UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number 0-7674

FIRST FINANCIAL BANKSHARES, INC.

Texas		75-0944023
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
400 Pine Street, Abilene, Texas		79601
(Address of principal executive offices)		(Zip Code)

(325) 627-7155
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class		Outstanding at May 4, 2010
Common Stock, $0.01 par value per share		20,847,889

 

 

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item		Page
1. Financial Statements			3
Consolidated Balance Sheets — Unaudited			4
Consolidated Statements of Earnings — Unaudited			5
Consolidated Statements of Comprehensive Earnings — Unaudited			6
Consolidated Statements of Changes in Shareholders’ Equity — Unaudited			7
Consolidated Statements of Cash Flows — Unaudited			8
Notes to Consolidated Financial Statements — Unaudited			9
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
3. Quantitative and Qualitative Disclosures About Market Risk			38
4. Controls and Procedures			38
PART II
OTHER INFORMATION
6. Exhibits			40
Signatures			41
EX-10.2
EX-10.3
EX-10.4
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements.

The consolidated balance sheets of First Financial Bankshares, Inc. (the “Company”) at March 31, 2010 and 2009 and December 31, 2009, and the consolidated statements of earnings, comprehensive earnings, changes in shareholders’ equity and cash flows for the three months ended March 31, 2010 and 2009, follow on pages 4 through 8.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

		March 31,								December 31,
		2010				2009				2009
		(Unaudited)
ASSETS
CASH AND DUE FROM BANKS		$	95,234			$	112,207			$	139,915
FEDERAL FUNDS SOLD			—				46,575				14,290
INTEREST-BEARING DEPOSITS IN BANKS			192,848				2,636				167,336
Total cash and cash equivalents			288,082				161,418				321,541
TRADING SECURITIES, at fair value			—				93,195				—
SECURITIES HELD-TO-MATURITY (fair value of $11,831, $20,626 and $15,674 at March 31, 2010 and 2009 and December 31, 2009, respectively)			11,478				20,086				15,273
SECURITIES AVAILABLE-FOR-SALE, at fair value			1,396,230				1,217,185				1,270,104
LOANS
Held for investment			1,496,444				1,465,310				1,510,046
Held for sale			2,557				14,242				4,323
			1,499,001				1,479,552				1,514,369
Less: Allowance for loan losses			(28,750	)			(22,652	)			(27,612	)
Net loans			1,470,251				1,456,900				1,486,757
BANK PREMISES AND EQUIPMENT, net			65,652				64,888				64,363
INTANGIBLE ASSETS			62,993				63,781				63,152
OTHER ASSETS			58,269				43,909				58,266
Total assets		$	3,352,955			$	3,121,362			$	3,279,456
LIABILITIES AND SHAREHOLDERS’ EQUITY
NONINTEREST-BEARING DEPOSITS		$	804,556			$	769,393			$	836,323
INTEREST-BEARING DEPOSITS			1,885,558				1,752,322				1,848,434
Total deposits			2,690,114				2,521,715				2,684,757
DIVIDENDS PAYABLE			7,087				7,074				7,081
SHORT-TERM BORROWINGS			189,095				166,347				146,094
OTHER LIABILITIES			42,838				44,687				25,822
Total liabilities			2,929,134				2,739,823				2,863,754
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Common stock — $0.01 par value, authorized 40,000,000 shares; 20,845,424, 20,804,668, and 20,826,431 shares issued at March 31, 2010 and 2009 and December 31, 2009, respectively			208				208				208
Capital surplus			269,880				268,271				269,294
Retained earnings			121,754				96,267				115,123
Treasury stock (shares at cost: 164,162, 159,236, and 162,836 at March 31, 2010 and 2009, and December 31, 2009, respectively)			(3,946	)			(3,580	)			(3,833	)
Deferred compensation			3,946				3,580				3,833
Accumulated other comprehensive earnings			31,979				16,793				31,077
Total shareholders’ equity			423,821				381,539				415,702
Total liabilities and shareholders’ equity		$	3,352,955			$	3,121,362			$	3,279,456

