FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7674
------
FIRST FINANCIAL BANKSHARES, INC.
--------------------------------
(Exact name of registrant as Specified in its charter)
Texas 75-0944023
- --------------------------------------------- -----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
400 Pine Street, Abilene, Texas 79601
-------------------------------------
(Address of principal executive offices)
(Zip Code)
(915)627-7155
-------------
(Registrant's telephone number, including area code)
NO CHANGE
---------
(Former name, former address and former fiscal year, if changed
since last report)
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 issuer's
classes of common stock, as of May 1, 2000.
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, Par Value $10.00 Per Share 9,974,306
<PAGE>
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
---- ----
1. Consolidated Financial Statements and Notes to
Consolidated Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
3. Quantitative and Qualitative Disclosures About Market Risk 12
Signatures 13
-2-
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at March 31,
2000 and 1999, and December 31, 1999, and the consolidated statements of
earnings, comprehensive earnings and cash flows for the three months ended March
31, 2000 and 1999, and the changes in shareholders' equity for the year ended
December 31, 1999 and three months ended March 31, 2000, follow on pages 4
through 8.
-3-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
---------------------------------------
2000 1999 December 31,
(Unaudited) (Unaudited) 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 80,391,699 $ 78,390,448 $ 119,228,650
Federal funds sold 69,772,210 111,440,795 68,741,408
------------------ ------------------ ------------------
Cash and cash equivalents 150,163,909 189,831,243 187,970,058
Interest-bearing deposits in banks 104,136 203,955 4,080
Investment in securities:
Securities held-to-maturity (market value of
$418,381,256 and $426,154,334 at March 31, 2000
and 1999, respectively, and $414,407,070 at
December 31, 1999) 425,921,492 422,816,569 422,362,918
Securities available-for-sale, at market value 244,942,097 211,588,088 233,854,837
------------------ ------------------ ------------------
Total investment securities 670,863,589 634,404,657 656,217,755
Loans 807,751,947 773,296,311 797,275,325
Less: Allowance for loan losses 9,286,278 8,994,091 8,937,542
------------------ ------------------ ------------------
Net loans 798,465,669 764,302,220 788,337,783
Bank premises and equipment, net 41,017,056 41,653,243 41,536,094
Goodwill, net 19,746,330 21,531,458 20,156,671
Other assets 28,062,765 25,182,222 29,146,756
------------------ ------------------ ------------------
TOTAL ASSETS $ 1,708,423,454 $ 1,677,108,998 $ 1,723,369,197
================== ================== ==================
LIABILITIES
Noninterest-bearing deposits $ 328,121,854 $ 315,340,653 $ 340,513,737
Interest-bearing deposits 1,171,467,775 1,174,202,965 1,184,190,709
------------------ ------------------ ------------------
Total deposits 1,499,589,629 1,489,543,618 1,524,704,446
Dividends payable 2,992,292 2,737,950 2,992,292
Securities sold under agreements to repurchase 13,109,015 219,629 9,637,734
Other liabilities 10,319,135 12,434,896 7,371,782
------------------ ------------------ ------------------
Total liabilities 1,526,010,071 1,504,936,093 1,544,706,254
------------------ ------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized
20,000,000 shares; issued and outstanding 9,974,306
and 9,956,183 shares at March 31, 2000 and 1999,
respectively, and 9,974,306 at December 31, 1999 99,743,060 99,561,830 99,743,060
Capital surplus 60,517,351 60,395,373 60,517,351
Retained earnings 26,249,480 11,403,896 22,495,259
Unrealized (loss) gain on investment in securities
available-for-sale, net (4,096,508) 811,806 (4,092,727)
------------------ ------------------ ------------------
Total shareholders' equity 182,413,383 172,172,905 178,662,943
------------------ ------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,708,423,454 $ 1,677,108,998 $ 1,723,369,197
================== ================== ==================
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 17,648,788 $ 16,916,130
Interest on investment securities:
Taxable 8,300,400 7,909,394
Exempt from federal income tax 1,409,955 1,107,038
Interest on federal funds sold and interest-bearing
deposits in banks 899,720 1,096,724
----------------- -----------------
Total interest income 28,258,863 27,029,286
INTEREST EXPENSE
Interest-bearing deposits 11,129,124 10,741,005
Other 154,976 5,499
----------------- -----------------
Total interest expense 11,284,100 10,746,504
----------------- -----------------
NET INTEREST INCOME 16,974,763 16,282,782
Provision for loan losses 740,750 470,000
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,234,013 15,812,782
NONINTEREST INCOME
Trust department income 1,346,238 1,238,295
Service fees on deposit accounts 3,387,995 3,123,369
Real estate mortgage fees 232,026 365,057
Other 1,500,194 1,333,783
----------------- -----------------
Total noninterest income 6,466,453 6,060,504
NONINTEREST EXPENSE
Salaries and employee benefits 6,831,209 6,752,768
Net occupancy expense 874,280 987,911
Equipment expense 1,013,763 1,006,959
Goodwill amortization 410,342 412,376
Other expenses 3,810,185 3,807,853
----------------- -----------------
Total noninterest expense 12,939,779 12,967,867
----------------- -----------------
EARNINGS BEFORE INCOME TAXES 9,760,687 8,905,419
Income tax expense 3,014,174 2,778,875
----------------- -----------------
NET EARNINGS $ 6,746,513 $ 6,126,544
================= =================
EARNINGS PER SHARE, BASIC $ 0.68 $ 0.62
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.68 $ 0.61
DIVIDENDS PER SHARE $ 0.30 $ 0.275
See notes to consolidated financial statements.
