services
provided that the Chairman reports any decisions to the committee at its next
scheduled meeting.
INTEREST IN CERTAIN TRANSACTIONS
As has been true in the past, some of our officers and directors, members
of their families, and other businesses with which they are affiliated, are or
have been customers of one or more of our subsidiary banks. As customers, they
have entered into transactions in the ordinary course of business with such
banks, including borrowings, all of which were on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions on an arms-length basis and did not involve more than a
normal risk of collectibility or present any other unfavorable features to the
subsidiary banks involved. None of the transactions involving our subsidiary
banks and our officers and directors, or other businesses with which they may be
affiliated, have been classified or disclosed as nonaccrual, past due,
restructured or potential problems.
In February 2005, we acquired Clyde Financial Corporation for a purchase
price of $25.4 million. Mr. Edwards, a nominee for director, and his wife owned
27.5% of Clyde Financial Corporation and received approximately $7.1 million
from us to acquire their shares. See our 2005 Annual Report on Form 10-K for
additional disclosures related to this acquisition.
INCORPORATION BY REFERENCE
With respect to any future filings with the Securities and Exchange
Commission into which this proxy statement is incorporated by reference, the
material under the headings "Executive Committee Report on Executive
Compensation," "Report of the Audit Committee" and "Performance Graph" shall not
be incorporated into such future filings.
-22-
FORWARD-LOOKING STATEMENTS
This proxy statement contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this proxy statement, words such
as "anticipate," "believe," "estimate," "expect," "intend," "predict,"
"project," and similar expressions, as they relate to us or our management,
identify forward-looking statements. These forward-looking statements are based
on information currently available to our management. Actual results could
differ materially from those contemplated by the forward-looking statements as a
result of certain factors, including but not limited to those listed in Item 1A
- "Risk Factors" in our Annual Report on Form 10-K for the year ended December
31, 2005 and the following:
o general economic conditions;
o legislative and regulatory actions and reforms;
o competition from other financial institutions and financial holding
companies;
o the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve Board;
o changes in the demand for loans;
o fluctuations in value of collateral and loan reserves;
o inflation, interest rate, market and monetary fluctuations;
o changes in consumer spending, borrowing and savings habits;
o our ability to attract deposits;
o consequences of continued bank mergers and acquisitions in our market
area, resulting in fewer but much larger and stronger competitors; and
o acquisitions and integration of acquired businesses.
Such statements reflect the current views of our management with respect to
future events and are subject to these and other risks, uncertainties and
assumptions relating to our operations, results of operations, growth strategy
and liquidity. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this paragraph. We undertake no obligation to publicly update
or otherwise revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
SHAREHOLDER PROPOSALS FOR NEXT YEAR'S ANNUAL MEETING
To be considered for inclusion in our proxy statement for the 2007 annual
meeting, shareholder proposals must be received at our principal executive
offices no later than December 1, 2006. Under Rule 14a-4(c)(1) of the Securities
Exchange Act of 1934, if any shareholder proposal intended to be presented at
the 2007 annual meeting without inclusion in our proxy statement for this
meeting is received at our principal executive offices after February 14, 2007,
then a proxy will have the ability to confer discretionary authority to vote on
this proposal.
By Order of the Board of Directors,
KENNETH T. MURPHY, Chairman
March __, 2006
-23-
APPENDIX A
AMENDED AND RESTATED CERTIFICATE OF FORMATION
OF
FIRST FINANCIAL BANKSHARES, INC.
--------------------------------
FIRST
-----
First Financial Bankshares, Inc. (the "Corporation"), pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act and Section
3.059 of the Texas Business Organizations Code, hereby adopts this Amended and
Restated Certificate of Formation, which accurately copies the Articles of
Incorporation and all amendments thereto that are in effect to date. The prior
Articles of Incorporation, as restated and amended by this Amended and Restated
Certificate of Formation, are set forth below and contain no other changes in
any provisions. For purposes of this document, the prior Articles of
Incorporation, including all amendments thereto, will be referred to as the
Certificate of Formation.
SECOND
------
The shareholders of the Corporation adopted the following amendments to the
Certificate of Formation on the _____ day of _____________, 2006:
1. ARTICLE TWO of the Certificate of Formation is amended to read as
follows:
"The corporation is formed as a domestic for-profit corporation."
2. ARTICLE THREE of the Certificate of Formation is amended to read as
follows:
"The purposes for which the corporation is organized are the
transaction of any or all lawful business for which corporations may
be incorporated under the Texas Business Organizations Code."
