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, 2001
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
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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, 2001.
Class Number of Shares Outstanding
- ---------------------------------------- ----------------------------
Common Stock, Par Value $10.00 Per Share 9,849,592
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-
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at March 31,
2001 and 2000, and December 31, 2000, and the consolidated statements of
earnings, comprehensive earnings and cash flows for the three months ended March
31, 2001 and 2000, and the changes in shareholders' equity for the year ended
December 31, 2000 and three months ended March 31, 2001, follow on pages 4
through 8.
-3-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
----------------------------------------
Unaudited
---------------------------------------- December 31,
2001 2000 2000
------------------- ------------------- -------------------
ASSETS
Cash and due from banks $ 77,523,944 $ 80,391,699 $ 100,300,424
Federal funds sold 137,035,000 69,772,210 62,230,288
------------------- ------------------- -------------------
Cash and cash equivalents 214,558,944 150,163,909 162,530,712
Interest-bearing deposits in banks 304,402 104,136 104,338
Investment securities:
Securities held-to-maturity (market value of
$359,166,606 and $418,381,256 at March 31, 2001 and 2000,
respectively; $393,590,628 at December 31, 2000) 342,956,710 425,921,492 391,918,076
Securities available-for-sale, at market value 282,657,647 244,942,097 262,334,642
------------------- ------------------- -------------------
Total investment securities 625,614,357 670,863,589 654,252,718
Loans 868,839,197 807,751,947 859,270,728
Less: Allowance for loan losses 9,575,017 9,286,278 9,887,646
------------------- ------------------- -------------------
Net loans 859,264,180 798,465,669 849,383,082
Bank premises and equipment, net 39,719,772 41,017,056 40,090,733
Goodwill, net 18,104,962 19,746,330 18,515,304
Other assets 26,513,375 28,062,765 28,937,327
------------------- ------------------- -------------------
TOTAL ASSETS $ 1,784,079,992 $ 1,708,423,454 $ 1,753,814,214
=================== =================== ===================
LIABILITIES
Noninterest-bearing deposits $ 338,892,867 $ 328,121,854 $ 336,276,933
Interest-bearing deposits 1,202,155,016 1,171,467,775 1,183,596,767
------------------- ------------------- -------------------
Total deposits 1,541,047,883 1,499,589,629 1,519,873,700
Dividends payable 3,251,223 2,992,292 3,256,540
Securities sold under agreements to repurchase 25,441,199 13,109,015 26,164,359
Other liabilities 12,463,925 10,319,135 8,398,727
------------------- ------------------- -------------------
Total liabilities 1,582,204,230 1,526,010,071 1,557,693,326
------------------- ------------------- -------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized 20,000,000
shares; 9,852,192 and 9,974,306 shares issued;
9,849,592 and 9,974,306 shares outstanding at
March 31, 2001 and 2000, respectively; 9,983,002
shares issued and 9,856,902 shares outstanding at
December 31, 2000 98,521,920 99,743,060 99,830,020
Capital surplus 57,790,905 60,517,351 60,592,310
Retained earnings 41,755,721 26,249,480 38,003,195
Treasury stock, at cost - 2,600 and 126,100 shares at
March 31, 2001 and December 31, 2000, respectively (82,388) - (3,925,069)
Unrealized gain (loss) on investment securities
available-for-sale, net 3,889,604 (4,096,508) 1,620,432
------------------- ------------------- -------------------
Total shareholders' equity 201,875,762 182,413,383 196,120,888
------------------- ------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,784,079,992 $ 1,708,423,454 $ 1,753,814,214
=================== =================== ===================
See notes to consolidated financial statements.
