SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1995 0-7674
FIRST FINANCIAL BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas 75-0944023
(State of Incorporation) (I.R.S. Employer
Identification No.)
400 Pine Street, Abilene, Texas 79601
(Address of Executive Offices) (Zip Code)
Registrant's Telephone Number (915) 675-7155
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $10.00 Per Share
(Title of Class)
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 .
The aggregate market value of voting stock held by
nonaffiliates of the registrant was $156,057,811 as of March 6,
1996.
The number of shares of common stock outstanding at March 6,
1996 was 5,340,791.
Documents Incorporated by Reference
List hereunder the following documents if incorporated by
reference and the Part of the Form 10-K into which the document
is incorporated.
None
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TABLE OF CONTENTS
Item Page
PART I
1. Business 1
2. Properties 12
3. Legal Proceedings 13
4. Submission of Matters to a Vote
of Security Holders 14
PART II
5. Market for Registrant's Common Stock
and Related Security Holder Matters 14
6. Selected Financial Data 15
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
8. Financial Statements and Supplementary Data 25
9. Changes in and Disagreements with
Accountants and Financial Disclosure 46
PART III
10. Directors and Executive Officers
of the Registrant 46
11. Director and Officer Compensation 48
12. Security Ownership of Certain Beneficial
Owners and Management 53
13. Certain Relationships and
Related Transactions 54
PART IV
14. Exhibits, Financial Statement
Schedules and Reports on Form 8K 54
Signatures
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PART I
Item 1. Business
A. Organization and General Development of Business
First Financial Bankshares, Inc. (the "Registrant",
"Bankshares", or "Company"), is a Texas corporation duly
registered as a multi-bank holding company under the Bank Holding
Company Act of 1956, as amended. On December 31, 1995 Bankshares
owned (through its wholly-owned Delaware subsidiary) all of the
capital stock of seven banks located in Texas: First National
Bank of Abilene, Abilene, Texas ("First Abilene"); Hereford State
Bank, Hereford, Texas ("Hereford"); First National Bank
Sweetwater, Texas ("First Sweetwater"); Eastland National Bank,
Eastland, Texas ("Eastland"); First National Bank in Cleburne,
Cleburne, Texas ("First Cleburne"); Stephenville Bank & Trust
Co., Stephenville, Texas ("Stephenville"); and Southwest Bank of
San Angelo, San Angelo, Texas ("San Angelo").
Bankshares was formed in 1956 at the direction of the
Board of Directors of the Farmers and Merchants National Bank of
Abilene (a national bank organized in Abilene, Texas, in
1889, changing its name to First National Bank of Abilene in
1957). The corporation's initial name was F & M Operating
Company (F & M), and it was originally authorized to and did
issue ten shares of stock having a par value of $100.00 each.
The ten shares were issued to three officers of the Bank under a
trust agreement by which the three trustees would hold the F & M
stock for the ratable benefit of the shareholders of First
National Bank of Abilene. The original purposes in organizing
the corporation were to provide a separate entity to own, operate
and maintain parking lots, parking garages, buildings and real
estate, and to buy, sell and lease personal property such as bank
notes and automobiles.
In 1968, F & M purchased 200,000 shares of newly
authorized and issued stock of Bank of Commerce, Abilene, Texas
("BOC"). The purchase was made after the State Banking
Commission of Texas required that new capital funds be injected
into BOC. In the resulting increased capitalization of BOC, the
authorized and outstanding shares of BOC common stock
were increased from 300,000 to 700,000, with the 400,000 new
shares being offered at $2.00 per share. In addition, F & M
acquired by proxy assignments the power to vote an additional
66,000 shares of BOC stock. These proxies expired January 1,
1975. The First National Bank Employees' Profit Sharing Trust
originally purchased 28,177 shares of BOC stock.
In November 1971, the Board of Directors of First
Abilene authorized the reorganization of F & M into a multi-bank
holding company and the commencement of proceedings to effect a
merger which would permit First Abilene to be wholly owned by the
holding company. The merger was submitted for review and
approval by federal regulatory authorities in April 1972.
B. Reorganization, Mergers, and Acquisitions
F & M's reorganization was accomplished in September
1972. Its name was changed to First Abilene Bankshares, Inc.,
and it was recapitalized by reducing the par value of its
stock to $10.00 per share and increasing the authorized shares to
500,000. The merger was approved in January 1973, and became
effective in April of that same year. As a result, the
shareholders of First Abilene became shareholders in Bankshares,
and Bankshares became the owner of all of the outstanding shares
of First Abilene (except for the qualifying shares owned by
directors).
In 1974, Bankshares acquired the remaining outstanding
common stock of BOC (except for six shares amounting to
approximately .01%) by an offer (registered under the
Securities Act of 1933) to exchange one share of Bankshares'
common stock for each 13-1/3 outstanding shares of BOC common
stock. The exchange was effected on May 1, 1974. In late
1987, Bankshares purchased the remaining six shares of BOC stock,
paying $82.00 in cash for each share.
Effective April 1, 1974, Bankshares acquired all the
outstanding capital stock of Hereford through an offer (also
registered under the Securities Act of 1933) to exchange one
share of Bankshares' common stock and $175 cash for each
outstanding share of Hereford.
Effective September 4, 1981, Bankshares acquired all
the outstanding capital stock of First Sweetwater through an
offer (registered under the 1933 Act) to exchange one share of
Bankshares' common stock for each outstanding share of First
Sweetwater stock.
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Effective June 8, 1982, Bankshares acquired all of the
outstanding capital stock of Eastland through an offer
(registered under the 1933 Act) to exchange 3-1/2 shares of
Bankshares' common stock for each outstanding share of Eastland
stock.
Effective July 31, 1987, American National Bank of
Abilene ("American National") was merged with and into First
Abilene. Following approval of the merger by the
Board of Directors and Shareholders of each bank, all of the
issued and outstanding common stock of American National were
tendered for exchange and First Abilene paid $11.50 for each of
American National's 200,000 shares of common stock. The merger
was approved by the Office of the Comptroller of the Currency,
the Federal Reserve Board, the Federal Deposit Insurance
Corporation and the United States Department of Justice. The
premises formerly occupied by American National, both its main
banking offices and drive-in banking facility, are now being
operated by First Abilene as a branch bank.
On July 21, 1988, Hereford acquired 11,576 shares of
First Tule Bancorp, Inc. in Tulia, Texas ("First Tule"), a
registered bank holding company, the principal asset of which is
all, or substantially all, of the capital stock of The First
National Bank, Tulia, Texas ("FNB Tulia"). Although the Bank
Holding Company Act of 1956, as amended, generally requires
approval of the Federal Reserve Board prior to acquiring more
than 5% of the outstanding capital stock of any bank or bank
holding company, the acquisition by Hereford of the First Tule
stock was effected under an exemption for acquisitions of voting
securities in satisfaction of debt previously
contracted. The shares of First Tule were transferred to
Hereford in partial satisfaction of indebtedness owed to Hereford
by three individuals and secured, in part, by such shares of
stock in First Tule. Since the date it acquired the stock,
Hereford attempted to sell or otherwise dispose of the stock, but
was unable to do so because of pending litigation against FNB
Tulia. Full disclosure of the acquisition by Hereford of the
First Tule stock was made to federal and state banking
authorities and continued holding of the stock was approved by
bank regulatory authorities while Hereford attempted to sell such
stock. However, under the Bank Holding Company Act (and
Regulation Y adopted by the Federal Reserve Board pursuant to the
Act), Hereford was required to dispose of the First Tule stock
within five (5) years after having acquired the same, but had not
been able to do so. While Hereford was in technical violation of
the Act and Regulation Y, such circumstance existed with the
knowledge and apparent acquiescence of federal and state banking
authorities and neither Registrant nor Hereford had any reason to
believe that any adverse action would be taken against Hereford
or Registrant by reason of Hereford's continued ownership of the
shares of First Tule so long as Hereford, in good faith,
continued its efforts to liquidate or dispose of such shares.
Neither First Tule nor FNB Tulia was deemed or considered to be a
subsidiary of the Registrant. By reason of the settlement or
other disposition of the remaining lawsuits against FNB Tulia, as
well as the efforts of the remaining shareholders of First Tule
to find a purchaser for their shares or those of FNB Tulia, First
Tule consummated in June 1995, a Merger and Plan of
Reorganization Agreement with Norwest Corporation which resulted
in the shares of First Tule held by Hereford being exchanged for
$1,652,741 cash.
Effective January 1, 1989, BOC was merged with and into
First Abilene and its state charter surrendered to the State of
Texas for cancellation. First Abilene received all of the
assets of BOC and assumed all of its liabilities. The banking
offices and drive-in facility of BOC are now being operated as a
branch banking facility of First Abilene. The merger and branch
banking action was undertaken to achieve greater efficiency from
the combined operation of First Abilene and BOC and to provide
improved convenience for each bank's customers.
In January of 1990, Bankshares' Board of Directors
authorized a state franchise tax savings program designed to
substantially reduce the amount of corporate franchise taxes paid
by Bankshares. Pursuant to that program, a second bank holding
company was formed in the State of Delaware, First Abilene
Bankshares of Delaware, Inc. (the "Delaware BHC"). With the
approval of the Federal Reserve Board, and effective March 28,
1990, the Delaware BHC became the owner and holder of all of the
outstanding shares of Bankshares' subsidiary banks and, in turn,
the Delaware BHC became the sole subsidiary of Bankshares and is
wholly-owned and controlled by Bankshares. The corporate offices
of the Delaware BHC are located in the State of Delaware
and, as defined by Texas franchise tax statutes, the new
subsidiary is not considered to be doing business in the State of
Texas.
Effective December 21, 1990, the Delaware BHC, using
funds provided by Bankshares, purchased all of the outstanding
stock of First Cleburne for $4,700,000 in cash.
Effective February 25, 1993, the Delaware BHC, using
funds provided by Bankshares, acquired all of the outstanding
capital stock of Stephenville for $7,750,000 in cash.
The acquisition was effected through a Stock Purchase and Sale
Agreement between Bankshares, Stephenville and two individuals
(the "Principal Shareholders") owning a majority of the
Stephenville stock and a cash tender offer to the remaining
shareholders of Stephenville.
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Effective September 23, 1993, First Cleburne acquired
by purchase the Cleburne, Texas Branch office facility of Bank
One, Texas, N.A., and assumed deposit liabilities of
approximately $19 million. The aggregate value of the land,
buildings, loans, and other assets purchased by First Cleburne
was approximately $2 million. The former Bank One facility is
now being operated as a branch office of First Cleburne.
On October 26, 1993, at a Special Shareholders Meeting
called for such purpose, the name of the Registrant was changed
to First Financial Bankshares, Inc. Similarly, the corporate
name of the Delaware BHC was changed to First Financial
Bankshares of Delaware, Inc. effective December 7, 1993.
Effective March 10, 1994, pursuant to that certain
Stock Exchange Agreement and Plan of Reorganization dated
December 7, 1993, Bankshares acquired 190,622 shares (98.22%)
of the issued and outstanding shares of Concho Bancshares, Inc.
("Concho"), a Texas corporation and bank holding company, which
owned all of the capital stock of San Angelo, a Texas state
bank located in the City of San Angelo, Tom Green County, Texas.
San Angelo owned all of the issued and outstanding capital stock
of SWB Investment Centre, Inc. ("SWB"), a Texas corporation
providing securities brokerage services. The shares of Concho
common stock acquired by Bankshares were contributed by
Bankshares to the capital of the Delaware BHC and effective May
1, 1994, pursuant to the corporation laws of the States of
Delaware and Texas, Concho was merged with and into the Delaware
BHC so that San Angelo became a subsidiary of the Delaware BHC.
As part of the merger of the Delaware BHC and Concho, minority
shareholders of Concho tendered an additional 2,649 shares of
Concho common stock in exchange for shares of Bankshares' common
stock and cash. In connection with the acquisition of Concho by
Bankshares and the subsequent merger of Concho with and into the
Delaware BHC, Bankshares issued 232,080 shares of its common
stock and paid $44,531 in cash in lieu of issuing
fractional shares of Bankshares' common stock.
On December 3, 1992, the Texas Secretary of State
issued a Certificate of Incorporation for First Financial
Investments, Inc., which is, or shall become, a wholly owned
subsidiary of Bankshares and the initial capital of which shall
consist of $100,000 represented by 100,000 shares of common stock
to be issued to Bankshares. First Financial Investments, Inc.
("FFI") was intended to be a securities brokerage subsidiary and
on or about December 8, 1992, Bankshares submitted to the Federal
Reserve Board its Application to Engage in Non-Banking Activity
(Form FR Y-4) to engage, de novo, in providing securities
brokerage services pursuant to Section 225.25(b)(15) of FRB
Regulation Y and Section 4(c)(a) of the Bank Holding Company Act
of 1956, as amended. At the end of 1992, Bankshares and FFI were
engaged in the process of securing all approvals, and meeting all
other requirements, for FFI to become a broker-dealer registered
with the National Association of Securities Dealers, the
Securities and Exchange Commission and the Texas State Securities
Board. At that time it was anticipated that the activities of
FFI would be limited to buying and selling stocks, bonds and
other securities as agent for the account of the customers of
Bankshares' subsidiaries, which securities would include
equities, mutual funds and municipal, corporate, and government
bonds, but without providing investment advice or research
services. Securities brokerage services would be provided on, or
adjacent to, the premises and banking offices of Bankshares'
subsidiary banks. It was anticipated at that time that
Bankshares, through FFI, would begin providing securities
brokerage services during the second quarter of 1993. On
February 3, 1993 Bankshares received Federal Reserve
approval to engage, de novo, in providing securities brokerage
services through FFI. While it is still the intent of Bankshares
to provide securities brokerage services through FFI, Bankshares
has notified the Federal Reserve that its plans to offer
brokerage services through a separate subsidiary have been
delayed. At December 31, 1995, two of Bankshares' subsidiary
banks (First Abilene and San Angelo) were providing brokerage
services through The Stephens Company, a national brokerage firm
headquartered in Little Rock, Arkansas, and its affiliated
company, Link Investment Services, Inc.
On September 7, 1995, First Financial entered into a
Stock Purchase and Sale Agreement with (1) Citizens Equity Corp.
("Citizens Equity"), a Texas corporation and bank holding
company, (2) Citizens Equity's subsidiary, The Citizens National
Bank of Weatherford ("Citizens National"), a national bank
located in Weatherford, Texas, and (3) various persons (the
"Principal Shareholders") owning, in the aggregate, more than
two-thirds (2/3) of the issued and outstanding shares of the
common stock of Citizens Equity ("Citizens Equity Stock").
Pursuant to the Stock Purchase and Sale Agreement, the Principal
Shareholders agreed to sell to Bankshares all of their shares of
Citizens Equity Stock for $60.00 per share, subject to certain
price adjustments stated in the Agreement. Bankshares also made
a cash tender offer to the remaining shareholders of Citizens
Equity to acquire their shares of Citizens Equity Stock at the
same price per share ($60.00). Consummation of the transaction
was conditioned upon tender of 100% of the issued and outstanding
shares of Citizens Equity Stock, the acquisition by Citizens
Equity of all (or substantially all) of the remaining shares of
Citizens National common stock not owned by Citizens Equity, and
the redemption by Citizens Equity of all 311 shares of its issued
and outstanding preferred stock. The transaction was consummated
on January 17, 1996, and Bankshares acquired all of the Citizens
Equity Stock for $6,394,800 in cash. Simultaneously, Bankshares
caused Citizens Equity to redeem all of its preferred stock so
that Bankshares now owns 100% of the issued and outstanding
shares of the capital stock of Citizens Equity.
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On October 20, 1995, Bankshares entered into a Stock
Exchange Agreement and Plan of Reorganization ("Exchange
Agreement") with (1) Weatherford National Bancshares, Inc.
("Weatherford Bancshares"), a Texas corporation and bank holding
company, (2) Weatherford National Bancshares' subsidiary bank
holding company, Parker Bancshares, Inc. ("Parker Bancshares"), a
Delaware corporation, and (3) Parker Bancshares' subsidiary,
Weatherford National Bank ("Weatherford National"), a national
bank located in Weatherford, Parker County, Texas. Pursuant to
the Exchange Agreement, Bankshares made a tender offer
(registered under the 1933 Act) to acquire all (but not less than
90%) of the outstanding capital (common) stock of Weatherford
National Bancshares ("Weatherford Bancshares Stock").
Subject to certain conditions precedent stated in the Exchange
Agreement, Bankshares offered to exchange 1.5 shares of its
common stock for each share of Weatherford National Bancshares
Stock; provided, that no fractional shares of Bankshares stock
would be issued and cash would be paid in lieu of fractional
shares on the basis of Bankshares stock having a market value of
$33.34 per share. On January 15, 1996, the Escrow Agent named in
the Exchange Agreement had received more than 90% of the
outstanding Weatherford National Bancshares Stock for
exchange and consummation of the stock exchange was commenced on
January 17, 1996. Bankshares has now acquired all outstanding
shares of Weatherford National Bancshares Stock and, in exchange,
Bankshares issued 323,977 shares of its common stock (and paid
$166.70 in lieu of fractional shares) in exchange for the
Weatherford National Bancshares Stock.
It is the intent of Bankshares to merge both Citizens
Equity and Weatherford National Bancshares with and into
Bankshares, to merge Parker Bancshares with and into the
Delaware BHC, and to merge Citizens National with and into
Weatherford National. The holding company mergers will be
accomplished in accordance with applicable state laws and do not
require approval of the Federal Reserve Board, the OCC or other
regulatory authorities. The merger of Citizens National into
Weatherford National does require approval of the OCC and on
February 12, 1996, an Application to Merge Citizens National with
and into Weatherford National was filed with the OCC. It is
anticipated that each of the holding company mergers, as well as
the merger of Citizens National into Weatherford National, will
be completed early in the second quarter of 1996.
C. Mode of Conducting Business
Bankshares operates principally in order to give the
affiliated banks access to additional management and technical
resources which help them to improve or expand their banking
services while continuing their local activity and identity.
Each of the affiliated banks operates under the day-to-day
management of its Board of Directors and officers, with
substantial authority in making decisions concerning their own
investments, loan policies, interest rates and service charges.
Bankshares provides assistance to the affiliated banks,
especially with respect to decisions concerning major capital
expenditures, employee fringe benefits, including pension
plans, group insurance, dividend policies, appointment of
officers and directors of affiliated banks and their
compensation. The internal audit and loan review functions are
centralized at Bankshares. Each of these corporate staff groups
perform on-site operational audits and loan reviews of the
subsidiary banks. Bankshares, through First Abilene, provides
advice to and specialized services for the affiliated banks in
such areas as lending, investments, purchasing, advertising,
public relations, and computer services.
Each Bankshares' subsidiary is engaged in the general
commercial banking business consisting of the acceptance of
checking, savings and time deposits, the making of loans,
transmitting funds and performing such other banking services as
are usual and customary for commercial banks. First Abilene,
Hereford, First Sweetwater, and Stephenville have active trust
departments. The trust departments offer a complete range of
services to individuals, associations, and corporations. They
include the administration of estates, testamentary trusts,
and various types of living trusts and agency accounts. Other
sources of revenue are services for businesses, including
administering pension, profit sharing and other employee benefit
plans, acting as stock transfer agents or stock registrar, and
providing paying agent services. First Abilene and San Angelo
provide securities brokerage services through an arrangement
with Link Investment Services, Inc.
D. Competition
Commercial banking in Texas is very competitive and
Bankshares, holding less than 1% of deposits, represents only a
minor segment of the industry. Success is dependent upon
being able to compete in the areas of interest rates paid or
charged and scope of services offered and prices charged
therefor. Subsidiary banks of Bankshares compete in their
respective service areas with highly competitive banks, savings
and loan associations, small loan companies, credit
unions, and brokerage firms, all of which are engaged in
providing financial products and services.