</TABLE>
-5-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
NET EARNINGS $ 6,746,513 $ 6,126,544
OTHER ITEMS OF COMPREHENSIVE EARNINGS
Change in unrealized gain (loss) on investment in
securities available-for-sale, before income taxes (5,817) (1,107,609)
--------------- ---------------
Total other items of comprehensive earnings (5,817) (1,107,609)
--------------- ---------------
OTHER COMPREHENSIVE EARNINGS, BEFORE INCOME TAXES 6,740,696 5,018,935
Income tax benefit related to other
items of comprehensive earnings (2,036) (387,663)
--------------- ---------------
COMPREHENSIVE EARNINGS $ 6,742,732 $ 5,406,598
=============== ===============
See notes to consolidated financial statements.
</TABLE>
-6-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)on
Investment
Common Stock Securities Total
--------------------------- Capital Retained Available Shareholders'
Shares Amount Surplus Earnings For Sale, Net Equity
--------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 9,952,683 $ 99,526,830 $ 60,375,373 $ 8,015,303 $ 1,531,752 $ 169,449,258
Net earnings - - - 25,690,541 - 25,690,541
Stock issuances 21,623 216,230 141,978 - - 358,208
Cash dividends declared,
$1.125 per share - - - (11,210,585) - (11,210,585)
Change in unrealized gain (loss)
on investment securities
available-for-sale, net - - - - (5,624,479) (5,624,479)
--------- ------------ ------------ ------------ ------------ -------------
Balances at December 31, 1999 9,974,306 99,743,060 60,517,351 22,495,259 (4,092,727) 178,662,943
Net earnings - - - 6,746,513 - 6,746,513
Cash dividends declared,
$.30 per share - - - (2,992,292) - (2,992,292)
Change in unrealized gain (loss)
on investment securities
available-for-sale, net - - - - (3,781) (3,781)
--------- ------------ ------------ ------------ ------------ -------------
Balances at March 31, 2000 (unaudited) 9,974,306 $ 99,743,060 $ 60,517,351 $ 26,249,480 $ (4,096,508) $ 182,413,383
========= ============ ============ ============ ============ =============
See notes to consolidated financial statements.
</TABLE>
-7-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 6,746,513 $ 6,126,544
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,443,062 1,394,625
Provision for loan losses 740,750 470,000
Premium amortization, net of discount accretion 465,778 696,057
Gain on sale of assets (7,382) (155,269)
Deferred federal income tax expense 1,203 170,465
Decrease in other assets 1,271,994 294,635
Increase in other liabilities 2,947,353 3,261,766
------------- -------------
Total adjustments 6,862,758 6,132,279
------------- -------------
Net cash provided by operating activities 13,609,271 12,258,823
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits in banks (100,056) (44)
Activity in available-for-sale securities
Sales - 3,485,999
Maturities 2,792,856 11,812,106
Purchases (14,103,351) (13,795,943)
Activity in held-to-maturity securities
Maturities 24,495,787 42,015,175
Purchases (28,302,721) (53,834,791)
Net (increase) decrease in loans (11,109,990) 5,619,052
Capital expenditures (518,482) (688,887)
Proceeds from sale of assets 66,365 837,000
------------- -------------
Net cash used in investing activities (26,779,592) (4,550,333)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (12,391,883) (19,378,479)
Net (decrease) increase in interest-bearing deposits (12,722,934) 4,066,257
Net increase in securities sold under agreements to repurchase 3,471,281 -
Net decrease in other short-term borrowings - (212,329)
Proceeds from stock issuances - 55,000
Dividends paid (2,992,292) (2,736,690)
------------- -------------
Net cash used in financing activities (24,635,828) (18,206,241)
------------- -------------
Net decrease in cash and cash equivalents (37,806,149) (10,497,751)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 187,970,058 200,328,994
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 150,163,909 $ 189,831,243
============= =============
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 11,554,123 $ 11,053,473
Federal income tax paid - 530,000
Assets acquired through foreclosure 241,353 192,815
See notes to consolidated financial statements.
