FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996 Commission File Number 33-33940
FINANCIAL BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1251071
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
3805 South Broadway, St. Louis, Missouri 63118-4607
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(Address of principal executive office including Zip Code)
Registrant's telephone number, including area code 314-664-6250
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 X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock - as of March 31, 1996 684,377 shares of
common stock par value $ .01 per share.
This document constitutes part of a prospectus covering securities that have
been registered under the Securities Act of 1933.
Part I. Financial Information
Item 1. Financial Statements
FINANCIAL BANCSHARES, INC.
Interim Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands of dollars, except share and per share data)
March 31, December 31,
ASSETS 1996 1995
Cash and due from banks:
Non-interest-bearing $ 9,525 13,329
Interest-bearing 1,618 1,394
Funds sold 10,295 9,365
Investment in debt securities
available-for-sale at estimated market value 106,143 102,565
Loans, net of unearned discount 185,934 187,064
Less: Reserve for possible loan losses 4,287 4,160
Net loans 181,647 182,904
Premises and equipment, net 9,585 9,290
Accrued interest receivable 3,557 4,197
Other assets 3,033 2,879
Total Assets $325,403 325,923
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing demand 37,508 42,735
Interest-bearing 256,406 251,715
Total Deposits 293,914 294,450
Short-term borrowings 644 1,250
Other liabilities 2,924 2,541
Note payable 4,019 4,019
Total liabilities 301,501 302,260
Stockholders' equity:
Common Stock, $.01 value; 3,000,000 shares
authorized, 693,531 shares issued and
684,377 shares outstanding 7 7
Additional paid-in capital 9,925 9,925
Retained earnings 14,198 13,599
Treasury stock; 9,154 shares (261) (261)
Unrealized gains (losses)on
securities available-for-sale, net 33 393
Total stockholders' equity 23,902 23,663
Total liabilities and stockholders' equity $325,403 325,923
Book value per share - based on common shares
outstanding at period end $ 34.93 34.58
See accompanying note to interim condensed cosolidated financial statements.
FINANCIAL BANCSHARES, INC.
Interim Condensed Consolidated Statement of Income
(Unaudited)
(In thousands of dollars, except share and per share data)
Three Months Ended
March 31,
1996 1995
Interest income:
Loans $ 4,149 3,888
Investment securities:
Taxable 1,427 1,198
Exempt from federal income taxes 156 169
Interest-bearing due from banks 23 25
Funds sold 201 139
Total interest income 5,956 5,419
Interest expense:
Deposits 2,830 2,251
Short-term borrowings 13 13
Notes payable 90 101
Total interest expense 2,933 2,365
Net interest income 3,023 3,054
Provision for possible loan losses 183 177
Net interest income after provision
for possible loan losses 2,840 2,877
Noninterest income:
Service charges on deposit accounts 267 257
Securities gains (losses), net 2 2
Other noninterest income 111 138
Total noninterest income 380 397
Noninterest expense:
Salaries and employee benefits 1,260 1,207
Occupancy 186 166
Equipment 208 188
FDIC and state assessment 26 184
Legal and professional 96 117
Other 491 573
Total noninterest expense 2,267 2,435
Income before applicable income taxes 953 839
Income tax expense 354 227
Net income $ 599 $ 612
Net income per share (based) on average
shares outstanding of 684,377) $ 0.88 $ 0.89
See accompanying note to interim condensed consolidate financial statements.
FINANCIAL BANCSHARES, INC.
Interim Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands of dollars, except share and per share data)
Three Months Ended
March 31,
1996 1995
Cash flows from operating activities:
Net income $ 599 612
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 452 229
Provision for possible loan losses 183 177
Decrease in accrued interest receivable 640 501
Other, net 330 461
Net cash provided by operating
activities 2,204 1,980
Cash flows from investing activities:
Net increase in interest-bearing due from banks (224) ---
Maturity and calls of available-for-sale securities 9,226 3,957
Maturity and calls of held-to-maturity securities --- 1,314
Sales of available-for-sale debt securities 2,767 2,209
Purchase of available-for-sale debt securities (16,214) (8,879)
Purchase of held-to-maturity securities --- (240)
Net decrease in loans 1,061 5,147
Purchases of premises, furniture and equipment (623) (323)
Sale of other real estate and repossessed property 71 181
Net cash provided by (used in)
investment activities (3,936) 3,366
Cash flows from financing activities:
Net increase (decrease) in deposits (536) 4,410
Net decrease in short-term borrowings (606) (2,674)
Net cash provided by (used in)
financing activities (1,142) 1,736
Net increase (decrease) in cash and cash equivalents (2,874) 7,082
Cash and cash equivalents at beginning of period 22,694 15,912
Cash and cash equivalents at end of period $ 19,820 22,994
Supplemental information:
Interest paid $ 2,870 2,218
Income taxes paid (refunded) 368 (350)
Noncash transactions:
Transfer to other real estate in
settlement of loans 29 4
See accompanying note to interim condensed consolidated financial
statements.
