SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
June 30, 1996 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 .
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
6,692,671 shares
<PAGE>
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
1. Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Signatures 12
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at June 30,
1996, December 31, 1995, and June 30, 1995, and the consolidated statements of
income, the consolidated statements of changes in stockholders' equity, and the
consolidated statements of cash flows for the six months ended June 30, 1996 and
1995, follow on pages 4 through 8.
3
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
<CAPTION>
June 30, December 31,
-------------------------------------
1996 1995 (1) 1995 (1)
--------------- --------------- ----------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 58,303,934 $ 50,939,909 $ 60,858,959
Interest-bearing deposits in banks 884,412 588,000 1,477,025
Federal funds sold 24,492,191 20,270,000 31,685,000
Investment securities:
Securities held-to-maturity (approximate
market value of $474,027,925 and
$460,162,300 at June 30, 1996 and 1995,
and $454,033,240 at December 31, 1995) 478,591,231 460,288,856 451,553,429
Securities available-for-sale, at
approximate market value 31,087,507 16,181,869 29,563,133
--------------- ------------- ---------------
Total investment securities 509,678,738 476,470,725 481,116,562
Loans 550,401,489 476,368,969 514,695,730
Less: Allowance for loan losses 10,498,119 9,039,628 9,598,024
Unearned discount 8,576,702 7,992,527 7,362,115
--------------- ------------- ---------------
Net loans 531,326,668 459,336,814 497,735,591
Bank premises and equipment-net 34,585,382 31,295,529 31,776,992
Goodwill 5,786,549 1,143,975 1,106,052
Other assets 20,915,770 18,764,920 20,130,839
--------------- ------------- ---------------
TOTAL ASSETS $ 1,185,973,644 $ 1,058,809,872 $ 1,125,887,020
============== ============= ==============
LIABILITIES
Noninterest-bearing deposits $ 214,993,884 $ 192,820,747 $ 218,784,465
Interest-bearing demand deposits 283,969,523 298,772,468 312,163,265
Interest-bearing time deposits 552,348,789 442,681,717 466,630,618
--------------- --------------- ---------------
Total deposits 1,051,312,196 934,274,932 997,578,348
Short-term borrowings 90,000 180,000 85,000
Dividends payable 1,873,948 1,552,395 1,554,717
Other liabilities 7,555,595 7,659,802 6,641,308
--------------- --------------- ---------------
Total liabilities 1,060,831,739 943,667,129 1,005,859,373
SHAREHOLDERS' EQUITY
Capital stock-$10 par value;
10,000,000 shares authorized 66,926,710 53,317,040 53,391,930
Capital surplus 36,872,386 36,864,005 36,870,604
Retained earnings 21,892,108 25,230,089 29,917,274
Unrealized (loss) on investment
securities available-for-sale (549,299) (268,391) (152,161)
--------------- --------------- ---------------
Total Shareholders' Equity 125,141,905 115,142,743 120,027,647
--------------- --------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,185,973,644 $ 1,058,809,872 $ 1,125,887,020
============== ============== ==============
(1) Restated to reflect pooling-of-interests.
</TABLE>
4
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -------------------------------
1996 1995 (1) 1996 1995 (1)
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 12,813,457 $ 11,283,379 $ 25,825,262 $ 21,936,629
Investment income-taxable 7,177,170 6,432,102 14,337,955 12,817,836
Investment income-tax exempt 226,485 203,248 454,924 417,491
Interest on interest-bearing deposits 17,326 5,518 46,699 8,071
Interest on federal funds sold and other 452,556 501,005 1,002,167 859,724
------------- -------------- -------------- --------------
Total interest income 20,686,994 18,425,252 41,667,007 36,039,751
INTEREST EXPENSE
Interest-bearing deposits 8,272,730 7,294,806 16,668,717 13,838,655
Short-term borrowings 2,618 6,319 32,076 19,370
------------- ------------- -------------- --------------
Total interest expense 8,275,348 7,301,125 16,700,793 13,858,025
------------- ------------- -------------- --------------
NET INTEREST INCOME 12,411,646 11,124,127 24,966,214 22,181,726
Provision for loan losses 365,000 1,000 883,000 21,000
------------- ------------- -------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,046,646 11,123,127 24,083,214 22,160,726
NONINTEREST INCOME
Trust fees 868,159 768,872 1,727,760 1,538,309
Service fees on deposit accounts 1,963,402 1,573,235 3,774,871 3,091,606
Net gain on sale of foreclosed assets 2,498 2,064,654 98,978 2,070,920
Other 1,205,001 849,757 2,142,052 1,724,391
------------ ------------- -------------- --------------
Total noninterest income 4,039,060 5,256,518 7,743,661 8,425,226
NONINTEREST EXPENSE