-4-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended March 31,
-------------------------------------
2001 2000
---------------- ----------------
INTEREST INCOME
Interest and fees on loans $ 19,575,307 $ 17,648,788
Interest on investment securities:
Taxable 7,806,633 8,300,400
Exempt from federal income tax 1,478,280 1,409,955
Interest on federal funds sold and interest-bearing deposits in banks 1,086,292 899,720
---------------- ----------------
Total interest income 29,946,512 28,258,863
INTEREST EXPENSE
Interest-bearing deposits 12,711,098 11,129,124
Other 315,519 154,976
---------------- ----------------
Total interest expense 13,026,617 11,284,100
---------------- ----------------
NET INTEREST INCOME 16,919,895 16,974,763
Provision for loan losses 366,383 740,750
---------------- ----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 16,553,512 16,234,013
NONINTEREST INCOME
Trust department income 1,517,048 1,346,238
Service fees on deposit accounts 3,506,308 3,387,995
ATM fees 451,976 329,402
Real estate mortgage fees 272,396 232,026
Net gain on securities transactions 54,850 -
Other 898,223 1,170,792
---------------- ----------------
Total noninterest income 6,700,801 6,466,453
NONINTEREST EXPENSE
Salaries and employee benefits 6,886,204 6,831,209
Net occupancy expense 936,575 874,280
Equipment expense 1,081,623 1,013,763
Goodwill amortization 410,342 410,342
Other expenses 3,840,141 3,810,185
---------------- ----------------
Total noninterest expense 13,154,885 12,939,779
---------------- ----------------
EARNINGS BEFORE INCOME TAXES 10,099,428 9,760,687
Income tax expense 3,095,678 3,014,174
---------------- ----------------
NET EARNINGS $ 7,003,750 $ 6,746,513
================ ================
EARNINGS PER SHARE, BASIC $ 0.71 $ 0.68
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.71 $ 0.68
DIVIDENDS PER SHARE $ 0.33 $ 0.30
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended
March 31,
---------------------------------
2001 2000
-------------- --------------
NET EARNINGS $ 7,003,750 $ 6,746,513
OTHER ITEMS OF COMPREHENSIVE EARNINGS
Change in unrealized gain (loss) on investment
securities available-for-sale, before income taxes 3,545,884 (5,817)
Reclassification adjustment for realized gains on investment
in securities included in net earnings, before income tax (54,850) -
-------------- --------------
Total other items of comprehensive earnings 3,491,034 (5,817)
-------------- --------------
OTHER COMPREHENSIVE EARNINGS, BEFORE INCOME TAXES 10,494,784 6,740,696
Income tax expense (benefit) related to other
items of comprehensive earnings 1,221,862 (2,036)
-------------- --------------
COMPREHENSIVE EARNINGS $ 9,272,922 $ 6,742,732
============== ==============
See notes to consolidated financial statements.
-6-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized
Gain (Loss) on
Investment
Common Stock Securities Total
----------------------- Capital Retained Treasury Available Shareholders'
Shares Amount Surplus Earnings Stock, at cost For Sale, Net Equity
--------- ------------ ------------ ------------ --------- ----------- -------------
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 - - - 28,316,047 - - 28,316,047
Stock issuances 8,696 86,960 74,959 - - - 161,919
Cash dividends declared,
$1.29 per share - - - (12,808,111) - - (12,808,111)
Acquisition of treasury stock - - - - (3,925,069) - (3,925,069)
Change in unrealized gain
on investment securities
available-for-sale, net - - - - - 5,713,159 5,713,159
--------- ------------ ------------ ------------ --------- ----------- -------------
Balances at December 31, 2000 9,983,002 99,830,020 60,592,310 38,003,195 (3,925,069) 1,620,432 196,120,888
Net earnings - - - 7,003,750 - - 7,003,750
Stock issuances 2,590 25,900 22,326 - - - 48,226
Cash dividends declared,
$.33 per share - - - (3,251,224) - - (3,251,224)
Acquisition of treasury stock - - - - (315,050) - (315,050)
Retirement of treasury stock (133,400) (1,334,000) (2,823,731) - 4,157,731 - -
Change in unrealized gain
on investment securities
available-for-sale, net - - - - - 2,269,172 2,269,172
--------- ------------ ------------ ------------ --------- ----------- -------------
Balances at March 31, 2001 (unaudited) 9,852,192 $ 98,521,920 $ 57,790,905 $ 41,755,721 $ (82,388) $ 3,889,604 $ 201,875,762
========= ============ ============ ============ ========= =========== =============
See notes to consolidated financial statements.