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Bankshares' business is not dependent upon any single
customer or upon any few customers, the loss of any one of which
would have a materially adverse effect upon the business
of Bankshares. Customers of Bankshares and its subsidiaries
include its officers and directors, as well as other entities
with which they are affiliated. It is the policy of Bankshares
and its subsidiaries to make loans to officers and directors, and
entities with which they are affiliated, in the ordinary course
of business. When such loans are made, they are made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons. Loans to directors, officers
and their affiliates are also subject to certain restrictions
under federal and state banking laws.
E. Employees
Bankshares and its subsidiaries employed approximately
589 full-time employees at March 1, 1996. Management believes
that its employee relations have been and will continue to
be good.
F. Supervision and Regulation
Bankshares is a bank holding company within the meaning
of the Bank Holding Company Act of 1956 (the "Act"), as amended,
and it is registered as such with the Federal Reserve Board.
Under the Act, Bankshares is subject to the reporting
requirements of, and to supervision and examination by, the
Federal Reserve Board and Bankshares is required to file
with the Federal Reserve Board an Annual Report and to provide
such additional information as the Federal Reserve Board may
require. The Federal Reserve Board may also make examinations
of Bankshares and its subsidiaries or "affiliates."
Under the Act, bank holding companies may not (with
certain limited exceptions) directly or indirectly acquire
ownership or control of more than five percent (5%) of any class
of voting shares or substantially all of the assets of any
company, including a bank, without the prior written approval of
the Federal Reserve Board. In addition, bank holding companies
are generally prohibited under the Act from engaging in
non-banking activities,except certain activities which
the Federal Reserve Board, by regulation, determines to be
closely related to banking, or to managing or controlling banks.
Examples of activities which the Federal Reserve Board has
determined to be closely related to banking, or to managing or
controlling banks, include (1) the making or acquiring of loans
or other extensions of credit; (2) servicing of loans;
(3)performing certain trust functions; (4) providing bookkeeping
and data processing services for a bank holding company and its
subsidiaries; (5) providing certain securities brokerage
services; and (6) acting or serving as an investment or financial
advisor.
The Act provides that the Federal Reserve Board shall
not approve any acquisition, merger or consolidation the effect
of which may be to substantially lessen competition in the
banking industry, which would tend to create a monopoly in
any section of the country, or which in any other manner would be
a restraint of trade, unless the anti-competitive effects of the
proposed combination are clearly outweighed by the convenience
and needs of the community to be served. In approving
acquisitions by bank holding companies of banks and companies
engaged in banking-related activities, the Federal Reserve
considers, among other factors, the expected benefits to the
public (greater convenience, increased competition, greater
efficiency, etc.) against the risks of possible adverse effects
(undue concentration of resources, decreased or unfair
competition, conflicts of interest, unsound banking practices,
etc.).
First Abilene, First Sweetwater, First Cleburne,
Eastland, Citizens National and Weatherford National are all
chartered under the National Bank Act and are subject to
supervision and regulation, as well as regular examination, by
the Office of the Comptroller of the Currency of the United
States ("OCC"). Hereford, Stephenville and San Angelo were all
chartered under the Texas Banking Code (which, effective
September 1, 1995, has been replaced by the newly-adopted Texas
Banking Act) and are similarly supervised, regulated and examined
by the Banking Commissioner of the State of Texas. Supervision
and regulation of banks by federal and state banking authorities
is primarily intended to protect the interests of depositors,
although shareholders are likewise benefited. Various
requirements and restrictions under the laws of the United States
and the State of Texas affect the operations of each subsidiary
bank, including the requirement to maintain reserves against
deposits, restrictions on the nature and amount of loans which
may be made and the interest that may be charged thereon, and
restrictions relating to investments and other activities.
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First Abilene, Hereford, First Sweetwater, First
Cleburne, Eastland, Stephenville, San Angelo, Citizens National
and Weatherford National are members of the Federal Deposit
Insurance Corporation. The Federal Deposit Insurance Act
requires that the Federal Deposit Insurance Corporation ("FDIC")
approve any merger or consolidation by or with an insured bank,
or any establishment of branches by an insured bank, and it is
also empowered to regulate interest rates paid by insured banks.
Approval of the FDIC is also required before an insured bank
retires any part of its common or preferred stock, or any capital
notes or debentures. Insured banks which are also members of the
Federal Reserve System, however, are regulated with respect to
the foregoing matters by the Federal Reserve System.
All of Bankshares' subsidiary banks must pay
assessments to the FDIC for federal deposit insurance protection
under a risk-based assessment system. FDIC-insured depository
institutions that are members of the Bank Insurance Fund pay
insurance premiums at rates based on their risk classification.
Institutions assigned to higher risk classifications (i.e.,
institutions that pose a greater risk of loss to their respective
deposit insurance funds) pay assessments at higher rates than
institutions that pose a lower risk. An institution's risk
classification is assigned based on its capital levels and the
level of supervisory concern the institution poses to bank
regulators. In addition, the FDIC can impose special assessments
to cover the costs of borrowings from the U. S. Treasury, the
Federal Financing Bank and the Bank Insurance Fund member banks.
As of December 31, 1995, the assessment rate for each of
Bankshares' subsidiary banks is at the lowest level risk-based
premium available.
The Federal Deposit Insurance Corporation Improvement
Act of 1992 ("FDICIA") requires federal banking agencies to take
"prompt corrective action" in respect to depository institutions
that do not meet minimum capital requirements. FDICIA
establishes five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." As a
depository institution's capital tier will depend upon where
its capital levels are in relation to various relevant capital
measures, which will include a risk-based capital measure, a
leverage ratio capital measure and certain other factors.
Regulations establishing the specific capital tiers provide that
a well capitalized institution must have a total risk-based
capital ratio of at least ten percent (10%), a Tier 1
risk-based capital ratio of at least six percent (6%), and a Tier
1 leverage ratio of at least five percent (5%), and not be
subject to any specific capital order or directive. For an
institution to be adequately capitalized, it must have a
total risk-based capital ratio of at least eight percent (8%), a
Tier 1 risk-based capital ratio of at least four percent (4%),
and a leverage ratio of at least four percent (4%) [in some cases
three percent (3%)]. Under current regulations, Bankshares'
subsidiary banks would be considered to be well capitalized as of
December 31, 1995.
FDICIA generally prohibits a depository institution
from making any capital distribution (including payment of a
dividend) or paying any management fee to its holding company if
the depository institution would thereafter be undercapitalized.
An "undercapitalized institution" must develop a capital
restoration plan and its parent holding company must guarantee
that bank's compliance with the plan. The liability of the
parent holding company under any such guarantee is limited to the
lesser of five percent (5%) of the bank's assets at the time it
became "undercapitalized" or the amount needed to comply with the
plan.
Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the
parent's general unsecured creditors. In addition, FDICIA
requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally
to operations and management, asset quality and executive
compensation and permits regulatory action against a financial
institution that does not meet such standards.
Banking agencies have recently adopted final
regulations which mandate that regulators take into consideration
concentrations of credit risk and risks from non-traditional
activities, as well as an institution's ability to manage those
risks, when determining the adequacy of an institution's capital.
This evaluation will be made as a part of the institution's
regular safety and soundness examination. Banking agencies also
have recently adopted final regulations requiring regulators to
consider interest rate risk (when the interest rate sensitivity
of an institution's assets does not match the sensitivity of its
liabilities or its off-balance-sheet position) in the evaluation
of a bank's capital adequacy. Concurrently, banking agencies
have proposed a methodology for evaluating interest rate risk.
After gaining experience with the proposed measurement process,
these banking agencies intend to propose further regulations to
establish an explicit risk-based capital charge for interest rate
risk.
PAGE
<PAGE>
Capital
The Federal Reserve Board has adopted risk based
capital guidelines for bank holding companies. The minimum
guidelines for the ratio of total capital ("Total Capital") to
risk weighted assets (including certain off-balance-sheet
activities, such as standby letters of credit) is eight percent
(8%). At least half of the Total Capital is to be composed of
common shareholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount
of perpetual preferred stock, less goodwill ("Tier 1 Capital").
The remainder may consist of subordinated debt, other preferred
stock and a limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established
minimum leverage ratio guidelines for bank holding companies.
These guidelines provide for a minimum Tier 1 Capital leverage
ratio (Tier 1 Capital to average assets for current quarter, less
goodwill) of three percent (3%) for bank holding companies that
meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will
generally be required to maintain a minimum Tier 1 Capital
leverage ratio of three percent (3%) plus an additional cushion
of 100 to 200 basis points. The Federal Reserve Board has not
advised First Financial of any specific minimum Tier 1 Capital
leverage ratio applicable to it. The guidelines also provide
that bank holding companies experiencing internal growth or
making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels
without significant reliance on intangible assets (e.g.,
goodwill, core deposit intangibles and purchased mortgage
servicing rights). As of December 31, 1995, the capital
ratios for Bankshares were as follows: (1) Tier 1 Capital to
Risk-Weighted Assets Ratio, 20.25%; (2) Total Capital to
Risk-Weighted Assets Ratio, 21.51%; and (3) Tier 1 Capital
Leverage Ratio, 10.94%.
In addition to the Federal Reserve Board capital
standards, Texas-chartered banks must also comply with the
capital requirements imposed by the Texas Banking Department.
Although neither the Texas Banking Act nor the regulations
promulgated thereunder specify any minimum capital-to-assets
ratio that must be maintained by a Texas-chartered bank, the
Texas Banking Department has a policy that generally requires
Texas-chartered banks to maintain a minimum 6% ratio of
stockholders equity (stated capital, surplus capital, surplus and
undivided profits or retained earnings) to total assets. As of
December 31, 1995, all Texas-chartered banks owned by Bankshares
exceeded the minimum ratio.
Failure to meet capital guidelines may subject an
insured bank to a variety of enforcement remedies, including the
termination of deposit insurance by the FDIC and a prohibition on
the taking of brokered deposits, and bank regulators continue to
indicate their desire to raise capital requirements applicable to
banking organizations beyond their current levels.
Bankshares Support of Subsidiary Banks
Under Federal Reserve Board policy, Bankshares is
expected to act as a source of financial strength to each of its
subsidiary banks and to commit resources to support each of such
subsidiaries. This support may be required at times when, absent
such Federal Reserve Board policy, Bankshares would not otherwise
be required to provide it.
Under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), a depository institution
insured by the FDIC can beheld liable for any loss incurred
by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989 in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any
assistance provided by the FDIC to any commonly controlled
FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined
generally as the existence of certain conditions indicating that
a default is likely to occur in the absence of regulatory
assistance.
Under the National Bank Act, if the capital stock of a
national bank is impaired by losses or otherwise, the OCC is
authorized to require payment of the deficiency by assessment
upon the bank's shareholders, pro rata, and to the extent
necessary, if any such assessment is not paid by any shareholder
after three (3) months' notice, to sell the stock of such
shareholder to make good the deficiency.
PAGE
<PAGE>
Certain Transactions by Bankshares with its Affiliates
There are also various legal restrictions on the extent
to which Bankshares can borrow or otherwise obtain credit from,
or engage in certain other transactions with, its depository
subsidiaries. The "covered transactions" that an insured
depository institution and its subsidiaries are permitted to
engage in with their nondepository affiliates are limited to the
following amounts: (i) in the case of any one such affiliate,
the aggregate amount of covered transactions of the insured
depository institution and its subsidiaries cannot exceed ten
percent (10%) of the capital stock and the surplus of the insured
depository institution; and (ii) in the case of all affiliates,
the aggregate amount of covered transactions of the insured
depository institution and its subsidiaries cannot exceed twenty
percent (20%) of the capital stock and surplus of the
insured depository institution. In addition, extensions of
credit that constitute covered transactions must be
collateralized in prescribed amounts. "Covered transactions" are
defined by statute to include a loan or extension of credit to
the affiliate, a purchase of securities issued by an
affiliate, a purchase of assets from the affiliate (unless
otherwise exempted by the Federal Reserve Board), the acceptance
of securities issued by the affiliate as collateral for a loan
and the issuance of a guarantee, acceptance, or letter of credit
for the benefit of an affiliate. Further, a bank holding company
and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit,
lease or sale of property or furnishing of services.
Payment of Dividends
Bankshares is a legal entity separate and distinct from
it banking and other subsidiaries. Most of Bankshares' revenues
result from dividends paid to it by its Delaware holding company
subsidiary, which receives dividends from its bank subsidiaries.
There are both federal and state statutory and regulatory
requirements applicable to the payment of dividends by
subsidiary banks as well as by Bankshares to its shareholders.
Each state bank subsidiary that is a member of the
Federal Reserve System and each national banking association is
required by federal law to obtain the prior approval of the
Federal Reserve Board of the Office of the Comptroller of the
Currency (the "OCC"), as the case may be, for the declaration and
payment of dividends if the total of all dividends declared by
the board of directors of such bank in any year will exceed the
total of (i) such bank's net profits (as defined and interpreted
by regulation) for that year plus (ii) the retained net profits
(as defined and interpreted by regulation) for the preceding two
(2) years, less any required transfers to surplus. In addition,
these banks may only pay dividends to the extent that retained
net profits (including the portion transferred to surplus) exceed
bad debts (as defined by regulation). Effective September 1,
1995, the newly-adopted Texas Banking Act eliminated the
requirement under the predecessor code that, prior to paying a
dividend, a state bank must transfer to "certified surplus"
an amount which is not less than ten percent (10%) of the net
profits of such bank earned since the last dividend was declared;
provided, however, that a transfer was not required to certified
surplus of a sum which would increase the certified surplus to
more than the capital of the bank. In 1995, under the foregoing
dividend restrictions, Bankshares' subsidiary banks, without
obtaining governmental approvals, could have declared aggregate
dividends of approximately $16.1 million from retained net
profits. During 1995 Bankshares' subsidiary banks paid an
aggregate of $8.7 million in dividends.
The payment of dividends by Bankshares and its
subsidiaries is also affected by various regulatory requirements
and policies, such as the requirement to maintain adequate
capital above regulatory guidelines. In addition, if, in the
opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of
the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and
desist from such practice. The Federal Reserve Board and the OCC
have each indicated that paying dividends that deplete a bank's
capital base to an inadequate level would be unsafe and unsound
banking practice. The Federal Reserve Board, the OCC and the
FDIC have issued policy statements which provide that bank
holding companies and insured banks should generally only pay
dividends out of current operating earnings.
Interstate Banking and Branching Act
Pursuant to the Reigle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Banking and
Branching Act"), a bank holding company is able to acquire
banks in states other than its home state. Prior to September
29, 1995, interstate acquisitions by bank holding companies were
subject to Federal law, which provided that no application to
acquire shares of a bank located outside of the state in which
the operations of the acquiring bank holding company were
principally conducted would be approved by the Federal Reserve
Board unless such acquisition was specifically authorized by the
laws of the state in which the bank whose shares are to be
acquired was located.
PAGE
<PAGE>
The Interstate Banking and Branching Act also
authorizes banks to merge across state lines, therefore creating
interstate branches, beginning June 1, 1997. Under such
legislation, each state has the opportunity to "opt out" of this
provision, thereby prohibiting interstate branching in such
states, or to "opt in" at an earlier time,thereby allowing
interstate branching within that state prior to June 1, 1997.
Furthermore, pursuant to such act, a bank is now able to
open new branches in a state in which it does not already have
banking operations, if the laws of such state permit such DE NOVO
branching. Texas has adopted legislation to "opt out" of the
interstate branching provisions (which Texas law currently
expires on September 2, 1999).
Pending and Proposed Legislation
Proposals to change the laws and regulations governing
the banking industry are frequently introduced in Congress, in
the state legislatures and before the various bank regulatory
agencies. In 1995, several bills were introduced in Congress
that would have the effect of broadening the securities
underwriting powers of bank holding companies and possibly
permitting bank holding companies to engage in nonfinancial
activities. The likelihood and timing of any such proposals or
bills being enacted and the impact they might have on Bankshares
and its subsidiaries cannot be determined at this time.
G. Statistical Disclosure
Information related to industry segments and foreign
operations required by Regulation S-K is not applicable. The
following tables provide information required by Guide 3,
"Statistical Disclosure by Bank Holding Companies", that has not
been included in Part II, Item 7.
<TABLE>
<PAGE>
Table 1 - Composition of Loans:
<CAPTION>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Comm-
ercial,
finan-
cial,
and agri-
cultural $204,038,678 $173,410,963 $198,561,759 $190,785,608 $178,698,515
Real estate-
construction 16,730,451 11,244,692 6,777,796 5,159,484 3,446,053
Real estate-
mortgage 108,464,767 115,172,072 113,697,844 95,903,542 100,014,995
Consumer 151,980,465 125,732,896 101,205,604 82,637,708 67,973,955
$481,214,361 $425,560,623 $420,243,003 $374,486,342
$350,133,518
</TABLE>
Loan Concentrations
At December 31, 1995, the Company had $70,124,712 million in
loans outstanding to agricultural which represented 14.57% of
total loans.
<TABLE>
Table 2 - Maturity Distribution and Interest Sensitivity of Loans
at December 31, 1995:
<CAPTION>
Over One
Year
One Year or Through Over Five
less Five years Years Total
<S> <C> <C> <C> <C>
Commercial,
financial,
and agri-
cultural $157,417,168 $41,072,766 $5,548,744 $204,038,678
Real estate -
construction 11,841,690 4,888,761 - 16,730,451
$169,258,858 $45,961,527 $5,548,744 $220,769,129
</TABLE>
<TABLE>
<CAPTION>
Maturities
After One Year
<S> <C>
Loans with fixed interest rates $ 12,926,822
Loans with floating or adjustable interest rates 38,583,449
$ 51,510,271
</TABLE>
PAGE
<PAGE>
Potential Problem Loans
Certain loans classified for regulatory purposes as
doubtful, substandard, or special mention are included in the
nonperforming loan table. Also included in the classified loans
are certain other loans which are deemed to be potential
problems. Potential problem loans are those loans which are
currently performing but where known information about trends or
uncertainties or possible credit problems of the borrowers causes
management to have concerns as to the ability of such borrowers
to comply with present repayment terms, possibly resulting in the
transfer of such loans to nonperforming status. These loans
totaled $1,481,918 at December 31, 1995.