Salaries and employee benefits 4,935,901 4,377,816 9,789,235 8,639,423
Net occupancy 798,865 652,522 1,536,459 1,269,016
Equipment 701,093 614,295 1,362,000 1,144,529
FDIC assessments 4,250 516,974 9,002 1,033,950
Printing and supplies 270,881 200,679 511,220 423,018
Other 2,615,958 2,444,495 5,106,160 4,804,066
------------ ------------- -------------- --------------
Total noninterest expense 9,326,948 8,806,781 18,314,076 17,314,002
------------ ------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES 6,758,758 7,572,864 13,512,799 13,271,950
Provision for income tax 2,310,856 2,560,213 4,620,579 4,469,137
------------ ------------- -------------- --------------
NET EARNINGS $ 4,447,902 $ 5,012,651 $ 8,892,220 $ 8,802,813
============ ============= ============== ==============
EARNINGS PER SHARE (2) $ 0.66 $ 0.75 $ 1.33 $ 1.32
============ ============= ============== ==============
DIVIDENDS PER SHARE (3) $ 0.28 $ 0.25 $ 0.53 $ 0.47
============ ============= ============== ==============
(1) Restated to reflect pooling-of-interests.
(2) Earnings per share are calculated using weighted average shares
outstanding for each period presented with the prior periods restated
to reflect 1996 pooling-of-interests and adjusted for 25% stock
dividend issued June 3, 1996.
(3) Dividends per share are calculated using actual number of shares out-
standing at the end of each period presented with the prior periods
adjusted for 25% stock dividend issued June 3, 1996.
</TABLE>
5
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY - UNAUDITED
<CAPTION>
Unrealized
(Loss) On
Investment
Securities Total
Capital Stock Capital Retained Available- Shareholders'
Shares Amount Surplus Earnings for-Sale Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1994 (1) 5,321,191 $ 53,211,910 $ 36,863,701 $ 18,964,236 $ (681,018) $ 108,358,829
Net earnings - year-to-date (1) 17,015,613 17,015,613
Cash dividends (6,062,575) (6,062,575)
Exercise of stock options 18,002 180,020 6,903 186,923
Change in unrealized (loss) 528,857 528,857
---------- ------------ ------------ ------------ ----------- ------------
Balances at
December 31, 1995 5,339,193 53,391,930 36,870,604 29,917,274 (152,161) 120,027,647
Net earnings- year-to-date 8,892,220 8,892,220
Cash dividends (3,548,366) (3,548,366)
Exercise of stock options 16,576 165,760 1,782 167,542
Stock dividend (25%) 1,336,902 13,369,020 (13,369,020)
Change in unrealized (loss) (397,138) (397,138)
---------- ------------ ------------ ------------ ---------- -----------
Balances at
June 30, 1996 6,692,671 $ 66,926,710 $ 36,872,386 $ 21,892,108 $ (549,299) $ 125,141,905
========== =========== =========== =========== ========= ===========
(1) December 31, 1994 balances restated to reflect pooling-of-interests.
</TABLE>
6
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
<CAPTION>
Six Months Ended
June 30,
--------------------------------------
1996 1995 (1)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,892,220 $ 8,801,175
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,719,137 1,420,670
Provision for loan losses 883,000 20,000
Premium amortization, net of discount accretion 1,327,396 1,469,849
Gain on sale of foreclosed assets (2,498) (2,070,920)
Deferred federal income tax benefit (568,492) (1,979)
Decrease in other assets 962,598 238,156
Increase in other liabilities 457,640 2,020,709
------------- -------------
Total adjustments 4,778,781 3,096,485
------------- -------------
Net cash provided by operating activities 13,671,001 11,897,660
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest-bearing
deposits in banks 1,187,613 (390,000)
Cash payment for stock, net of cash and cash
equivalents acquired through acquisition (4,554,417) -
Proceeds from sale of securities available for sale 997,968 4,355,752
Proceeds from maturity of securities available for sale 1,082,594 2,040,326
Proceeds from maturity of securities held to maturity 93,809,453 74,092,195
Purchase of securities available for sale (2,966,531) (5,033,500)
Purchase of securities held to maturity (78,742,979) (61,744,854)
Net increase (decrease) in loans 1,513,203 (21,715,270)
Capital expenditures (2,055,034) (1,718,331)
Proceeds from sale of assets 302,272 2,201,849
------------- -------------
Net cash provided by (used in) investing activities 10,574,142 (7,911,833)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing deposits (17,948,401) (16,591,206)
Net increase (decrease) in interest-bearing deposits (12,512,574) 615,950
Net decrease in other short-term borrowings (470,438) (1,076,631)
Proceeds from stock issuances 167,542 105,434
Dividends paid (3,229,106) (2,800,922)
------------- -------------
Net cash used in financing activities (33,992,977) (19,747,375)
------------- -------------