</TABLE>
-8-
<PAGE>
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
In the opinion of management, the consolidated 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, 2000 are not necessarily indicative of the results to be
expected for the year ended December 31, 2000.
Note 2 - Earnings Per Share
Basic earnings per common share is computed by dividing net income available
to common shareholders by the weighted average number of shares outstanding
during the period. In computing diluted earnings per common share for the
quarters ended March 31, 2000 and 1999, the Company assumes that all
outstanding options to purchase common stock have been exercised at the
beginning of the year (or time of issuance, if later). The dilutive effect
of the outstanding options is reflected by application of the treasury
stock method, whereby the proceeds from the exercised options are assumed
to be used to purchase common stock at the average market price during the
respective period. The weighted average common shares outstanding used in
computing basic earnings per common share for the quarters ended March 31,
2000 and 1999, were 9,974,306 and 9,953,794 shares, respectively. The
weighted average common shares outstanding used in computing diluted
earnings per common share for the quarters ended March 31, 2000 and 1999,
were 10,006,257 and 9,996,399 shares, respectively.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
- -----------------
Net income for the first quarter 2000 totaled $6.7 million, an increase of $600
thousand, or 10.1% over earnings of $6.1 million for the same period last year.
Higher net interest income and noninterest income were the primary factors
contributing to the improved earnings. On a per share basis, earnings amounted
to $ .68 per share as compared to $ .62 per share for first quarter 1999. Return
on average assets and return on average equity for the first quarter 2000
amounted to 1.60% and 15.18%, respectively. For the same period in 1999, return
on average assets and return on average equity amounted to 1.49% and 14.78%,
respectively.
Tax-equivalent net interest income for the first quarter 2000 amounted to $17.6
million as compared to $16.8 million for the same period last year. The increase
for 2000 was attributable to a $27 million increase in average earning assets
and an improved net interest yield which amounted to 4.64% as compared to 4.53%
for the first quarter last year.
The provision for loan losses for the first quarter 2000 totaled $741 thousand
as compared to $470 thousand for the first quarter last year. Net charge offs
for the first quarter totaled $392 thousand which, on an annualized basis,
amounted to .20% of average loans as compared to .27% for the full year of 1999.
At March 31, 2000, the allowance for loan losses amounted to 485.6% of
nonperforming loans and 1.15% of total loans, which was considered by Management
to be adequate.
Total noninterest income for the first quarter was $6.5 million, an increase of
$406 thousand, or 6.7%, over the same period last year. Service fees on deposit
accounts were up $265 thousand, or 8.5%, and were the primary factor for the
overall improvement in noninterest income. The increase in deposit service fees
resulted primarily from increased transaction volume.
Noninterest expense for the first quarter 2000 amounted to $12.9 million which
was $29 thousand below the same period last year. Salaries and employee benefits
expense were up $78 thousand, or 1.2%. Net occupancy expense decreased $114
thousand and resulted primarily from lower depreciation and repairs and
maintenance expense. The Company's key indicator of operating efficiency,
noninterest expense as a percent of net interest income on a tax-equivalent
basis and noninterest income, was 53.61% for the first quarter as compared to
56.69% for the first quarter in 1999.
Balance Sheet Review
- --------------------
Total assets at March 31, 2000, amounted to $1.708 billion as compared to $1.723
billion at December 31, 1999, and $1.677 billion at March 31, 1999. The March
31, 2000, decline in total assets from the year-end 1999 balance reflects a
seasonal decrease in total deposits. The balance sheets presented reflect normal
recurring adjustments and accruals.
