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, 1998 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) 627-7155
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 8,662,462 shares of common stock outstanding as of May 5,
1998.
<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,
1998, December 31, 1997, and March 31, 1997, and the consolidated statement of
earnings, the consolidated statement of changes in shareholders' equity, and the
consolidated statement of cash flows for the three months ended March 31, 1998
and 1997, follow on pages 4 through 8.
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1998 1997 December 31,
(Unaudited) (Unaudited) 1997
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 76,614,086 $ 68,928,254 $ 88,795,827
Interest-bearing deposits in banks 203,722 888,538 398,671
Federal funds sold 72,072,170 51,066,013 114,485,839
Investment securities:
Securities held to maturity
(market value of $438,956,376 and
$476,233,788 at March 31, 1998 and 1997,
and $414,160,027 at December 31, 1997) 436,284,683 476,906,262 411,857,644
Securities available for sale, at
market value 155,909,377 60,798,833 170,697,516
-------------- -------------- --------------
Total investment securities 592,194,060 537,705,095 582,555,160
Loans 733,075,686 604,658,799 716,792,426
Less: Allowance for loan losses 9,921,476 9,715,947 10,288,200
Unearned discount 7,201,580 7,551,167 7,853,724
-------------- -------------- --------------
Net loans 715,952,630 587,391,685 698,650,502
Bank premises and equipment-net 41,507,344 38,434,228 41,501,074
Goodwill 22,652,589 5,659,397 23,054,329
Other assets 23,633,473 21,211,437 24,067,522
-------------- -------------- --------------
TOTAL ASSETS $ 1,544,830,074 $ 1,311,284,647 $ 1,573,508,924
============== ============== ==============
LIABILITIES
Noninterest-bearing deposits $ 296,224,030 $ 241,645,804 $ 311,318,296
Interest-bearing demand deposits 401,206,811 319,497,588 399,745,364
Interest-bearing time deposits 680,182,870 598,629,532 701,660,161
-------------- -------------- --------------
Total deposits 1,377,613,711 1,159,772,924 1,412,723,821
Dividends payable 2,164,244 1,883,736 2,162,899
Other short-term borrowings 2,590,000 100,000 4,770,000
Other liabilities 10,966,859 11,176,564 5,625,741
-------------- -------------- --------------
Total liabilities 1,393,334,814 1,172,933,224 1,425,282,461
-------------- -------------- --------------
SHAREHOLDERS' EQUITY
Capital stock-$10 par value;
20,000,000 shares authorized 86,569,770 69,440,720 86,515,950
Capital surplus 36,346,906 36,350,286 36,350,673
Retained earnings 28,213,490 33,025,844 24,996,973
Unrealized gain (loss) on investment
securities available for sale 365,094 (465,427) 362,867
-------------- -------------- --------------
Total shareholders' equity 151,495,260 138,351,423 148,226,463
-------------- -------------- --------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,544,830,074 $ 1,311,284,647 $ 1,573,508,924
============== ============== ==============
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 16,400,555 $ 13,905,156
Investment income-taxable 8,294,690 7,484,059
Investment income-tax exempt 551,980 385,358
Interest on interest-bearing deposits 5,006 12,845
Interest on federal funds sold and other 1,139,776 720,511
----------- -----------
Total interest income 26,392,007 22,507,929
INTEREST EXPENSE
Interest-bearing deposits 11,074,982 9,038,106
Short-term borrowings 81,417 1,089
----------- -----------
Total interest expense 11,156,399 9,039,195
----------- -----------
NET INTEREST INCOME 15,235,608 13,468,734
Provision for loan losses 151,500 243,000
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 15,084,108 13,225,734
NONINTEREST INCOME
Trust fees 1,202,823 966,070
Service fees on deposit accounts 2,553,683 2,273,134
Other 1,410,731 1,182,904
----------- -----------
Total noninterest income 5,167,237 4,422,108
NONINTEREST EXPENSE
Salaries and employee benefits 6,268,522 5,339,981
Net occupancy and equipment expenses 937,794 869,260
Equipment expense 944,601 780,465
Goodwill amortization 401,742 101,690
Other 3,650,077 3,207,947
----------- -----------
Total noninterest expense 12,202,736 10,299,343
----------- -----------
EARNINGS BEFORE INCOME TAXES 8,048,609 7,348,499
