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, 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 .
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
8,418,371 shares
<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 10
Signatures 12
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at June 30,
1997, December 31, 1996, and June 30, 1996, and the consolidated statements of
income, the consolidated statements of changes in stockholders' equity, the
consolidated statements of cash flows and the notes to consolidated financial
statements for the six months ended June 30, 1997 and 1996, follow on pages 4
through 9.
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1997 1996 1996 (1)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 69,564,821 $ 58,303,934 $ 71,677,154
Interest-bearing deposits in banks 398,570 884,412 888,494
Federal funds sold 36,126,275 24,492,191 54,306,156
Investment securities:
Securities held-to-maturity (approximate
market value of $463,158,083 and
$488,933,563 at June 30, 1997 and 1996,
and $466,805,918 at December 31, 1996) 463,158,083 493,496,869 466,623,769
Securities available-for-sale, at
approximate market value 66,281,332 16,181,869 45,164,802
--------------- --------------- ---------------
Total investment securities 529,439,415 509,678,738 511,788,571
Loans 589,518,242 550,401,489 580,163,598
Less: Allowance for loan losses 9,249,262 10,498,119 9,441,466
Unearned discount 7,806,024 8,576,702 7,263,392
--------------- --------------- ---------------
Net loans 572,462,956 531,326,668 563,458,740
Bank premises and equipment-net 35,371,197 34,585,382 34,454,587
Goodwill 5,385,296 5,786,549 5,585,922
Other assets 20,271,045 20,915,770 19,881,425
--------------- --------------- ---------------
TOTAL ASSETS $ 1,269,019,575 $ 1,185,973,644 $ 1,262,041,049
=============== =============== ===============
LIABILITIES
Noninterest-bearing deposits $ 226,576,246 $ 214,993,884 $ 246,571,720
Interest-bearing demand deposits 309,089,643 283,969,523 316,524,085
Interest-bearing time deposits 586,374,707 552,348,789 558,785,647
--------------- --------------- ---------------
Total deposits 1,122,040,596 1,051,312,196 1,121,881,452
Dividends payable 2,103,784 1,873,948 1,881,288
Other liabilities 7,707,995 7,645,595 7,117,463
--------------- --------------- ---------------
Total liabilities 1,131,852,375 1,060,831,739 1,130,880,203
--------------- --------------- ---------------
SHAREHOLDERS' EQUITY
Capital stock-$10 par value;
10,000,000 shares authorized 84,151,360 66,926,710 67,188,860
Capital surplus 36,851,752 36,872,386 36,874,707
Retained earnings 16,214,735 21,892,108 27,363,902
Unrealized (loss) on investment
securities available-for-sale (50,647) (549,299) (266,623)
--------------- --------------- ---------------
Total Shareholders' Equity 137,167,200 125,141,905 131,160,846
--------------- --------------- ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,269,019,575 $ 1,185,973,644 $ 1,262,041,049
=============== =============== ===============
(1) Restated to reflect pooling-of-interests.