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

		Three Months Ended March 31,
		2010				2009
INTEREST INCOME:
Interest and fees on loans		$	22,374			$	23,054
Interest on investment securities:
Taxable			8,966				9,655
Exempt from federal income tax			4,633				4,128
Interest on trading securities			—				83
Interest on federal funds sold and interest-bearing deposits in banks			372				42
Total interest income			36,345				36,962
INTEREST EXPENSE:
Interest on deposits			3,535				4,777
Other			164				261
Total interest expense			3,699				5,038
Net interest income			32,646				31,924
PROVISION FOR LOAN LOSSES			2,010				1,761
Net interest income after provision for loan losses			30,636				30,163
NONINTEREST INCOME:
Trust fees			2,526				2,117
Service charges on deposit accounts			4,858				5,141
ATM and credit card fees			2,511				2,209
Real estate mortgage operations			560				588
Net gain on securities transactions			1				249
Net gain on sale of student loans			—				616
Net gain (loss) on sale of foreclosed assets			11				(159	)
Other			643				775
Total noninterest income			11,110				11,536
NONINTEREST EXPENSE:
Salaries and employee benefits			12,657				11,992
Net occupancy expense			1,578				1,620
Equipment expense			1,838				1,940
Printing, stationery and supplies			429				433
FDIC insurance premiums			988				951
Correspondent bank service charges			191				312
ATM and interchange expense			774				801
Professional and service fees			693				746
Amortization of intangible assets			159				222
Other expenses			4,031				3,930
Total noninterest expense			23,338				22,947
EARNINGS BEFORE INCOME TAXES			18,408				18,752
INCOME TAX EXPENSE			4,691				5,048
NET EARNINGS		$	13,717			$	13,704
EARNINGS PER SHARE, BASIC		$	0.66			$	0.66
EARNINGS PER SHARE, ASSUMING DILUTION		$	0.66			$	0.66
DIVIDENDS PER SHARE		$	0.34			$	0.34

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

		Three Months Ended March 31,
		2010				2009
NET EARNINGS		$	13,717			$	13,704
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
Change in unrealized gain on investment securities available-for-sale, before income taxes			1,388				9,393
Reclassification adjustment for realized gains on investment securities included in net earnings, before income tax			(1	)			(249	)
Total other items of comprehensive earnings			1,387				9,144
Income tax expense			(485	)			(3,201	)
COMPREHENSIVE EARNINGS		$	14,619			$	19,647

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

																														Accumulated
																														Other				Total
		Common Stock								Capital				Retained				Treasury Stock								Deferred				Comprehensive				Shareholders’
		Shares				Amount				Surplus				Earnings				Shares				Amounts				Compensation				Earnings				Equity
Balances at December 31, 2008			20,799,198			$	208			$	268,087			$	89,637				(158,811	)		$	(3,500	)		$	3,500			$	10,850			$	368,782
Net earnings (unaudited)			—				—				—				13,704				—				—				—				—				13,704
Stock issuances (unaudited)			5,470				—				103				—				—				—				—				—				103
Cash dividends declared, $0.34 per share (unaudited)			—				—				—				(7,074	)			—				—				—				—				(7,074	)
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes (unaudited)			—				—				—				—				—				—				—				5,943				5,943
Additional tax benefit related to directors’ deferred compensation plan (unaudited)			—				—				15				—				—				—				—				—				15
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)			—				—				—				—				(425	)			(80	)			80				—				—
Stock option expense (unaudited)			—				—				66				—				—				—				—				—				66
Balances at March 31, 2009 (unaudited)			20,804,668				208			$	268,271			$	96,267				(159,236	)		$	(3,580	)		$	3,580			$	16,793			$	381,539
Balances at December 31, 2009			20,826,431			$	208			$	269,294			$	115,123				(162,836	)		$	(3,833	)		$	3,833			$	31,077			$	415,702
Net earnings (unaudited)			—				—				—				13,717				—				—				—				—				13,717
Stock issuances (unaudited)			18,993				—				476				—				—				—				—				—				476
Cash dividends declared, $0.34 per share (unaudited)			—				—				—				(7,086	)			—				—				—				—				(7,086	)
Change in unrealized gain in investment securities available- for-sale, net of related income taxes (unaudited)			—				—				—				—				—				—				—				902				902
Additional tax benefit related to directors’ deferred compensation plan (unaudited)			—				—				15				—				—				—				—				—				15
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)			—				—				—				—				(1,326	)			(113	)			113				—				—
Stock option expense (unaudited)			—				—				95				—				—				—				—				—				95
Balances at March 31, 2010 (unaudited)			20,845,424			$	208			$	269,880			$	121,754				(164,162	)		$	(3,946	)		$	3,946			$	31,979			$	423,821

