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, 1995 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.
5,007,727 shares
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
1. Financial Statements 3
2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Signatures 11
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc.
at June 30, 1995, December 31, 1994, and June 30, 1994, and the
consolidated statements of income, the consolidated statements of
changes in stockholders'equity, and the consolidated statements of
cash flows for the six months ended June 30, 1995 and 1994, follow
on pages 4 through 10.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
June 30, December 31,
1995 1994 1994
ASSETS
Cash and due
from banks $ 47,746,281 $ 51,097,002 $ 60,536,136
Interest-bearing
deposits in banks 498,000 691,000 198,000
Federal funds sold 17,970,000 24,563,000 23,100,000
Investment securities:
Securities held-to-
maturity (approximate
market value of
$437,205,300 in 1995,
$412,182,944 at
June 30, 1994 and
$418,895,098 at
December 31, 1994) 438,419,072 420,426,418 435,212,460
Securities available-
for-sale, at
approximate
market value 9,968,420 43,271,000 28,031,932
Total investment
securities 448,387,492 463,697,418 463,244,392
Loans 450,931,752 411,378,162 432,609,308
Less: Allowance
for loan losses 8,860,385 9,249,858 9,024,424
Unearned discount 7,359,168 6,865,665 7,048,685
Net loans 434,712,199 395,262,639 416,536,199
Bank premises and
equipment-net 29,527,054 30,388,223 29,466,438
Goodwill 1,143,975 1,452,130 1,181,897
Other assets 17,888,467 18,349,557 18,350,085
TOTAL ASSETS $ 997,873,468 $ 985,500,969 $ 1,012,613,147
LIABILITIES
Non interest-
bearing deposits $ 182,748,354 $ 180,346,350 $ 200,912,655
Interest-bearing
demand deposits 277,325,617 297,072,826 298,904,193
Interest-bearing
time deposits 418,945,700 400,324,228 401,112,784
Total deposits 879,019,671 877,743,404 900,929,632
Short-term
borrowings 180,000 100,000 90,000
Mortgage notes
payable - 1,103,562 1,054,131
Dividends payable 1,552,395 1,394,795 1,399,220
Other liabilities 7,254,666 5,512,137 5,232,262
Total liabilities 888,006,732 885,853,898 908,705,245
SHAREHOLDERS' EQUITY
Capital stock-
$10 par value;
10,000,000 shares
authorized 50,077,270 49,814,120 49,972,140
Capital surplus 36,864,005 36,849,510 36,863,701
Retained earnings 23,194,778 13,708,290 17,769,812
Unrealized (loss)
on investment
securities
available-
for-sale (269,317) (724,849) (697,751)
Total Shareholders'
Equity 109,866,736 99,647,071 103,907,902
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 997,873,468 $ 985,500,969 $ 1,012,613,147
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS - UNAUDITED
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
INTEREST
INCOME
Loans,
including
fees $ 10,672,481 $ 8,597,795 $ 20,765,009 $ 16,821,571
Investment
income-
taxable 6,103,067 5,983,405 12,161,475 11,977,572
Investment
income-
tax exempt 171,208 218,580 351,755 436,289
Interest on
interest-
bearing
deposits 5,048 11,348 7,601 22,158
Interest on
federal
funds sold
and other 460,576 314,413 805,842 596,334
Total
interest
income 17,412,380 15,125,541 34,091,682 29,853,924
INTEREST EXPENSE
Interest-
bearing
deposits 6,853,491 5,077,875 13,012,663 9,970,610
Short-term
borrowings 4,075 1,668 8,585 2,391
Interest on
mortgage
notes
payable - 26,264 6,323 52,798
Total interest
expense 6,857,566 5,105,807 13,027,571 10,025,799
NET INTEREST
INCOME 10,554,814 10,019,734 21,064,111 19,828,125
Provision for
loan losses - 105,000 20,000 145,000
NET INTEREST
INCOME
AFTER PROVISION
FOR LOAN
LOSSES 10,554,814 9,914,734 21,044,111 19,683,125
NONINTEREST
INCOME
Trust fees 768,872 746,422 1,538,309 1,521,235
Service fees
on deposit
accounts 1,437,098 1,385,745 2,813,358 2,698,354
Net gain (loss)
on sale of
foreclosed
assets 2,035,010 (11,831) 2,035,010 2,527
Other 831,059 637,115 1,687,021 1,601,481
Total non
interest
income 5,072,039 2,757,451 8,073,698 5,823,597
NONINTEREST EXPENSE
Salaries and
employee
benefits 4,184,647 4,113,821 8,257,408 8,294,621
Net occupancy
and equipment
expenses 632,161 624,713 1,230,692 1,284,677
Equipment
expense 572,419 571,746 1,062,509 1,104,560
FDIC
assessments 490,775 499,878 981,552 999,759
Correspondent
bank service
charges 219,412 228,616 432,263 457,781
Other 2,263,224 1,964,017 4,484,069 4,147,963
Total non
interest
expense 8,362,638 8,002,791 16,448,493 16,289,361
EARNINGS BEFORE
INCOME TAXES 7,264,215 4,669,394 12,669,316 9,217,361
Provision for
income tax 2,471,326 1,518,655 4,290,250 2,963,227
NET EARNINGS $ 4,792,889 $ 3,150,739 $ 8,379,066 $ 6,254,134
EARNINGS
PER
SHARE 1 $ 0.96 $ 0.63 $ 1.67 $ 1.26
DIVIDENDS
PER
SHARE 2 $ 0.31 $ 0.28 $ 0.59 $ 0.45
1 Earnings per share are calculated using weighted average shares outstanding for each
period presented.