Net decrease in cash and cash equivalents (9,747,834) (15,761,548)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 92,543,959 86,971,457
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 82,796,125 $ 71,209,909
============= ============
7
<PAGE>
Six Months Ended
June 30,
--------------------------------------
1996 1995 (1)
------------- -------------
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired through foreclosure $ 29,581 $ 200,632
Loans to finance sales of other real estate - 27,450
Change in unrealized loss on investment securities
available-for-sale (241,920) 103,884
The Company acquired substantially all of the capital stock of Weatherford
National Bancshares, Inc. in exchange for capital stock of the Company, as
follows:
Capital stock 3,239,770 -
Capital surplus - -
Retained earnings (including unrealized gain on securities
available for sale) 1,871,228 -
-------------
5,110,998
The Company purchased all of the capital stock of The Citizens National Bank
of Weatherford for $6,394,800. In conjunction with the acquisition,
liabilities were assumed, as follows:
Fair value of assets acquired 98,061 501 -
Cash paid for the capital stock (6,394,800) -
-------------
Liabilities assumed 91,666,701 -
OTHER DISCLOSURES:
Interest paid 16,627,188 13,127,286
Federal income tax paid 4,888,040 3,917,831
(1) Restated to reflect pooling-of-interests.
</TABLE>
8
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Combinations
In January 1996, the Company acquired Citizens Equity Corporation and its
subsidiary bank, Citizens National Bank of Weatherford, in a cash transaction
accounted for as a purchase. The operations of Citizens National Bank are only
included in 1996. Also in January 1996, the Company acquired Weatherford
National Bancshares, Inc. and its subsidiary bank, Weatherford National Bank,
through an exchange of stock. The transaction was accounted for as a
pooling-of-interests; therefore, prior period financial statements have been
restated to include Weatherford National Bancshares, Inc. The following table
shows the effect of Weatherford National Bancshares, Inc.'s operations for the
periods prior to combination:
<TABLE>
<CAPTION>
First Weatherford
($ thousands) Financial National Combined
- --------------------------------------------- --------- ------------ --------
<S> <C> <C> <C>
Three Months Ended June 30, 1995:
Net Interest Income $ 10,554 $ 570 $ 11,124
Net Income 4,793 220 5,013
Six Months Ended June 30, 1995:
Net Interest Income $ 21,064 $ 1,118 $ 22,182
Net Income 8,379 424 8,803
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Operating Results
For the six months ended June 30, 1996, the Company's net income amounted to
$8.89 million, or $1.33 per share, compared to $8.80 million, or $1.32 per
share, earned in the first half of 1995. Net income for the second quarter 1996
totaled $4.45 million, or $ .66 per share. In the second quarter 1995, the
Company reported net income of $5.01 million, or $ .75 per share, amounts which
included after tax nonrecurring income of $1.31 million, or $ .20 per share,
resulting from the sale of foreclosed assets. Exclusive of nonrecurring gains in
the prior year, comparative earnings for the second quarter and first six months
of 1996 are up approximately 19 percent. Return on average assets and return on
average equity for the six months ended June 30, 1996, amounted to 1.50 percent
and 14.88 percent, respectively. Excluding nonrecurring gains, the Company's
return on average assets and return on average equity for the same period last
year amounted to 1.44 percent and 13.74 percent, respectively.
Net interest income for the first six months of 1996 was $2.8 million above the
1995 amount and resulted primarily from loan growth. The net interest margin for
the six months ended June 30, 1996, was 4.63 percent, down slightly from the
4.72 percent for 1995. The provision for loan losses for the first half of 1996
has totaled $883 thousand as compared to $21 thousand during the same period in
1995. The increase is attributed to provisions at subsidiary banks located in
markets where agriculture has been affected by severe drought conditions.
Total noninterest income for the six months ended June 30, 1996, amounted to
$7.74 million as compared to the prior year total of $8.42 million, which
included $2.06 million in nonrecurring gains from the sale of foreclosed assets.
For the first six months of 1996, trust fees and service fees on deposits are up
$189 thousand and $683 thousand, respectively. Other noninterest income which
includes merchant credit card fees, real estate mortgage fees, ATM transaction
fees, and various miscellaneous service-related fees totaled $2.14 million, an
increase of 24 percent from the 1995 six month total.