FINANCIAL BANCSHARES, INC. AND SUBSIDIARIES
Note to Interim Condensed Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
(1) Basis of Presentation
The interim condensed consolidated financial statements as of March 31,
1996 and for the three month periods ended March 31, 1996 and 1995 reflect
all adjustments consisting of normal recurring accruals and elimination of
significant intercompany transactions, which in the opinion of management,
are necessary for the fair presentation of the results of operations for the
interim periods presented. Such condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X of the Securities and Exchange Commission. For
further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Part I. Financial Information (continued)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide a review
of significant factors affecting the financial condition and results of
operations of Financial Bancshares, Inc. and its subsidiaries (the Company
or FBI) for the three months ended March 31, 1996 and 1995. This discussion
should be read in conjunction with the Company's condensed consolidated
financial statements and the note thereto.
Assets and Capital Commitments
Total assets decreased $520,000 (less than 1%) to $325,403,000 as of
March 31, 1996, since December 31, 1995. Total deposits decreased $536,000
(less than 1%) between the same dates due mainly to a decrease in
noninterest-bearing deposits of $5,227,000 (12%). The net growth in total
earning assets of $3,602,000 (1%) resulted from an increase in all
categories except loans. The category with the most significant increase
was the $3,578,000 increase in investment IN debt securities, caused mainly
by the need to obtain a yield above that being paid for the increase in
interest-bearing time deposits. The loan decrease is mainly reflective of
seasonal movement. Most agricultural borrowers reduce or payoff their
balances in the first quarter after waiting to sell their crops after year-
end. Further balance sheet changes are discussed below under "Capital
Resources and Liquidity."
The management of the Company, except as noted below, knows of no
trend, event, or uncertainty that will have or that is reasonably likely to
have a material effect on the Company's liquidity, capital resources, or
operations. The Company's banking subsidiary, First Financial Bank of
Southeast Missouri, in Sikeston, Missouri has begun the construction of a
new and larger main banking office. Normal liquidity will provide the funds
for construction and there will be no material effect on the consolidated
financial position or earnings.
Capital Resources and Liquidity
At March 31, 1996, The Company's ratio of consolidated regulatory
equity (total stockholders' equity without the effect of the net unrealized
gains (losses) on securities) to adjusted consolidated assets (without the
effect of the unrealized gains (losses) on securities) was 7.3%. This is
down from the level at March 31, 1995 of 7.5%, and an increase from the 7.2%
level at December 31, 1995. FBI management believes its capital position is
comfortably above the regulatory minimum and continues to have more than
adequate regulatory required tangible equity capital and risk-based capital
on both a consolidated and individual subsidiary level. As of March 31,
1996, the Company's consolidated regulatory capital ratios compared to "Well
Capitalized" minimums were as follows:
Total Tier I
Risk-based Risk-based Leverage
Ratio Ratio Ratio
Consolidated, March 31, 1996 11.8% 10.5% 7.1%
Well Capitalized Minimums 10.0% 6.0% 5.0%
FBI management continues a policy of attempting to maintain a level of
capital it deems adequate in light of current conditions. The Company's
dividend policy, in management's opinion, should as its major feature help
maintain an adequate level of capital. This is evidenced by the
declaration, in April 1996, of a dividend which was exactly the amount per
share declared at the same date in the prior year.
At March 31, 1996, there are no significant changes from December 31,
1995, in the amount of available additional dividends from the Company's
banking subsidiaries.
The $536,000 (less than 1%) net decrease in deposits during the period
is made up of a $5,227,000 decrease in noninterest-bearing deposits and a
$4,691,000 (2%) increase in interest bearing accounts. The increase in
interest-bearing deposits is mainly in certificates of deposit. Management
feels that the decrease in noninterest-bearing deposits is reflective of the
seasonal reduction in demand deposit customer balances, which experience
seasonal increases in their balances during the final month of the fourth
quarter, mainly in public fund accounts. Management is satisfied that
noninterest-bearing deposits are stable. The increase in interest-bearing
deposits is the result of continued normal growth in the areas in which the
subsidiary banks operate and attracting customers from other area financial
institutions. A portion of the changes in interest-bearing and noninterest-
bearing deposits is due to internal shifts by existing customers as they
seek higher rates of return.
The parent Company's short-term borrowings have not changed since
December 31, 1995. The balance at March 31, 1996 is zero. This short-term
borrowing is a line of credit from an unaffiliated bank set up for general
corporate operating needs.
As indicated in the Company's interim condensed consolidated statement
of cash flows for the three months ended March 31, 1996, the cash flows from
all sources was not enough to cover all of the cash outlays for the period.
The main reason for the decrease in cash and cash equivalents is the net
increase in debt securities (see discussion above under "Assets and Capital
Commitments"). The Company expects future deposit growth and maturing
investments to continue to provide adequate long-term liquidity in
subsequent periods. Additionally, short-term liquidity could be satisfied,
if necessary, by the sale of certain debt securities maintained as available
for sale. The ratio of market value to amortized cost of investment debt
securities is above 100% at March 31, 1996.