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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Three Months Ended March 31,
------------------------------------
2001 2000
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 7,003,750 $ 6,746,513
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,384,044 1,443,062
Provision for loan losses 366,383 740,750
Premium amortization, net of discount accretion 295,083 465,778
Gain on sale of assets (49,335) (7,382)
Deferred federal income tax (benefit) expense (534,272) 1,203
Decrease in other assets 1,693,635 1,271,994
Increase in other liabilities 4,065,198 2,947,353
----------------- ----------------
Total adjustments 7,220,736 6,862,758
----------------- ----------------
Net cash provided by operating activities 14,224,486 13,609,271
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits in banks (200,064) (100,056)
Activity in available-for-sale securities:
Sales 11,629,482 -
Maturities 23,235,639 2,792,856
Purchases (51,772,872) (14,103,351)
Activity in held-to-maturity securities:
Maturities 69,737,620 24,495,787
Purchases (20,940,707) (28,302,721)
Net increase in loans (10,296,565) (11,109,990)
Capital expenditures (686,845) (518,482)
Proceeds from sale of assets 170,400 66,365
----------------- ----------------
Net cash provided by (used in) investing activities 20,876,088 (26,779,592)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing deposits 2,615,934 (12,391,883)
Net increase (decrease) increase in interest-bearing deposits 18,558,249 (12,722,934)
Net (decrease) increase in securities sold under agreements to repurchase (723,160) 3,471,281
Common stock transactions:
Acquisition of treasury stock (315,050) -
Proceeds from stock issuances 48,226 -
Dividends paid (3,256,541) (2,992,292)
----------------- ----------------
Net cash provided by (used in) financing activities 16,927,658 (24,635,828)
----------------- ----------------
Net decrease in cash and cash equivalents 52,028,232 (37,806,149)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 162,530,712 187,970,058
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 214,558,944 $ 150,163,909
================= ================
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 12,273,377 $ 11,554,123
Assets acquired through foreclosure 54,614 370,791
Retirement of treasury stock 4,157,731 -
See notes to consolidated financial statements.
-8-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments necessary for a fair presentation of the
Company's financial position and unaudited results of operations. All
adjustments were of a normal recurring nature. However, the unaudited
results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the year ended
December 31, 2001.
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, 2001 and 2000, 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, 2001 and 2000, were 9,850,739 and 9,974,306
shares, respectively. The weighted average common shares outstanding used
in computing diluted earnings per common share for the quarters ended March
31, 2001 and 2000, were 9,876,894 and 10,006,257 shares, respectively.
Note 3 - Subsequent Events
On April 10, 2001, the Company entered into agreement to purchase all of
its outstanding shares of City Bancshares, Inc. for $16,500,000. City
Bancshares, Inc. through its subsidiary, City Delaware Financial
Corporation, is the owner of City National Bank in Mineral Wells, Texas.
The acquisition, to be accounted for utilizing the purchase method of
accounting, is expected to increase assets of the Company by approximately
$90,000,000 and will result in goodwill approximating $7,500,000. The
transaction is expected to close in the third quarter of 2001.
On April 24, 2001, the Company declared a 25% stock dividend payable June
1, 2001. Historical financial information will be restated to reflect the
stock dividend beginning in the second quarter of 2001; however, the
following tables reflect the pro forma effect on weighted average shares
outstanding, earnings per share and dividends per share presented in these
financial statements:
As Presented Pro forma
Three Months Ended March 31, Three Months Ended March 31,
------------------------------ -------------------------------
2001 2000 2001 2000
---------- ----------- ----------- -----------
Weighted average
common shares - basic 9,850,739 9,974,306 12,313,424 12,467,882
Weighted average
common shares - diluted 9,876,894 10,006,257 12,346,117 12,507,821
Earnings per share - basic $ 0.71 $ 0.68 $ 0.57 $ 0.54
Earnings per share - diluted 0.71 0.68 0.57 0.54
Dividends per share 0.33 0.30 0.26 0.24
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating Results
- -----------------
Net income for the first quarter 2001 totaled $7.0 million, an increase of $300
thousand, or 3.8% over earnings of $6.7 million for the same period last year. A
lower loan loss provision coupled with higher noninterest income were the
primary factors contributing to the improved earnings. On a per share basis,
earnings amounted to $0.71 per share as compared to $0.68 per share for first
quarter 2000. Return on average assets and return on average equity for the
first quarter 2001 amounted to 1.63% and 14.50%, respectively. For the same
period in 2000, return on average assets and return on average equity amounted
to 1.60% and 15.18%, respectively.
Tax-equivalent net interest income for the first quarter 2001 amounted to $17.6
million, virtually unchanged from the same period last year. Additional interest
income generated from growth in earnings assets was offset with a reduction in
the net interest yield. For the first quarter 2001, the net interest yield
amounted to 4.51% as compared to 4.64% for the first quarter last year. The
decrease is attributable to first quarter rate reductions that resulted in
earning asset yields falling in advance of the repricing of interest-bearing
deposits.
The provision for loan losses for the first quarter 2001 totaled $366 thousand
as compared to $741 thousand for the first quarter last year. Net charge offs
for the first quarter totaled $679 thousand which, on an annualized basis,
amounted to .32% of average loans as compared to .18% for the full year of 2000.
