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
March 31, 1997 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 .
There were 6,727,930 shares of common stock outstanding as of May 1, 1997.
<PAGE>
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
1. Financial Statements 4
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Signatures 11
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at March 31,
1997, December 31, 1996, and March 31, 1996, and the consolidated statements of
earnings, the consolidated statements of changes in stockholders'equity, and the
consolidated statements of cash flows for the three months ended March 31, 1997
and 1996, follow on pages 4 through 7.
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 63,906,948 $ 60,427,063 $ 71,677,154
Interest-bearing deposits in banks 788,538 1,380,383 888,494
Federal funds sold 47,041,013 27,021,551 54,306,156
Investment securities:
Securities held to maturity (approximate
market value of $469,128,788 and
$483,505,037 at March 31, 1997 and 1996,
and $466,805,918 at December 31, 1996) 469,820,412 498,696,924 466,623,769
Securities available for sale, at
approximate market value 56,807,833 16,181,869 45,164,802
--------------- --------------- ---------------
Total investment securities 526,628,245 514,878,793 511,788,571
Loans 576,704,161 543,192,148 580,163,598
Less: Allowance for loan losses 9,453,434 10,222,116 9,441,466
Unearned discount 7,047,466 9,201,624 7,263,392
--------------- --------------- ---------------
Net loans 560,203,261 523,768,408 563,458,740
Bank premises and equipment-net 35,692,966 34,431,908 34,454,587
Goodwill 5,485,609 5,702,786 5,585,922
Other assets 19,986,778 21,131,701 19,881,425
--------------- --------------- ---------------
TOTAL ASSETS $ 1,259,733,358 $ 1,188,742,593 $ 1,262,041,049
=============== =============== ===============
LIABILITIES
Noninterest-bearing deposits $ 225,024,638 $ 209,821,076 $ 246,571,720
Interest-bearing demand deposits 304,361,779 303,888,769 316,524,085
Interest-bearing time deposits 583,572,655 540,827,560 558,785,647
--------------- --------------- ---------------
Total deposits 1,112,959,072 1,054,537,405 1,121,881,452
Dividends payable 1,883,736 1,656,968 1,881,288
Other liabilities 10,922,411 9,876,756 7,117,463
--------------- --------------- ---------------
Total liabilities 1,125,765,219 1,066,071,129 1,130,880,203
--------------- --------------- ---------------
SHAREHOLDERS' EQUITY
Capital stock-$10 par value;
10,000,000 shares authorized 67,276,300 53,462,970 67,188,860
Capital surplus 36,871,510 36,879,772 36,874,707
Retained earnings 30,269,793 32,704,620 27,363,902
Unrealized loss on investment
securities available for sale (449,464) (375,898) (266,623)
---------------- --------------- ---------------
Total shareholders' equity 133,968,139 122,671,464 131,160,846
---------------- --------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,259,733,358 $ 1,188,742,593 $ 1,262,041,049
=============== =============== ===============
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 13,240,457 $ 13,011,804
Investment income-taxable 7,431,347 7,160,785
Investment income-tax exempt 314,163 228,439
Interest on interest-bearing deposits 12,835 29,372
Interest on federal funds sold and other 664,190 549,614
------------ ------------
Total interest income 21,662,992 20,980,014
INTEREST EXPENSE
Interest-bearing deposits 8,752,454 8,395,987
Short-term borrowings 1,089 27,961
Interest on mortgage notes payable 740 1,497
------------ ------------
Total interest expense 8,754,283 8,425,445
------------ ------------
NET INTEREST INCOME 12,908,709 12,554,569
Provision for loan losses 225,000 518,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 12,683,709 12,036,569
NONINTEREST INCOME
Trust fees 966,070 859,602
Service fees on deposit accounts 2,189,952 1,811,467
Net gain on sale of foreclosed assets 15,056 95,691
Other 1,119,634 937,837
------------ ------------
Total noninterest income 4,290,712 3,704,597
NONINTEREST EXPENSE
Salaries and employee benefits 5,112,098 4,853,335
Net occupancy and equipment expenses 836,482 737,595
Equipment expense 727,764 660,905
Other 3,065,469 2,735,295
------------ ------------
Total noninterest expense 9,741,813 8,987,130
------------ ------------
EARNINGS BEFORE INCOME TAXES 7,232,608 6,754,036
Provision for income tax 2,442,981 2,309,722
------------ ------------
NET EARNINGS $ 4,789,627 $ 4,444,314
============ ============
EARNINGS PER SHARE (1) $ 0.71 $ 0.66
DIVIDENDS PER SHARE (2) $ 0.28 $ 0.25
(1) Earnings per share are calculated using weighted average shares
outstanding for each period presented with the prior period adjusted
for 25% stock dividend issued June 3, 1996.