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

		Three Months Ended March 31,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	13,717			$	13,704
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			1,777				1,956
Provision for loan losses			2,010				1,761
Securities premium amortization (discount accretion), net			914				256
Gain on sale of assets, net			(4	)			(714	)
Deferred federal income tax expense (benefit)			—				(2	)
Trading security activity, net			—				(37,204	)
Loans originated for resale			(20,985	)			(65,914	)
Proceeds from sales of loans held for resale			22,752				106,933
Change in other assets			958				8,580
Change in other liabilities			3,518				7,381
Total adjustments			10,940				23,033
Net cash provided by operating activities			24,657				36,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales			3,219				5,309
Maturities			44,864				75,068
Purchases			(160,617	)			(33,499	)
Activity in held-to-maturity securities — maturities			3,795				3,408
Net decrease in loans			11,633				43,410
Purchases of bank premises and equipment and computer software			(2,985	)			(804	)
Proceeds from sale of other assets			221				159
Net cash provided by (used in) investing activities			(99,870	)			93,051
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing deposits			(31,767	)			(27,684	)
Net increase (decrease) in interest-bearing deposits			37,124				(33,354	)
Net increase (decrease) in short-term borrowings			43,000				(69,251	)
Common stock transactions:
Proceeds from stock issuances			476				103
Dividends paid			(7,080	)			(7,072	)
Net cash provided by (used in) financing activities			41,753				(137,258	)
NET DECREASE IN CASH AND CASH EQUIVALENTS			(33,460	)			(7,470	)
CASH AND CASH EQUIVALENTS, beginning of period			321,541				168,888
CASH AND CASH EQUIVALENTS, end of period		$	288,081			$	161,418
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid		$	3,758			$	5,494
Federal income tax paid			—				—
Transfer of loans to foreclosed assets			1,096				2,141
Investment securities purchased but not settled			13,126				16,787

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 — Basis of Presentation

The consolidated financial statements include the accounts of the Company, a Texas corporation and a financial holding company registered under the Bank Holding Company Act of 1956, or BHCA, and its wholly-owned subsidiaries: First Financial Bankshares of Delaware, Inc.; First Financial Investments of Delaware, Inc.; First Financial Bank, National Association, Abilene, Texas; First Financial Bank, Hereford, Texas; First Financial Bank, National Association, Sweetwater, Texas; First Financial Bank, National Association, Eastland, Texas; First Financial Bank, National Association, Cleburne, Texas; First Financial Bank, National Association, Stephenville, Texas; First Financial Bank, National Association, San Angelo, Texas; First Financial Bank, National Association, Weatherford, Texas; First Financial Bank, National Association, Southlake, Texas; First Financial Bank, National Association, Mineral Wells, Texas; First Technology Services, Inc.; First Financial Trust & Asset Management Company, National Association; First Financial Investments, Inc.; and First Financial Insurance Agency, Inc.

Through our subsidiary banks, we conduct a full-service commercial banking business. Our service centers are located primarily in North Central and West Texas. Considering the branches and locations of all our bank subsidiaries, as of March 31, 2010, we had 50 financial centers across Texas, with ten locations in Abilene, two locations in Cleburne, three locations in Stephenville, three locations in Granbury, two locations in San Angelo, three locations in Weatherford, and one location each in Mineral Wells, Hereford, Sweetwater, Eastland, Ranger, Rising Star, Southlake, Aledo, Willow Park, Brock, Alvarado, Burleson, Keller, Trophy Club, Boyd, Bridgeport, Decatur, Roby, Trent, Merkel, Clyde, Moran, Albany, Midlothian, Glen Rose, Odessa and Fort Worth. Our trust subsidiary has six locations in Abilene, San Angelo, Stephenville, Sweetwater, Fort Worth and Odessa, all in Texas.

In the opinion of management, the unaudited consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company’s financial position and unaudited results of operations and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2009. All adjustments were of a normal recurring nature. However, the results of operations for the three months ended March 31, 2010, are not necessarily indicative of the results to be expected for the year ending December 31, 2010, due to seasonality, changes in economic conditions and loan credit quality, interest rate fluctuations, regulatory and legislative changes and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted under SEC rules and regulations. The Company evaluated subsequent events for potential recognition and/or disclosure through the date the consolidated financial statements were issued.

Goodwill and other intangible assets are evaluated annually for impairment as of the end of the second quarter. No such impairment has been noted in connection with these evaluations.

Note 2 — Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the periods presented. In computing diluted earnings per common share for the three months ended March 31, 2010 and 2009, the Company assumes that all dilutive outstanding options to purchase common stock have been exercised at the beginning of the period (or the time of issuance, if later). The dilutive effect of the outstanding options is reflected by application of the treasury stock method, whereby the proceeds from the exercised options are assumed to be used to purchase common stock at the average market price during the respective periods. The

weighted average common shares outstanding used in computing basic earnings per common share for the three months ended March 31, 2010 and 2009, were 20,834,972 and 20,801,681 shares respectively. The weighted average common shares outstanding used in computing fully diluted earnings per common share for the three months ended March 31, 2010 and 2009, were 20,867,778 and 20,847,967, respectively.