3. ARTICLE FOUR of the Certificate of Formation is amended to read as
follows:
"The aggregate number of shares which the corporation shall have
authority to issue is FORTY MILLION (40,000,000) of the par value of
ONE CENT ($0.01) each."
4. ARTICLE FIVE of the Certificate of Formation is deleted in its entirety.
5. ARTICLE SIX of the Certificate of Formation is renumbered as ARTICLE
FIVE, and is amended to read as follows:
"The address of its registered office is 400 Pine Street,
Abilene, Texas, USA 79601, and the name of its registered agent at
such address is F. Scott Dueser."
6. ARTICLE SEVEN of the Certificate of Formation is renumbered as ARTICLE
SIX, and is amended to read as follows:
"The number of Directors constituting the current Board of
Directors is ________ (___), and the names and addresses of the
persons who are currently serving as Directors until the next annual
meeting of the shareholders or until their successors are elected and
qualified are:
Name Address
---- -------
--------------- ----------------------------------
--------------- ----------------------------------"
7. ARTICLE EIGHT of the Certificate of Formation is deleted in its
entirety.
8. ARTICLE NINE of the Certificate of Formation is renumbered as ARTICLE
SEVEN, and is amended to read as follow:
"The right of every shareholder to cumulatively vote shares is
denied."
9. ARTICLE TEN of the Certificate of Formation is renumbered as ARTICLE
EIGHT, and is amended to read as follows:
"The preemptive rights of every shareholder to acquire unissued
or treasury shares of the corporation are denied."
10. ARTICLE ELEVEN of the Certificate of Formation is renumbered as ARTICLE
NINE, and is amended to read as follows:
"To the fullest extent not prohibited by applicable laws as
presently or hereafter in effect, no person shall be liable to the
corporation or its shareholders for monetary damages for or with
respect to any acts or omissions in his or her capacity as a Director
of the corporation, except liability for (i) a breach of a Director's
duty of loyalty to the corporation 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, whether or not the benefit
resulted from an action taken within the scope of the Director's
office, (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.
Each person, his or her heirs, executors, personal
representatives and estate, shall be indemnified by the corporation
for all expenses incurred in connection with any action, suit,
proceeding or claim to which he or she shall be named a party or
otherwise be a participant by virtue of being or having been or
agreeing to become (i) a Director, officer, employee or agent of the
corporation and/or (ii) a Director, officer, employee or agent of any
corporation or organization at the request of the corporation. Such
indemnity shall be provided to the fullest extent not prohibited by
applicable laws presently in effect or as may hereafter be amended.
Indemnity shall include, but not be limited to the advancement of
expenses and payment of all loss, liability and expenses. Provided,
however, that no person shall be indemnified for amounts paid in
settlement unless the terms and conditions of said settlement have
been consented to by the corporation. Further, no indemnification of
employees or agents of the corporation (other than Directors and
officers) will be made without express authorization of the
corporation's Board of Directors.
The corporation may, upon the affirmative vote of the majority of
its Board of Directors, purchase insurance for the purpose of securing
the indemnification of its Directors, officers and other employees to
the extent that such indemnification is allowed in this Article. Such
insurance may, but need not, be for the benefit of all Directors,
officers or employees, and the purchase of any such insurance shall in
no way limit the indemnification provisions of the preceding
paragraph. Provided, however, that such insurance shall not include
coverage for a formal order assessing civil money penalties against a
Director or employee of the corporation arising out of an
administrative proceeding or action by an appropriate bank regulatory
agency.
No repeal of or amendment to this Article Nine shall have any
effect with respect to the liability or alleged liability of any
Director occurring prior to such amendment or to the acts or omissions
or rights to indemnity of any person occurring prior to such repeal or
amendment."
The term "Director" in this Article Nine shall include Advisory
Directors and Directors Emeritus and Inside Directors serving in a
post retirement capacity, as such terms are or may hereafter be
defined in the Bylaws of the Company.
THIRD
-----
Each statement made by this Amended and Restated Certificate of Formation
has been effected in conformity with the Texas Business Corporation Act and the
Texas Business Organizations Code. This Amended and Restated Certificate of
Formation and all amendments made by this Amended and Restated Certificate of
Formation were adopted by the shareholders of the Corporation on
________________, 2006 and in accordance with the Texas Business Corporation
Act, the Texas Business Organizations Code and the constituent documents of the
Corporation.
FOURTH
------
The Certificate of Formation and all amendments and supplements thereto are
superseded by the following Amended and Restated Certificate of Formation, which
accurately copies the entire text of the Certificate of Formation as well as
incorporates the amendments set forth above:
ARTICLE ONE
The name of the corporation is FIRST FINANCIAL BANKSHARES, INC.