(2) Dividends per share are calculated using actual number of shares
outstanding at end of each period presented with the prior period
adjusted for 25% stock dividend issued June 3, 1996.
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
On Investment Total
Securities Share-
Capital Stock Capital Retained Available holders'
Shares Amount Surplus Earnings for Sale Equity
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1995 5,339,193 $ 53,391,930 $ 36,870,604 $ 29,917,438 $ (152,161) $ 120,027,811
Net earnings 18,122,251 18,122,251
Stock issuances 42,791 427,910 4,103 432,013
Cash dividends declared (7,306,767) (7,306,767)
Stock split effected in the
form of a dividend 1,336,902 13,369,020 (13,369,020) -
Change in unrealized
gain (loss) (114,462) (114,462)
--------- ------------ ------------ ------------ ---------- -------------
Balances at
December 31, 1996 6,718,886 67,188,860 36,874,707 27,363,902 (266,623) 131,160,846
Net earnings 4,789,627 4,789,627
Stock issuances 8,744 87,440 (3,197) 84,243
Cash dividends declared (1,883,736) (1,883,736)
Change in unrealized
gain (loss) (182,841) (182,841)
--------- ------------ ------------ ------------ ---------- -------------
Balances at
March 31, 1997 6,727,630 $ 67,276,300 $ 36,871,510 $ 30,269,793 $ (449,464) $ 133,968,139
========= ============ ============ ============ ========== =============
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 4,789,627 $ 4,444,314
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 946,273 1,018,854
Provision for loan losses 225,000 518,000
Premium amortization, net of discount accretion 505,572 695,175
Gain on sale of foreclosed assets (11,713) (95,691)
Deferred federal income tax benefit (8,083) (351,376)
(Increase) decrease in other assets (39,039) 532,127
Increase in other liabilities 3,804,948 2,658,831
------------- ------------
Total adjustments 5,422,958 4,975,920
------------- ------------
Net cash provided by operating activities 10,212,585 9,420,234
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks 99,956 691,642
Cash payment for stock, net of cash and
cash equivalents acquired through acquisition - (4,554,417)
Proceeds from sale of securities available for sale 179,403 -
Proceeds from maturity of securities available for sale 495,464 667,328
Proceeds from maturity of securities held to maturity 49,755,867 56,288,372
Purchase of securities available for sale (12,772,949) (2,966,531)
Purchase of securities held to maturity (53,284,325) (44,107,826)
Net increase in loans 3,023,978 9,436,459
Capital expenditures (2,084,340) (1,117,513)
Proceeds from sale of assets 58,437 297,620
------------- ------------
Net cash used in investing activities (14,528,509) 14,635,134
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (21,547,082) (23,121,209)
Net increase (decrease) in interest-bearing deposits 12,624,702 (4,114,557)
Net decrease in short-term borrowings - (440,438)
Proceeds from stock issuances 84,243 80,208
Dividends paid (1,881,288) (1,554,717)
------------- ------------
Net cash used in financing activities (10,719,425) (29,150,713)
------------- ------------
Net decrease in cash and cash equivalents (15,035,349) (5,095,345)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 125,983,310 92,543,959
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 110,947,961 $ 87,448,614
============= ============
SUPPLEMENTAL INFORMATION ON CASH FLOWS
AND NONCASH TRANSACTIONS
Interest paid $ 8,700,765 $ 8,022,978
Federal income tax paid 4,888,040 -
Assets acquired through foreclosure 9,501 29,581
Change in unrealized (loss) on investment securities available for sale (281,294) (215,947)
The Company 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 assumption of Citizen's debt of approximately $5,600,000
Fair value of assets acquired - 98,200,000
Liabilities assumed - 90,700,000
Cash paid for stock - 7,500,000
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Effect of Adoption of Accounting Standard in Fourth Quarter of 1997
The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) effective December 15, 1997. This statement
requires a change in the computation and presentation of earnings per share. As
a result, earnings per share for the year ended December 31, 1997 will be
computed under the new standard and prior periods will be restated to reflect
the adoption of SFAS 128. The following represents pro forma restatement of
earnings per share, as if the statement was effective in the quarters ending
March 31, 1997 and 1996.