</TABLE>
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1997 1996 1997 1996
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 13,665,220 $ 12,813,457 $ 26,905,677 $ 25,825,262
Investment income-taxable 7,727,493 7,177,170 15,158,841 14,337,955
Investment income-tax exempt 322,816 226,485 636,978 454,924
Interest on interest-bearing deposits 10,534 17,326 23,370 46,699
Interest on federal funds sold and other 499,351 452,556 1,163,540 1,002,167
------------- ------------ ------------ -----------
Total interest income 22,225,414 20,686,994 43,888,406 41,667,007
INTEREST EXPENSE
Interest-bearing deposits 9,041,150 8,272,730 17,793,603 16,668,717
Short-term borrowings 3,817 1,123 4,905 29,084
Interest on mortgage notes payable 748 1,495 1,488 2,992
------------- ------------ ------------ -----------
Total interest expense 9,045,715 8,275,348 17,799,996 16,700,793
------------- ------------ ------------ -----------
NET INTEREST INCOME 13,179,699 12,411,646 26,088,410 24,966,214
Provision for loan losses 172,500 365,000 397,500 883,000
------------- ------------ ------------ -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 13,007,199 12,046,646 25,690,910 24,083,214
NONINTEREST INCOME
Trust fees 986,803 868,159 1,952,873 1,727,760
Service fees on deposit accounts 2,436,001 1,963,402 4,625,954 3,774,871
Other 987,148 1,207,499 2,121,966 2,241,030
------------- ------------ ------------ -----------
Total noninterest income 4,409,952 4,039,060 8,700,793 7,743,661
NONINTEREST EXPENSE
Salaries and employee benefits 5,264,125 4,935,901 10,376,224 9,789,235
Net occupancy and equipment expenses 842,358 798,865 1,678,842 1,536,459
Equipment expense 787,116 701,093 1,515,179 1,362,000
Printing and supplies 251,988 270,881 477,891 511,220
Other 2,885,566 2,620,208 5,724,954 5,115,162
------------- ------------ ------------ -----------
Total noninterest expense 10,031,153 9,326,948 19,773,090 18,314,076
------------- ------------ ------------ -----------
EARNINGS BEFORE INCOME TAXES 7,385,998 6,758,758 14,618,613 13,512,799
Provision for income tax 2,504,209 2,310,856 4,947,190 4,620,579
------------- ------------ ------------ -----------
NET EARNINGS $ 4,881,789 $ 4,447,902 $ 9,671,423 $ 8,892,220
============= ============ ============ ===========
EARNINGS PER SHARE (1) $ 0.58 $ 0.53 $ 1.15 $ 1.06
============= ============ ============ ============
DIVIDENDS PER SHARE (2) $ 0.25 $ 0.22 $ 0.47 $ 0.42
============= ============ ============ ============
(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 2, 1997.
(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 2, 1997.
</TABLE>
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<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, 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 (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 9,671,423 9,671,423
Stock issuances 14,856 148,560 (22,955) 125,605
Cash dividends declared (4,006,650) (4,006,650)
Stock split effected in the
form of a dividend 1,681,394 16,813,940 (16,813,940)
Change in unrealized gain 215,976 215,976
--------- ----------- ----------- ----------- ------- ------------
Balances at
June 30, 1997 8,415,136 $ 84,151,360 $ 36,851,752 $ 16,214,735 $ (50,647) $ 137,167,200
========= =========== =========== =========== ======= ============
</TABLE>
<PAGE>
<TABLE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 9,671,423 $ 8,892,220
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,915,033 1,719,137
Provision for loan losses 397,500 883,000
Premium amortization, net of discount accretion 601,427 1,327,396
(Gain) loss on sale of foreclosed assets 27,379 (2,498)
Deferred federal income tax benefit (95,456) (568,492)
(Increase) decrease in other assets (432,968) 962,598
Increase in other liabilities 590,532 457,640
------------- -------------
Total adjustments 3,003,447 4,778,781
------------- -------------
Net cash provided by operating activities 12,674,870 13,671,001
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing deposits in banks 489,924 1,187,613
Cash payment for stock, net of cash and cash
equivalents acquired through acquisition - (4,554,417)
Proceeds from sale of securities available for sale 820,528 997,968
Proceeds from maturity of securities available for sale 978,691 1,082,594
Proceeds from sale of securities held to maturity 3,000,781 -
Proceeds from maturity of securities held to maturity 90,987,415 93,809,453
Purchase of securities available for sale (21,788,526) (2,966,531)
Purchase of securities held to maturity (91,921,174) (78,742,979)
Net (increase) decrease in loans (9,439,301) 1,513,203
Capital expenditures (2,662,482) (2,055,034)
Proceeds from sale of assets 66,465 302,272