Noninterest expense for the six months ended June 30, 1996, totaled $18.31
million as compared to $17.31 million during the same period in 1995. The
reduction in 1996 FDIC insurance expense resulted from lower assessment rates
implemented in mid-year 1995. The Company's key indicator of operating
efficiency, noninterest expense as a percent of net interest income and
noninterest income, improved to 55.73 percent for the first half of 1996 as
compared to 60.19 percent for the same period last year.
Balance Sheet Review
Consolidated assets at June 30, 1996, totaled $1.19 billion as compared to $1.13
billion at year-end 1995 and $1.06 billion at June 30, 1995. The Company's asset
growth is attributed primarily to the cash purchase acquisition completed in
early 1996. The balance sheets presented reflect normal recurring adjustments
and accruals with prior periods restated to reflect the 1996 acquisition
accounted for as a pooling-of-interests.
Loans at June 30, 1996, amounted to $542 million as compared to $507 million at
December 31, 1995, and $468 million at June 30, 1995. Since year-end 1995, real
estate loans and consumer loans have increased $23 million and $15 million,
respectively, and commercial loans have decreased $3 million. The net unrealized
loss in the investment portfolio at June 30, 1996, totaled $5.4 million. At June
30, 1996, the investment portfolio reflected an average yield of 6.02% and did
not include any CMOs that entail higher risks than
10
<PAGE>
standard mortgage-backed securities. Amortized cost of structured notes at June
30, 1996, totaled $16.0 million as compared to an approximate market value of
$15.5 million. Total deposits at June 30, 1996, amounted to $1.05 billion as
compared to $998 million at year-end 1995 and $934 million at June 30, 1995.
Nonperforming assets at June 30, 1996, totaled $5.5 million, or 1.01 percent of
loans and foreclosed assets, and were up $3.4 million from the December 31,
1995, amount. The increase was due primarily to the addition of nonaccrual
agricultural-related credits. Although the level of nonperforming assets has
increased, foreclosed asset expense remains immaterial. At June 30, 1996, the
allowance for loan losses amounted to 191.9 percent of nonperforming assets.
Management is not aware of any material classified credits not properly
disclosed as nonperforming and considers the allowance for loan losses to be
adequate.
Liquidity and Capital
The Company's consolidated statements of cash flows are presented on page 7 of
this report. At June 30, 1996, the balance sheet reflects adequate liquidity and
the parent company has no funded debt under its $10 million line of credit.
Total equity capital amounted to $125.1 million at June 30, 1996, which was up
from $120.0 million at year-end 1995 and $115.1 million at June 30, 1995. The
Company's risk-based capital and leverage ratios at June 30, 1996, were 20.13
percent and 10.02 percent, respectively. The second quarter cash dividend of $
.28 per share totaled $1.9 million and represented 42.1 percent of earnings.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date By:
Curtis R. Harvey
Executive Vice President and
Chief Financial Officer
Date By:
Sandy Lester
Secretary-Treasurer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 58,304
<INT-BEARING-DEPOSITS> 884
<FED-FUNDS-SOLD> 24,492
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,088
<INVESTMENTS-CARRYING> 478,591
<INVESTMENTS-MARKET> 474,028
<LOANS> 541,825
<ALLOWANCE> 10,498
<TOTAL-ASSETS> 1,185,974
<DEPOSITS> 1,051,312
<SHORT-TERM> 90
<LIABILITIES-OTHER> 9,430
<LONG-TERM> 0
0
0
<COMMON> 66,927
<OTHER-SE> 58,215
<TOTAL-LIABILITIES-AND-EQUITY> 1,185,974
<INTEREST-LOAN> 25,825
<INTEREST-INVEST> 14,792
<INTEREST-OTHER> 1,050
<INTEREST-TOTAL> 41,667
<INTEREST-DEPOSIT> 16,669
<INTEREST-EXPENSE> 16,701
<INTEREST-INCOME-NET> 24,966
<LOAN-LOSSES> 883
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 18,314
<INCOME-PRETAX> 13,513
<INCOME-PRE-EXTRAORDINARY> 8,892
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,892
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 4.65
<LOANS-NON> 4,283
<LOANS-PAST> 212
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,219
<ALLOWANCE-OPEN> 9,194
<CHARGE-OFFS> 873
<RECOVERIES> 494
<ALLOWANCE-CLOSE> 10,498
<ALLOWANCE-DOMESTIC> 10,498
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