At March 31, 2001, the allowance for loan losses amounted to 300.2% of
nonperforming loans and 1.10% of total loans, which was considered by Management
to be adequate.
Total noninterest income for the first quarter was $6.7 million, as compared to
$6.5 million for the same period last year. Trust fees and service fees on
deposit accounts were up $171 thousand and $118 thousand, respectively, over
prior year amount. Growth in accounts and transaction volumes were the primary
factors contributing to the increased level of fees.
Noninterest expense for the first quarter 2001 amounted to $13.2 million which
was $200 thousand above the same period last year. Salaries and employee
benefits expense were $55 thousand higher than the first quarter 2000 amount.
Net occupancy and equipment expense in aggregate for the first quarter 2001
increased $130 thousand over the same period last year. Higher utilities and
maintenance were the primary factors contributing to the increase. The Company's
key indicator of operating efficiency, noninterest expense as a percent of net
interest income and noninterest income, was 54.18% for the first quarter as
compared to 53.61% for the first quarter in 2000.
Balance Sheet Review
- --------------------
Total assets at March 31, 2001, amounted to $1.784 billion as compared to $1.754
billion at December 31, 2000, and $1.708 billion at March 31, 2000. The balance
sheets presented reflect normal recurring adjustments and accruals.
Loans at March 31, 2001, totaled $869 million as compared to $859 million at
year-end 2000 and $808 million at March 31, 2000. As compared to year-end 2000
amounts, loans at March 31, 2001, reflect (i) a $4 million decrease in
commercial, financial and agricultural loans; (ii) an $8 million increase in
real estate loans; and (iii) a $6 million increase in loans to individuals.
Investment securities at March 31, 2001, totaled $626 million as compared to
$654 million at year-end 2000 and $671 million at March 31, 2000. The net
unrealized gain in the investment portfolio at March 31, 2001, amounted to $22.2
million and had an overall yield of 6.37%. At March 31, 2001, the Company did
not hold any structured notes or CMOs that entail higher risks than standard
mortgage-backed securities. Total deposits at March 31, 2001, amounted to $1.541
billion as compared to $1.520 billion at year-end 2000 and $1.500 billion at
March 31, 2000.
-10-
Nonperforming assets at March 31, 2001, totaled $3.6 million as compared to $4.1
million at December 31, 2000. The decrease resulted primarily from a $384
thousand decrease in nonaccrual loans. At .41% 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, 2001, the parent company had no debt outstanding under
its $25 million line of credit with an unaffiliated financial institution. Total
equity capital amounted to $201.9 million at March 31, 2001, which was up from
$196.1 million at year-end 2000 and $182.4 million at March 31, 2000. The
Company's risk-based capital and leverage ratios at March 31, 2001, were 19.14%
and 10.43%, respectively. The first quarter 2001 cash dividend of $0.33 per
share totaled $3.2 million and represented 46.4% of first quarter earnings. On
April 24, 2001, the Company declared a 25% stock dividend payable June 1, 2001,
and a $0.30 per share cash dividend payable July 2, 2001.
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. As of March 31, 2001, Management estimates that, over the
next twelve months, an upward shift of interest rates by 200 basis points would
result in an increase of projected net interest income of 5.1% and a downward
shift of interest rates by 200 basis points would result in a reduction in
projected net interest income of 8.5%. These are good faith estimates and assume
that the composition of our interest sensitive assets and liabilities existing
at March 31, 2001, will remain constant over the relevant twelve month
measurement period and that changes in market interest rates are instantaneous
and sustained across the yield curve regardless of duration of pricing
characteristics of specific assets or liabilities. Also, this analysis does not
contemplate any actions that we might undertake in response to changes in market
interest rates. In Management's belief, these estimates are not necessarily
indicative of what actually could occur in the event of immediate interest rate
increases or decreases of this magnitude. As interest-bearing assets and
liabilities reprice at different time frames and proportions to market interest
rate movements, various assumptions must be made based on historical
relationships of these variables in reaching any conclusion. Since these
correlations are based on competitive and market conditions, our future results
would, in Management's belief, be different from the foregoing estimates, and
such results could be material.
-11-
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.
-12-
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 9, 2001 By:/S/CURTIS R. HARVEY
--------------------- -----------------------------
Curtis R. Harvey
Executive Vice President and
Chief Financial Officer
Date: May 9, 2001 By:/S/SANDY LESTER
--------------------- -----------------------------
Sandy Lester
Secretary-Treasurer
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