Note 3 — Securities

A summary of available-for-sale and held-to-maturity securities is as follows (in thousands):

		March 31, 2010
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost Basis				Holding Gains				Holding Losses				Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions		$	10,893			$	339			$	(1	)		$	11,231
Mortgage-backed securities			585				15				—				600
Total debt securities held-to-maturity		$	11,478			$	354			$	(1	)		$	11,831
Securities available-for-sale:
U. S. Treasury Securities and obligations of U.S. government sponsored-enterprises and agencies		$	355,585			$	10,429			$	(174	)		$	365,840
Obligations of state and political subdivisions			450,045				20,592				(354	)			470,283
Corporate bonds and other			59,883				4,871				—				64,754
Mortgage-backed securities			473,474				21,930				(51	)			495,353
Total securities available-for-sale		$	1,338,987			$	57,822			$	(579	)		$	1,396,230

		December 31, 2009
						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost Basis				Holding Gains				Holding Losses				Fair Value
Securities held-to-maturity:
Obligations of state and political subdivisions		$	14,652			$	392			$	(6	)		$	15,038
Mortgage-backed securities			621				16				(1	)			636
Total debt securities held-to-maturity		$	15,273			$	408			$	(7	)		$	15,674
Securities available-for-sale:
Obligations of U.S. government sponsored-enterprises and agencies		$	260,018			$	12,050			$	—			$	272,068
Obligations of state and political subdivisions			437,550				18,643				(561	)			455,632
Corporate bonds and other			73,858				5,028				—				78,886
Mortgage-backed securities			442,823				20,995				(300	)			463,518
Total securities available-for-sale		$	1,214,249			$	56,716			$	(861	)		$	1,270,104

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at March 31, 2010, were computed by using scheduled amortization of balances and historical prepayment rates. At March 31, 2010 and 2009, the Company did not hold any CMOs that entail higher risks than standard mortgage-backed securities.

The amortized cost and estimated fair value of debt securities at March 31, 2010, by contractual and expected maturity, are shown below (in thousands):

		Held-to-Maturity								Available-for-Sale
		Amortized				Estimated				Amortized				Estimated
		Cost Basis				Fair Value				Cost Basis				Fair Value
Due within one year		$	6,657			$	6,758			$	128,303			$	130,930
Due after one year through five years			4,076				4,314				450,682				468,696
Due after five years through ten years			70				70				254,703				268,866
Due after ten years			90				89				31,825				32,385
Mortgage-backed securities			585				600				473,474				495,353
Total		$	11,478			$	11,831			$	1,338,987			$	1,396,230

During the three months ended March 31, 2010 and 2009, sales of investment securities that were classified as available-for-sale totaled $3.2 million and $5.3 million, respectively. Gross realized gains from 2010 and 2009 securities sales totaled $1 thousand and $249 thousand, respectively. There were no losses realized on securities sales during these periods. The specific identification method was used to determine cost on computing the realized gains.

The following tables disclose, as of March 31, 2010 and December 31, 2009, our available-for-sale and held-to- maturity securities that have been in a continuous unrealized-loss position for less than 12 months and those that have been in a continuous unrealized-loss position for 12 or more months (in thousands):

		Less than 12 Months								12 Months or Longer								Total
						Unrealized								Unrealized								Unrealized
March 31, 2010		Fair Value				Loss				Fair Value				Loss				Fair Value				Loss
U. S. Treasury securities and obligations of U.S. government sponsored-enterprises and agencies		$	60,087			$	174			$	—			$	—			$	60,087			$	174
Obligations of state and political subdivisions			12,413				195				4,268				160				16,681				355
Mortgage-backed securities			26,965				50				39				1				27,004				51
Total		$	99,465			$	419			$	4,307			$	161			$	103,772			$	580

		Less than 12 Months								12 Months or Longer								Total
						Unrealized								Unrealized								Unrealized
December 31, 2009		Fair Value				Loss				Fair Value				Loss				Fair Value				Loss
Obligations of state and political subdivisions		$	21,703			$	428			$	2,798			$	139			$	24,501			$	567
Mortgage-backed securities			27,619				300				82				1				27,701				301
Total		$	49,322			$	728			$	2,880			$	140			$	52,202			$	868

The number of investment positions in this unrealized loss position totaled 66 at March 31, 2010. We do not believe these unrealized losses are “other than temporary” as (1) we do not have the intent to sell our securities prior to recovery and/or maturity and (2) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity. The unrealized losses noted are interest rate related due to the level of interest rates at March 31, 2010. We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies.