Pro Forma Earnings Per Share
Basic earnings per share were computed by dividing net earnings by the
weighted average number of shares of common stock outstanding during the
period. Diluted earnings per common share for the quarters ending March 31,
1997 and 1996 were determined upon assumption that options to purchase
common shares outstanding were exercised at the beginning of each period (or
time of issuance, if later). In calculating earnings per share, the Company
has used the treasury stock method, whereby the assumed proceeds were used
to purchase common stock at the average market price during the period.
<TABLE>
<CAPTION>
Net Per Share
Earnings Shares Amount
<S> <C> <C> <C>
For the three months
ended March 31, 1996
Basic Earnings per Share $ 4,444,314 6,582,953 $ .68
===========
Options issued to executives - 43,905
----------- ---------
Earnings per Share, assuming dilution $ 4,444,314 6,626,858 $ .68
=========== ========= ===========
For the three months
ended March 31, 1997
Basic Earnings per Share $ 4,789,627 6,721,991 $ .71
===========
Options issued to executives - 52,180
----------- ---------
Earnings per Share, assuming dilution $ 4,789,627 6,774,171 $ .71
=========== ========= ===========
</TABLE>
Options to purchase 3,500 shares of common stock at $39 per share were
outstanding during the three months ended March 31, 1997 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares. Those options expire in 2007.
The effect of this accounting change on previously reported earnings per
share data was as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Primary earnings per share $ .71 $ .66
Effect of SFAS No. 128 - .02
-------- --------
Basic earnings per share as restated $ .71 $ .68
======== ========
</TABLE>
Fully diluted earnings per share were not reported by the Company in prior
periods.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
Net income for the first quarter 1997 totaled $4.9 million, an increase of 7.8%
over the $4.4 million earned in the first quarter last year. Higher net interest
income and fee income, and a lower loan loss provision were the primary factors
contributing to the improved earnings. On a per share basis, earnings amounted
to $ .71 per share as compared to $ .66 per share in 1996. Return on average
assets and return on average equity amounted to 1.56% and 14.76%, respectively.
For the same period in 1996, the Company reported return on average assets of
1.49% and return on average equity of 14.77%.
Net interest income for the first quarter 1997 was $354 thousand above the same
period last year and was due primarily from loan growth. The net interest margin
for the first quarter was 4.65%, down slightly from 4.68% for the first quarter
1996. The provision for loan losses in the first quarter amounted to $225
thousand as compared to $518 thousand for the same period in 1996.
Total noninterest income for the first quarter amounted to $4.3 million, up from
$3.7 million for the first quarter 1996. Trust fees increased $106 thousand, or
12.4%, and resulted from growth in Trust assets. Deposit service fees increased
$379 thousand, or 20.9%, and reflects an increase in the number of accounts and
account activity.
Noninterest expense for the first quarter 1997 amounted to $9.7 million, an
increase of $755 thousand, or 8.4% over the same period last year. Salaries and
employee benefits were $259 thousand, or 5.3% above the first quarter 1996
amount. Higher advertising and business development expense was the primary
factor for the 1997 increase in miscellaneous other expense. The Company's key
indicator of operating efficiency, noninterest expense as a percent of net
interest income and noninterest income, was 56.18% for the first quarter as
compared to 57.69% for the first quarter in 1996.