<TABLE>
Table 3 - Composition of Investment Securities
<CAPTION>
Held -to- Maturity
December 31,
1995 1994 1993
<S> <C> <C> <C>
U.S. Treasury
obligations and
obligations of
U.S. government
corporations and
agencies $ 358,287,502 $ 392,359,163 $ 391,622,606
Obligations of
states and
political
subdivisions 20,104,257 17,396,179 17,484,965
Mortgage-backed
securities 36,598,419 25,457,118 44,716,714
Total debt
securities 414,990,178 435,212,460 453,824,285
Other securities 12,464,920 - 2,355,251
$ 427,455,098 $ 435,212,460 $ 456,179,536
Available -for- Sale
December 31,
1995 1994
U.S. Treasury
obligations and
obligations of
U.S. government
corporations and
agencies $ 3,917,500 $ 14,098,806
Mortgage-backed
securities 14,661,230 11,691,860
Total debt
securities 18,578,730 25,790,666
Other securities 7,670,000 2,241,266
$ 26,248,730 $ 28,031,932
</TABLE>
<TABLE>
Table 4 - Maturities and Yields of Investment Securities Held
December 31, 1995 (000's omitted):
<CAPTION>
Maturing
After one
but After five
but
Held-to-Maturity: Within one year Within five years Within ten
years After ten years Total
Amount Yield Amount Yield Amount
Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
U.S. Treasury
obligations and
obligations of
U.S. government
corporations
and agencies $110,111 5.17% $241,883 5.98% $5,516
6.43% $ 778 5.70% $358,288 5.74%
Obligations of
states and
political
subdivisions 2,767 6.56 8,996 6.29 7,064 6.97
1,277 7.96 20,104 6.67
Mortgage-
backed
securities 2,703 7.49 22,688 6.09 62 6.48
11,145 6.39 36,598 6.29
Other securities 501 7.14 11,964 5.95
12,465 6.00
Total $116,082 5.27% $285,531 6.00% $12,642
6.73% $13,200 6.50% $427,455 5.84%
Maturing
Available-for-Sale: After one but After five
but
Within one year Within five years Within ten
years After ten years Total
Amount Yield Amount Yield Amount
Yield Amount Yield Amount Yield
U.S. Treasury
obligations and
obligations of
U.S. government
corporations and
agencies $ 1,025 4.90% $ 1,646 5.65% $ 1,247
6.32% $ % $3,918 5.25%
Obligations of
states and
political
subdivisions
Mortgage-
backed securities 7,198 5.76 4,119 7.03
3,344 6.12 14,661 6.03
Other securities
7,670 5.98 7,670 5.98
Total $ 1,025 4.90% $ 8,844 5.92% $ 5,366
7.02% $ 11,014 6.42% $26,249 6.05%
</TABLE>
PAGE
<PAGE>
<TABLE>
Table 5 - Analysis of the Allowance for Loan Losses
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at
January 1, $9,024,424 $9,013,387 $8,298,738 $7,708,488 $7,811,813
Allowance
established
from
purchase
acquisi-
tion 82,700 - 712,222 - -
9,107,124 9,013,387 9,010,960 7,708,488 7,811,813
Charge offs:
Commercial,
financial
and agri-
cultural 225,189 740,047 1,232,129 1,170,284 1,820,860
Consumer 719,845 605,240 552,482 689,349 539,218
All other 19,698 27,790 340,537 167,487 365,645
Total loans
charged off 964,732 1,373,077 2,125,148 2,027,120 2,725,723
Recoveries:
Commercial,
financial
and agri-
cultural 323,213 1,899,465 1,200,055 1,247,851 1,175,795
Consumer 319,053 288,084 318,885 170,636 179,605
All other 102,496 81,565 100,625 53,813 26,998
Total
recoveries 744,762 2,269,114 1,619,565 1,472,300 1,382,398
Net (recoveries)
/charge-offs 219,967 (896,037) 505,583 554,820 1,343,540
Provision/
(credit) for
loan losses 55,500 (885,000) 508,010 1,145,070 1,240,000
Balance at
Decem-
ber 31, $8,942,654 $9,024,424 $9,013,387 $8,298,738 $7,708,488
Loans at
year-end $481,214,361$425,560,623$420,243,003$374,486,342$350,133,518
Average
loans 441,643,498 411,884,911 399,806,116 362,413,567349,060,202
Net charge
-offs/
(recov-
eries)/
average
loans 0.05% (0.22)% 0.13% 0.15% 0.38%
Allowance
for loan
losses/
year-end
loans 1.86 2.12 2.14 2.22 2.20
Allowance
for loan
losses/
nonper-
forming
assets 449.14 414.81 164.13 142.05 9.24
</TABLE>
<TABLE>
Table 6 - Allocation of Allowance for Loan Losses
<CAPTION>
1995 1994 1993 1992 1991
Allocation Allocation Allocation Allocation Allocation
Amount Amount Amount Amount Amount
<S> <C> <C> <C> <C> <C>
Real estate-
construction $ 312,993 $ 238,245 $ 145,116 $ 114,523 $ 75,541
Real estate-
mortgage 2,012,097 2,442,009 2,439,023 2,125,307 2,201,483
Commercial,
financial and
agricultural 3,791,685 3,677,453 4,258,825 4,227,377 3,935,289
Consumer 2,825,879 2,666,717 2,170,424 1,831,531 1,496,176
$8,942,654 $9,024,424 $9,013,387 $8,298,738 $7,708,488
Allocation as Percent of Total Loans
1995 1994 1993 1992 1991
Real estate-
construction 3.5% 2.6% 1.6% 1.4% 0.1%
Real estate-
mortgage 22.5 27.1 27.1 25.6 28.6
Commercial,
financial and
agricultural 42.4 40.8 47.3 50.9 51.0
Consumer 31.6 29.6 24.1 22.1 19.4
</TABLE>
PAGE
<PAGE>
Item 2. Properties
A. First Financial Bankshares/First National Bank of Abilene
The principal offices of Bankshares and First Abilene are
located in the First National Bank Building at 400 Pine Street in
downtown Abilene, Texas. First Abilene occupies all of the first
four floors and utilizes some office space on the fifth and sixth
floors. The remaining office space of this 170,842 square foot
facility is available for lease to tenants. The First National
Bank Building is connected to the First National West Building, a
six-story facility owned by First Abilene which contains 52,800
square feet of lease space most of which is rented to business
and professional tenants. First Abilene began occupying the
First National Bank Building in June of 1984 and, at the same
time, a new four-level drive-in parking garage was completed
immediately south across the street from the new bank building,
which is connected to the bank building by an over-the-street,
enclosed pedestrian bridge. The total cost of the project was
$14,000,000. Until January 1, 1989, both the new First National
Bank Building and the connected parking garage were owned by a
joint venture between First Abilene and the Trammell Crow
Company. Effective January 1, 1989, First Abilene purchased the
interest of Trammell Crow Company and is now the sole owner of
the First National Bank Building and the connecting parking
garage. A note payable to Aetna Life Insurance Company in
the amount of $ 7,000,000 which was previously secured by this
property was paid in full during 1991.
First Abilene also owns a five-story office building known
as the First National/Ely Building, which is located directly
south across the street from the First National West Buildingand
connected to the First National West Building by an underground
pedestrian tunnel. The First National/Ely Building contains
approximately 34,000 square feet of space and is leased to
business and professional tenants. The premises also includes a
ground level parking lot with spaces for 22 cars which are leased
to tenants and others. Both the First National/Ely Building and
the parking lot are situated on land leased by First Abilene.
The lease provides an option to purchase the underlying property
for $360,000.
First Abilene owns and operates a 17-lane drive-in banking
facility which was completed in 1981 and which is also located on
Pine Street, two blocks north of First Abilene's main banking
facilities. In 1987, First Abilene completed construction of a
branch banking facility located at the northwest corner of North
Judge Ely Boulevard and East North Tenth Street in Abilene. The
cost of the site was $412,383 and the construction cost for the
building and improvements was $ 554,318. The new branch banking
facility includes a one-story office building containing 2,960
square feet and six lane drive-in facility.
As a result of the merger between First Abilene and American
National, First Abilene acquired title to the drive-in banking
facility owned by American National on Buffalo Gap Road in the
southwest part of Abilene, Texas. The drive-in facility is
located on 2.23 acres of land adjoining a five-story office
building in which American National leased office space for
its banking operations. Following its merger with American
National, First Abilene entered into a 10-year lease covering
11,009 square feet of office space on the ground floor of the
building adjacent to the drive-in facility, which office space
includes all, or substantially all, of the space formerly leased
and occupied by American National for its primary banking
facility. In addition to the original 10-year term of the lease,
the lease provides three renewal options on the leased premises,
each option being for a renewal term of five years.
As a result of the merger between First Abilene and BOC,
First Abilene acquired title to the banking facility at the
corner of South 14th and Willis Streets in Abilene, Texas,
occupying the first floor and renting 27,000 square feet of
office space to tenants. The building was completed in 1966 and
is of steel reinforced concrete and masonry construction. In
1976, a 12-lane drive-in facility located adjacent to the
main banking facility was completed and in 1982, an addition to
the teller service area for the drive-in facility was constructed
at an estimated cost of $200,000. In December 1984, BOC
purchased property (approximately 1.85 acres) located on
Southwest Drive in Abilene, Texas, for future construction
of a full-service banking facility. The cost of such property
was $344,937. As a result of the mergers of American National
and BOC with First Abilene and the operation of the banking
facilities of American National and BOC as branch banks of First
Abilene, it is unlikely that First Abilene, which acquired all of
BOC's assets in the merger, will proceed with construction of
banking facilities at the property on Southwest Drive and the
property is presently listed for sale.
PAGE
<PAGE>
B. Hereford State Bank
Hereford owns its main banking house located at 212 North
Sampson Street, Hereford, Texas. The building was completed in
1977, contains 16,000 square feet (not including drive-in
facilities) and is of concrete block-brick face construction. A
brick constructed drive-in complex is connected to the bank by a
walk-through tunnel.
C. First National Bank, Sweetwater, Texas
First Sweetwater owns its main banking house located at 201
Elm Street in The City of Sweetwater, Texas. The building was
completed in 1974, contains 20,000 square feet, and is
constructed of steel-reinforced concrete and marble. In 1994
First Sweetwater relocated its drive-in facility to a drive-in
across the street from the main banking facility that had been at
one time a drive-in for another financial institution. First
Sweetwater acquired the property, made improvements, and now
operates 13 drive-in lanes at the facility.
D. Eastland National Bank
Eastland owns its banking facilities located at 201 East
Main Street in Eastland, Texas. The building was completed in
1980, contains 13,000 square feet, and is of steel and stucco
construction. Eastland also maintains a drive-in facility
located on the same premises as its main banking facility.
E. The First National Bank in Cleburne
First Cleburne owns its banking facilities located at 403
North Main Street in Cleburne, Texas. The building was completed
in 1978, contains 18,000 square feet, and is of steel and brick
masonry construction. First Cleburne also maintains a drive-in
facility located on the same premises as its main banking
facility. On September 23, 1994, First Cleburne
acquired the Cleburne branch of Bank One Texas, N.A. The
building is of brick masonry construction, contains 4,400 square
feet, and includes a drive-in teller window. Now operating as a
branch of First Cleburne, the facility is located approximately 3
miles west of the main office.
F. Stephenville Bank & Trust Co.
Stephenville owns its banking facility which is located at
298 West Washington in Stephenville, Texas. The building is a
brick masonry structure with approximately 10,000 square feet.
Stephenville owns and operates a drive-in facility that is
located across the street from its main banking facility, and a
branch facility consisting of 1,000 square feet located on the
west side of the city. At a cost of approximately $1.8 million,
construction of a new 18,000 square foot bank building and
drive-in
facility will be completed in early 1996. The facility is
located at 2201 South Loop which is approximately 1.5 miles west
of downtown Stephenville. The vacated downtown building will be
sold.
G. Southwest Bank of San Angelo
San Angelo owns its banking facility which is located at
3471 Knickerbocker Road in San Angelo, Texas. The five-story
building, including the office tower, has approximately 29,250
thousand square feet and is of steel and stucco construction.
Approximately 11,800 square feet of the office tower is available
for lease. The bank also owns and operates a drive-in banking
facility on the same premises as its main banking offices.
Item 3. Legal Proceedings
Other than routine litigation in the normal course of
business, there are no material pending legal proceedings to
which Bankshares, the Delaware BHC or its subsidiary banks or any
of their properties are subject, nor are there any known material
legal proceedings involving directors, officers, or affiliates of
Bankshares. Other than regular, routine examinations by state
and federal banking authorities, there are no proceedings pending
or known to be contemplated by any governmental authorities
except the following:
As a result of a routine examination of San Angelo by the
Federal Deposit Insurance Corporation (FDIC), San Angelo entered
into a Memorandum of Understanding (the "Memorandum") with the
FDIC in December of 1994, which required San Angelo to develop,
adopt and implement written policies, training programs, formal
internal controls, and management review procedures with respect
to consumer credit transactions, consumer real estate loans and
compliance with the requirements of the Bank Secrecy Act. The
Memorandum required that all corrective action prescribed in the
Memorandum, including implementation of the policies, programs,
controls and procedures described therein, be accomplished within
60 days. The Company believes that San Angelo has complied in
full with the requirements of the
<PAGE>
Memorandum, that all corrective action has been taken, and that
San Angelo has adopted and implemented all necessary written
policies, training programs, formal internal controls and
management review procedures. Moreover, the Company does not
believe that any of the deficiencies or problems cited in the
FDIC examination had any adverse effect upon, nor that any of the
policies, programs, controls or procedures adopted in response to
the Memorandum will place any restrictions upon, the financial
operations of the Company or San Angelo.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders
of Bankshares during the fourth quarter of Bankshares' fiscal
year ending December 31, 1995.
PART II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters
As of February 16, 1996, there were 1,523 holders of
Bankshares' stock reflected on its records. Except for shares
held by First Abilene, First Sweetwater, and Stephenville in
various fiduciary capacities (see Item 12 following), no
shareholder or shareholder group known to Bankshares owns five
percent (5%) or more of Bankshares' issued and outstanding stock.
Market, price and dividend information about the stock for the
past three years is set forth on page 30 under Item 7.
Bankshares' common stock trades on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol FFIN.
Restrictions on Bankshares' present or future ability to pay
dividends have been discussed under Item 1, above, under the
topic "Supervision and Regulation."
PAGE
<PAGE>
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
First Financial Bankshares, Inc.
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Summary Income
StatementInformation:
Interest income $ 70,555 $ 61,416 $ 59,850 $ 61,441 $ 68,127
Interest expense 27,655 21,264 20,333 24,202 35,912
Net interest income 42,900 40,152 39,517 37,239 32,215
Provision (credit)
for loan losses 56 (885) 508 1,145 1,240
Noninterest income 14,276 11,593 11,696 9,768 9,232
Noninterest expense 32,402 33,092 31,875 28,935 27,307
Income before
income taxes 24,718 19,538 18,830 16,927 12,900
Provision for
income taxes 8,363 6,426 6,105 5,189 3,824
Net income before
cumulative effect
of accounting change 16,355 13,112 12,725 11,738 9,076
Cumulative effect
of accounting
change (1) - - 1,024 - -
Net income $ 16,355 $ 13,112 $ 13,749 $11,738 $ 9,076
Per Share Data (2):
Net income per share
before cumulative
effect of accounting
change $ 3.26 $ 2.62 $ 2.56 $ 2.37 $ 1.85
Net income per share 3.26 2.62 2.77 2.37 1.85
Cash dividends
declared 1.21 1.10 0.96 0.76 0.66
Book value
at period-end 22.91 20.79 19.45 17.60 15.96
Earnings performance ratios (3):
Return on
average assets 1.62% 1.31% 1.30% 1.32% 1.06%
Return on
average equity 14.99 13.07 13.56 13.96 11.55
Summary Balance
Sheet Data (Period-end):
Investment securities $453,704 $463,244 $456,180 $404,440 $384,919
Loans, net of
allowance
for loan losses 472,271 416,536 411,230 366,188 342,619
Total assets 1,062,335 1,012,613 1,017,983 928,338 915,308
Deposits 939,642 900,930 913,350 831,542 824,837
Total liabilities 947,418 908,705 921,273 841,199 836,693
Total
shareholders' equity 114,917 103,908 96,710 87,139 78,615
Asset quality ratios:
Allowance for
loan losses/
period-end loans 1.86% 2.12% 2.14% 2.22% 2.20%
Nonperforming assets/
period-end loans plus
foreclosed assets 0.41 0.51 1.30 1.55 2.44
Net (recoveries)charge-
offs/average loans 0.05 (0.22) 0.13 0.15 0.38
Capital ratios:
Average shareholders'
equity/average assets 10.78% 10.01% 9.59% 9.45% 9.18%
Leverage ratio (4) 10.94 10.26 9.51 9.28 8.48
Tier I risk-based
capital (5) 20.25 20.09 16.76 16.90 15.38
Total risk-based
capital (6) 21.51 21.34 18.02 18.38 16.86
Dividend payout ratio 37.07 41.66 34.04 32.03 34.81
(1) Adoption of Statement of Financial Accounting Standards No.
109, "Accounting for
Income Taxes".
(2) Historical amounts adjusted for stock dividends and stock
splits.
(3) Calculated on net income before cumulative accounting
adjustment.
(4) Shareholders' equity (before unrealized loss on securities
available-for-sale) less
intangibles/fourth quarter average assets less intangibles.
(5) Shareholders' equity (before unrealized loss on securities
available-for-sale) less
intangibles/risked-adjusted assets.
(6) Shareholders' equity (before unrealized loss on securities
available-for-sale) less
intangibles plus allowance for loan losses to the extent allowed
under regulatory
guidelines/risk-adjusted assets.
</TABLE>
PAGE
<PAGE>
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Management's discussion and analysis of the major elements
of the Company's consolidated balance sheets and statements of
income should be read in conjunction with the consolidated
financial statements, accompanying notes, and selected financial
data presented elsewhere in this report.
PERFORMANCE SUMMARY
Net income for 1995 was $16.3 million, an increase of $3.2
million, or 24.4% over the amount earned in 1994. The 1995
increase was attributable to increased net interest income,
increased noninterest income including significant nonrecurring
gains from sale of certain assets, and reduced noninterest
expenses centered primarily in lower FDIC insurance assessments.
Net income of $13.1 million in 1994 was $400 thousand, or 3.1%
greater than the $12.7 million recorded in 1993. This increase
was due primarily to reductions to the allowance for loan losses
and increased net interest income.
On a per share basis, 1995 net income before nonrecurring
gains amounted to $3.00 as compared to $2.62 for 1994 and $2.56
for 1993. Nonrecurring gains in 1995 amounted to $ .26
per share. Excluding nonrecurring gains, return on average
assets for 1995 was 1.49% as compared to 1.31% for 1994 and 1.30%
for 1993. Also, before nonrecurring gains, return on equity for
1995 was 13.79% as compared to 13.07% for 1994 and 13.56% for
1993.
Net Interest Income - On a tax-equivalent basis, net
interest income in 1995 totaled $43.3 million, an increase of
$2.7 million over the 1994 amount, which was $697 thousand higher
than 1993. The 1995 increase was primarily attributable to
growth in average loans, which were up $29.7 million, or 7.2%
from the year before. This factor contributed to an improved net
interest yield of 4.71% for 1995 as compared to 4.49% in 1994 and
4.51% in 1993. Growth in average earning assets and higher
average volumes of interest-free deposits and equity capital
accounted for the 1994 increase over 1993. Table 1 below
presents year-to-year changes in net interest income and
allocates the changes between the amount attributable
to the variances in volumes and rates. Table 2 provides the
income and average yield earned on earning assets and the
interest expense and average rate paid on interest-bearing
liabilities for the years 1993 through 1995.
<TABLE>
Table 1 - Changes in Interest Income and Interest Expense (000's
omitted):
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Change Change
Attributable to Total Attributable to Total
Volume Rate Change Volume Rate Change
<S> <C> <C> <C> <C> <C> <C>
Short-
term
investments $ 73 $ 542 $ 615 $ (616) $ 373 $ (243)
Taxable
investment
securities (751) 1,522 771 1,339 (2,426) (1,087)
Tax-exempt
investment
securities(1) (132) (80) (212) 331 (172) 159
Loans (1) 2,564 5,400 7,964 987 1,812 2,799
Interest
income 1,754 7,384 9,138 2,041 (413) 1,628
Interest
bearing-
deposits 30 6,458 6,488 115 812 927
Short-term
borrowings (9) 10 1 9 8 17
Long-term
debt (98) - (98) (13) - (13)
Interest
expense (77) 6,468 6,391 111 820 931
Net
interest
income $1,831 $ 916 $2,747 $ 1,930 $(1,233) $ 697
(1) Computed on a tax-equivalent basis assuming a marginal tax
rate of 35%.