As of March 31, 2009, trading securities totaled $93.2 million. No amounts were held in trading securities at March 31, 2010. The trading securities portfolio is a government securities money market fund comprised primarily of U.S. government agency securities and repurchase agreements collateralized by U.S. government agency securities. The trading securities are carried at estimated fair value with unrealized gains and losses included in earnings. The Company invested in trading securities in 2008 to improve its yield on daily funds and to lower its exposure on Federal funds. However, due to significantly lower interest rates, the Company has deployed these funds into our investment portfolio and into certificates of deposit at unaffiliated banks.

Note 4 — Loans And Allowance for Loan Losses

Major classifications of loans are as follows (dollars in thousands):

		March 31,								December 31,
		2010				2009				2009
Commercial, financial and agricultural		$	457,377			$	460,318			$	508,431
Real estate — construction			89,051				152,100				77,711
Real estate — mortgage			782,725				673,625				752,735
Consumer			169,848				193,509				175,492
Total Loans		$	1,499,001			$	1,479,552			$	1,514,369

Included in real estate-mortgage above are $2.6 million and $4.3 million, respectively, in loans held for sale at March 31, 2010 and December 31, 2009 in which the carrying amounts approximate fair value. Included in real estate-mortgage and consumer loans above are $4.5 million and $9.9 million, respectively, in loans held for sale at March 31, 2009, in which the carrying amounts approximate fair value.

The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (dollars in thousands):

		March 31, 2010								March 31, 2009								December 31, 2009
		Recorded				Valuation				Recorded				Valuation				Recorded				Valuation
		Investment				Allowance				Investment				Allowance				Investment				Allowance
		$	16,874			$	3,407			$	9,606			$	2,241			$	18,450			$	3,340

The allowance for loan losses as of March 31, 2010 and 2009 and December 31, 2009, is presented below. The level of the allowance reflects our periodic evaluation of general economic conditions, the financial condition of our borrowers, the value and liquidity of collateral, delinquencies, prior loan loss experience, and the results of periodic reviews of the portfolio by our independent loan review department and regulatory examiners. Management has evaluated the adequacy of the allowance for loan losses by estimating the probable losses in various categories of the loan portfolio, which are identified below (in thousands):

		March 31,								December 31,
		2010				2009				2009
Allowance for loan losses provided for:
Loans specifically evaluated as impaired		$	3,407			$	2,241			$	3,340
Remaining portfolio			25,343				20,411				24,272
Total allowance for loan losses		$	28,750			$	22,652			$	27,612

Changes in the allowance for loan losses are summarized as follows (in thousands):

		Three Months Ended
		March 31, 2010				March 31, 2009
Balance at beginning of period		$	27,612			$	21,529
Add:
Provision for loan losses			2,010				1,761
Loan recoveries			187				255
Deduct:
Loan charge-offs			(1,059	)			(893	)
Balance at end of period		$	28,750			$	22,652

Nonaccrual, loans still accruing and past due 90 days or more, restructured loans and foreclosed assets are as follows (in thousands, except percentages):

		March 31,								December 31,
		2010				2009				2009
Nonaccrual loans		$	17,775			$	9,606			$	18,540
Loans still accruing and past due 90 days or more			290				94				15
Restructured loans			—				—				—
Foreclosed assets			4,444				4,415				3,533
Total		$	22,509			$	14,115			$	22,088
As a % of total loans and foreclosed assets			1.50	%			0.95	%			1.46	%
As a % of total assets			0.67	%			0.45	%			0.67	%

Note 5 — Income Taxes

Income tax expense was $4.7 million for the first quarter in 2010 as compared to $5.0 million for the same period in 2009. Our effective tax rates on pretax income were 25.5% and 26.9% for the first quarters of 2010 and 2009, respectively. The effective tax rates differ from the statutory federal tax rate of 35% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan and Texas state taxes.

The decreases in the effective tax rates for the three-month period ended March 31, 2010 over the same period in 2009 were largely the result of an increase in tax exempt income.

Note 6 — Stock Based Compensation

The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees. No stock options have been granted in 2010. In May 2009, the Company granted incentive stock options to purchase 101,600 shares of Company common stock with an exercise price of $50.33 per share. The fair value of the options granted was estimated using the Black-Scholes options pricing model with the following weighted-average assumptions: risk-free interest rate of 3.24%; expected dividend yield of 2.66%; expected life of 5.79 years; and expected volatility of 41.64%.

The Company recorded stock option expense totaling approximately $95 thousand and $66 thousand, respectively, for the three-month periods ended March 31, 2010 and 2009.

