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
September 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.
5,012,133 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 September 30, 1995, December 31, 1994, and September 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 nine months ended
September 30, 1995 and 1994, follow on pages 4 through 8.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1995 1994 1994
ASSETS
Cash and due
from banks $ 46,813,904 $ 53,642,520 $ 60,536,136
Interest-
bearing
deposits in
banks 1,189,000 396,000 198,000
Federal
funds sold 29,280,000 13,737,000 23,100,000
Investment
securities:
Securities held
to maturity
(approximate
market value of
$440,341,925
in 1995
and $404,378,108
in 1994) 442,610,578 420,158,908 435,212,460
Securities
available for
sale, at
approximate market
value 9,872,981 43,271,000 28,031,932
Total investment
securities 452,483,559 463,429,908 463,244,392
Loans 462,737,273 421,493,804 432,609,308
Less: Allowance
for loan losses 8,992,781 8,928,056 9,024,424
Unearned discount 7,517,279 6,981,837 7,048,685
Net loans 446,227,213 405,583,911 416,536,199
Bank premises
and equipment-net 29,957,846 30,033,538 29,466,438
Goodwill 1,125,014 1,421,744 1,181,897
Other assets 19,947,161 20,320,973 18,350,085
TOTAL ASSETS $ 1,027,023,697 $ 988,565,594 $1,012,613,147
LIABILITIES
Noninterest-
bearing
deposits $ 194,443,982 $ 187,988,596 $ 200,912,655
Interest-
bearing demand
deposits 277,300,115 293,569,414 298,904,193
Interest-
bearing time
deposits 434,012,811 396,845,559 401,112,784
Total deposits 905,756,908 878,403,569 900,929,632
Short-term
borrowings 65,000 160,000 90,000
Mortgage
notes payable - 1,078,997 1,054,131
Dividends
payable 1,553,761 1,397,354 1,399,220
Other liabilities 7,225,289 5,934,997 5,232,262
Total liabilities 914,600,958 886,974,917 908,705,245
SHAREHOLDERS'
EQUITY
Capital stock-
$10 par value;
10,000,000 shares
authorized 50,121,330 49,937,960 49,972,140
Capital surplus 36,865,052 36,856,645 36,863,701
Retained earnings 25,666,254 15,662,973 17,769,812
Unrealized
(loss) on
investment
securities
available for
sale (229,897) (866,901) (697,751)
Total
shareholders'
equity 112,422,739 101,590,677 103,907,902
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $ 1,027,023,697 $ 988,565,594 $1,012,613,147
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
INTEREST
INCOME
Loans,
including
fees $ 11,227,648 $ 9,106,691 $ 31,992,658 $ 25,926,843
Investment
income-
taxable 6,202,910 5,876,053 18,364,387 17,853,626
Investment
income-tax
exempt 179,040 205,259 530,796 641,547
Interest on
interest
bearing
deposits 17,737 5,954 25,338 28,112
Interest on
federal
funds sold
and other 469,546 318,711 1,275,389 913,366
Total
interest
income 18,096,881 15,512,668 52,188,568 45,363,494
INTEREST EXPENSE
Interest-
bearing
deposits 7,235,945 5,368,508 20,248,609 15,339,117
Short-term
borrowings 11,515 2,905 20,099 3,618
Interest on
mortgage
notes payable 25,684 6,323 78,482
Total interest
expense 7,247,460 5,397,097 20,275,031 15,421,217
NET INTEREST
INCOME 10,849,421 10,115,571 31,913,537 29,942,277
Provision for
loan losses 10,000 (185,000) 30,000 (40,000)
NET INTEREST
INCOME AFTER
PROVISION FOR
LOAN LOSSES 10,839,421 10,300,571 31,883,537 29,982,277
NONINTEREST
INCOME
Trust fees 769,759 733,339 2,308,068 2,254,574
Service fees
on deposit
accounts 1,449,176 1,403,242 4,262,534 4,101,595
Net gain
(loss) on
sale of
foreclosed
assets 52,617 (11,831) 2,087,627 2,527
Other 803,325 846,358 2,469,484 2,472,387
Total
noninterest
income 3,074,877 2,971,108 11,127,713 8,831,083
NONINTEREST
EXPENSE
Salaries and
employee
benefits 4,186,761 4,038,217 12,444,169 12,332,838
Net occupancy
and equipment
expenses 652,166 660,463 1,861,997 1,945,143
Equipment
expense 584,094 531,506 1,643,723 1,638,917
FDIC
assessments (69,657) 491,568 911,894 1,491,326
Correspondent
bank service
charges 231,484 227,046 663,746 684,827
Other 2,245,421 2,274,054 6,732,376 6,454,131
Total
noninterest
expense 7,830,269 8,222,854 24,257,905 24,547,182
EARNINGS BEFORE
INCOME TAXES 6,084,029 5,048,825 18,753,345 14,266,178
Provision for
income tax 2,058,795 1,696,778 6,349,045 4,660,005