</TABLE>
PAGE
<PAGE>
<TABLE>
Table 2 - Average Balances and Average Yields and Rates (000's
omitted):
<CAPTION>
1995 1994
1993
Average Income/ Yield/ Average Income/
Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense
Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Assets
Short-term
investments $ 32,286 $ 1,903 5.89% $ 30,570 $ 1,288
4.21% $ 51,192 $ 1,531 2.99%
Taxable
investment
securities 429,957 24,577 5.72 443,953 23,806 5.36
421,292 24,893 5.91
Tax-exempt
investment
securities (1) 16,344 1,078 6.60 18,207 1,290 7.09
14,080 1,131 8.03
Loans (1) (2) 441,644 43,449 9.84 411,885 35,485 8.62
399,806 32,686 8.18
Total
earning assets 920,231 71,007 7.72 904,615 61,869 6.84
886,370 60,241 6.80
Cash and due
from banks 51,280 55,849
51,334
Bank premises
and equipment 29,714 30,340
28,537
Other assets 18,815 19,162
19,812
Intangible assets 1,112 1,149
853
Allowance for
loan losses (9,007) (9,209)
(9,120)
Total assets $1,012,145 $1,001,906
$ 977,786
Liabilities and
Shareholders'
Equity
Interest-
bearing
deposits $ 705,833 $ 27,627 3.91% $ 704,825 $ 21,139
3.00% $ 700,830 $ 20,212 2.88%
Short-term
borrowings 280 22 7.86 458 21 4.59
138 4 2.90
Long-term debt 62 6 9.50 1,095 104 9.50
1,232 117 9.50
Total interest-
bearing
liabilities 706,175 27,655 3.92 706,378 21,264 3.01
702,200 20,333 2.90
Noninterest-
bearing
deposits 188,263 187,996
173,180
Other
liabilities 8,608 7,219
8,595
Total
liabilities 903,046 901,593
883,975
Shareholders'
equity 109,099 100,313
93,811
Total
liabilities and
shareholders'
equity $1,012,145 $1,001,906
$ 977,786
Net interest
income $ 43,352 $ 40,605
$ 39,908
Rate Analysis:
Interest
income/
earning assets 7.72% 6.84%
6.80%
Interest
expense/
earning assets 3.01 2.35
2.29
Net yield on
earning assets 4.71% 4.49%
4.51%
(1) Computed on a tax-equivalent basis assuming a marginal tax
rate of 35%.
(2) Nonaccrual loans are included in loans.
</TABLE>
Provision for Loan Losses - The 1995 provision for loan
losses charged against earnings amounted to $56 thousand. In
1994, significant recoveries of loans previously charged off
permitted a loan loss provision reversal, which resulted in a
$885 thousand credit to earnings. In 1993, a $506 thousand
provision was charged against earnings. Net loan charge offs
amounted to $220 thousand in 1995, as compared to net recoveries
of $896 thousand in 1994, and net charge offs of $505 thousand in
1993. Additional comparative information is provided in the
Allowance for Loan Losses section of this discussion.
PAGE
<PAGE>
Noninterest Income - As shown in Table 3, total noninterest
income in 1995 amounted to $14.3 million as compared to $11.6
million in 1994. Nonrecurring gains in 1995 from the sale of
assets taken in debt settlement arrangements in prior years
amounted to $2.1 million and were derived from a $1.7 million
gain on First Tule Bancorp common stock at Hereford State Bank, a
$321 thousand gain on real estate at First National Bank of
Abilene, and a $101 thousand gain on real estate at First
National Bank in Cleburne. A $266 thousand, or 9.2%, increase
in Trust fees resulted primarily from an increase in trust assets
during 1995. Also, a $281 thousand, or 5.1%, increase in deposit
service charges was generated from activity in an increased
number of checking accounts.
Total noninterest income for 1994 was $103 thousand below
the 1993 amount. As shown in Table 3, securities losses and
interest on loan recoveries in 1994 were the only significant
variances from year to year.
<TABLE>
Table 3 - Noninterest Income (000's omitted):
<CAPTION>
Increase Increase
1995 (Decrease) 1994 (Decrease) 1993
<S> <C> <C> <C> <C> <C>
Trust depart-
ment income $ 3,164 $ 266 $ 2,898 $ (48) $ 2,946
Service fees
on deposit
accounts 5,786 281 5,505 (25) 5,530
Gain on sale
of repossessed
assets 2,078 2,057 21 (180) 201
Other:
Miscellaneous
income 1,257 (86) 1,343 164 1,179
Interest on
loan
recoveries 30 (535) 565 526 39
Mastercard
fees 637 36 601 99 502
Securities
gains (losses) 21 617 (596) (644) 48
Real estate
mortgage fees 437 (5) 442 (24) 466
Brokerage
commissions 350 42 308 (5) 313
Safe deposit
rental fees 260 (2) 262 2 260
Exchange fees 256 12 244 32 212
Total Other 3,248 79 3,169 150 3,019
$14,276 $2,683 $11,593 $ (103) $11,696
</TABLE>
PAGE
<PAGE>
Noninterest Expense - Total noninterest expense for 1995
amounted to $32.4 million as compared to $33.1 million for 1994.
The Company's efficiency ratio (total noninterest expense as
a percent of tax-equivalent net interest incomeplus noninterest
income) improved to 56.23% in 1995 from 63.49% in 1994 and 61.77%
in 1993.
<TABLE>
Table 4 - Noninterest Expense (000's omitted):
<CAPTION>
Increase Increase
1995 (Decrease) 1994 (Decrease) 1993
<S> <C> <C> <C> <C> <C>
Salaries $ 12,957 $ (88) $ 13,045 $ 729 $ 12,316
Payroll taxes 979 (20) 999 44 955
Profit sharing 1,369 205 1,164 (9) 1,173
Medical
and other
benefits 1,360 130 1,230 (34) 1,264
16,665 227 16,438 730 15,708
Net occupancy 2,492 (226) 2,718 297 2,421
Equipment
expense 2,225 32 2,193 174 2,019
FDIC insurance
expense 998 (985) 1,983 42 1,941
Correspondent
bank service
charges 872 (4) 876 (20) 896
Other:
Printing
and supplies 853 (45) 898 5 893
Postage and
courier 940 148 792 39 753
Advertising 763 121 642 48 594
Outside data
processing
fees 712 (25) 737 135 602
Legal and
accounting
fees 592 (193) 785 80 705
Credit card
fees 448 53 395 67 328
Directors'
fees 388 15 373 (14) 387
Other
professional
and service
fees 362 91 271 (164) 435
Public
relations and
business
development 356 58 298 (66) 364
Miscellaneous
expense 3,736 43 3,693 (136) 3,829
Total
Other 9,150 266 8,884 (6) 8,890
Total
Noninterest
Expense $32,402 $ (690) $ 33,092 $ 1,217 $ 31,875
</TABLE>
Salaries and benefits for 1995 were $227 thousand, or 1.4%,
above the prior year. In salaries and payroll taxes the 1995
decrease reflects slightly fewer full-time equivalent positions
and lower overtime expense.
Net occupancy expense of $2.5 million in 1995 was $226
thousand below the 1994 amount, which included additional
depreciation expense resulting from a change in estimate for
the useful life of certain leasehold improvements. Lower
utilities and maintenance expense also contributed to the total
1995 reduction in occupancy expense. It is anticipated that
Stephenville Bank & Trust Co. will occupy its newly-constructed
banking facility in the late first or early second quarter of
1996. The additional occupancy expense will not be material to
the consolidated total.
FDIC expense in 1995 totaled $998 thousand and was $985
thousand below the prior year. The lower FDIC expense was the
major factor in the 1995 reduction in total noninterest
expense and resulted from lower assessment rates which, were
implemented by the FDIC in mid-year 1995.
The $148 thousand increase in postage and courier reflects
the postal rate increase and higher expense of transporting items
to item processing centers. The cost of promoting a new
deposit product contributed to the higher 1995 advertising
expense. Legal and accounting fees declined $193 thousand from
the 1994 total, which included legal and accounting expenses
related to acquisition of Concho Bancshares and legal fees to
cover the settlement of claims brought against subsidiary banks.
Total noninterest expense of $33.1 million for 1994 was $1.2
million over 1993. The effect of having a full year of operating
expenses at Stephenville Bank & Trust Co. versus 10 months in
1993 accounted for approximately $415 thousand of the increase.
PAGE
<PAGE>
Income Taxes - Income tax expense for 1995 totaled $8.3
million as compared to $6.4 million for 1994 and $6.1 million for
1993. The Company's effective tax rates on pretax income
were 33.8%, 32.9%, and 32.4%, respectively, for the years 1995,
1994 and 1993.
At December 31, 1995 and 1994, the Company had deferred tax
assets of $1.7 million and $2.3 million, respectively. The
approximate effects of each type of difference that gave rise to
the Company's deferred tax assets and liabilities at December 31,
1995 and 1994, are provided in Note 6 to Consolidated Financial
Statements. The most significant assumption relied upon by
management in concluding that it is more likely than not that the
deferred tax asset, net of the recorded valuation allowance, will
be realized in the future is the recent history of taxable income
generated by the Company and the subsidiary bank to which the net
operating loss carryforward relate. On a consolidated basis,
taxable income amounted to approximately $22.6 million, $18.7
million, and $17.0 million in the years ended December 31, 1995,
1994 and 1993, respectively.
The use of the net operating loss carryforward is
conditioned upon taxable income generated by the subsidiary bank.
The net operating loss carryforward was acquired in the
purchase of the stock of the subsidiary bank and, under
applicable Internal Revenue Service regulations regarding change
of control, their usage is limited to a predetermined amount in
each future period. The net operating loss carryforward
approximates $2 million at December 31, 1995, with a usage
limitation of $340,000 per year. The net operating loss
carryforward expires in the years 2001 through 2005. Taxable
income generated by the subsidiary bank before the net
operating loss carryforward amounted to approximately $1.4
million, $1.0 million and $1.0 million in the years ended
December 31, 1995, 1994 and 1993, respectively.
The valuation allowance was established because full
utilization of the net operating loss carryforward is dependent
on future taxable income in years where the Company is unable to
determine that it is more likely than not that taxable income of
the subsidiary bank will be available prior to expiration.
Balance Sheet Review
Total assets at December 31, 1995, amounted to $1.06
billion, up from $1.01 billion at the end of 1994. During 1995,
total assets averaged $1.01 billion compared to an average of
$1.0 billion in 1994. The following sections provide information
for the major balance sheet categories.
Investment Securities - At December 31, 1995, the investment
securities portfolio totaled $453.7 million as compared to $463.2
million the prior year end. At December 31, 1995, securities
with an amortized cost of $427.5 million were classified as
securities held-to-maturity and securities with a market value of
$26.2 million were classified as securities available-for-sale.
The portfolio is comprised primarily of U. S. Government and
Government corporations and agencies securities with relative
short maturities. The Company did not hold any CMOs that
entail higher risks than standard mortgage-backed securities.
Total investment securities at year-end 1995 included structured
notes with an amortized cost of $16.5 million and an approximate
market value of $16.1 million. Note 2 to the consolidated
financial statements provides detail disclosures relating to the
maturities and fair values of the investment portfolio at
December 31, 1995 and 1994.
Loans - Total loans at December 31, 1995, amounted to $481.2
million and were $55.6 million, or 13.1%, above the prior
year-end totals. Commercial, financial, and agricultural loans
were up $30.6 million and consumer loans were up $26.2 million.
Real estate related loans were virtually unchanged from the
December 31, 1994 totals. Real estate mortgage loans represent
loans secured by 1-4 family residences in the Company's primary
markets and loans to local business and farm operations in those
markets. The loans generally provide for repricing intervals
that protect the Company from the rate risk inherent in long-term
fixed rate mortgage loans. Table 5 below provides the
composition of loans at December 31, 1995 and 1994.
PAGE
<PAGE>
<TABLE>
Table 5 - Composition of Loans (000's omitted):
<CAPTION>
December 31, 1995 December 31, 1994
Amount % Of Total Amount % Of Total
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 204,039 42.40% $ 173,411 40.75%
Consumer 151,980 31.58 125,733 29.55
Real estate - mortgage 108,465 22.54 115,172 27.06
Real estate -
construction 16,730 3.48 11,245 2.64
$ 481,214 100.00% $ 425,561 100.00%
</TABLE>
Allowance for Loan Losses - An evaluation of the overall
quality of the portfolio is performed to determine the necessary
level of the allowance for loan losses. The evaluation takes
into consideration the classification of loans and the
application of loss estimates to those classifications. The
Company has an independent loan review function, which
periodically reviews the loan quality at each of the subsidiary
banks. The subsidiary banks are also subject to periodic
examinations by state and federal banking system examiners.
Table 6 below provides activity in the allowance for loan loss
account for the past five years, and Table 7 presents the
year-end balance and composition of nonperforming assets that
serves as a key indicator of loan quality. Management was not
aware of any material classified credit not properly disclosed as
nonperforming at December 31, 1995, and considers the allowance
for loan losses to be adequate. As shown in Table 7,
nonperforming assets have trended down over the past five years.
The unfavorable weather conditions and declining market prices
that farm and cattle operations experienced in 1995 may cause
classified credits and nonperforming assets to trend upward.
Management believes that the level of classified credits and
nonperforming assets will remain manageable and will not
materially affect future operating results.
<TABLE>
Table 6 - Loan Loss Experience and Allowance for Loan Losses
(000's omitted):
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Balance at
January 1, $ 9,024 $ 9,013 $ 8,298 $ 7,708 $ 7,812
Allowance
established
from
purchase
acquisition 83 - 712 - -
9,107 9,013 9,010 7,708 7,812
Loans charged
off 965 1,373 2,125 2,027 2,726
Loans recovered 745 2,269 1,620 1,472 1,382
Net(recoveries)/
charge offs 220 (896) 505 555 1,344
Provision/
(credit) for
loan losses 56 (885) 508 1,145 1,240
Balance at
December 31, $ 8,943 $ 9,024 $ 9,013 $ 8,298 $ 7,708
Loans at
year-end $481,214 $425,561 $420,243 $374,486 $350,134
Average loans 441,643 411,885 399,806 362,414 349,060
Net charge
offs/
(recoveries)/
average loans (0.05)% (0.22)% 0.13% 0.15% 0.38%
Allowance
for loan
losses/
year-end
loans 1.86 2.12 2.14 2.22 2.20
Allowance
for loan
losses/
nonperforming
assets 449.14 414.81 164.13 142.05 89.24
</TABLE>
PAGE
<PAGE>
<TABLE>
Table 7 - Nonperforming Assets (000's omitted):
<CAPTION>
At December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 1,160 $ 1,278 $ 3,417 $ 2,590 $ 4,405
Loans past due
90 days or more 173 84 165 721 528
Restructured
loans - - - - -
Nonperforming
loans 1,333 1,362 3,582 3,311 4,933
Foreclosed assets 658 814 1,910 2,531 3,705
Total
nonperforming
assets $ 1,991 $ 2,176 $ 5,492 $ 5,842 $ 8,638
As a % of
loans and
foreclosed
properties 0.41% 0.51% 1.30% 1.55% 2.44%
</TABLE>
Deposits - Deposits represent the principal source of
funding for the Company and totaled $939.6 million at December
31, 1995, as compared to $900.9 million at year-end 1994. During
1995, total deposits averaged $894.1 million as compared to an
average of $892.8 million during 1994. Table 8 below provides a
breakdown of average deposits and rates paid over the past three
years and the remaining maturity of time deposits of $100
thousand or more.
<TABLE>
Table 8 - Composition of Deposits and Remaining Maturity of Time
Deposits of $100,000 or more (000's omitted):
<CAPTION>
1995 1994 1993
Composition of
Deposits Average Average Average Average Average Average
(Average): Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest-
bearing
deposits $188,263 - $187,996 - $173,180 -
Interest-
bearing
deposits
Interest-
bearing
checking 168,441 2.11% 178,095 2.01% 166,960 2.19%
Savings and
money market
accounts 171,876 2.99 187,368 2.49 167,095 2.74
Time deposits
under $100,000 256,284 5.16 244,327 3.71 261,642 3.51
Time deposits
of $100,000
or more 109,232 5.23 95,035 4.01 105,133 2.65
Total interest-
bearing deposits 705,833 3.91 704,825 3.00 700,830 2.88
Total deposits $894,096 $892,821 $874,010
Remaining
Maturity
(Period-end): December 31, 1995
Under three
months $ 50,604
Over three
through six
months 28,043
Over six
through twelve
months 22,176
Over twelve
months 14,702
Total time
deposits of
$100,000 or
more $115,525
</TABLE>
Capital - At December 31, 1995, total shareholders' equity
was $114.9 million, or 10.81% of total assets, compared to $103.9
million, or 10.26% of total assets, at December 31, 1994. In
accordance with Statement of Financial Standards No.115, the
Company's unrealized losses, net of tax, on securities
available-for-sale are reported as a reduction in shareholders'
equity. At December 31, 1995 and 1994, unrealized losses, net of
tax, amounted to $169 thousand and $698 thousand, respectively.
During 1995, total shareholders' equity averaged $109.1 million,
or 10.78% of average assets, compared to the 1994 average of
$100.3 million, or 10.01% of average assets.
Banking system regulators measure capital adequacy by means
of the risk-based capital ratio and leverage ratio. The
risk-based capital rules provide for the weighting of assets and
off-balance-sheet commitments and contingencies according to
prescribed risk categories ranging from 0% to 100%. Regulatory
capital is then divided by risk-weighted assets to determine the
risk-adjusted capital ratios. The leverage ratio is computed by
dividing shareholders' equity less intangibles by quarter-to-date
average assets less intangibles. Regulatory minimums for the
risk-based and leverage ratios are 8.00% and 3.00%, respectively.
At December 31, 1995, the Company's risk-based ratio and leverage
ratio were 21.51% and 10.94%, respectively.
PAGE
<PAGE>
Asset and Liability Management
Interest Rate Risk - The Company manages its assets and
liabilities to control the exposure of its net interest income
and capital to risks associated with interest rate changes to
achieve growth in net interest income. Each subsidiary bank has
an asset liability committee, which monitors interest rate risk
and compliance with investment policies. Interest-sensitivity
gap and simulation analysis are among the ways that the
subsidiary banks track interest rate risk. From
time to time, it may be necessary for a subsidiary bank to
reallocate investable funds or make pricing adjustments to better
position itself for interest rate movements. As presented in
Table 9, the Company's interest-sensitivity gap analysis as of
December 31, 1995, reflects a negative cumulative repricing gap
in the one year horizon. Consequently, a sudden and large
increase in rates or a dramatic narrowing in the spread between
asset yields and liability costs would result in an adverse
impact on the net interest margin; however, the adverse impact is
more moderate if interest rates follow historical trends and
increase gradually. The Company uses no off-balance-sheet
financial instruments to manage interest rate risk.