The additional disclosure requirements under authoritative accounting guidance have been omitted due to immateriality.

Note 7 — Pension Plan

The Company’s defined benefit pension plan was frozen effective January 1, 2004, whereby no additional years of service will accrue to participants, unless the pension plan is reinstated at a future date. The pension plan covered substantially all of the Company’s employees. The benefits for each employee were based on years of service and a percentage of the employee’s qualifying compensation during the final years of employment. The Company’s funding policy was and is to contribute annually the amount necessary to satisfy the Internal Revenue Service’s funding standards. Contributions to the pension plan, prior to freezing the plan, were intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As a result of the Pension Protection Act of 2006 (the “Protection Act”), the Company will be required to contribute amounts in future years to fund any shortfalls. The Company evaluated the provisions of the Protection Act as well as the Internal Revenue Service’s funding standards to develop a preliminary plan for funding in future years. The Company made a contribution totaling $1.0 million in March 2010 and $1.4 million in April 2009 and continues to evaluate future funding amounts.

Net periodic benefit costs totaling $100 thousand and $80 thousand were recorded, respectively, for the three months ended March 31, 2010 and 2009.

Note 8 — Recently Issued Authoritative Accounting Guidance

In June 2009, the FASB issued authoritative guidance to improve the information a reporting entity provides in its financial statements about transfers of financial assets, including the effect of a transfer on an entity’s financial position, financial performance and cash flows and the transferor’s continuing involvement in the transferred assets. The guidance eliminates the concept of a qualifying special-purpose entity and changes the guidance for evaluation for consolidation. This guidance became effective January 1, 2010 and did not have a significant impact on the Company’s financial position, results of operations or cash flows.

In 2010, the FASB issued authoritative guidance expanding disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. The new guidance further clarifies that (i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities within a line item in the statement of financial position and (ii) disclosures should be provided about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosures related to the gross presentation of purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required beginning January 1, 2011. The remaining disclosure requirements and clarifications made by the new guidance became effective on January 1, 2010.

Note 9 — Fair Value Disclosures

The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the

asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

	•		Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
	•		Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 2 investments consist primarily of obligations of U.S. government sponsored enterprises and agencies, obligations of state and municipal subdivisions, corporate bonds and mortgage backed securities.
	•		Level 3 Inputs — Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities classified as available for sale and trading are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the United States Treasury (the “Treasury”) yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

		Level 1				Level 2				Level 3				Total Fair
		Inputs				Inputs				Inputs				Value
Available for sale investment securities:
U. S. Treasury securities and obligations of U. S. government sponsored-enterprises and agencies		$	21,478			$	344,362			$	—			$	365,840
Obligations of state and political subdivisions			13,767				456,516				—				470,283
Corporate bonds			—				59,151				—				59,151
Mortgage-backed securities			9,847				485,506				—				495,353
Other securities			5,603				—				—				5,603
		$	50,695			$	1,345,535			$	—			$	1,396,230

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis include the following at March 31, 2010:

Impaired Loans — Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 input based on the discounting of the collateral. At March 31, 2010, impaired loans with a carrying value of $16.9 million were reduced by specific valuation allowances totaling $3.4 million resulting in a net fair value of $13.5 million, based on Level 3 inputs.

Loans Held for Sale — Loans held for sale are reported at the lower of cost or fair value. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company considers investor commitments/contracts. These loans are considered Level 2 of the fair value hierarchy. At March 31, 2010, the Company’s mortgage loans held for sale were recorded at cost as fair value exceeded cost.

Certain non-financial assets and non-financial liabilities measured at fair value on a recurring and non-recurring basis include other real estate owned, goodwill and other intangible assets and other non-financial long-lived assets. Such amounts were not significant to the Company at March 31, 2010.

The Company is required under authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments, as defined. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value.

The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.

The estimated fair values and carrying values of all financial instruments under current authoritative guidance at March 31, 2010, were as follows (in thousands):

		Carrying				Estimated
		Value				Fair Value
Cash and due from banks		$	95,234			$	95,234
Interest-bearing deposits in banks			192,848				192,848
Held to maturity securities			11,478				11,831
Available for sale securities			1,396,230				1,396,230
Loans			1,499,001				1,499,548
Accrued interest receivable			18,127				18,127
Deposits with stated maturities			768,725				770,972
Deposits with no stated maturities			1,921,389				1,921,389
Short term borrowings			189,095				189,095
Accrued interest payable			1,178				1,178

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Form 10-Q 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 Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” and similar expressions, as they relate to us or 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 and the following:

	•		general economic conditions, including our local and national real estate markets and employment trends;
	•		volatility and disruption in national and international financial markets;
	•		legislative, tax and regulatory actions and reforms;
	•		political instability;
	•		the ability of the Federal government to deal with the national economic slowdown and the effect of stimulus packages enacted by Congress as well as future stimulus packages, if any;
	•		competition from other financial institutions and financial holding companies;
	•		the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;
	•		changes in the demand for loans;
	•		fluctuations in the value of collateral securing our loan portfolio and in the level of the allowance for loan losses;
	•		the accuracy of our estimates of future loan losses;
	•		the accuracy of our estimates and assumptions regarding the performance of our securities portfolio;
	•		soundness of other financial institutions with which we have transactions;
	•		inflation, interest rate, market and monetary fluctuations;
	•		changes in consumer spending, borrowing and savings habits;
	•		continued increases in FDIC deposit insurance assessments;
	•		our ability to attract deposits;
	•		consequences of continued bank mergers and acquisitions in our market area, resulting in fewer but much larger and stronger competitors;
	•		expansion of operations, including branch openings, new product offerings and expansion into new markets;
	•		acquisitions and integration of acquired businesses; and
	•		acts of God or of war or terrorism.

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.

Introduction

As a multi-bank financial holding company, we generate most of our revenue from interest on loans and investments, trust fees, and service charges. Our primary source of funding for our loans and investments are deposits held by our subsidiary banks. Our largest expenses are interest on these deposits and salaries and related employee benefits. We usually measure our performance by calculating our return on average assets, return on average equity, our regulatory leverage and risk based capital ratios, and our efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.

The following discussion of operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2009 Annual Report on Form 10-K.

Critical Accounting Policies

We prepare consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions.

We deem a policy critical if (1) the accounting estimate required us to make assumptions about matters that are highly uncertain at the time we make the accounting estimate; and (2) different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the financial statements.

The following discussion addresses (1) our allowance for loan losses and our provision for loan losses and (2) our valuation of securities, which we deem to be our most critical accounting policies. We have other significant accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on our reported results for a given period.

Allowance for Loan Losses. The allowance for loan losses is an amount we believe will be adequate to absorb probable losses on existing loans in which full collectibility is unlikely based upon our review and evaluation of the loan portfolio. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries).

Our methodology is based on current authoritative accounting guidance, including guidance from the SEC. We also follow the guidance of the “Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued jointly by the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board, the FDIC, the National Credit Union Administration and the Office of Thrift Supervision. We have developed a loan review methodology that includes allowances assigned to certain classified loans, allowances assigned based upon estimated loss factors and qualitative reserves. The level of the allowance reflects our periodic evaluation of general economic conditions, the financial condition of our borrowers, the value and liquidity of collateral, delinquencies, prior loan loss experience, and the results of periodic reviews of the portfolio by our independent loan review department and regulatory examiners.

Our allowance for loan losses is comprised of three elements: (i) specific reserves determined in accordance with current authoritative accounting guidance based on probable losses on specific classified loans; (ii) general reserves determined in accordance with current authoritative accounting guidance that consider historical loss rates; and (iii) a qualitative reserve determined in accordance with current authoritative accounting guidance based upon general economic conditions and other qualitative risk factors both internal and external to the Company. We regularly evaluate our allowance for loan losses to maintain an adequate level to absorb estimated probable loan losses inherent in the loan portfolio. Factors contributing to the determination of specific reserves include the credit-worthiness of the borrower, changes in the value of pledged collateral, and general economic conditions. All classified loans are specifically reviewed and a specific allocation is assigned based on the losses expected to be realized from those loans. For purposes of determining the general reserve, the loan portfolio less cash secured loans, government guaranteed loans and classified loans is multiplied by the Company’s historical loss rates. The qualitative reserves are determined by evaluating such things as current economic conditions and trends, including unemployment, changes in lending staff, policies or procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans.

Although we believe we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A further downturn in the economy and employment could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of their examination process, bank regulatory agencies periodically review our allowance for loan losses. The bank regulatory agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of principal and interest is doubtful.

Our policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan’s observable market price.

Valuation of Securities. The Company records its available-for-sale and trading securities portfolio at fair value.

Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether we have the intent to sell our securities prior to recovery and/or maturity and (ii) whether it is more likely than not that we will have to sell our securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

Results of Operations

Performance Summary. Net earnings for the first quarter of 2010 were $13.7 million, virtually unchanged from the same period in 2009.