NET EARNINGS $4,025,234 $3,352,047 $ 12,404,300 $ 9,606,173
EARNINGS PER
SHARE 1 $ 0.80 $ 0.67 $ 2.47 $ 1.92
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
(in thousands)
Unrealized
(Loss) On
Investment
Securities Total
Available Stock
Capital Stock 1 Capital Retained for holders'
Shares Amount Surplus 1 Earnings Sale Equity
Balances at
December
31, 1993 3,979 $ 39,788 $ 15,949 $ 40,973 $ - $ 96,710
Initial
unrealized
gain
recorded
on invest-
ment
securities
available
for sale 244 244
Net earnings-
year to date 13,112 13,112
Cash dividends (5,462) (5,462)
Exercise of
stock
options 23 237 25 262
Cash paid for
fractional
shares
resulting
from stock
dividend (16) (16)
Stock
dividend 995 9,947 20,890 (30,837)
Change in
unrealized
gain (loss) (942) (942)
Balances at
December
31, 1994 4,997 49,972 36,864 17,770 (698) 103,908
Net earnings-
year to date 12,404 12,404
Cash dividends (4,508) (4,508)
Exercise of
stock
options 15 149 1 150
Change in
unrealized
gain (loss) 468 468
Balances at
September
30, 1995 5,012 $ 50,121 $ 36,865 $ 25,666 $ (230) $ 112,422
1 Restated to reflect pooling of interests.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 12,404,300 $ 9,606,173
Adjustments to reconcile
net earnings to net
cash provided by operating
activities:
Depreciation and amortization 2,058,071 2,068,898
Provision (credit) for
loan losses 30,000 (40,000)
Premium amortization,
net of discount accretion 1,972,777 3,430,019
Loss on sale of investment
securities 857 14,948
(Gain) on sale of
foreclosed assets (2,087,627) -
Deferred federal income
tax benefit 202,461 (561,825)
(Increase) in other assets (1,530,567) (2,322,965)
Increase in other
liabilities 1,674,010 451,524
Total adjustments 2,319,982 3,040,599
Net cash provided by
operating activities 14,724,282 12,646,772
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in
interest-bearing
deposits in banks (3,000) 391,000
Cash payment for stock, net
of cash and cash equivalents
acquired through acquisition (1,539,559) -
Proceeds from sale of
investment securities 4,215,604 2,739,810
Proceeds from maturity of
investment securities 116,861,981 90,419,931
Purchase of investment
securities (98,363,986) (104,909,852)
Net (increase) decrease
in loans (24,780,113) 5,937,068
Capital expenditures (2,309,333) (1,964,602)
Proceeds from sale of assets 2,310,758 6,389
Net cash used in
investing activities (3,607,648) (7,380,256)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-
bearing deposits (7,951,969) (19,351,623)
Net decrease in interest-
bearing deposits (5,424,990) (15,594,368)
Net increase (decrease)
in short-term borrowings (25,000) 70,000
Repayment of long-term debt (1,054,131) (71,991)
Proceeds from stock issuances 150,541 221,239
Cash paid from fractional
shares resulting from
stock dividend - (16,526)
Dividends paid (4,353,317) (3,864,575)
Net cash used in
financing activities (18,658,866) (38,607,844)
Net decrease in cash and
cash equivalents (7,542,232) (33,341,328)
Nine Months Ended
September 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 $ 76,093,904 $ 67,379,520
SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Assets acquired
through foreclosure $ 369,951 $ 35,601
Loans to finance sales of
other real estate 219,250 263,965
Change in unrealized (loss)
on investment securities
available for sale 719,774 (1,262,763)
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
The Company, through a bank
subsidiary, purchased all of
the capital stock of
Citizens State Bank of Roby
for $2,125,000. In conjunction
with the acquisition,
liabilities were assumed,
as follows
Fair value of assets acquired 20,531,923 -
Cash paid for the capital stock (2,125,000) -
Liabilities assumed 18,406,923 -
OTHER DISCLOSURES
Interest paid 19,376,939 15,491,679
Federal income tax paid 6,241,295 5,152,308
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 September 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 September 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 $ 3,063,885 $ 865,855
No valuation allowance required 32,975 -
Total impaired loans $ 3,096,860 $ 865,855
This valuation allowance is included in the allowance for loan
losses on the balance sheet.