<TABLE>
Table 9 - Interest-Sensitivity Analysis (000's omitted):
<CAPTION>
Within 3 4-6 7-12 1-5 Over 5
Months Months Months Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest-
earning
assets:
Total
loans $216,392 $ 34,916 $ 41,720 $177,362 $ 10,824 $481,214
Invest-
ment
secur-
ities 44,417 31,149 53,517 288,965 35,656 453,704
Short-
term
invest-
ments 27,154 300 198 95 - 27,747
Total
inter-
est-
earning
assets 287,963 66,365 95,435 466,422 46,480 962,665
Interest-
bearing
liabilities:
Transaction
deposit
accounts 292,855 292,855
Time
deposits 202,642 86,670 87,226 62,835 1 439,374
Borrowed
funds 85 - - - - 85
Total
interest-
bearing
liabil-
ities 495,582 86,670 87,226 62,835 1 732,314
Interest-
sensitivity
gap (207,619)(20,305) 8,209 403,587 46,479 230,351
Cumulative
interest-
sensitivity
gap (207,619)(227,924)(219,715)183,872 230,351 230,351
Ratio of
interest-
sensitive
assets to
interest-
sensitive
liabilities 0.58 0.77 1.09 7.42 -
Cumulative
ratio of
interest-
sensitive
assets to
interest-
sensitive
liabilities 0.58 0.61 0.67 1.25 2.84
Cumulative
interest-
sensitivity
gap
as a percent
of total
earning
assets (21.57)% (23.68)% (22.82)% 19.10% 23.93%
</TABLE>
Liquidity - The statements of cash flows, which are included
in the Company's consolidated financial statements, present
changes in cash and cash equivalents. The subsidiary
banks continue to maintain relatively low loan deposit ratios
and liquid investment portfolios with short maturities. These
factors provide substantial liquidity for loan demand, deposit
shifts and other funding requirements.
Parent Company Funding Sources and Dividends
At December 31, 1995 and 1994, the parent company had cash
and cash equivalents of $20.5 million and $13.4 million,
respectively. The Company's ability to fund various operating
expenses, dividends, and cash acquisitions is generally dependent
on parent company only earnings, cash reserves, and funds derived
from its subsidiaries. These funds historically have
been produced by intercompany dividends and management fees that
are limited to reimbursement of actual expenses. It is
anticipated that the Company's recurring cash sources will
continue to include dividends and management fees from
subsidiaries. At December 31, 1995, approximately
$12.1 million was available for the payment of intercompany
dividends by the subsidiary banks without the prior approval of
regulatory agencies. Also at December 31, 1995, the Company had
$10 million available under a line of credit with an unaffiliated
financial institution. The Company does not anticipate any
change in its policy for cash dividends to shareholders, which
has yielded payout ratios of 37.1%, 41.7%, and 34.0%,
respectively, in 1995, 1994, and 1993.
PAGE
<PAGE>
<TABLE>
Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share data)
<CAPTION>
1995
4th 3rd 2nd 1st
<S>
<C> <C> <C> <C>
Summary Income
Statement Information:
Interest income $ 18,380 $ 18,084 $ 17,412 $ 16,679
Interest expense 7,380 7,248 6,857 6,170
Net interest
income 11,000 10,836 10,555 10,509
Provision for
loan losses 25 10 - 20
Net interest
income after
provision for
loan losses 10,975 10,826 10,555 10,489
Noninterest income 3,153 3,048 5,072 3,002
Noninterest expense 8,163 7,790 8,363 8,086
Income before
income taxes 5,965 6,084 7,264 5,405
Provision (benefit)
for income taxes 2,014 2,058 2,471 1,819
Net income $ 3,951 $ 4,026 $ 4,793 $ 3,586
Per Share Data (1):
Net income
per share $ 0.79 $ 0.80 $ 0.95 $ 0.72
Cash dividends
declared 0.31 0.31 0.31 0.28
Book value at
period end 22.91 20.34 20.00 19.79
Market value
(period end) bid 32.50 30.00 30.50 26.00
Market value
(bid):
High 32.50 31.75 30.50 26.00
Low 30.00 29.50 26.00 24.75
1994
4th 3rd 2nd 1st
Summary Income
Statement Information:
Interest income $ 16,046 $ 15,492 $ 15,121 $ 14,756
Interest expense 5,842 5,397 5,106 4,919
Net interest
income 10,204 10,095 10,015 9,837
Provision for
loan losses (845) (185) 105 40
Net interest
income after
provision for
loan losses 11,049 10,280 9,910 9,797
Noninterest
income 2,769 2,997 2,851 2,976
Noninterest
expense 8,545 8,228 8,091 8,227
Income before
income taxes 5,273 5,049 4,670 4,546
Provision
(benefit) for
income taxes 1,767 1,697 1,519 1,443
Net income $ 3,506 $ 3,352 $ 3,151 $ 3,103
Per Share Data (1):
Net income
per share $ 0.70 $ 0.67 $ 0.63 $ 0.62
Cash dividends
declared 0.28 0.28 0.28 0.26
Book value at
period end 20.79 20.34 20.00 19.79
Market value
(period end) bid 25.00 28.50 31.00 31.60
Market value (bid):
High 28.50 30.00 32.40 35.60
Low 24.00 28.00 28.80 31.60
(1) Historical amounts adjusted for 25% stock dividend paid
June 1, 1994.
</TABLE>
PAGE
<PAGE>
Item 8. Financial Statements and Supplementary Data
The independent auditor's report, and consolidated
financial statements of Bankshares at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31,
1995, are provided on pages 27 through 45. Also included is
management's report on responsibility for these financial
statements.
PAGE
<PAGE>
FIRST FINANCIAL BANKSHARES, INC.
MANAGEMENT'S REPORT
ON RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Management of First Financial Bankshares, Inc. is responsible
for the preparation, integrity and fair presentation of its
annual financial statements as of December 31, 1995 and 1994, and
for the three years in the period ended December 31, 1995. The
financial statements have been prepared in accordance with
generally accepted accounting principles and, as such, include
amounts based on judgments and estimates made by Management.
Management has also prepared the other information included in
this Annual Report and is responsible for its accuracy and
consistency with the financial statements.
The annual financial statements referred to above have been
audited by Arthur Andersen LLP, who has been given unrestricted
access to all financial records and related data, including
minutes of all meetings of shareholders and the Board of
Directors. Management believes that all representations made to
Arthur Andersen LLP during the audits were valid and appropriate.
Kenneth T. Murphy Curtis R. Harvey
Chairman of the Board, President Executive Vice President
and Chief Executive Officer and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
First Financial Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of
First Financial Bankshares, Inc. (a Texas corporation), and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As explained in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes"; and changed its method of accounting for income
taxes.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of First Financial Bankshares, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas,
January 10, 1996
PAGE
<PAGE>
<TABLE>
<CAPTION>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
<S> <C> <C>
CASH AND DUE FROM BANKS $ 58,138,482 $ 60,536,136
FEDERAL FUNDS SOLD 26,360,000 23,100,000
Total cash and
cash equivalents 84,498,482 83,636,136
INTEREST-BEARING DEPOSITS
IN BANKS 1,387,025 198,000
INVESTMENT IN SECURITIES
Securities held-to-maturity
(market value of $430,100,959
and $418,895,098 in 1995
and 1994, respectively) 427,455,098 435,212,460
Securities available-
for-sale, at market value 26,248,730 28,031,932
LOANS 481,214,361 425,560,623
Less- Allowance for
loan losses 8,942,654 9,024,424
Net loans 472,271,707 416,536,199
BANK PREMISES AND EQUIPMENT,
net 30,069,579 29,466,438
OTHER ASSETS 20,403,928 19,531,982
Total assets $ 1,062,334,549 $ 1,012,613,147
LIABILITIES AND
SHAREHOLDERS' EQUITY
NONINTEREST-BEARING DEPOSITS $ 207,412,278 $ 200,912,655
INTEREST-BEARING DEPOSITS 732,229,437 700,016,977
Total deposits 939,641,715 900,929,632
DIVIDENDS PAYABLE 1,554,717 1,399,220
OTHER LIABILITIES 6,221,468 6,376,393
Total liabilities 947,417,900 908,705,245
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $l0 par value;
authorized 10,000,000 shares;
issued and outstanding
5,015,216 and 4,997,214
shares in 1995 and 1994,
respectively 50,152,160 49,972,140
Capital surplus 36,870,604 36,863,701
Retained earnings 28,062,779 17,769,812
Unrealized loss
on investment
in securities available-
for-sale, net (168,894) (697,751)
Total shareholders' equity 114,916,649 103,907,902
Total liabilities and
shareholders' equity $ 1,062,334,549 $ 1,012,613,147
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<CAPTION>
1995 1994 1993
<S>
<C> <C> <C>
INTEREST INCOME:
Interest and fees
on loans $ 43,353,853 $ 35,482,131 $ 32,679,806
Interest on invest-
ment securities-
Taxable 24,576,976 23,805,894 24,892,985
Exempt from
federal income tax 721,991 840,225 746,195
Interest on
federal funds
sold and inter-
est-bearing
deposits in
banks 1,902,622 1,287,557 1,530,914
70,555,442 61,415,807 59,849,900
INTEREST EXPENSE:
Interest on
time deposits 27,626,325 21,138,660 20,211,447
Other 28,747 125,352 121,559
27,655,072 21,264,012 20,333,006
Net interest
income 42,900,370 40,151,795 39,516,894
PROVISION (CREDIT)
FOR LOAN LOSSES 55,500 (885,000) 508,010
Net interest
income after
provision
(credit) for
loan losses 42,844,870 41,036,795 39,008,884
NONINTEREST INCOME:
Trust department
income 3,164,482 2,897,657 2,945,840
Service fees on
deposit accounts 5,786,169 5,504,997 5,529,706
Gain on sale of
foreclosed assets 2,078,168 20,759 201,079
Other 3,246,839 3,170,005 3,019,816
14,275,658 11,593,418 11,696,441
NONINTEREST EXPENSE:
Salaries and
employee benefits 16,665,476 16,437,665 15,707,789
Net occupancy
expense 2,491,655 2,717,634 2,421,020
Equipment expense 2,225,018 2,193,073 2,018,717
FDIC assessments 998,077 1,982,894 1,941,014
Correspondent bank
service charges 872,247 876,209 896,368
Other expenses 9,149,883 8,884,033 8,889,880
32,402,356 33,091,508 31,874,788
EARNINGS BEFORE
INCOME TAXES 24,718,172 19,538,705 18,830,537
INCOME TAX EXPENSE 8,362,630 6,426,475 6,105,087
NET EARNINGS BEFORE
CUMULATIVE ADJUSTMENT
FOR CHANGE IN ACCOUNTING
FOR INCOME TAXES 16,355,542 13,112,230 12,725,450
CUMULATIVE ADJUSTMENT
FOR CHANGE IN
ACCOUNTING FOR
INCOME TAXES - - 1,023,595
NET EARNINGS $ 16,355,542 $ 13,112,230 $ 13,749,045
EARNINGS PER
SHARE BEFORE
CUMULATIVE
ADJUSTMENT
FOR CHANGE IN
ACCOUNTING
FOR INCOME TAXES $3.26 $2.62 $2.56
NET EARNINGS
PER SHARE $3.26 $2.62 $2.77
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<CAPTION>
Unrealized
Gain
(Loss) on
Investment
in Securities
Common Stock Capital Retained Available-
Shares Amount Surplus Earnings for Sale,Net
<S> <C> <C> <C> <C> <C>
BALANCE,
December 31,
1992 3,616,865 $36,168,650 $6,575,877 $44,438,885 $ -
Net
earnings - - - 13,749,045 -
Stock
issuances 23,386 233,860 48,388 - -
Cash
dividends
declared,
$.96 per
share - - - (4,490,093) -
Cash paid for
fractional
shares
resulting
from stock
dividend - - - (14,929) -
Stock dividend,
10% 338,516 3,385,160 9,324,119 (12,709,279) -
BALANCE,
December 31,
1993 3,978,767 39,787,670 15,948,384 40,973,629 -
Initial
unrealized
gain
recorded on
investment
in securities
available-
for-sale, net - - - - 244,069
Net earnings - - - 13,112,230 -
Stock issuances 23,695 236,950 25,525 - -
Cash dividends
declared,
$1.10 per
share - - - (5,462,207) -
Cash paid for
fractional
shares re-
sulting from
stock dividend - - - (16,528) -
Stock dividend,
25% 994,752 9,947,520 20,889,792(30,837,312) -
Change in
unrealized
gain(loss)
on investment
in securities
available-
for-sale, net - - - - (941,820)
BALANCE,
December 31,
1994 4,997,214 49,972,140 36,863,701 17,769,812 (697,751)
Net earnings - - - 16,355,542 -
Stock
issuances 18,002 180,020 6,903 - -
Cash
dividends
declared,
$1.21 per share - - - (6,062,575) -
Change in
unrealized
gain(loss) on
investment in
securities
available-
for-sale, net - - - - 528,857
BALANCE,
December 31,
1995 5,015,216 50,152,160 36,870,604 28,062,779 (168,894)
The accompanying notes are an integral part of these
consolidated statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings $ 16,355,542 $ 13,112,230 $ 13,749,045
Adjustments to
reconcile net
earnings to net
cash provided by
operating activities-
Depreciation and
amortization 2,730,346 3,318,666 2,510,135
Provision (credit)
for loan losses 55,500 (885,000) 508,010
Premium amortization,
net of discount
accretion 2,575,325 4,960,847 5,524,023
Loss (gain) on sale
of securities 57,094 595,997 (47,992)
Gain on sale of
foreclosed assets (2,078,168) (20,759) (201,179)
Deferred federal
income tax expense
(benefit) 358,344 (109,434) (1,170,687)
Decrease (increase)
in other assets (1,288,053) (906,556) 2,999,767
Increase (decrease)
in other liabilities 585,189 (251,211) (2,818,756)
Total adjustments 2,995,577 6,702,550 7,303,321
Net cash provided by
operating
activities 19,351,119 19,814,780 21,052,366
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net (increase)
decrease in
interest-bearing
deposits in banks (201,025) 589,000 194,000
Payment for stock,
net of cash and cash
equivalents received
through acquisition (1,539,560) - -
Cash and cash
equivalents received
through acquisition,
net of payment
for stock - - 5,511,888
Cash and cash
equivalents
received through
purchase of assets
and liabilities,
net of cash paid - - 16,876,513
Proceeds from sales
of securities
available-for-sale 5,483,872 11,649,196 -
Proceeds from
maturities of
securities
available-for-sale 36,518 9,155,976 -
Proceeds from sales
of investment
securities - - 8,897,440
Proceeds from
maturities of
securities held-
to-maturity 176,398,807 133,394,203 194,451,829
Purchase of
securities
available-for-sale (3,799,775) (1,000,000) -
Purchase of
securities held-
to-maturity (157,123,976) (166,593,978)(213,227,198)
Net increase in
loans (50,756,608) (4,177,658) (21,105,463)
Capital expenditures (3,078,140) (2,394,923) (3,643,838)
Proceeds from sale
of other assets 2,362,552 11,458 2,297,728
Net cash used in
investing activities(32,217,335) (19,366,726) (9,747,101)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net increase in
noninterest-bearing
deposits 5,016,327 6,978,515 8,135,836
Net increase
(decrease) in
interest-
bearing deposits 15,491,521 (19,398,444) (24,538,060)
Net decrease in
other short-term
borrowings (1,059,131) (96,857) (83,177)
Proceeds of stock
issuances 186,923 262,475 282,248
Dividends paid (5,907,078) (5,278,455) (4,219,974)
Net cash provided
by (used in)
financing activities 13,728,562 (17,532,766) (20,423,127)
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 862,346 (17,084,712) (9,117,862)
CASH AND CASH EQUIVALENTS,
beginning of year 83,636,136 100,720,848 109,838,710
CASH AND CASH EQUIVALENTS,
end of year $84,498,482 $ 83,636,136 $ 100,720,848
The accompanying notes are an integral part of these consolidated
statements.
</TABLE>
PAGE
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
First Financial Bankshares, Inc. (a Texas corporation) is a
multi-bank holding company, which owns (through its wholly-owned
Delaware subsidiary) all of the capital stock of seven banks
located in Texas as of December 31, 1995. Those subsidiary banks
are First National Bank of Abilene; Hereford State Bank; First
National Bank, Sweetwater; Eastland National Bank; First
National Bank in Cleburne; Stephenville Bank & Trust Co.; and
Southwest Bank of San Angelo. Each subsidiary bank's primary
source of revenue is providing loans and banking services to
consumers and commercial customers in the market area in which
the subsidiary is located.
A summary of significant accounting policies of First Financial
Bankshares, Inc. and subsidiaries (the "Company") applied in the
preparation of the accompanying consolidated financial statements
follows. The accounting principles followed by the Company and
the methods of applying them are in conformity with both
generally accepted accounting principles and prevailing practices
of the banking industry.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and
transactions have been eliminated.
Investment in Securities
In May 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), was issued. This statement requires
management to classify debt and equity securities as
held-to-maturity, available-for-sale, or trading based on their
intent. Securities classified as held-to-maturity are recorded
at cost, adjusted for amortization of premiums and accretion of
discounts, which are recognized as adjustments to interest income
using the interest method. Securities classified as
available-for-sale
are recorded at fair value, with unrealized gains and losses, net
of deferred taxes, excluded from earnings and reported in a
separate component of shareholders' equity. Securities
classified as trading are recorded at fair value, with unrealized
gains and losses included in earnings. The Company adopted this
statement effective January 1, 1994, and the resulting after-tax
adjustment to equity of $244,069 increased investments by
$375,491. The Company had no trading securities at December 31,
1995 or 1994.
Prior to January 1, 1994, the Company accounted for its
investment in securities at amortized cost.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. Unearned
income on installment loans is recognized in income over the
terms of the loans in decreasing amounts using a method that
approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances
of the principal amounts outstanding. The allowance for loan
losses is established through a provision for loan losses charged
to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the
principal is unlikely.
PAGE
<PAGE>
The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may
become uncollectible based upon management's 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). Management's periodic evaluation of the
adequacy of the allowance is based on general economic
conditions, the financial condition of the borrower,
the value and liquidity of collateral, delinquency, prior loan
loss experience, and the results of periodic reviews of the
portfolio. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
The Company adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114), and No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (SFAS
118), as of January 1, 1995. The Company had previously measured
the allowance for credit losses using methods similar to
those prescribed in SFAS 114 and 118. The impact of adopting
these statements resulted in no additional allowance for loan
losses. These standards require that certain impaired loans be
measured based on the present value of expected future cash flows
discounted at the loan's original effective interest rate. As a
practical expedient, impairment may be measured based on
the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. When the measure
of the impaired loan is less than that of the recorded investment
in the loan, the impairment is recorded through a valuation
allowance. On collateral dependent loans, the Company has
adopted a policy that requires measurement of an impaired loan
based on the fair value of the collateral. Other loan
impairments will be measured based on the present value of
expected future cash flows or the loan's observable
market price. At December 31, 1995, all significant impaired
loans have been determined to be collateral dependent and have
been measured utilizing the fair value of the collateral.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed principally on a straight-line basis over the estimated
useful lives of the related assets. Leasehold improvements are
amortized over the life of the respective lease or the estimated
useful lives of the improvements, whichever is shorter.
Excess of Cost Over Fair Value of Tangible Assets Acquired
(Goodwill)
Goodwill, relating to acquisitions of certain subsidiary banks,
is being amortized by the straight-line method over periods of 15
and 40 years.
Per Share Data
Earnings per share are based on the weighted average number of
common shares and common share equivalents outstanding in 1995,
1994, and 1993 of 5,015,216; 4,997,214; and 4,973,519,
respectively, adjusted retroactively for stock dividends and
splits. Common share equivalents represent the dilutive effect
of stock options. Additionally, dividends per share have been
retroactively adjusted for the effect of stock dividends and
splits.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to conform
to the 1995 presentation.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds
sold.
Accounting for Income Taxes
In February 1992, Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," was issued. This statement
requires an asset and liability approach for financial
accounting and reporting for income taxes and supersedes
"Accounting for Income Taxes" required by Statement of Financial
Accounting Standards No. 96 and APB Opinion No. 11. The
Company adopted this statement effective January 1, 1993, with
the resulting cumulative adjustment to income increasing other
assets by $1,023,595.
PAGE
<PAGE>
Accounting Standard Not Yet Adopted
In March 1995, Statement of Financial Accounting Standards
No.121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" was issued.