At March 31, 1996, on a consolidated basis, there was no significant
change in the balance between rate-sensitive assets and rate-sensitive
liabilities from the balance of the same assets and liabilities at December
31, 1995. As previously stated, the liquidity needs of the Company's
subsidiary banks continue to be accomplished primarily through the maturity
of assets and acquisition of additional deposits.
Net Income
Net income for the three months ended March 31, 1996 of $599,000 ($0.88
per share) is an decrease of $13,000 (2%) or $0.01 per share over the
$612,000 for the same period in 1995. The reason for the decrease in net
income is the increase ($127,000 or $0.19 per share) in applicable income
taxes between the two periods. The main reason for the increase in
applicable income taxes is that the fist quarter of 1995 included a non-
recurring state income tax benefit of $57,000 ($0.08 per share). Partially
offsetting the unfavorable increase in applicable income taxes between the
two periods, was an increase in income before applicable income taxes of
$114,000. The make-up of the net increase in income before income taxes, is
a decrease in net interest income ($31,000), an increase in the provision
for possible loan losses ($6,000), a decrease in noninterest income
($17,000), and a decrease in noninterest expense ($168,000).
Company management continues to believe that the amount being provided
for possible loan losses reflects prudent banking practice and that the
resulting reserve is adequate given the inherent and potential risk of the
loan portfolio. As of March 31, 1996, the consolidated amount of
nonperforming loans was $1,197,000 compared to $1,316,000 at December 31,
1995. At present, management believes it has adequately provided for any
anticipated loss from these nonperforming loans. They feel the reserve for
possible loan losses coverage (358%), with a level of $4,287,000 at March
31, 1996, should be adequate to absorb any losses for nonperforming loans.
As of March 31, 1996, the total amount of loans for agricultural production
approximated 15% of total loans. These loans are to a variety of farming
operations. There is not a concentration of loans to any one borrower or
group of borrowers. The Company does not consider this to be a concentration
in the normal sense because of the variety of operations and locations of
the farming operations. The loan portfolio does not have any other
concentrations of loans to any one borrower, geographic area or industry.
Specifically, there are no concentrations of loans in highly leveraged
buyouts, commercial real estate or energy.
Net interest income the first quarter of 1996 decreased one percent
from the amount for the same period in 1995. This result is due to the
interest expense increase of $568,000 being more than the $537,000 increase
in interest income between the two periods. The increase in interest
expense reflects both an increase in volume and rates paid on deposits,
especially on time certificates of deposits (see discussion above in
"Capital Sources and Liquidity" for reasons on the increase in volume of
interest-bearing deposits). Interest income also reflects increased volume
and rates. The most significant increases in volume of earning assets was
in investment debt securities (see above in "Assets and Capital
Commitments") and in commercial and agricultural productions loans.
Noninterest income decreased mainly because of a $25,000 nonrecurring
gain from the sale of an asset in the first quarter of 1995. Service
charges on deposit accounts of $267,000 for the first quarter of 1996 were
up 10% over the amount for the same period in 1995.
Noninterest expense decreased 7% ($168,000) between the two periods.
The main reason for the decrease is the $158,000 decrease in FDIC and state
assessment. The major change in the premium charged by the FDIC being
experienced by all of the banking industry is the reason for the decrease in
this expense item. The remaining net decrease of $10,000 is reflective of
increases in personnel, occupancy and equipment expense which were normal or
expected and decreases in legal and other expense which were mainly the
result of the improvement of asset quality at the Company's St. Louis
subsidiary bank.
Income taxes increased $127,000 to $354,000 for the three months ended
March 31, 1996 when compared to the same period in 1995. This increase was
due to the recognition of nonrecurring state tax credits during the three
months ended March 31, 1995.
Effects of Inflation
Balance sheets of financial institutions such as the Company typically
reflect a net positive monetary position whereby monetary assets exceed
monetary liabilities. Monetary assets and liabilities are those which can
be converted to a fixed number of dollars, and include cash assets,
investments, loans, money market instruments, deposits, and short-term
borrowings
During periods of inflation, a net positive monetary position may
result in an overall decline in purchasing power of an institution. There
is no clear evidence establishing a relationship between the purchasing
power of an institution's net positive monetary position and its future
earnings. Moreover, the Company's ability to preserve the purchasing power
of its net positive monetary position will be reflected partially in the
effectiveness of its asset/liability management programs. The Company's
management does not believe that the effect of inflation of its nonmonetary
assets (primarily bank premises and equipment) is material.
Part II. Other Information
Items 1,2,3,4, and 5
These items have been omitted because their subject matter is not applicable
or the answer thereto is in the negative.
Item 6. Reports on Form 8-K
No reports on Form 8-K have been filed for the quarter ended March 31, 1996
FINANCIAL BANCSHARES, INC.
Date: May 14, 1996 /s/ Arthur E. S. Schmid
Arthur E. S. Schmid,
Chairman and
Chief Executive Officer
FINANCIAL BANCSHARES, INC.
Date: May 14, 1996 /s/ Edward J. Vega
Edward J. Vega,
Senior Vice President and
Chief Financial Officer
