Board of Directors
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| L.D. Bailey* President Bailey Oxygen & Tool Co., Inc. |
William D. Barkley Investor |
Ron Blatchley Investor |
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| Timothy N. Bryan Chairman and CEO The First National Bank |
Travis B. Bryan, Jr. Senior Chairman of the Board The First National Bank |
Travis B. Bryan, III Attorney & Partner Bryan, Stacy & Dillard |
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| Homer R. Callaway* Owner Callaway Lumber |
Steven A. Carr President Carr & Associates |
Ronnie L. Craig CPA Thompson, Derrig & Craig P.C. |
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| John David Crow* Investor |
Charles A. Ellison Attorney Charles A. Ellison, P.C. |
Michael H. Gentry Attorney & Partner West, Webb, Allbritton & Gentry |
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| Samuel H. Harrison, MD Urologist Brazos Valley Urology Associates |
David W. Hickson, PhD President and CEO Intellamed, Inc. |
Michael A. Holmgreen Vice Chairman The First National Bank |
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| Deborah H. Kovacevich President and CEO State Bank of Jewett |
Thomas B. McDade* Consultant & Investor |
Hank McQuaide Partner The Brazosland Group |
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| Ivan M. Olson President The First National Bank |
William L. Rayburn, MD, FACOG Medical Director Scott & White Clinic |
Charles A. Sippial, Sr. Vice President for Administration Texas A&M University |
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| J.A. Skrivanek* Investor |
Jack M. Threadgill Electrical Engineer and Investor |
Herbert L. Wade, DDS Pediatric Dentist |
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| Ted N. Wyatt* Investor |
To our Stockholders – A look back and a look ahead
Looking back. We are pleased to report that results for 2004 matched or
exceeded the record of previous years in terms of both the quality and size
of growth and earnings. The last half of 2003 and the first half of 2004
were characterized by the lowest levels of interest rates in half a century.
The dormant national business environment came to life at mid-year prompting
the Federal Reserve Board to initiate rate increases for the first time in
over a year. Since that time, federal-fund target rates have been moved up
six times in 0.25% increments from 1.00% in June to 2.50% today, but the
usual attendant increases in longer term lending and investment rates have
not followed.
Typical of the Bryan/College Station SMSA, the local economy produced the
same steady growth that has characterized this area for decades and was
largely impervious to the business slowdown in other parts of the nation. No
other business indicator attests to the strength of this market more than
the consistent low level of unemployment which, currently at 1.9%,
challenges the lowest rate anywhere in the country. The principal foundation
for the solid strength of this area clearly is Texas A&M University – one of
the five largest universities in the United States. The significant impact
on the infrastructure of this economy that serves 45,000 students is even
exceeded by the multi-million dollar research grants flowing in ever
increasing volumes to the different disciplines of the school.
Shown below are elements from the financial statements selected to highlight
significant management emphasis, trends and results produced during this and
prior years.
| 2000 | 2001 | 2002 | 2003 | 2004 | |
| ($ dollars) | |||||
| Net income/share | 6.60 | 7.32 | 8.51 | 9.42 | 10.36 |
| Dividends/share | 1.00 | 1.20 | 1.40 | 1.60 | 1.80 |
| ($ millions) | |||||
| Capital accounts | 26.7 | 31.2 | 34.7 | 38.3 | 41.8 |
| Total assets | 259.3 | 296.7 | 324.6 | 373.2 | 385.7 |
| Total deposits | 235.8 | 270.9 | 288.3 | 299.7 | 334.9 |
| Municipal bonds | 22.4 | 21.3 | 24.3 | 39.7 | 51.9 |
| Commercial loans | 30.5 | 36.7 | 41.6 | 59.5 | 65.1 |
| Real estate loans | 68.6 | 79.5 | 94.5 | 115.3 | 123.5 |
| Student loans | 18.2 | 46.5 | 32.8 | 36.9 | 53.0 |
Reflective of this strong economy as well as its own contribution through customer growth, the Bank produced earnings of $10.36 per share which supported the increase in the dividend rate to $1.80 per share. Capital accounts of $41.8 million relative to its $385 million asset size place First National Bank among the strongest banks in the country. This capital base not only provides maximum safety for customers, it also enables the bank to accommodate even its largest borrowers with prompt service by local employees focused exclusively on the Brazos County market.
Notable growth was achieved in the deposits of commercial, municipal and non-profit institutional accounts which enabled the Bank in turn to make significant increases in its portfolio of municipal bonds and particularly those of local issuers. Continued emphasis was focused on loans to commercial customers and in the real estate area, to both builders and home owners. Also, it was possible to reach a new high in the important student loan area.
It is noteworthy to review not only the accomplishments of a single year but also to take note of trends over several years which more importantly reflect the magnitude of support, as illustrated in the selected balance sheet items above, that the Bank has made to its market and certainly can be expected to continue in the future.
Looking ahead. At no time in recent years has the outlook for higher short-term interest rates been as pervasive. Whether or not longer term rates will be responsive continues to be in doubt as illustrated by the fact that mortgage rates to date have been impervious to the step-up in short rates.
As is always the case when rates rise, the rise will affect cost of funds to the Bank much more quickly than maturities of existing loans and securities will enable those yields to be upgraded in parallel. However, this expected margin squeeze will be mitigated hopefully to a large extent through growth in new business which has been a basic characteristic of this market since WWII.
The fine results achieved in 2004 are a product of an outstanding staff of employees, officers and directors. Significant additions to our staff in recent months will insure improved service to customers, the attraction of valuable new business and continued dedicated support to our Brazos County home.
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Annually, the Bank employs a nationally recognized investment firm to establish a price for FNB stock which is used to value both purchase and redemption transactions for our Employee Stock Ownership Plan. The current price is $110 as established by Sheshunoff & Company. Currently there are funds available to purchase 5700 shares at this price, and any shareholder wishing to sell shares should contact the Bank. Unfortunately for any desiring to acquire stock, the ESOP seldom is a net seller.
March 19, 2005
Travis B. Bryan, Jr.
Senior Chairman of the Board
Timothy N. Bryan
Chairman of the Board
Chief Executive Officer
Michael A. Holmgreen
Vice Chairman of the Board
Ivan M. Olson
President
Jerry E. Fox
Executive Vice President
Joseph Dayoc, III
Executive Vice President
William Jene Tebeaux
Executive Vice President