This statement requires that "long-lived assets and certain
indentifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable." This statement applies to fiscal years
beginning after December 15, 1995, and is not expected to have a
material effect on the accompanying financial statements.
2. CASH AND INVESTMENT SECURITIES:
Certain subsidiary banks are required to maintain reserve
balances with the Federal Reserve Bank. During 1995 and 1994,
such average balances totaled approximately $12,052,000 and
$12,226,000, respectively.
The amortized cost, estimated market values, and gross unrealized
gains and losses of the Company's investment in securities as of
December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Estimated
Cost Basis Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities held
-to-maturity:
U.S. Treasury
securities
and obligations
of U.S.
government
corporations
and agencies $358,287,502 $3,830,041 $1,507,614) $360,609,929
Obligations of
states and
political
subdivisions 20,104,257 52,034 (166,227) 19,990,064
Mortgage-backed
securities 36,598,419 503,931 (217,218) 36,885,132
Corporate bonds 7,746,376 142,613 (8,629) 7,880,360
Foreign secur-
ities 4,718,544 30,376 (13,446) 4,735,474
Total investment
in debt
securities held-
to-maturity $427,455,098 $4,558,995$(1,913,134)(430,100,959)
Securities
available-for-
sale:
U.S. Treasury
securities and
obligations
of U.S.
government
corporations
and agencies $ 3,995,027 $ 31,975 $ (109,502) $ 3,917,500
Mortgage-backed
securities 14,664,563 106,531 (109,864) 14,661,230
Total investment
in debt
securities
available-
for-sale 18,659,590 138,506 (219,366) 18,578,730
Other securities 7,670,000 - - 7,670,000
Total investment
in securities
available-for-
sale $ 26,329,590 $ 138,506 $(219,366) $ 26,248,730
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Estimated
Cost Basis Gains Losses Fair Value
<S> <C> <C> <C> <C>
Securities held-
to-maturity:
U.S. Treasury
securities and
obligations of
U.S. government
corporations
and agencies $392,359,163 $ 5,689 $(14,125,455)$ 378,239,397
Obligations of
states and
political
subdivisions 17,396,179 10,103 (913,911) 16,492,371
Mortgage-backed
securities 25,457,118 4,050 (1,297,838) 24,163,330
Total investment
in debt
securities held-
to-maturity $435,212,460 $19,842 $(16,337,204) $418,895,098
Securities
available-for-
sale:
U.S. Treasury
securities and
obligations of
U.S.government
corporations
and agencies $ 14,531,306 $22,270 $ (454,770) $ 14,098,806
Mortgage-backed
securities 12,326,532 38,628 (673,300) 11,691,860
Total investment
in debt
securities
available-
for-sale 26,857,838 60,898 (1,128,070) 25,790,666
Other securities 2,243,820 - (2,554) 2,241,266
Total investment
in securities
available-
for-sale $ 29,101,658 $ 60,898$(1,130,624) $ 28,031,932
</TABLE>
The Company invests in 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
asset-backed securities. The expected maturities of these
securities at December 31, 1995, were computed by using scheduled
amortization of balances and historical prepayment rates. At
December 31, 1995, the Company did not hold any CMOs that
entail higher risks than standard mortgage-backed securities.
Total investment in debt securities at December 31, 1995,
included structured notes with an amortized cost basis of
$16,554,000 and an estimated fair value of $16,060,000.
The amortized cost and estimated fair value of debt securities
held-to-maturity at December 31, 1995, by contractual and
expected maturity, are shown below.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due within one year $ 116,082,183 $ 115,228,610
Due after one year
through five years 285,530,745 288,950,284
Due after five years
through ten years 12,641,945 12,665,051
Due after ten years 13,200,225 13,257,014
Total debt securities
held-to-maturity $ 427,455,098 $ 430,100,959
</TABLE>
PAGE
<PAGE>
The amortized cost and estimated fair value of debt securities
available-for-sale at December 31, 1995, by contractual and
expected maturity, are shown below.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
<S>
<C> <C>
Due within one year $ 993,025 $ 1,025,000
Due after one year
through five years 8,951,048 8,843,773
Due after five years
through ten years 5,316,459 5,365,562
Due after ten years 3,399,058 3,344,395
Total debt securities
available-for-sale $ 18,659,590 $ 18,578,730
</TABLE>
Securities carried at approximately $127,208,000 and $97,859,000
at December 31, 1995 and 1994, respectively, were pledged as
collateral for public or trust fund deposits and for other
purposes required or permitted by law.
During 1995 and 1994, sales from investments in securities that
were classified as available for sale totaled $5,483,872 and
$11,649,196, respectively. The gross realized gains and losses
from those sales were $43,612 and $29,185, respectively, during
1995, and $100,706 and $696,703, respectively, during 1994.
Specific identification was used to determine cost in computing
the realized gains and losses.
3. LOANS AND ALLOWANCES FOR LOAN LOSSES:
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Commercial, financial,
and agricultural $ 204,038,678 $ 173,410,963
Real estate -
construction 16,730,451 11,244,692
Real estate - mortgage 108,464,767 115,172,072
Consumer 159,091,663 132,781,581
488,325,559 432,609,308
Unearned income (7,111,198) (7,048,685)
Total loans $ 481,214,361 $ 425,560,623
</TABLE>
As of December 31, 1995, the Company's recorded investment in
impaired loans and the related valuation allowance calculated
under SFAS 114 are as follows:
<TABLE>
<CAPTION>
Recorded Valuation
Investment Allowance
<S> <C> <C>
Impaired loans-
Valuation allowance required $ 1,814,370 $ 567,738
No valuation allowance
required - -
Total impaired loans $ 1,814,370 $ 567,738
</TABLE>
The average recorded investment in impaired loans for the year
ended December 31, 1995, was $2,387,565. The Company had
approximately $1,991,000 in nonperforming assets at December
31, 1995, of which approximately $1,160,000 represented recorded
investments in impaired loans.
Interest payments received on impaired loans are recorded as
interest income unless collections of the remaining recorded
investment is doubtful, at which time payments received are
recorded as reductions of principal. The Company recognized
interest income on impaired loans of $333,574 during the year
ended December 31, 1995, of which $137,672 represented cash
interest payments received and recorded as interest income. If
interest on impaired loans had been recognized on a
full accrual basis in the year ended December 31, 1995, such
income would have approximated $530,000.
PAGE
<PAGE>
The allowance for loan losses as of December 31, 1995, is
presented below. 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:
<TABLE>
<S> <C>
Allowance for loan losses provided for-
Loans specifically evaluated
as impaired $ 567,738
Unidentified impaired loans 8,374,916
Total allowance for loan losses $ 8,942,654
</TABLE>
The allowance for loan losses is maintained at a level considered
adequate to provide for estimated probable incurred losses
resulting from loans. The allowance is reviewed periodically,
and as losses are incurred and the amounts become estimable, they
are charged to operations in the periods that they become known.
Changes in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning
of year $ 9,024,424 $ 9,013,387 $ 8,298,738
Add:
Allowance of acquired
bank 82,700 - 712,222
Provision for
loan losses 55,500 - 508,010
Loan recoveries 744,762 2,269,114 1,619,565
Deduct:
Credit for loan losses - (885,000) -
Loan charge offs (964,732) (1,373,077) (2,125,148)
Balance at end of year $ 8,942,654 $ 9,024,424 $ 9,013,387
</TABLE>
4. BANK PREMISES AND EQUIPMENT:
The following is a summary of bank premises and equipment:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Land $ 4,662,743 $ 4,662,743
Buildings 31,918,625 30,059,405
Furniture
and equipment 16,253,608 15,270,683
Leasehold
improvements 4,926,525 4,986,812
57,761,501 54,979,643
Accumulated
depreciation
and
amortization (27,691,922) (25,513,205)
$30,069,579 $ 29,466,438
</TABLE>
5. TIME DEPOSITS:
Time deposits of $100,000 or more totaled approximately
$115,525,000 and $105,887,000 at December 31, 1995 and 1994,
respectively. Interest expense on these deposits was
approximately $5,718,000; $3,812,000; and $2,789,000 during 1995,
1994, and 1993, respectively.
PAGE
<PAGE>
6. INCOME TAXES:
The Company files a consolidated federal income tax return.
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Current federal income tax $ 8,004,286 $ 6,535,909 $ 6,252,179
Deferred federal income tax 358,344 (109,434) (147,092)
Income tax expense $ 8,362,630 $ 6,426,475 $ 6,105,087
</TABLE>
The provision for income tax expense (benefit), as a percentage
of pretax earnings, differs from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
As a Percent of Pretax Earnings
1995 1994 1993
<S> <C> <C> <C>
Expected tax expense 35.0% 35.0% 35.0%
Reductions in taxes resulting from
interest income exempt from
federal income tax (1.0) (1.5) (1.5)
Other (0.2) (0.6) (1.1)
Income tax expense 33.8% 32.9% 32.4%
</TABLE>
The approximate effects of each type of difference that gave rise
to the Company's deferred tax assets and liabilities at December
31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred Tax Assets-
Tax basis of loans in excess
of financial statement basis $ 2,914,134 $2,906,731
Nondeductible write-downs and
adjustments to other
real estate owned and
repossessed assets 103,319 246,654
Benefits of a subsidiary bank
net operating loss carryforward 724,325 842,929
Recognized for financial
reporting purposes but not
for tax purposes-
Deferred compensation 256,213 222,754
Net unrealized loss on
investments in securities
available-for-sale 90,942 375,712
Other deferred tax assets 325,301 147,945
Total deferred tax assets
4,414,234 4,742,725
Deferred Tax Liabilities-
Financial statement basis
of fixed assets in excess of
tax basis 1,696,501 1,371,726
Recognized for financial
reporting purposes but not
for tax purposes-
Accretion on investments 202,071 233,571
Pension plan contribution 400,804 305,230
Other deferred tax liabilities 142,904 98,526
Total deferred tax liabilities 2,442,280 2,009,053
Valuation allowance (255,837) (374,441)
Net deferred tax asset $ 1,716,117 $2,359,231
</TABLE>
PAGE
<PAGE>
At December 31, 1995, the First National Bank in Cleburne
("Cleburne"), a subsidiary bank, had a net operating loss
carryforward for federal income tax purposes of approximately
$2,069,000. In its consolidated return, subject to certain
yearly limitations, the Company can utilize Cleburne's
pre-acquisition net operating loss carryforward to offset future
consolidated taxable income only to the extent Cleburne has
future taxable income. If not used, the net operating loss
carryforward expires as follows: $1,145,000 in 2001; $560,000 in
2002; and $365,000 in 2005.
The valuation allowance was established to recognize the
uncertainty of realization of the benefit related to Cleburne's
net operating loss carryforward. The following summarizes the
changes in the allowance account:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Valuation allowance at beginning of period $ 374,441 $ 480,767
Reduction in valuation allowance
based on current period utilization
of net operating loss carryforward (118,604) (106,326)
Valuation allowance at end of period $ 255,837 $ 374,441
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" (SFAS 107), requires
the Company to disclose the estimated fair value of its financial
instrument assets and liabilities. For the Company, as for most
financial institutions, over 90% of its assets and liabilities
are considered financial instruments as defined in SFAS 107.
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.
Estimated fair values have been determined by the Company using
the best available data, as generally provided in the Company's
Regulatory Reports, and an estimation methodology suitable
for each category of financial instruments. For those loans and
deposits with floating interest rates, it is presumed that
estimated fair values generally approximate the recorded book
balances. The estimation methodologies used, the estimated fair
values, and recorded book balances at December 31, 1995 and 1994,
were as follows:
Financial instruments actively traded in a secondary market
have been valued using quoted available market prices.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Book
Value Balance
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Cash and due
from banks $ 58,138,482 $ 60,536,136 $ 58,138,482 $ 60,536,136
Federal funds
sold 26,360,000 23,100,000 26,360,000 23,100,000
Interest-
bearing
deposits in
banks 1,387,025 198,000 1,387,025 198,000
Investment in
securities 456,349,689 446,927,030 453,703,828 463,244,392
</TABLE>
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 assets with variable rates and
financial instrument liabilities with no stated maturities have
an estimated fair value equal to both the amount payable on
demand and the recorded book balance.
<TABLE>
<CAPTION>
Estimated Recorded
Fair Book
Value Balance
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Deposits with
stated
maturities $387,971,182 $316,887,645 $386,379,149 $318,214,237
Deposits with
no stated
maturities 553,262,566 582,715,395 553,262,566 582,715,395
Net loans 474,805,015 415,973,405 472,271,707 416,536,199
</TABLE>
PAGE
<PAGE>
Changes in assumptions or estimation methodologies may have a
material effect on these estimated fair values.
The Company's remaining assets and liabilities which, are not
considered financial instruments, have not been valued
differently than has been customary with historical cost
accounting. No disclosure of the relationship value of the
Company's deposits is required by SFAS 107 nor has
the Company estimated its value. There is no material difference
between the notional amount and the estimated fair value of
off-balance-sheet unfunded loan commitments which, total
approximately $122,891,000 and $119,496,000 at December 31, 1995
and 1994, respectively, and are generally priced at market at the
time of funding. Letters of credit discussed in Note 9 have an
estimated fair value based on fees currently charged for similar
agreements. At December 31, 1995 and 1994, fees related to the
unexpired term of the letters of credit are not significant.
Management is concerned that reasonable comparability between
financial institutions may not be likely due to the wide range of
permitted valuation techniques and numerous estimates which
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.
8. COMMITMENTS AND CONTINGENCIES:
The Company is engaged in legal actions arising from the normal
course of business. In management's opinion, the Company has
adequate legal defenses with respect to these actions,
and the resolution of these matters should have no material
adverse effects upon the results of operations or financial
condition of the Company.
The Company has an unused line of credit with a bank under which
it may borrow up to $10,000,000 at the London Interbank Offered
Rate plus 1%, adjusted for reserves and deposit insurance
expense. The line of credit is unsecured and matures on May 30,
1996. The Company paid no fee to secure the unused line of
credit and, accordingly, has not estimated a fair value of
the unused line of credit at December 31, 1995 or 1994.
The Company leases portions of its banking premises and equipment
under operating leases. Total rental expense for these leases
was approximately $297,000, $340,000, and $358,000 for the years
ended December 31, 1995, 1994, and 1993, respectively.
The Company is a lessor for portions of its banking premises.
Total rental income for all leases included in net occupancy
expense was approximately $1,268,000, $1,265,000, and $1,289,000
for the years ended December 31, 1995, 1994, and 1993,
respectively. At December 31, 1995, approximate future minimum
lease commitments and lease receivables are summarized as
follows:
<TABLE>
<CAPTION>
Lease Lease
Commitments Receivables
<S> <C> <C>
1996 $ 233,000 $ 713,000
1997 145,000 349,000
1998 4,000 150,000
1999 - 141,000
2000 - 88,000
2001 and thereafter - -
Total $ 382,000 $ 1,441,000
</TABLE>
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amount recognized in the balance sheets.
PAGE
<PAGE>
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of these
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments.
<TABLE>
<CAPTION>
Contract or
Notional Amount
<S> <C>
Financial instruments whose contract amounts
represent credit risk-
Commitments to extend credit $122,891,000
Standby letters of credit 4,761,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. The average collateral value held on
letters of credit is 173%.
10. CONCENTRATION OF CREDIT RISK:
The Company grants commercial, retail, agricultural, and
residential loans to customers primarily in North Central and
West Texas. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the local economic sector.
11. PENSION AND PROFIT SHARING PLANS:
The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are 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 is to contribute annually the amount necessary to
satisfy the Internal Revenue Service's funding standards.
Contributions are intended to provide not only for benefits
attributed to service to date but, also for those expected
to be earned in the future.
PAGE
<PAGE>
The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheets at December
31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Actuarial present value
of benefit obligations:
Accumulated benefit
obligation, including
vested benefits of
$5,514,329 and
$4,580,213 in 1995
and 1994, respectively $ 5,787,473 $ 4,786,799
Projected benefit obligation
for service rendered to date $ (6,645,480) $ (5,347,357)
Plan assets at fair
value, primarily corporate
bonds and equity securities 7,444,923 6,401,823
Plan assets in excess of
projected benefit
obligation 799,443 1,054,466
Unrecognized net gain from
past experience
different than that
assumed and effects of
changes in assumptions 781,708 305,389
Unrecognized net asset at
January 1, 1987,
being recognized over
10.7 years (273,591) (392,094)
Prepaid pension cost
included in other assets $ 1,307,560 $ 967,761
</TABLE>
Net pension cost (credit) for the years ended December 31, 1995,
1994, and 1993, included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost -
benefits earned
during the period $ 443,934 $ 398,106 $ 358,084
Interest cost on
projected benefit
obligation 449,581 427,889 369,861
Actual return on
plan assets (783,215) 59,728 (282,192)
Net amortization
and deferral 48,889 (749,369) (398,544)
Net periodic
pension cost $ 159,189 $ 136,354 $ 47,209
</TABLE>
The following table sets forth the rates used in the actuarial
calculations of the present value of benefit obligations and the
rate of return on plan assets:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Weighted average discount rate 7.5% 8.5% 8.5%
Rate of increase in future
compensation levels 7.5 8.5 8.5
Expected long-term rate
of return on assets 7.5 8.5 8.5
</TABLE>
The Company also provides a profit sharing plan that covers
substantially all full-time employees. The profit sharing plan
is a defined contribution plan and allows employees to contribute
up to 5% of their base annual salary. Employees are fully vested
to the extent of their contributions and become fully vested in
the Company's contributions over a seven-year period. The
Southwest Bank of San Angelo, a subsidiary bank, has a
noncontributory profit sharing plan available to all
regular employees who have completed six months of service. The
plan is a defined contribution plan and contributions are at the
discretion of the subsidiary's board of directors. The
subsidiary also sponsors a defined contribution pension plan,
whereby it matches 100% of employee contributions up to 4% of
their compensation and 50% of contributions on the next 2% of
compensation.
Costs related to the Company's defined contribution plans totaled
$1,369,000, $1,164,000, and $1,173,000 in 1995, 1994, and 1993,
respectively.
PAGE
<PAGE>
12. DIVIDENDS FROM SUBSIDIARIES:
At December 31, 1995, approximately $12,100,000 was available for
the declaration of dividends by the Company's subsidiary banks
without the prior approval of regulatory agencies.
13. LOANS TO RELATED PARTIES:
An analysis of the changes in loans to officers, directors,
principal shareholders, or associates of such persons for the
years ended December 31, 1995 and 1994 (determined as of each
respective year-end), follows:
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additional End
of Period Loans Payments of Period
<S> <C> <C> <C> <C>
Year ended
December 31,
1995 $ 28,926,409 $ 89,990,572 $ 91,712,555 $27,204,426
Year ended
December 31,
1994 $ 34,963,194 $110,152,085 $107,742,397 $37,372,882
</TABLE>
In the opinion of management, those loans are on substantially
the same terms, including interest rates and collateral
requirements, as those prevailing at the time for comparable
transactions with unaffiliated persons.
14. STOCK OPTION PLAN:
The Company has adopted an incentive stock plan to provide for
the granting of options to senior management of the Company at
prices not less than market at the date of grant. At December
31, 1995, the Company had reserved 273,589 shares of stock for
issuance under the plan. The plan provides that options granted
are exercisable after two years from date of grant, at a rate of
20% each year cumulatively during the 10-year term of the option.
At December 31, 1995, 26,822 shares were exercisable.