Provision for income tax 2,667,848 2,461,448
----------- -----------
NET EARNINGS $ 5,380,761 $ 4,887,051
=========== ===========
BASIC EARNINGS PER SHARE (1) $ 0.62 $ 0.57
EARNINGS PER SHARE, ASSUMING DILUTION (1) $ 0.62 $ 0.57
DIVIDENDS PER SHARE (2) $ 0.25 $ 0.22
(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>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT 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, 1996 6,718,886 $ 67,188,860 $ 36,874,707 $ 27,363,902 $ (266,623) $ 131,160,846
Adjustments for pooling
of interests 216,442 2,164,420 (521,224) 2,658,712 (4,283) 4,297,625
----------- ----------- ----------- ----------- ---------- ------------
Balances at
January 1, 1997 6,935,328 69,353,280 36,353,483 30,022,614 (270,906) 135,458,471
Net earnings - - - 20,063,105 - 20,063,105
Stock issuances 34,873 348,730 (2,810) - - 345,920
Cash dividends declared - - - (8,274,806) - (8,274,806)
Stock split effected in the
form of a dividend 1,681,394 16,813,940 - (16,813,940) - -
Change in unrealized
gain (loss) - - - - 633,773 633,773
----------- ----------- ----------- ----------- ---------- ------------
Balances at
December 31, 1997 8,651,595 86,515,950 36,350,673 24,996,973 362,867 148,226,463
Net earnings - - - 5,380,761 - 5,380,761
Stock issuances 5,382 53,820 (3,767) - - 50,053
Cash dividends declared - - - (2,164,244) - (2,164,244)
Change in unrealized
gain (loss) - - - - 2,227 2,227
----------- ----------- ----------- ----------- ---------- ------------
Balances at March 31,
1998 (unaudited) 8,656,977 $ 86,569,770 $ 36,346,906 $ 28,213,490 $ 365,094 $ 151,495,260
=========== =========== =========== =========== ========== ============
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 5,380,761 $ 4,887,051
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,440,505 985,758
Provision for loan losses 151,500 243,000
Premium amortization, net of discount accretion 386,817 521,274
(Gain) loss on sale of assets (212,470) 1,079
Deferred federal income tax benefit (400,639) (8,083)
Decrease (increase) in other assets 694,882 (38,552)
Increase in other liabilities 5,341,118 3,867,067
-------------- ------------
Total adjustments 7,401,713 5,571,543
-------------- ------------
Net cash provided by operating activities 12,782,474 10,458,594
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits in banks 194,949 99,956
Proceeds from sale of securities available for sale 2,482,066 179,403
Proceeds from maturity of securities available for sale 87,989,184 1,195,464
Proceeds from maturity of securities held to maturity 48,265,511 49,755,867
Purchase of securities available for sale (73,040,639) (13,544,392)
Purchase of securities held to maturity (75,716,578) (54,064,035)
Net increase in loans (17,466,129) 1,617,975
Capital expenditures (1,070,896) (2,132,038)
Proceeds from sale of assets 387,604 104,370
-------------- ------------
Net cash used in investing activities (27,974,926) (16,787,430)
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (15,094,266) (21,189,258)
Net increase (decrease) in interest-bearing deposits (20,015,844) 12,514,774
Net decrease in other short-term borrowings (2,180,000) -
Proceeds from stock issuances 50,053 84,243
Dividends paid (2,162,899) (1,881,288)
-------------- ------------
Net cash used in financing activities (39,402,956) (10,471,529)
-------------- ------------
Net decrease in cash and cash equivalents (54,595,410) (16,800,365)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 203,281,666 136,794,632
-------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 148,686,256 $ 119,994,267
============== ============
SUPPLEMENTAL INFORMATION ON CASH FLOWS
AND NONCASH TRANSACTIONS
Interest paid $ 10,743,327 $ 8,985,677
Federal income tax paid 200,000 4,888,040
Assets acquired through foreclosure 12,500 9,501
Change in unrealized gain (loss) on investment securities
available for sale 3,426 (292,974)
</TABLE>
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. Basis of Presentation
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Company's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the three months ended March 31, 1998 are
not necessarily indicative of the results to be expected for the year ended
December 31, 1998.