Loans at March 31, 2000, net of unearned discount, totaled $808 million as
compared to $797 million at year-end 1999 and $773 million at March 31, 1999. As
compared to year-end 1999 amounts, loans at March 31, 2000, reflect (i) a $7
million decrease in commercial, financial and agricultural loans; (ii) a $13
million increase in real estate loans; and (iii) a $5 million increase in loans
to individuals. Investment securities at March 31, 2000, totaled $671 million as
compared to $656 million at year-end 1999 and $634 million at March 31, 1999.
The net unrealized gain in the investment portfolio at March 31, 2000, amounted
to $13.8 million. With an overall yield of 6.26%, the investment portfolio
continues to provide a positive contribution to the Company's earnings. At March
31, 2000, the Company did not hold any CMOs that entail higher risks
-10-
<PAGE>
than standard mortgage-backed securities. Total investment securities at March
31, 2000, included structured notes with an amortized cost of $2.0 million and
an approximate market value of $1.9 million. Total deposits at March 31, 2000,
amounted to $1.500 billion as compared to $1.525 billion at year-end 1999 and
$1.490 billion at March 31, 1999. The decrease from December 31, 1999, is
considered seasonal and not indicative of a downward trend in total deposits.
Nonperforming assets at March 31, 2000, totaled $1.9 million as compared to $2.1
million at December 31, 1999. The decrease resulted primarily from a $288
thousand decrease in nonaccrual loans. At .24% of loans plus foreclosed assets,
Management considers nonperforming assets to be at a manageable level and is
unaware of any material classified credit not properly disclosed as
nonperforming.
Liquidity and Capital
- ---------------------
The Company's consolidated statements of cash flows are presented on page 8 of
this report. At March 31, 2000, the parent company had no debt outstanding under
its $25 million line of credit with an unaffiliated financial institution. Total
equity capital amounted to $182.4 million at March 31, 2000, which was up from
$178.7 million at year-end 1999 and $172.2 million at March 31, 1999. The
Company's risk-based capital and leverage ratios at March 31, 2000, were 18.60%
and 9.93%, respectively. The first quarter 2000 cash dividend of $0.30 per share
totaled $3.0 million and represented 44.4% of first quarter earnings. On April
25, 2000, the Company declared a $0.33 per share cash dividend payable July 1,
2000.
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 analyses are among the ways that the subsidiary banks track
interest rate risk. Since year-end 1999, there has been no material change in
the Company's interest rate risk.
-11-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management considers interest rate risk to be a significant market risk for
the Company. See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" for disclosure regarding this market risk.
The Company has procedures to monitor market risk and has determined that no
material changes in market risk have occurred since December 31, 1999.
-12-
<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: May 11, 2000 By: /S/CURTIS R. HARVEY
------------ -------------------
Curtis R. Harvey
Executive Vice President and
Chief Financial Officer
Date: May 11, 2000 By: /S/SANDY LESTER
------------ ---------------
Sandy Lester
Secretary-Treasurer
-13-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 80,392
<INT-BEARING-DEPOSITS> 104
<FED-FUNDS-SOLD> 69,772
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 244,942
<INVESTMENTS-CARRYING> 425,921
<INVESTMENTS-MARKET> 418,381
<LOANS> 807,752
<ALLOWANCE> 9,286
<TOTAL-ASSETS> 1,708,423
<DEPOSITS> 1,499,590
<SHORT-TERM> 13,109
<LIABILITIES-OTHER> 13,311
<LONG-TERM> 0
0
0
<COMMON> 99,743
<OTHER-SE> 82,670
<TOTAL-LIABILITIES-AND-EQUITY> 1,708,423
<INTEREST-LOAN> 17,649
<INTEREST-INVEST> 9,710
<INTEREST-OTHER> 900
<INTEREST-TOTAL> 28,259
<INTEREST-DEPOSIT> 11,129
<INTEREST-EXPENSE> 11,284
<INTEREST-INCOME-NET> 16,975
<LOAN-LOSSES> 741
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 12,940
<INCOME-PRETAX> 9,761
<INCOME-PRE-EXTRAORDINARY> 6,747
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,747
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 4.64
<LOANS-NON> 1,101
<LOANS-PAST> 126
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 301
<ALLOWANCE-OPEN> 8,938
<CHARGE-OFFS> 726
<RECOVERIES> 334
<ALLOWANCE-CLOSE> 9,286
<ALLOWANCE-DOMESTIC> 9,286
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