2 Dividends per share are calculated using actual number of shares outstanding at the end
of each period presented.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY-UNAUDITED
Unrealized
(Loss) On
Investment Total
Securities Stock-
Capital Stock Capital Retained Available- holders'
Shares Amount Surplus Earnings for-Sale Equity
Balances at
December 31, 1993 1 3,978,767 $ 39,787,670 $ 15,948,384 $ 40,973,629 $ - $ 96,709,683
Initial unrealized gain
recorded on
investment securities
available-for-sale 244,069 244,069
Net earnings-year-to-date 13,112,230 13,112,230
Cash dividends (5,462,207) (5,462,207)
Exercise of stock options 23,695 236,950 25,525 262,475
Cash paid for fractional
shares resulting
from stock dividend (16,528) (16,528)
Stock dividend 994,752 9,947,520 20,889,792 (30,837,312)
Change in unrealized
gain (loss) (941,820) (941,820)
Balances at
December 31, 1994 4,997,214 49,972,140 36,863,701 17,769,812 (697,751) 103,907,902
Net earnings-year-to-date 8,379,066 8,379,066
Cash dividends (2,954,100) (2,954,100)
Exercise of stock options 10,513 105,130 304 105,434
Change in unrealized
gain (loss) 428,434 428,434
Balances at
June 30, 1995 5,007,727 $ 50,077,270 $ 36,864,005 $ 23,194,778 $(269,317) $109,866,736
1 Restated to reflect pooling of interests.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,379,066 $ 6,254,134
Adjustments to reconcile net
earnings to net
cash provided by operating
activities:
Depreciation and amortization 1,356,187 1,361,664
Provision for loan losses 20,000 145,000
Premium amortization, net of
discount accretion 1,449,482 2,196,309
(Gain) loss on sale of
foreclosed assets (2,035,010) (2,527)
Loss on sale of investment securities 857 28,391
Deferred federal income tax benefit (1,979) (719,097)
(Increase) decrease in other assets 341,310 (348,922)
Increase in other liabilities 2,022,401 391,719
Total adjustments 3,065,955 3,052,537
Net cash provided by
operating activities 11,445,021 9,306,671
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase (decrease) in
interest-bearing deposits in banks (300,000) 96,000
Proceeds from sale of
investment securities 7,124,844 2,739,810
Proceeds from maturity of
investment securities 71,041,117 57,097,697
Purchase of investment securities (64,180,606) (70,304,937)
Net (increase) decrease in loans (18,241,882) 16,042,842
Capital expenditures (1,440,618) (1,642,457)
Proceeds from sale of assets 2,201,849 6,207
Net cash provided by
(used in) investing activities (3,795,296) 4,035,162
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in noninterest-
bearing deposits (18,164,301) (23,490,455)
Net decrease in interest-
bearing deposits (3,745,660) (12,115,699)
Net decrease in other
short-term borrowings 90,000 10,000
Repayment of long term debt (1,054,131) (47,426)
Proceeds from stock issuances 105,434 118,919
Purchase of treasury stock - (16,528)
Dividends paid (2,800,922) (2,861,490)
Net cash used by financing activities (25,569,580) (38,402,679)
Net decrease in cash and
cash equivalents (17,919,855) (25,060,846)
Six Months Ended
June 30,
1995 1994
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 83,636,136 100,720,848
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 65,716,281 $ 75,660,002
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired through foreclosure $ 265,132 $ 28,100
Loans to finance sales of
other real estate 219,250 248,965
Change in unrealized
loss on investment securities
available-for-sale 578,794 (932,840)
25% stock dividend
increasing (decreasing)
Capital stock - 9,947,520
Capital surplus - 20,889,792
Retained earnings - (30,837,312)
The Company acquired substantially
all of the capital stock
of Concho Bancshares, Inc. in
exchange for capital stock of
the Company, increasing:
Capital stock - 2,292,620
Capital surplus - 2,275,500
Retained earnings - 1,669,669
OTHER DISCLOSURES:
Interest paid 12,296,832 10,137,001
Federal income tax paid 3,734,927 3,480,284
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Impaired Loans
The Company adopted SFAS 114, "Accounting by Creditors for Impairment of a Loan,
" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," as of January 1, 1995. SFAS No. 114 requires
that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective
interest rate. As a practical expedient, impairment may be measured based
on the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. When the measure of the impaired loan is less
that the recorded investment in the loan, the impairment is recorded through
a valuation allowance. On collateral dependent loans, the Company has
adopted a policy which requires measurement of an impaired loan based on the
fair value of the collateral. Other loan impairments will be
measured based on the present value of expected future cash flows or the
loan's observable market price.
The Company had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995. At June 30, 1995, all significant impaired loans have been
determined to be collateral dependent and have been measured utilizing the
fair value of the collateral.
As of June 30, 1995, the Company's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
Recorded Valuation
Investment Allowance
Impaired loans-
Valuation allowance
required $ 2,188,140 $ 687,512
No valuation
allowance required - -
Total impaired loans $ 2,188,140 $ 687,512
This valuation allowance is included in the allowance for loan losses on the
balance sheet.
The average recorded investment in impaired loans for the six month period ended
June 30, 1995, was $2,806,544. The Company had $2,429,508 in nonperforming
assets at June 30, 1995, of which $1,579,959 represented recorded investments
in impaired loans.
Interest payments received on impaired loans are recorded as interest income
unless collections of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The Company
recognized interest income on impaired loans of $178,615 during the six month
period ended June 30, 1995, of which $100,911 represented cash interest
payments received and recorded as interest income. If interest on
impaired loans had been recognized on a full accrual basis in the period ended
June 30, 1995, such income would have approximated $280,680.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Allowance for Loan Losses
The allowance for loan losses as of June 30, 1995, is presented below.
Management has evaluated the adequacy of the allowance for loan losses by
estimating the probable losses in various categories of the loan portfolio which
are identified below:
Allowance for loan losses provided for:
Loans specifically evaluated
as impaired $ 687,512
Unidentified impaired loans 8,172,873
Total allowance for loan losses $ 8,860,385
The allowance for loan losses is maintained at a level considered adequate to
provide for estimated probable incurred losses resulting from loans. The
allowance is reviewed periodically, and as losses are incurred and the
amounts become estimable, they are charged to operations in the periods that
they become known.
The activity in the allowance for loan losses was as follows:
June 30,
1995 1994
Balance at beginning
of year $ 9,024,424 $ 9,013,387
Provision for credit losses 20,000 145,000
Write-downs (546,198) (700,536)
Recoveries 362,159 792,007
Balance at end of period $ 8,860,385 $ 9,249,858
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Review of Operating Results
For the six months ended June 30,1995, the Company's earnings amounted to $8.38
million, or $1.67 per share, compared to $6.25 million, or $1.26 per share,
earned in the first half of 1994. The 1995 results include net after-tax
nonrecurring gains of $1.29 million, or $ .26 per share,generated from the
second quarter sale of foreclosed assets (First Tule Bancorp, Inc. common
stock and real estate) which had been acquired in prior years through debt
settlement arrangements. Excluding these gains, 1995 year-to-date net income
from operations was 13% higher than the amount earned in the same period last
year. Excluding nonrecurring gains, return on average assets and return on
average equity for the six months ended June 30, 1995, amounted to
1.44% and 13.31%, respectively. For the same period last year the Company
reported return on average assets of 1.25% and return on average equity of
12.84%. Net income for the second quarter 1995 totaled $4.79 million
compared to $3.15 million for the second quarter of 1994. Earnings per share
for the second quarter 1995 amounted to $ .96 compared to $ .63 for the
second quarter 1994.