2. Effect of Adoption of Accounting Standard
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting of Comprehensive Income," on January 1, 1998. The statement applies
to fiscal years beginning after December 15, 1997. The statement requires that
comprehensive income be reported in the basic financial statements.
Comprehensive income refers to the change in equity during a period from
transactions and events other than investments by and distributions to owners.
For example, under current accounting literature, comprehensive income would
include net income plus unrealized gains and losses on investments in available
for sale securities. Comprehensive income for the three months ended March 31,
1998 amounted to $5,382,988. If the statement had been implemented in the three
months ended March 31, 1997, comprehensive income for that period would have
amounted to $4,692,530.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
- -----------------
Net income for the first quarter 1998 totaled $5.4 million, an increase of 10.1%
over the $4.9 million earned in the first quarter last year. Higher net interest
income and fee income were the primary factors contributing to the improved
earnings. On a per share basis, earnings amounted to $ .62 per share as compared
to $ .57 per share in 1997. Return on average assets and return on average
equity amounted to 1.42% and 14.69%, respectively. For the same period in 1997,
the Company reported return on average assets of 1.53% and return on average
equity of 14.58%.
Net interest income for the first quarter 1998 was $1.8 million above the same
period last year and was due primarily to loan growth. The net interest margin
for the first quarter was 4.50%, down from 4.65% for the first quarter 1997. The
provision for loan losses in the first quarter amounted to $152 thousand as
compared to $243 thousand for the same period in 1997.
Total noninterest income for the first quarter amounted to $5.2 million, up from
$4.4 million for the first quarter 1997. Trust fees increased $237 thousand, or
24.5%, and resulted from growth in Trust assets. Deposit service fees increased
$281 thousand, or 12.3%, and reflects an increase in the number of accounts and
account activity. Other noninterest income for 1998 included a $211 thousand
gain on the sale of foreclosed assets as compared to a $2 thousand gain in 1997.
Noninterest expense for the first quarter 1998 amounted to $12.2 million, an
increase of $1.9 million, or 18.5% over the same period last year. Salaries and
employee benefits were $928 thousand, or 17.4% above the first quarter 1997
amount. Higher advertising and business development expense, communication
expense, and correspondent bank service charges were factors in the 1998
increase in miscellaneous other expense. Excluding the effect of the Company's
purchase acquisition completed in September 1997, total noninterest expense
increased approximately $600 thousand, or 5.8%. The Company's key indicator of
operating efficiency, noninterest expense as a percent of net interest income
and noninterest income, was 59.70% for the first quarter as compared to 57.01%
for the first quarter in 1997.
Balance Sheet Review
- --------------------
Total assets at March 31, 1998, amounted to $1.545 billion as compared to $1.574
billion at December 31, 1997, and $1.311 billion at March 31, 1997.
Approximately $155 million of growth in assets over March 31, 1997, resulted
from an acquisition finalized in September 1997. The March 31, 1998, decline in
total assets from the year-end 1997 balance reflects a seasonal decrease in
total deposits. The balance sheets presented reflect normal recurring
adjustments and accruals.
Loans at March 31, 1998, net of unearned discount, totaled $726 million as
compared to $709 million at year-end 1997 and $595 million at March 31, 1997.
The previously mentioned 1997 acquisition accounted for approximately $60
million in growth over the March 31, 1997, balance.