------------- -------------
Net cash provided by (used in) investing activities (29,467,679) 10,574,142
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-bearing deposits (19,995,474) (17,948,401)
Net increase (decrease) in interest-bearing deposits 20,154,618 (12,512,574)
Net decrease in other short-term borrowings - (470,438)
Proceeds from stock issuances 16,939,545 167,542
Dividends paid (20,598.094) (3,229,106)
------------- -------------
Net cash used in financing activities (3,499,405) (33,992,977)
------------- -------------
Net decrease in cash and cash equivalents (20,292,214) (9,747,834)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 125,983,310 92,543,959
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 105,691,096 $ 82,796,125
============= =============
SUPPLEMENTAL INFORMATION ON CASH FLOWS
AND NONCASH TRANSACTIONS
Interest paid $ 17,606,416 $ 16,627,188
Federal income tax paid 5,185,573 4,888,040
Assets acquired through foreclosure 40,585 29,581
Change in unrealized (loss) on investment securities available for sale 332,271 (241,920)
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Pro Forma 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 six months ending
June 30, 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 three months and six
months ending June 30, 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
For the three months
ended June 30, 1997 and 1996
<S> <C> <C> <C>
1997 - Basic Earnings per Share $ 4,881,783 8,411,003 $ .58
===========
Options issued - 71,332
----------- ----------
Earnings per Share, assuming dilution $ 4,881,783 $ 8,482,335 $ .58
=========== ========== ===========
1996 - Basic Earnings per Share $ 4,447,906 8,323,106 $ .53
===========
Options issued - 72,846
----------- ----------
Earnings per Share, assuming dilution $ 4,447,906 8,395,952 $ .53
=========== ========== ===========
For the six months
ended June 30, 1997 and 1996
1997 - Basic Earnings per Share $ 9,671,410 8,406,769 $ 1.15
==========
Options issued - 73,081
----------- ----------
Earnings per Share, assuming dilution $ 9,671,410 8,479,850 $ 1.14
=========== ========== ==========
1996 - Basic Earnings per Share $ 8,892,218 8,275,899 $ 1.07
==========
Options issued - 66,657
----------- ----------
Earnings per Share, assuming dilution $ 8,892,218 8,342,556 $ 1.07
=========== ========== ==========
</TABLE>
<PAGE>
Note 1 - Pro Forma Effect of Adoption of Accounting Standard in Fourth Quarter
of 1997 - continued
Options to purchase 4,375 shares of common stock at approximately $31 per
share were outstanding during the six months ended June 30, 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>
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary earnings per share $ .58 $ .53 $ 1.15 $ 1.06
Effect of SFAS No. 128 - - - .01
-------- -------- -------- --------
Basic earnings per share as restated $ .58 $ .53 $ 1.15 $ 1.07
======== ======== ======== ========
</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
For the six months ended June 30, 1997, the Company's net income amounted to
$9.67 million, or $1.15 per share, compared to $8.89 million, or $1.06 per
share, earned in the first half of 1996. Net income for the second quarter 1997
totaled $4.88 million, or $ .58 per share. In the second quarter 1996, the
Company reported net income of $4.44 million, or $ .53 per share. Earnings for
the second quarter and first six months of 1997 represent increases of 9.75
percent and 8.76 percent, respectively. Return on average assets and return on
average equity for the six months ended June 30, 1997, amounted to 1.56 percent
and 14.68 percent, respectively. The Company's return on average assets and
return on average equity for the same period last year amounted to 1.50 percent
and 14.88 percent, respectively.
Net interest income for the first six months of 1997 was $1.12 million above the
1996 amount and resulted primarily from loan growth. The net interest margin for
the six months ended June 30, 1997, was 4.66 percent, up slightly from the 4.63
percent for 1996. The provision for loan losses for the first half of 1997
totaled $398 thousand as compared to $883 thousand during the same period in
1996.
Total noninterest income for the six months ended June 30, 1997, amounted to
$8.70 million as compared to the prior year total of $7.74 million. For the
first six months of 1997, trust fees and service fees on deposits are up $225
thousand and $851 thousand, respectively. Other noninterest income which
includes merchant credit card fees, real estate mortgage fees, ATM transaction
fees, and various other miscellaneous service-related fees and income totaled
$2.12 million, slightly below the 1996 amount.