Balance Sheet Review
Total assets at March 31, 1997, amounted to $1.260 billion as compared to $1.262
billion at December 31, 1996, and $1.189 billion at March 31, 1996. The balance
sheets presented reflect normal recurring adjustments and accruals. Loans at
March 31, 1997, amounted to $570 million as compared to $573 million at year-end
1996, with the decrease attributable to the seasonal pay down of lines of
credit. Compared to March 31, 1996, loans have increased $36 million, or 6.7%.
Investment securities at March 31, 1997, totaled $470 million as compared to
$467 million at year-end 1996 and $499 million at March 31, 1996. The net
unrealized loss in the investment portfolio at March 31, 1997, amounted to $691
thousand as compared to a $182 thousand unrealized gain at December 31, 1996.
With an overall yield of 6.14%, the investment portfolio continues to provide a
positive contribution to the Company's earnings. Approximately $169 million, or
32%, of the portfolio matures within one year which protects the Company from
significant interest rate risk should interest rates move up. At March 31, 1997,
the Company did not hold any CMOs that entail higher risks than standard
mortgage-backed securities. Total investment securities at March 31, 1997,
included structured notes with an amortized cost of $15.5 million and an
approximate market value of $15.1 million. Total deposits at March 31, 1997,
amounted to $1.126 billion as compared to $1.131 billion at year-end 1996 and
$1.066 billion at March 31, 1996. The decrease from December 31, 1996, is
considered temporary and not indicative of a downward trend in total deposits.
Nonperforming assets at March 31, 1997, totaled $3.4 million, or .59% of loans
and foreclosed assets, and were down $170 thousand from the December 31, 1996,
amount. At March 31, 1997, the allowance for loan losses amounted to 282.1% of
nonperforming assets. Management is not aware of any material classified credit
not properly disclosed as nonperforming and considers the allowance for loan
losses to be adequate.
<PAGE>
Liquidity and Capital
The Company's consolidated statements of cash flows are presented on page 7 of
this report. At March 31, 1997, 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 $134.0 million at March 31, 1997, which was up
from $131.2 million at year-end 1996 and $122.7 million at March 31, 1996. The
Company's risk-based capital and leverage ratios at March 31, 1997, were 21.40%
and 10.38%, respectively. The first quarter cash dividend of $ .28 per share
totaled $1.8 million and represented 39.3% of earnings. On April 22, 1997, the
Company announced a 25% stock split effected in the form of a dividend and
declared a $ .25 per share cash dividend. The stock dividend will be issued June
2, 1997, and the cash dividend is payable July 1, 1997. The following presents
pro forma restatement of earnings per share and dividends per share following
issue of the stock dividend:
Three Months Ended
March 31,
1997 1996
-------- --------
Net earnings per share $ .57 $ .53
Dividends per share .22 .20
<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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 63,907
<INT-BEARING-DEPOSITS> 789
<FED-FUNDS-SOLD> 47,041
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,808
<INVESTMENTS-CARRYING> 469,821
<INVESTMENTS-MARKET> 469,129
<LOANS> 569,656
<ALLOWANCE> 9,453
<TOTAL-ASSETS> 1,259,733
<DEPOSITS> 1,112,959
<SHORT-TERM> 128
<LIABILITIES-OTHER> 12,678
<LONG-TERM> 0
0
0
<COMMON> 67,276
<OTHER-SE> 66,692
<TOTAL-LIABILITIES-AND-EQUITY> 1,259,733
<INTEREST-LOAN> 13,240
<INTEREST-INVEST> 7,746
<INTEREST-OTHER> 677
<INTEREST-TOTAL> 21,663
<INTEREST-DEPOSIT> 8,752
<INTEREST-EXPENSE> 8,754
<INTEREST-INCOME-NET> 12,909
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,742
<INCOME-PRETAX> 7,233
<INCOME-PRE-EXTRAORDINARY> 4,790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,790
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<YIELD-ACTUAL> 4.65
<LOANS-NON> 2,647
<LOANS-PAST> 55
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 735
<ALLOWANCE-OPEN> 9,441
<CHARGE-OFFS> 646
<RECOVERIES> 433
<ALLOWANCE-CLOSE> 9,453
<ALLOWANCE-DOMESTIC> 9,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