Investment securities at March 31, 1998, totaled $592 million as compared to
$583 million at year-end 1997 and $538 million at March 31, 1997. The net
unrealized gain in the investment portfolio at March 31, 1998, amounted to $3.2
million as compared to a $2.9 million gain at December 31, 1997. With an overall
yield of 6.23%, the investment portfolio continues to provide a positive
contribution to the Company's earnings. Approximately $178 million, or 30%, of
the portfolio matures within one year which protects the Company from signficant
interest rate risk should interest rates move up. At March 31, 1998, the Company
did not hold any CMOs that entail higher risks than standard mortgage-backed
securities. Total investment securities at March 31, 1998, included structured
notes with an amortized cost of $11.5 million and an approximate market value of
$11.4 million. Total deposits at March 31, 1998, amounted to $1.378 billion as
compared to $1.413 billion at year-end 1997 and $1.160 billion at March 31,
1997. The decrease from December 31, 1997, is considered seasonal and not
indicative of a downward trend in total deposits. The 1997 acquisition accounted
for approximately $155 million in total deposit growth from March 31, 1997.
<PAGE>
Nonperforming assets at March 31, 1998, totaled $3.8 million, or .53% of loans
and foreclosed assets, and were down $1.0 million from the December 31, 1997,
amount. At March 31, 1998, the allowance for loan losses amounted to 258.3% 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.
Liquidity and Capital
- ---------------------
The Company's consolidated statements of cash flows are presented on page 7 of
this report. At March 31, 1998, the balance sheet reflects adequate liquidity,
and the parent company had $7.5 million available under its $10 million line of
credit. Total equity capital amounted to $151.5 million at March 31, 1998, which
was up from $148.2 million at year-end 1997 and $138.4 million at March 31,
1997. The Company's risk-based capital and leverage ratios at March 31, 1998,
were 16.25% and 8.50%, respectively. The first quarter cash dividend of $ .25
per share totaled $2.2 million and represented 40.2% of earnings. On April 28,
1998, the Company declared a $ .275 per share cash dividend which is payable
July 1, 1998.
Interest Rate Risk
- ------------------
Interest rate risk results when the maturity or repricing intervals of
interest-earning assets and interest-bearing liabilities are different. The
Company's exposure to interest rate risk is managed primarily through the
Company's strategy of selecting the types and terms of interest-earning assets
and interest-bearing liabilities which generate favorable earnings, while
limiting the potential negative effects of changes in market interest rates. The
Company uses no off-balance-sheet financial instruments to manage interest rate
risk. 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. Since year-end 1997, there has been no material change in
interest rates or the Company's interest rate risk.
<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: 5-11-98 By:/S/ CURTIS R. HARVEY
------- --------------------
Curtis R. Harvey
Executive Vice President and Chief
Financial Officer
Date: 5-11-98 By:/S/ SANDY LESTER
------- -----------------
Sandy Lester
Secretary-Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 76,614
<INT-BEARING-DEPOSITS> 204
<FED-FUNDS-SOLD> 72,072
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 155,909
<INVESTMENTS-CARRYING> 436,285
<INVESTMENTS-MARKET> 438,956
<LOANS> 725,874
<ALLOWANCE> 9,921
<TOTAL-ASSETS> 1,544,830
<DEPOSITS> 1,377,614
<SHORT-TERM> 2,590
<LIABILITIES-OTHER> 13,131
<LONG-TERM> 0
0
0
<COMMON> 86,570
<OTHER-SE> 64,925
<TOTAL-LIABILITIES-AND-EQUITY> 1,544,830
<INTEREST-LOAN> 16,401
<INTEREST-INVEST> 8,846
<INTEREST-OTHER> 1,145
<INTEREST-TOTAL> 26,392
<INTEREST-DEPOSIT> 11,075
<INTEREST-EXPENSE> 11,156
<INTEREST-INCOME-NET> 15,236
<LOAN-LOSSES> 151
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,203
<INCOME-PRETAX> 8,049
<INCOME-PRE-EXTRAORDINARY> 5,381
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,381
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 4.50
<LOANS-NON> 3,044
<LOANS-PAST> 135
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 529
<ALLOWANCE-OPEN> 10,288
<CHARGE-OFFS> 840
<RECOVERIES> 322
<ALLOWANCE-CLOSE> 9,921
<ALLOWANCE-DOMESTIC> 9,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