Noninterest expense for the six months ended June 30, 1997, totaled $19.77
million as compared to $18.31 million during the same period in 1996. The
increase is attributable primarily to higher employee costs, advertising and
state franchise taxes. The Company's key indicator of operating efficiency,
noninterest expense as a percent of net interest income and noninterest income,
was 56.45 percent for the first half of 1997 as compared to 55.73 percent for
the same period last year.
Balance Sheet Review
Consolidated assets at June 30, 1997, totaled $1.27 billion as compared to $1.26
billion at year-end 1996 and $1.19 billion at June 30, 1996. Since year-end
1996, investment securities and loans are up $17.6 million and $8.8 million,
respectively, and have been funded by a reduction in Federal funds sold and
internally-generated capital. The balance sheets presented reflect normal
recurring adjustments and accruals.
Loans at June 30, 1997, amounted to $583 million as compared to $573 million at
December 31, 1996, and $542 million at June 30, 1996. Since year-end 1996, real
estate loans and consumer loans have increased $24 million and $5 million,
respectively, and commercial loans have decreased $20 million. The net
unrealized gain in the investment portfolio at June 30, 1997, totaled $24
thousand. At June 30, 1997, the Company did not hold any CMOs that entail higher
risks than standard mortgage-backed securities. Amortized cost of structured
notes at June 30, 1997, totaled $13.5 million as compared to an approximate
market value of $13.2 million. Total deposits at June 30, 1997, amounted to
$1.12 billion, virtually unchanged from December 31, 1996, but up $70.7 million
from the June 30, 1996, amount.
<PAGE>
Balance Sheet Review - continued
Nonperforming assets at June 30, 1997, totaled $2.8 million, or .49 percent of
loans and foreclosed assets, and were down $674 thousand from the December 31,
1996, amount. Foreclosed asset expense remains immaterial. At June 30, 1997, the
allowance for loan losses amounted to 324.9 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, 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 $137.2 million at June 30, 1997, which was up
from $131.1 million at year-end 1996 and $125.1 million at June 30, 1996. The
Company's risk-based capital and leverage ratios at June 30, 1997, were 20.76
percent and 10.57 percent, respectively. The second quarter cash dividend of $
.25 per share totaled $2.1 million and represented 43.1 percent of earnings.
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 69,565
<INT-BEARING-DEPOSITS> 399
<FED-FUNDS-SOLD> 36,126
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,281
<INVESTMENTS-CARRYING> 463,260
<INVESTMENTS-MARKET> 463,158
<LOANS> 581,712
<ALLOWANCE> 9,249
<TOTAL-ASSETS> 1,269,020
<DEPOSITS> 1,122,041
<SHORT-TERM> 378
<LIABILITIES-OTHER> 9,434
<LONG-TERM> 0
0
0
<COMMON> 84,151
<OTHER-SE> 53,016
<TOTAL-LIABILITIES-AND-EQUITY> 1,269,020
<INTEREST-LOAN> 26,906
<INTEREST-INVEST> 15,796
<INTEREST-OTHER> 1,187
<INTEREST-TOTAL> 43,889
<INTEREST-DEPOSIT> 17,794
<INTEREST-EXPENSE> 17,800
<INTEREST-INCOME-NET> 26,089
<LOAN-LOSSES> 398
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 19,773
<INCOME-PRETAX> 14,619
<INCOME-PRE-EXTRAORDINARY> 9,671
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,671
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 4.65
<LOANS-NON> 2,011
<LOANS-PAST> 104
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 620
<ALLOWANCE-OPEN> 9,441
<CHARGE-OFFS> 1,301
<RECOVERIES> 712
<ALLOWANCE-CLOSE> 9,249
<ALLOWANCE-DOMESTIC> 9,249
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