ARTICLE TWO
The corporation is formed as a domestic for-profit corporation.
ARTICLE THREE
The purposes for which the corporation is organized are the transaction of
any or all lawful business for which corporations may be incorporated under the
Texas Business Organizations Code.
ARTICLE FOUR
The aggregate number of shares which the corporation shall have authority
to issue is FORTY MILLION (40,000,000) of the par value of ONE CENT ($0.01)
each.
ARTICLE FIVE
The address of its registered office is 400 Pine Street, Abilene, Texas,
USA 79601, and the name of its registered agent at such address is F. Scott
Dueser.
ARTICLE SIX
The number of Directors constituting the current Board of Directors is
________ (___), and the names and addresses of the persons who are currently
serving as Directors until the next annual meeting of the shareholders or until
their successors are elected and qualified are:
Name Address
---- -------
--------------- ----------------------------------
--------------- ----------------------------------
ARTICLE SEVEN
The right of every shareholder to cumulatively vote shares is denied.
ARTICLE EIGHT
The preemptive rights of every shareholder to acquire unissued or treasury
shares of the corporation is denied.
ARTICLE NINE
To the fullest extent not prohibited by applicable laws as presently or
hereafter in effect, no person shall be liable to the corporation or its
shareholders for monetary damages for or with respect to any acts or omissions
in his or her capacity as a Director of the corporation, except liability for
(i) a breach of a Director's duty of loyalty to the corporation 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, whether or not the benefit
resulted from an action taken within the scope of the Director's office, (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.
Each person, his or her heirs, executors, personal representatives and
estate, shall be indemnified by the corporation for all expenses incurred in
connection with any action, suit, proceeding or claim to which he or she shall
be named a party or otherwise be a participant by virtue of being or having been
or agreeing to become (i) a Director, officer, employee or agent of the
corporation and/or (ii) a Director, officer, employee or agent of any
corporation or organization at the request of the corporation. Such indemnity
shall be provided to the fullest extent not prohibited by applicable laws
presently in effect or as may hereafter be amended. Indemnity shall include, but
not be limited to the advancement of expenses and payment of all loss, liability
and expenses. Provided, however, that no person shall be indemnified for amounts
paid in settlement unless the terms and conditions of said settlement have been
consented to by the corporation. Further, no indemnification of employees or
agents of the corporation (other than Directors and officers) will be made
without express authorization of the corporation's Board of Directors.
The corporation may, upon the affirmative vote of the majority of its Board
of Directors, purchase insurance for the purpose of securing the indemnification
of its Directors, officers and other employees to the extent that such
indemnification is allowed in this Article. Such insurance may, but need not, be
for the benefit of all Directors, officers or employees, and the purchase of any
such insurance shall in no way limit the indemnification provisions of the
preceding paragraph. Provided, however, that such insurance shall not include
coverage for a formal order assessing civil money penalties against a Director
or employee of the corporation arising out of an administrative proceeding or
action by an appropriate bank regulatory agency.
No repeal of or amendment to this Article Nine shall have any effect with
respect to the liability or alleged liability of any Director occurring prior to
such amendment or to the acts or omissions or rights to indemnity of any person
occurring prior to such repeal or amendment.
The term "Director" in this Article Nine shall include Advisory Directors
and Directors Emeritus and Inside Directors serving in a post retirement
capacity, as such terms are or may hereafter be defined in the Bylaws of the
Company.
FIRST FINANCIAL BANKSHARES, INC.
By:____________________________
F. Scott Dueser, President
Dated: , 2006
--------------------
APPENDIX B
ARTICLES OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
FIRST FINANCIAL BANKSHARES, INC.
Pursuant to Article 4.04 of the Texas Business Corporation Act, as amended,
First Financial Bankshares, Inc., a Texas corporation, hereby adopts the
following Articles of Amendment to its Restated Articles of Incorporation.
ARTICLE 1
The name of the Corporation is First Financial Bankshares, Inc.
ARTICLE 2
The text of ARTICLE FOUR of the Restated Articles of Incorporation of the
Corporation, as amended, is hereby deleted in its entirety and replaced with the
following:
"The aggregate number of shares which the corporation shall have authority
to issue is FORTY MILLION (40,000,000) of the par value of ONE CENT ($0.01)
each."
ARTICLE 3
The foregoing amendment was adopted by the shareholders of the Corporation on
_________, 2006. ARTICLE 4
The foregoing amendment was approved in the manner required by the Texas
Business Corporation Act, as amended, and the constituent documents of the
Corporation.
Dated _______, 2006
FIRST FINANCIAL BANKSHARES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------