Year-to-date net interest income was $1.24 million above the 1994 amount and
resulted primarily from loan growth. The increase in average loans is
reflected in the net interest margin which averaged 4.72% for the first six
months of 1995 as compared to 4.49% for the same period last year. Total
year-to-date noninterest income for 1995 amounted to $8.1 million, as
compared to the 1994 total of $5.8 million. As previously mentioned, the
1995 amount includes nonrecurring gains which, on a before-tax basis, totaled
$2.0 million. Trust fees, service fees on deposit accounts, and other
noninterest income all reflect modest increases over prior year amounts. For
the first six months of 1995 and 1994 realized securities gains or losses were
insignificant. Noninterest expense for the first six months of 1995 totaled
$16.4 million, which was slightly above the prior year amount of $16.3
million. Excluding the effect of nonrecurring gains, the Company's 1995
efficiency ratio (noninterest expense as a percent of net interest income plus
noninterest income) was 60.34%, which was down from the 1994 ratio of 62.81%.
Balance Sheet Review
Total assets of $998 million at June 30, 1995, represent a $12 million increase
from the prior year and a $15 million decrease from December 31, 1994. The
balance sheets presented reflect normal recurring adjustments and accruals.
Compared to June 30, 1994, loans have increased $38 million and investment
securities have decreased $15 million. Approximately one-half of the
increase in loans has occurred during the first six months of 1995, with
commercial loans increasing $9.3 million and consumer loans increasing
$8.5 million. Total net unrealized losses in the investment portfolio at
June 30, 1995, amounted to approximately $1.6 million, as compared to
net unrealized losses of approximately $17.4 million at December 31, 1994.
The reduction in the unrealized loss resulted from the maturity of low-yielding
securities and lower market interest rates in 1995. The unrealized loss at
June 30, 1995 can be attributed to low-yielding securities purchased during
the period of record low interest rates, and which have relatively short
remaining maturities. In total, the investment portfolio yields 5.68% which
has a positive impact on earnings. At June 30, 1995, the Company did not
hold any CMO's that entail higher risks than standard mortgage-backed
securities. Total investment securities at June 30, 1995, included structured
notes with an amortized cost of $19.0 million and an approximate market value
of $18.1 million.
Total deposits at June 30, 1995, amounted to $879 million, slightly higher than
the prior year and $22 million below the December 31, 1994, balance. The
1995 decline in deposits is attributed to both competition within the
industry and the availability of higher-yielding non bank investment
products. Loan growth during the first six months of 1995 was funded with
maturing investment securities and internally-generated capital and resulted in
increased net interest income. This has, to some extent, offset the effect
that the decrease in deposits may have otherwise had on net interest income.
The Company, therefore, has managed to stay within a deposit interest rate
structure that has kept the cost of funds at or near expected rates.
Nonperforming assets at June 30, 1995, totaled $2.4 million, down from $3.4
million at June 30, 1994, but up slightly from the year-end 1994 total of
$2.2 million. Since year-end 1994, nonaccrual loans have increased $200
thousand and foreclosed assets are virtually unchanged. Due to the current
level held, the net cost of operation of other real estate continues to be
immaterial. At June 30, 1995, the allowance for loan losses amounted to
364.7% 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 in
this report. At June 30, 1995, the balance sheet reflects adequate
liquidity, and the parent company has no funded debt under its line of
credit, which was increased to $10 million during the second quarter.
Total equity capital amounted to $109.9 million at June 30, 1995, which was up
from $103.9 million at December 31, 1994, and $99.6 million at June 30, 1994.
The ratio of equity capital to assets at June 30, 1995, was 11.0%, as
compared to 10.3% at year-end 1994 and 10.1% at June 30, 1994. The Company's
risk-based capital ratio of 21.73% at June 30, 1995, was well above the
regulatory guidelines of 8%. The 1995 second quarter dividend of $ .31 per
share totaled $1.5 million and represented 32.4% of second quarter earnings.
Total dividends declared during 1995 have amounted to $3.0 million, or 35.3%
of 1995 year-to-date earnings.
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