The average recorded investment in impaired loans for the nine
month period ended September 30, 1995, was $2,546,696. The
Company
had $1,985,298 in nonperforming assets at September 30, 1995, of
which $1,217,621 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 $355,951 during the nine month period ended
September 30, 1995, of which $127,777 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 September 30, 1995, such income would have
approximated $525,901.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Allowance for Loan Losses
The allowance for loan losses as of September 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 $ 865,855
Unidentified impaired loans 8,126,926
Total allowance for loan losses $ 8,992,781
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:
September 30,
1995 1994
Balance at beginning of year $ 9,024,424 $ 9,013,387
Allowance established at acquisition 82,697
Provision (credit) for loan losses 30,000 (40,000)
Write-downs (756,385) (1,130,421)
Recoveries 612,045 1,085,090
Balance at end of period $ 8,992,781 $ 8,928,056
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Review of Operating Results
Net income for the third quarter 1995 totaled $4.0 million, or
$.80
per share, as compared to $3.3 million, or $.67 per share, for
the
same quarter last year. Third quarter 1995 earnings benefited
from
an after-tax reduction in the cost of FDIC deposit insurance
amounting to $365 thousand, or $ .07 per share, as compared to
the
third quarter 1994. For the nine months ended September 30,
1995,
the Company s earnings amounted to $12.4 million, or $2.47 per
share, compared to $9.6 million, or $1.92 per share, earned
during
the same period in 1994. The 1995 year-to-date results include
net
after-tax nonrecurring gains of $1.3 million, or $.26 per share,
generated from the second quarter sale of foreclosed assets which
had been acquired in prior years through debt settlement
arrangements. Excluding the nonrecurring benefit of asset sales,
return on average assets and return on average equity for the
nine
months ended September 30, 1995, amounted to 1.48% and 13.72%,
respectively. For the same period in 1994, the Company reported
return on average assets of 1.28% and return on average equity of
12.91%.
Year-to-date net interest income was $2.0 million above the 1994
amount and resulted primarily from higher average loan volume.
The
net interest margin for the year-to-date period ended September
30,
1995, has averaged 4.67%, as compared to 4.47% for the same
period
last year. Including nonrecurring gains of $2.0 million,
year-to-
date noninterest income for 1995 has amounted to $11.1 million as
compared to the 1994 total of $8.8 million. Realized securities
gains and losses in 1995 and 1994 were not significant. With the
benefit of a $579 thousand reduction in FDIC insurance expense,
1995 year-to-date total noninterest expense totaled $24.2 million
as compared to $24.5 million for the same period last year.
Balance Sheet Review
Consolidated assets at September 30, 1995, totaled $1.03 billion
as
compared to $988 million the prior year and $1.01 billion at
December 31, 1994. The balance sheets presented reflect normal
recurring adjustments and accruals. On July 31, 1995, the
Company s subsidiary bank in Sweetwater completed the acquisition
and subsequent conversion to a branch of the Citizens State Bank
of
Roby, Texas, which added approximately $20 million in total
assets.
Since December 31, 1994, loans have increased $29.6 million, with
commercial loans and consumer showing increases of $10.4 million
and $16.1 million, respectively. The Roby acquisition accounted
for $5 million of the total increase in loans.
As compared to year-end 1994, investment securities have
declined
$10.8 million. Total net unrealized gains in the investment
portfolio at September 30, 1995, amounted to $1.9 million as
compared to net unrealized losses of $17.4 million at December
31,
1994. The improvement is attributed to maturities of below
market
rate securities and a decline in market rates during 1995. At
September 30, 1995, the Company did not hold any CMOs that entail
higher risks than standard mortgage back securities. Total
investment securities at September 30, 1995, included structured
notes with an amortized cost of $19.3 million and an
approximate
market value of $18.5 million.
September 30, 1995, total deposits amounted to $906 million as
compared to $901 million at December 31, 1994, and $878 million
at
September 30, 1994. Maturing investment securities, reductions
in
cash and due from banks, and internally-generated capital
supplemented the modest deposit growth to fund the 1995 loan
growth
and allowed the Company to stay within a deposit rate structure
that has kept the cost of funds at or near expected rates.
Nonperforming assets at September 30, 1995, totaled $2.0 million,
down from $2.2 million at year-end 1994 and $2.9 million at
September 30, 1994. The slight improvement from December 31,
1994,
is attributed primarily to lower nonaccrual loans. The Company s
1995 year-to-date net cost of operation of other real estate has
totaled $54 thousand as compared to $21 thousand for the same
period last year with the increase attributed to write-downs. At
September 30, 1995, the allowance for loan losses amounted to
452.9% 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 September 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 $112.4 million at September 30,
1995, which was up from $103.9 million at December 31, 1994, and
$101.6 million at September 30, 1994. The ratio of equity
capital
to assets at September 30, 1995, was 11.0%, as compared to 10.3%
at
year-end 1994 and 10.3% at September 30, 1994. The Company s
risk-
based capital ratio of 21.64% at September 30, 1995, was well
above
the regulatory guidelines of 8%. The 1995 third quarter dividend
of $ .31 per share totaled $1.5 million and represented 38.6% of
third quarter earnings. Total dividends declared during 1995
have
amounted to $4.5 million, or 36.3% 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