An analysis of stock option activity for the years ended December
31, 1995 and 1994, is as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
<S> <C> <C>
Options outstanding at
December 31, 1993 150,435 $ 8.62 - 32.00
Canceled (625) 32.00
Exercised (25,019) 8.62 - 14.54
Granted - -
Options outstanding at
December 31, 1994 124,791 8.62 - 32.00
Canceled (3,100) 14.54 - 32.00
Exercised (18,002) 8.62 - 14.54
Granted 30,950 32.00
Options outstanding at
December 31, 1995 134,639 $ 8.62 - 32.00
Stock options have been adjusted retroactively for the effects of
stock dividends and splits.
</TABLE>
PAGE
<PAGE>
15. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY:
<TABLE>
<CAPTION>
Condensed Balance Sheets-December 31, 1995 and 1994
ASSETS
1995 1994
<S> <C> <C>
Cash in subsidiary bank $ 687,235 $ 453,214
Investment securities 19,821,025 13,021,959
Investment in
subsidiaries, at equity 95,515,920 91,322,199
Excess of cost over fair
value of tangible assets
acquired, net 817,323 863,458
Other assets 422,491 213,741
Total assets $ 117,263,994 $ 105,874,571
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities $ 2,347,345 $ 1,966,669
Shareholders' equity-
Common stock 50,152,160 49,972,140
Capital surplus 36,870,604 36,863,701
Retained earnings 28,062,779 17,769,812
Unrealized loss
on investment
in securities
available-for-sale, net (168,894) (697,751)
Total shareholders'
equity 114,916,649 103,907,902
Total liabilities and
shareholders' equity $ 117,263,994 $ 105,874,571
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Earnings-
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Income-
Cash dividends
from subsidiary
banks $12,890,000 $10,265,000 $8,935,000
Excess of earnings
over dividends
of subsidiary banks 3,664,864 3,332,171 5,376,282
Other income 1,290,192 797,299 550,543
17,845,056 14,394,470 14,861,825
Expenses-
Salaries and
employee benefits 936,527 888,538 829,148
Franchise taxes 9,787 6,290 5,799
Other
operating expenses 619,022 608,758 505,323
1,565,336 1,503,586 1,340,270
Earnings before
income taxes 16,279,720 12,890,884 13,521,555
Income tax benefit 75,822 221,346 251,862
Net earnings before
cumulative adjustment
for change in
accounting for
income taxes 16,355,542 13,112,230 13,773,417
Cumulative adjustment
for change in
accounting for
income taxes - - (24,372)
Net earnings $ 16,355,542 $ 13,112,230 $13,749,045
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows-
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
<S> <C> <C> <C>
Cash Flows from
operating activities-
Net earnings $ 16,355,542 $ 13,112,230 $13,749,045
Adjustments to
reconcile net
earnings to net
cash provided by
operating activities-
Excess of earnings
over dividends of
subsidiary banks (3,664,864) (3,332,171) (5,376,282)
Depreciation 28,922 26,269 21,177
Discount accretion,
net of premium
amortization (709,081) 115,027 (30,616)
Amortization of
excess of cost
over fair value
of assets acquired 46,135 46,135 46,135
Increase in
other assets (209,810) (215,136) (117,587)
Increase
in liabilities 225,179 209,490 461,298
Net cash provided
by operating
activities 12,072,023 9,961,844 8,753,170
Cash flows from
investing activities-
Acquisition of
Stephenville
Bank & Trust Co. - - (7,750,000)
Capital expenditures (27,863) (5,265) (71,693)
Proceeds from
maturity
of securities 58,813,961 18,350,000 20,800,000
Purchases
of securities (64,903,945) (23,298,035) (17,495,313)
Net cash used in
investing activities (6,117,847) (4,953,300) (4,517,006)
Cash flows from
financing activities-
Proceeds of
stock issuance 186,923 262,475 282,248
Cash dividends paid (5,907,078) (5,278,454) (4,219,974)
Net cash used in
financing activities (5,720,155) (5,015,979) (3,937,726)
Net increase (decrease)
in cash and
cash equivalents 234,021 (7,435) 298,438
Cash in subsidiary
bank at beginning
of the year 453,214 460,649 162,211
Cash in subsidiary
bank at end of year $ 687,235 $ 453,214 $ 460,649
</TABLE>
16. BUSINESS COMBINATIONS:
In July 1995, the Company, through a bank subsidiary, acquired
Citizens State Bank in Roby,Texas ("Roby"), for $2,125,000 in
cash. The fair market value of net assets acquired approximated
the purchase price. The impact of Roby is not significant to the
Company's financial statements.
In March 1994, the Company acquired for approximately 230,000
shares of its common stock substantially all of the outstanding
shares of Concho Bancshares, Inc. ("Concho") and its wholly-owned
subsidiary, Southwest Bank of San Angelo. The shareholders of
Concho received 1.15 shares of the Company's common stock for
each share of Concho common stock owned. The accompanying
consolidated financial statements of the Company give effect to
the merger, which has been accounted for as a
pooling-of-interests. Accordingly, the accounts of Concho have
been combined with those of the Company to reflect the results of
these companies on a combined basis for all periods presented.
PAGE
<PAGE>
17. CASH FLOW INFORMATION:
Supplemental information on cash flows and noncash transactions
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Supplemental cash flow
information-
Interest paid $27,020,740 $ 21,076,643 $ 16,686,798
Federal income taxes paid 8,412,589 6,523,443 6,601,491
Schedule of noncash
investing
and financing
activities-
Assets acquired
through foreclosure 369,951 271,602 688,518
Change in unrealized
loss on investment in
securities available-
for-sale 813,625 (1,069,727) -
</TABLE>
18. SUBSEQUENT EVENTS:
In January 1996, the Company completed a business combination to
be accounted for as a pooling-of-interests with Weatherford
National Bancshares, Inc. ("Weatherford") and its wholly-owned
subsidiary, Weatherford National Bank. In connection with the
transaction, Weatherford shareholders exchanged substantially all
of their common stock at the rate of one share of Weatherford
common stock for 1.5 shares of the Company's common stock.
The following supplemental information presents the effects of
the combination of the Company and Weatherford on the
accompanying reported financial position and results of
operations as of and for each of the three years ended December
31 (in thousands, except per share data):
<TABLE>
<CAPTION>
(Unaudited)
1995 1994 1993
<S> <C> <C> <C>
Total assets $ 1,126,293 $ 1,066,982 $ 1,069,389
Total equity 120,028 108,517 100,729
Net interest income 47,000 42,205 41,442
Net earnings 17,016 13,960 14,833
Earnings per share 3.19 2.62 2.80
</TABLE>
In January 1996, the Company also purchased substantially all of
the outstanding stock of Citizens Equity Corporation, Inc.
("Citizens") and its subsidiary, Citizens National Bank of
Weatherford, for approximately $7,500,000 in cash, along with the
assumption of Citizens' debt of approximately $5,600,000 . The
total purchase price exceeded the fair market value of net assets
acquired by approximately $4,700,000, which is to be recorded by
the Company as goodwill. This combination is to be accounted for
as a purchase.
PAGE
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure
Arthur Andersen LLP has served as the Company's independent
accountants since 1990. There have been no disagreements between
management of Bankshares and its current independent accountants
relating to accounting practices and procedures or financial
disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
a.) Election of Directors
A Board of Directors is to be elected at the annual meeting.
Each Director elected will hold office until the next annual
meeting of the shareholders and until his or her successor shall
be elected and qualified. Under the Bylaws of the Company, an
individual may not stand for election or reelection as Director
upon attainment of 72 years of age unless such individual owns at
least 1% of the outstanding shares of the Company and is less
than 75 years of age. While Bylaws of the Company fix the number
of Directors at a number not less than three nor more than
thirty, fourteen nominees are named and proposed by management.
The reason that the number of Directors authorized exceeds the
number of nominees is to avoid the necessity of amending the
Bylaws of the Company each time that it would appear to be to the
advantage of the Company to increase the number of its Directors.
The proxies accompanying the proxy statement mailed to
shareholders cannot be voted by the proxy committee for a greater
number of persons than the number of nominees named. Other
Directors could be elected after nominations from the floor at
the annual meeting, if such nominees each receive a majority vote
of the shareholders. Although the management of the Company does
not contemplate that any of the nominees will be unable to serve,
if such a situation arises prior to the annual meeting, the proxy
committee will vote in accordance with its best judgment.
During the last full year, four regular quarterly meetings
of the Board of Directors were called and held. All directors
except Mrs. Owen were able to attend at least 75% of the
aggregate of the meetings of the Board of Directors and the
meetings held by all committees of the Board on which they
served.
First Financial Bankshares, Inc. does not have a standing
nominating or compensation committee of the Board of Directors.
The Company has a standing Executive Committee whose
responsibilities include functioning as a compensation committee
and a nominating committee with appropriate recommendations to
the entire Board. The Executive Committee met seven times during
1995 and, among other items, considered and took action on
matters relating to its capacity as compensation and/or
nominating committee. In its capacity as nominating committee,
the Executive Committee will consider director nominations from
security holders. There are no prescribed procedures that the
security holder must follow. The Company has a Directors' Audit
Committee that has the responsibility of acting on behalf of the
Board in receiving and reviewing both internal and external audit
reports. During 1995, the Audit Committee met three times. The
Company also has an Administrative Committee for the Profit
Sharing, Pension and Flexible Spending Account Benefit Plans.
Pursuant to the 1992 Incentive Stock Option Plan for Key
Employees of First Financial Bankshares, Inc. and its
Subsidiaries, the Board of Directors has also appointed a Stock
Option Committee composed of five members.
PAGE
<PAGE>
The names and principal occupations of Registrant's
Directors/nominees, together with the length of service as a
Director are as follows:
<TABLE>
<CAPTION>
Years as Principal Occupation
Name Age Office Director (1)During Last Five Years
<S> <C> <C> <C> <C>
Joseph E. Canon 53 Director - Executive Director,
Dodge Jones Foundation
Mac A. Coalson 57 Director - Real Estate and Ranching
F. Scott Dueser (2) 42 Director 5 President and Chief
Executive Officer,
First National Bank
of Abilene, Abilene,
Texas*, since May 18, 1994;
President, First National Bank
of Abilene, Abilene,
Texas*, January 15, 1991, to
May 18, 1994;
Executive Vice President, First
National Bank of Abilene,
Abilene, Texas*
Patrick N. Gerald 56 Director 15 Chairman and President, First
National Bank, Sweetwater,
Sweetwater,Texas*
Robert E. Hitt 71 Director 23 Investments
(2) (3) (4) (5)
Raymond A. McDaniel, 62 Director 4 McDaniel & Associates
Jr. (3)
Bynum Miers (5) 59 Director 4 Ranching and Investments
Kenneth T. Murphy (2)58 Chairman, 24 See "Executive Officers" below
President
and Chief
Executive
Officer,
Director
Dian Graves Owen 56 Director 3 Chairman, Owen Healthcare, Inc.
James M. Parker 65 Director 23 President, Parker
(2) (3) (4) Properties, Inc.
O.L. Schuch 70 Director - Investments
Craig Smith 53 Director 6 Chairman and President,
Hereford State Bank, Hereford,
Texas*
H.T. Wilson (2) (5) 68 Director 13 Chairman, Eastland National
Bank, Eastland, Texas*
Walter F. Worthington69 Director - Chairman and President,
Weatherford National Bank,
Weatherford, Texas*
(1) The years indicated are the approximate number of years each
person has continuously served as Director of the Company, or, prior thereto,
of First National Bank of Abilene, which became a wholly-owned subsidiary of
the Company in April 1973, when all the then Directors of First National Bank
of Abilene became Directors of the Company.
(2) This Director/Nominee is a member of the Executive Committee.
(3) This Director/Nominee is a member of the Stock Option Committee.
(4) This Director/Nominee is a member of the Administrative Committee of the
Company Profit Sharing and Pension Plan.
(5) This Director/Nominee is a member of the Directors' Audit
Committee.
</TABLE>
b.) Executive Officers
<TABLE>
<CAPTION>
Term of Years Served Principal Occupation
Name Age Office Office In Such Office During Past 5 Years
<S> <C> <C> <C> <C> <C>
Kenneth T. Murphy 58 Chairman, 1 year 9 years Chairman, President and
President Chief Executive Officer;
and Chief Chairman, First National
Executive Bank of Abilene, Abilene
Officer Abilene, Texas*
Curtis R. Harvey 50 Executive 1 year 5 years Executive Vice President
Vice Pres- and Chief Financial
ident and Officer
Chief Fin-
ancial
Officer
Tommy J. Barrow 48 Executive 1 year 1 year Executive Vice President
Vice since October 1, 1995;
President President, First
National Bank of Andrews
*The bank shown is a subsidiary of the Company.
</TABLE>
<PAGE>
<PAGE>
c.) Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of the forms furnished to the
Company, the Company believes that during the 1995 fiscal year no
Form 5s were required and all filing requirements applicable to
its officers and directors were complied with.
Item 11. Director and Officer Compensation
a.) Directors who are not officers of the Company receive
$800 for each Board meeting attended and $400 for each committee
meeting attended.
b.) Officer Compensation
The following table provides individual compensation
information on the Chief Executive Officer and the four most
highly compensated officers of the Company and its subsidiaries.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
Number of
Securities All Other
Underlying Compensa-
Name and Principal
Position Year Salary ($) Options(#)(1) tion($)(2)
<S> <C> <C> <C> <C>
Kenneth T. Murphy,
Chairman, President 1995 $ 295,500 3,000 $ 18,143
& CEO-First Financial
Bankshares, Inc. 1994 277,000 - 17,605
1993 257,000 3,750 26,516
F. Scott Dueser,
President & CEO 1995 173,250 2,000 20,397
First National Bank
of Abilene 1994 168,000 - 18,380
1993 151,250 2,500 18,382
Patrick N. Gerald,
Chairman and President 1995 137,500 1,000 19,561
& CEO-First National
Bank, Sweetwater 1994 137,500 - 8,186
1993 132,000 1,250 14,031
Craig Smith, Chairman
and President 1995 132,000 1,000 19,700
& CEO-Hereford
State Bank 1994 130,000 - 15,986
1993 124,500 1,250 15,299
Curtis R. Harvey,
Executive Vice
President 1995 124,000 1,000 14,829
& CFO-First Financial
Bankshares, Inc. 1994 121,800 - 14,157
1993 117,000 1,250 13,050
(1) Adjusted for stock splits and stock dividends.
(2) The Company's contribution to Profit Sharing Plan.
</TABLE>
STOCK OPTIONS
At the 1992 Annual Meeting, the "1992 Incentive Stock Option
Plan" was approved and adopted. The purposes of the Plan are to
attract and retain key employees and to encourage employee
performance by providing them with a proprietary interest in the
Company through the granting of stock options. The maximum
aggregate number of shares of the Company's common stock
which may be issued under the Plan is 100,000, subject to
adjustment for stock dividends and similar events. The 1992 Plan
includes substantially the same features as the expired 1982 Plan
and is administered by a Stock Option Committee appointed by the
Board of Directors.
PAGE
<PAGE>
The following table contains information concerning options
granted during 1995 to the Company's chief executive officer and
four other most highly compensated executive officers.
<TABLE>
<CAPTION>
Option
Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants
Option Term
% of
Number of Total
Securities Options
Underlying Granted to
Exercise
Options Employees or
Base
Granted in Fiscal
Price Expiration
Name (#) (1) Year
($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C>
<C> <C> <C>
Kenneth T. Murphy 3,000 9.7% $ 32.00
10/17/05 $ 51,822 $ 139,382
F. Scott Dueser 2,000 6.5
32.00 10/17/05 34,548 92,921
Patrick N. Gerald 1,000 3.2
32.00 10/17/05 17,274 46,461
Craig Smith 1,000 3.2
32.00 10/17/05 17,274 46,461
Curtis R. Harvey 1,000 3.2
32.00 10/17/05 17,274 46,461
(1) Granted under incentive stock option plan.
</TABLE>
The following table contains information concerning
each exercise of stock options during the last fiscal year by
each of the persons named below and the fiscal year-end value of
unexercised options.
<TABLE>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Number of Unexercised In-the-Money
Securities Options at FY- Options at
Underlying End(#)(1) FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Kenneth T. Murphy 6,173 $ 112,161 3,500 $ 57,330
15,611 91,897
F. Scott Dueser - - 454 9,852
9,078 92,288
Patrick N. Gerald - - 681 14,778
4,993 50,754
Craig Smith 681 14,097 - -
6,025 61,244
Curtis R. Harvey 619 9,724 - -
3,487 22,037
</TABLE>
PAGE
<PAGE>
Pension Plan
The Company's Pension Plan requires annual contributions
sufficient to provide the pension benefits accruing to employees
under the Plan. The annual benefit for a participant in the
Pension Plan who retires on his normal retirement date is the
Accrued Benefit 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, director fees, group insurance
benefits, and pension and profit sharing contributions. There
are provisions in the Plan for early retirement with reduced
benefits. There is no vesting of Plan benefits until a
participant has 5 or more years of credited service with
participating employers. Full (100%)vesting occurs upon the
completion of 5 years of credited service or upon reaching age 65
without regard to credited service.
The following table illustrates estimated retirement benefits
under the Company's Pension Plan for persons in specified
remuneration and years of service categories and which benefits
are payable annually for life with 10 years certain. The
benefits listed in the table are not subject to any deduction for
social security or other offset amounts. This illustration does
not reflect any benefit which a participant may have accrued at
December 31, 1988.
<TABLE>
PENSION PLAN TABLE
<CAPTION>
Years of Service
Remuneration 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 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
</TABLE>
The maximum annual pension benefit payable allowable under
current law is $118,800.
As of December 31, 1995, Mr. Murphy was credited with 25
years of service under the Company Pension Plan, Mr. Gerald was
credited with 20 years of service, Mr. Smith was credited
with 26 years of service, Mr. Dueser was credited with 19 years
of service, and Mr. Harvey was credited with 5 years of service.
The covered compensation of each of these officers and directors
during 1995 was $150,000, $137,711, $132,591, $150,000, and
$125,746, respectively.
In 1992 the Board of Directors approved a deferred
compensation agreement between First Financial Bankshares, Inc.
and Kenneth T. Murphy, Chairman, President and Chief Executive
Officer. The agreement was made in recognition of his
contribution to the success of the Company and as an inducement
to remain, subject to the discretion of the Board of Directors,
in the employ of the Company. The agreement provides that
following retirement in December 2002, or such later date as may
be mutually agreed upon by the parties, the Company would pay
Mr. Murphy, or his beneficiary, the sum of $6,250 per month for a
period of 84 months. In 1995 the agreement was revised to
provide for the sum of $8,750 per month for a period of 84
months. The increase serves to offset the reduction in Mr.
Murphy's pension benefit resulting from a lower covered
compensation amount now allowable under Federal tax law. The
monthly amount is considered to be an appropriate level of
supplemental income to partially offset Mr. Murphy's reduction in
personal income following retirement and is based on an analysis
of the difference in projected final year compensation and
retirement compensation. The agreement also provides for 70%
vesting at age 62, 80% vesting at age 63, and 90% vesting at age
64.
PAGE
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person who served as a member of the Executive Committee
in its capacity as compensation committee was, during the past
fiscal year, an officer or employee of the Company or any of its
subsidiaries, or had any relationship requiring disclosure except
for Mr. Tom Wilson, who is a former subsidiary bank officer.
However, committee members Robert Hitt and James Parker did
obtain loans from a subsidiary bank during the past year. In
each case, such 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 with other persons and did not involve
more than the normal risk of collectibility or present other
unfavorable features. No executive officer of the Company 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) of another
entity, one of whose executive officers served as a Director of
the Company.
EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the past fiscal year the Company's executive
compensation program was administered by the Executive Committee
acting in the capacity of compensation committee. The Company's
executive compensation program consists of base salary,
profit sharing, and incentive stock options. With the exception
of the Chief Executive Officer, and Mr. Dueser whose salary is
reviewed in February and adjusted March 1, the base salaries for
the executive officers named on page 48 are reviewed in December
of each year with adjustments made effective January 1.
Included among the factors which the Committee considers when
approving annual base salaries are: attainment of planned goals
and objectives, scope of responsibility (asset size of subsidiary
bank and/or degree of influence on the Company's profitability
and operations), tenure with the Company, evaluation input from
subsidiary bank directors, and relationship of base salary to the
base salaries of other members of the executive officer group.
The base salary for Mr. Murphy was reviewed in March 1995
with an adjustment made effective April 1, 1995. The increase
was based on the following factors:
- The Company's financial performance for 1995.
- Performance of Chief Executive Officer's duties which
relate primarily to leading and managing the Company within the
broad guidelines set by the Board of Directors.
- Base salary compared to SNL Securities, Inc.
compensation survey data for chief executive officers of similar
size organizations within the industry.
- Subjective evaluations of Mr. Murphy's contribution to
the overall success of the Company.
Stock options are granted under the Incentive Stock Option
Plan upon recommendation of the Stock Option Committee of the
Board of Directors. The Executive Committee believes that
the Stock Option Plan is an integral part of the executive
compensation program which encourages key employees to align
their long-range interest with those of shareholders by
accomplishing longer-term corporate goals.
Robert E. Hitt H.T. Wilson
James Parker
PAGE
<PAGE>
The line graph below compares cumulative total shareholder
return with a performance indication of the overall stock market,
the S&P 500 Stock Index, and a nationally-recognized banking
industry index, the Keefe, Bruyette and Woods, Inc. (KBW) 50
Total Return Index,which is comprised of fifty of the nation's
top banking companies.
The referenced performance graph has been
filed separately with the SEC under Form SE
because the graphical interface cannot be
electronically transferred.
PAGE
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security ownership of certain beneficial owners.
At December 31, 1995, management was 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 five percent (5%) of the Company's common
stock. However, First National Bank of Abilene, First National
Bank, Sweetwater, and Stephenville Bank & Trust Co. held of
record in various fiduciary capacities an aggregate of 1,096,595
shares of such stock. Of the total shares held, these
subsidiaries of capacities an aggregate of 1,096,595 shares of
such stock. Of the total shares held, these subsidiaries of the
Company had sole power to vote 527,905 shares (10.5%), 79,260
shares (1.6%), and 1,125 shares (-%), respectively. In addition,
First National Bank of Abilene and First National Bank,
Sweetwater shared, with other persons, the power to vote the
remaining 485,252 shares and 3,052 shares, respectively. All the
shares held by each subsidiary bank, 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.
b.) Security ownership of management
Set forth in the following table is certain information as
of March 6, 1996 as to the number of shares of Common Stock
beneficially owned by each Director of the Company, by each
nominee for election as a director, by the Company's executive
officers, and by the officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percent
Name Owned of Class
<S> <C> <C>
Joseph E. Canon 2,542 -
Mac A. Coalson 60,213 1.1
F. Scott Dueser 33,894 0.6
Patrick N. Gerald 19,041 0.4
Robert E. Hitt 51,798 0.9
Raymond McDaniel, Jr. 14,696 0.2
Bynum Miers 13,453 0.2
Kenneth T. Murphy 56,251 1.0
Dian Graves Owen 13,595 0.2
James M. Parker 202,655 3.8
O. L. Schuch 15,878 0.3
Craig Smith 25,140 0.5
H. T. Wilson 50,286 0.9
Walter F. Worthington 86,618 1.6
Curtis R. Harvey 1,444 -
Tommy J. Barrow 200 -
All Officers and
Directors as a group 648,323 12.1
</TABLE>
c.) Changes in control
There have been no events to the Registrant's knowledge
which have or will result in a change of control of the
Registrant.
PAGE
<PAGE>
PART IV
Item 13. Certain Relationships and Related Transactions
Certain of Registrant's officers and directors are customers
of one or more of Registrant's subsidiary banks, as are
corporations and other business entities with which directors of
Bankshares are affiliated as directors, officers or principals.
All loans to directors and officers of Bankshares, or to persons
and firms with which they are or may be affiliated, were and are
made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons and did not, and do not, involve more than the normal
risk of collectibility or present other unfavorable features.
None of the transactions involving Bankshares' subsidiaries and
Bankshares' 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.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K The consolidated financial statements of the
Registrant filed with this report are included on pages 27
through 45. There were no financial statement schedules filed as
a part of this report. Such information, to the extent
applicable, has been made a part of the consolidated financial
statements or included elsewhere in this report.
An 8-K Current Report was filed during the fourth quarter of
1995 with regard to the Stock Exchange Agreement between
Registrant, Weatherford National Bancshares, Parker Bancshares,
and Weatherford National Bank.
The Registrant's Articles of Incorporation and Bylaws
and material contracts have been filed with the Securities and
Exchange Commission in "Exhibits to Form S-15" under Registration
No. 2-73141.
Copies of the following documents were filed with the
Form 10-K Annual Report for the fiscal year ended December 31,
1984.
1. Joint Venture Agreement between First National Bank of
Abilene and Crow-Griffin #1.
2. Lease Agreement between First National Bank of Abilene
and Crow/First Joint Venture.
3. Deferred Compensation Agreement between Bankshares and
Walter F. Johnson.
The following documents were filed with the Form 10-K
Annual Report for the fiscal year ended December 31, 1988.
1. Articles of Amendment to the Articles of Incorporation
adopted at the 1988 Annual Meeting of Shareholders.
2. Restated Bylaws adopted by the Board of Directors on
January 24, 1989.
The following documents were filed with the Form 10-K
Annual Report for the fiscal year ended December 31, 1992.
1. Amendment to Registrant's Bylaws effective January 28,
1992, relative to emeritus directors.
2. Deferred Compensation Agreement between Bankshares and
Kenneth T. Murphy, Chairman, President and Chief Executive
Officer of the Registrant.
The following document was filed with the Form 10-K
Annual Report for the fiscal year ended December 31, 1994
1. Amendment to Registrant's Bylaws effective April 26,
1994.
Listed below are the exhibits filed with this report:
1. Subsidiaries of Registrant
2. Revised Deferred Compensation Agreement between
Bankshares and Kenneth T. Murphy, Chairman, President and Chief
Executive Officer of the Registrant.
PAGE
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF REGISTRANT
Place of Percentage of Voting
Name of Subsidiary Organization Securities Owned
<S> <C> <C>
First Financial Bankshares
of Delaware, Inc. Delaware 100%
First Financial
Investments, Inc. Texas 100%
First National Bank
of Abilene Texas 100%*
Abilene, Texas
Hereford State Bank Texas 100%*
Hereford, Texas
First National Bank Texas 100%*
Sweetwater, Texas
Eastland National Bank Texas 100%*
Eastland, Texas
The First National
Bank in Cleburne Texas 100%*
Cleburne, Texas
Stephenville Bank & Trust Texas 100%*
Stephenville, Texas
Southwest Bank
of San Angelo Texas 100%*
San Angelo, Texas
* By First Financial Bankshares of
Delaware, Inc.
All subsidiaries (other than First Financial Investments, Inc.
which, as of December 31, 1995, had not yet been formally
organized) are included in the consolidated financial statements.
</TABLE>
PAGE
<PAGE>
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made and restated this 28th day of
December, 1995, by and between FIRST FINANCIAL BANKSHARES, INC.
(formerly FIRST ABILENE BANKSHARES, INC.), a Texas corporation,
with its principal place of business in Abilene, Taylor County,
Texas, hereinafter called "Corporation," and KENNETH T. MURPHY, a
resident of Abilene, Taylor County, Texas, hereinafter called
"Employee."
RECITALS:
A. On or about October 28, 1992, Corporation and Employee
entered into that certain Deferred Compensation Agreement (the
"Compensation Agreement") in recognition of the capable and
efficient manner in which Employee, as Corporation's Chief
Executive Officer, has managed the business of Corporation and as
an inducement to Employee to remain in the employ
of Corporation (subject, however, to the discretion of the
Corporation's Board of Directors) by compensating Employee beyond
his regular salary and other benefits for services rendered or to
be rendered to Corporation.
B. On or about November 28, 1994, Corporation, as a
further inducement to Employee to remain in the employ of
Corporation, did amend the Compensation Agreement so as
to provide assurance to Employee that any change in control of
Corporation which may result, directly or indirectly, in
termination of Employee's employment by Corporation (or any
successor in interest to the Corporation) would not result in
loss of, or any reduction in the amount of, the
deferred compensation which Employee would otherwise be entitled
to receive under the Compensation Agreement.
C. Employee has continued to serve as a Director of
Corporation and as its Chief Executive Officer at all times since
the date of the Compensation Agreement and has fulfilled all
of his obligations thereunder as of the date hereof.
D. Corporation, being satisfied with the manner in which
Employee has continued to perform his duties and carry out his
responsibilities as an officer and Director of Corporation, and
as a further inducement to Employee to remain in the employ of
Corporation, desires to restate the Compensation Agreement, as
heretofore amended, and to further amend said Agreement to
provide an increase of TWO THOUSAND FIVE HUNDRED DOLLARS ($2,500)
per month to be paid to Employee in the event he achieves the
condition for full payment under the Compensation Agreement.
NOW, THEREFORE, in consideration of the premises and of the
provisions hereinafter set forth, the parties agree as follows:
1. Continuation of Employment. At the discretion of the
Board of Directors of Corporation, Employee shall continue in the
employ of the Corporation until December 31, 2002, or until such
later date as may be mutually agreed upon by the parties.
2. Compensation. The Corporation shall pay the Employee
such salary as the Board of Directors of Corporation may from
time to time determine, together with such amount of deferred
compensation payable as provided in provisions hereinafter set
forth, unless forfeited by the occurrence of any of the events of
forfeiture hereinafter set forth.
3. Deferred Compensation.
a. Subject to the provisions of Paragraphs 4 and
5 below, commencing on the 1st day of January, 2003, or the first
day of the month following Employee's retirement, whichever
occurs later, the Corporation shall pay to the Employee as
deferred compensation the sum of EIGHT THOUSAND SEVEN HUNDRED
FIFTY DOLLARS ($8,750) per month for a period of 84 months.
b. In the event of the death of Employee before
all 84 monthly installments are made, the unpaid balance will
continue to be paid in installments for the unexpired portion of
such 84-month period to his designated beneficiary in the same
manner as set forth above.
PAGE
<PAGE>
c. If the Employee's employment is terminated
because of death or disability prior to the commencement of the
payment of deferred compensation to Employee, the Corporation
shall pay to the beneficiary designated by the Employee or to the
Employee, as the case may be, on the first day of the month
following such termination, EIGHT THOUSAND SEVEN HUNDRED FIFTY
DOLLARS ($8,750) for a period of 84 months. For purposes ofthis
Agreement, the Employee shall be considered disabled on the
date the Board of Directors determines the Employee, because of a
physical or mental disability, will be unable to perform the
duties of his customary position of employment for an indefinite
period which the Board of Directors considers will be of long
continued duration.
d. If the designated beneficiary shall die
before a total of 84 monthly installments are made by the
Corporation, the unpaid balance will continue to be paid in
installments for the unexpired portion of such 84-month period to
the estate of such designated beneficiary.
e. The beneficiary referred to in this paragraph
may be designated or changed by Employee (without the consent of
any prior beneficiary) on the form provided by the Corporation
and delivered to the Corporation before his death. If no such
beneficiary shall have been designated or if no designated
beneficiary shall survive the Employee, the installment payments
payable hereunder shall be payable to the Employee's estate.
f. During the period of deferred compensation,
other employee benefits of the Corporation shall be provided to
Employee at the sole election and determination of the Board of
Directors of Corporation.
4. Early Commencement of Deferred Compensation.
a. No payment of deferred compensation shall be
made to Employee if his employment terminates prior to his
attaining age 62 for any reason other than death or disability.
b. Subject to the provisions of Paragraph 5
below, if Employee's employment terminates prior to his attaining
age 65, but after he has attained age 62, for any reason other
than death or disability, then commencing on the first day of the
month following such termination, the Corporation shall pay
deferred compensation in accordance with the provisions of
Paragraph 3 above, with the exception that the amount of deferred
compensation payable shall be reduced for the term of payout in
accordance with the following schedule:
<TABLE>
<CAPTION>
Age of Employee Percentage of Deferred
at Termination Compensation Payable
of Employment Under Paragraph 3
<S> <C>
62 70%
63 80%
64 90%
</TABLE>
c. Notwithstanding the provisions of
Subparagraphs a. and b. above,but subject to the provisions of
Paragraph 5 below, Employee shall, on the first day of the month
following termination of employment, be entitled to receive all
of the deferred compensation described in Paragraph 3 above in
the event (1) that the Corporation shall be merged or
consolidated with another corporation or other organization, or
(2) that all, or substantially all, of the assets of the
Corporation (including, but not limited to, the shares of the
Corporation's subsidiary banks) shall be acquired by another
corporation or other organization, or (3) that majority ownership
or control of the Corporation shall be otherwise transferred to,
or acquired by, any one or more persons, firms or corporations as
the result of a single transaction or closely-related series of
transactions; provided, that there shall be excluded from the
transactions or occurrences described in (1)-(3) any merger,
consolidation,sale, transfer or other change in ownership or
control of the Corporation or its principal assets as a result of
any reorganization of the Corporation and its subsidiaries
effected by the Corporation itself.
5. Forfeiture of Deferred Compensation. No payment of
deferred compensation shall be made to Employee, and all rights
under this Agreement shall be forfeited, if his employment
shall be terminated by the Corporation as a result of the
Employee's action or failure to act which in the opinion of the
Board is materially adverse to the best interest of the
Corporation.
PAGE
<PAGE>
6. Rights of Employee and Any Beneficiary. Nothing
contained in this Agreement and no action taken pursuant to the
provisions of this Agreement shall create or be construed to
create a trust of any kind or a fiduciary relationship between
the Corporation and the Employee, his designated beneficiary or
any other person. Any funds which may be set aside by the
Corporation to meet its obligations under this Agreement shall
continue for all purposes to be a part of the general funds of
the Corporation and no persons other than the Corporation shall
by virtue of the provisions of this Agreement have any interest
in such funds. To the extent that any person acquires a right to
receive payments from the Corporation under this Agreement, such
rights shall be no greater than the right of any unsecured
general creditor of the Corporation. The Employee and any
beneficiary of the Employee shall have no vested, secured or
preferred interest in any of the Corporation's assets, but will
only have a contractual right to receive payments provided for in
this Agreement. The right to receive payments under this
Agreement may not be anticipated, commuted, transferred, assigned
or otherwise encumbered. The rights of the Employee under this
Agreement and/or of any beneficiary of the Employee shall be
solely those of an unsecured creditor of the Corporation.
7. Effect of Benefits. The benefits to be provided
hereunder are future and contingent, and shall be in addition to
Employee's annual salary as determined by the Board of Directors
of the Corporation. This Agreement shall not affect the right of
Employee to participate in any current or future Corporation
retirement plan or in any supplemental compensation arrangement
which constitutes a part of the Corporation's regular
compensation structure. Any deferred compensation payable under
this Agreement shall not be deemed salary or other compensation
to the Employee for the purpose of computing benefits to which he
may be entitled under any pension plan or other arrangement of
the Corporation for the benefit of its employees.
8. No Promise of Future Employment. Nothing contained
herein shall be construed as conferring upon the Employee the
right to continue in the employ of the Corporation as an
officer or in any other capacity.
9. Reorganization. The Corporation agrees that it will
not merge or consolidate with any other company or organization,
or permit its business activities to be taken over by any other
organization unless and until the succeeding or continuing
company or other organization shall expressly assume all
obligations and liabilities herein set forth.
10. Amendment. This Agreement may be revoked or amended in
whole or in part only by a written instrument signed by both of
the parties hereto.
11. Interpretation. The Board of Directors of the
Corporation shall have full power and authority to interpret,
construe and administer this Agreement, and the Board's
interpretation and construction thereof, and actions thereunder
shall be binding and conclusive to all persons for all purposes.
No members of the Board shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Agreement unless attributable to his own
willful misconduct or lack of good faith.
12. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the Corporation, its successors and
assigns, and the Employee, his designated beneficiary, heirs,
executors, administrators and legal representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
ATTEST: FIRST FINANCIAL BANKSHARES, INC.
By: /S/ SANDY LESTER By: /S/ CURTIS R. HARVEY
SANDY LESTER CURTIS R. HARVEY
Secretary Executive Vice President
"CORPORATION"
By:/S/ KENNETH T. MURPHY
KENNETH T. MURPHY
"EMPLOYEE"
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST FINANCIAL BANKSHARES, INC.
(Registrant)
By:/S/ KENNETH T. MURPHY By:/S/ CURTIS R.HARVEY
KENNETH T. MURPHY, Chairman CURTIS R. HARVEY,
of the Board, President, Executive Vice President
Chief Executive Officer and Chief Financial Officer,
Director Controller and Chief
Accounting Officer
Date: March 12 , 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
NAME TITLE DATE
/S/ F. SCOTT DUESER Director March 19 , 1996
F. Scott Dueser
/S/ PATRICK N. GERALD Director March 6 , 1996
Patrick N. Gerald
/S/ ROBERT E. HITT Director March 19 , 1996
Robert E. Hitt
Director March , 1996
Joe B. Matthews
/S/ RAYMOND A. MCDANIEL, JR. Director March 19 , 1996
Raymond A. McDaniel, Jr.
/S/ BYNUM MIERS Director March 19 , 1996
Bynum Miers
Director March , 1996
Dian Graves Owen
/S/ JAMES M. PARKER Director March 19 , 1996
James M. Parker
/S/ O. L. SCHUCH Director March 12 , 1996
O. L. Schuch
/S/ CRAIG SMITH Director March 21 , 1996
Craig Smith
/S/ H. T. WILSON Director March 19 , 1996
H.T. Wilson
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 58,138
<INT-BEARING-DEPOSITS> 1,387
<FED-FUNDS-SOLD> 26,360
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,249
<INVESTMENTS-CARRYING> 427,455
<INVESTMENTS-MARKET> 430,101
<LOANS> 481,214
<ALLOWANCE> 8,943
<TOTAL-ASSETS> 1,062,335
<DEPOSITS> 939,642
<SHORT-TERM> 85
<LIABILITIES-OTHER> 7,691
<LONG-TERM> 0
0
0
<COMMON> 50,152
<OTHER-SE> 64,765
<TOTAL-LIABILITIES-AND-EQUITY> 1,062,335
<INTEREST-LOAN> 43,354
<INTEREST-INVEST> 25,299
<INTEREST-OTHER> 1,902
<INTEREST-TOTAL> 70,555
<INTEREST-DEPOSIT> 27,626
<INTEREST-EXPENSE> 27,655
<INTEREST-INCOME-NET> 42,900
<LOAN-LOSSES> 55
<SECURITIES-GAINS> 44
<EXPENSE-OTHER> 32,402
<INCOME-PRETAX> 24,718
<INCOME-PRE-EXTRAORDINARY> 24,718
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,356
<EPS-PRIMARY> 3.26
<EPS-DILUTED> 3.26
<YIELD-ACTUAL> 4.71
<LOANS-NON> 1,160
<LOANS-PAST> 173
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,482
<ALLOWANCE-OPEN> 9,024
<CHARGE-OFFS> 965
<RECOVERIES> 745
<ALLOWANCE-CLOSE> 8,943
<ALLOWANCE-DOMESTIC> 8,943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