Basic earnings per share for the first quarter of 2010 were unchanged from the same quarter last year at $0.66. The return on average assets was 1.68% for the first quarter of 2010, as compared to 1.76% for the same quarter of 2009. The return on average equity was 13.30% for the first quarter of 2010 as compared to 14.59% for the same quarter of 2009.

Net Interest Income. Net interest income is the difference between interest income on earning assets and interest expense on liabilities incurred to fund those assets. Our earning assets consist primarily of loans and investment securities. Our liabilities to fund those assets consist primarily of noninterest-bearing and interest-bearing deposits.

Tax-equivalent net interest income was $35.2 million for the first quarter of 2010, as compared to $34.2 million for the same period last year. The increase in 2010 compared to 2009 was largely attributable to (i) the decrease in the rate paid on interest-bearing liabilities in an amount greater than the decrease in rates earned on interest earning assets and (ii) an increase in the volume of earning assets. Average earning assets increased $139.9 million for the first quarter of 2010 over the same period in 2009. Average short-term investments and average tax exempt securities increased $187.4 million and $54.6 million, respectively, for the first quarter of 2010 over the first quarter of 2009, offsetting a decrease of $73.8 million in average loans. Average interest bearing liabilities increased $69.6 million for the first quarter of 2010, as compared to the same period in 2009. The yield on earning assets and rate paid on interest-bearing liabilities both decreased 29 basis points in the first quarter of 2010, primarily due to the effects of lower interest rates.

Table 1 allocates the change in tax-equivalent net interest income between the amount of change attributable to volume and to rate.

Table 1 — Changes in Interest Income and Interest Expense (in thousands):

		Three Months Ended March 31, 2010
		Compared to Three Months Ended
		March 31, 2009
		Change Attributable to								Total
		Volume				Rate				Change
Short-term investments		$	1,145			$	(816	)		$	329
Taxable investment securities (1)			(306	)			(466	)			(772	)
Tax-exempt investment securities (2)			843				(25	)			818
Loans (2) (3)			(1,095	)			458				(637	)
Interest income			587				(849	)			(262	)
Interest-bearing deposits			343				(1,585	)			(1,242	)
Short-term borrowings			(65	)			(33	)			(98	)
Interest expense			278				(1,618	)			(1,340	)
Net interest income		$	309			$	769			$	1,078

The net interest margin for the first quarter of 2010 was 4.69%, a decrease of seven basis points from the same period in 2009. The decrease is largely the result of the extended period of low short-term interest rates. The target Federal funds rate was reduced to a range of 0 to 25 basis points in December 2008. The low level of interest rates has reduced the yields on our short-term investments and investment securities as the proceeds from maturing investment securities have been invested at lower rates.

The net interest margin, which measures tax-equivalent net interest income as a percentage of average earning assets, is illustrated in Table 2.

Table 2 — Average Balances and Average Yields and Rates (in thousands, except percentages):

		Three months ended March 31,
		2010												2009
		Average				Income/				Yield/				Average				Income/				Yield/
		Balance				Expense				Rate				Balance				Expense				Rate
Assets
Short-term investments (1)		$	224,341			$	372				0.67	%		$	36,897			$	42				0.47	%
Taxable investment securities (2)(3)			876,515				8,966				4.09				904,931				9,738				4.30
Tax-exempt investment securities (3)(4)			453,855				6,978				6.15				399,250				6,160				6.17
Loans (4)(5)			1,493,321				22,619				6.14				1,567,101				23,256				6.02
Total earning assets			3,048,032				38,935				5.18				2,908,179				39,196				5.47
Cash and due from banks			110,820												110,298
Bank premises and equipment, net			65,086												65,301
Other assets			48,440												38,068
Goodwill and other intangible assets, net			63,072												63,891
Allowance for loan losses			(28,420	)											(22,071	)
Total assets		$	3,307,030											$	3,163,666
Liabilities and Shareholders’ Equity
Interest-bearing deposits		$	1,894,085			$	3,535				0.76	%		$	1,767,060			$	4,777				1.10	%
Short-term borrowings			173,763				164				0.38				231,224				261				0.46
Total interest-bearing liabilities			2,067,848				3,699				0.73				1,998,284				5,038				1.02
Noninterest-bearing deposits			787,850												752,463
Other liabilities			33,082												32,102
Total liabilities			2,888,780												2,782,849
Shareholders’ equity			418,250												380,817
Total liabilities and shareholders’ equity		$	3,307,030											$	3,163,666
Net interest income						$	35,236											$	34,158
Rate Analysis:
Interest income/earning assets											5.18	%											5.47	%
Interest expense/earning assets											0.49												0.71
Net yield on earning assets											4.69	%											4.76	%