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, 1996 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. 6,703,566 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 10 Signatures 12 2
PART I FINANCIAL INFORMATION Item 1. Financial Statements. The consolidated balance sheets of First Financial Bankshares, Inc. at September 30, 1996, December 31, 1995, and September 30, 1995, 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, 1996 and 1995, follow on pages 4 through 9. 3
<TABLE> <CAPTION> FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 (1) 1995 (1) ---------------- --------------- --------------- <S> <C> <C> <C> ASSETS Cash and due from banks $ 64,623,009 $ 49,163,247 $ 60,858,959 Interest-bearing deposits in banks 786,458 1,279,000 1,477,025 Federal funds sold 21,703,835 32,005,000 31,685,000 Investment securities: Securities held to maturity (approximate market value of $473,114,546 and $464,594,466 at September 30, 1996 and 1995, and $454,033,240 at December 31, 1995) 475,652,067 465,712,747 451,553,429 Securities available for sale, at approximate market value 35,406,363 16,181,869 29,563,133 -------------- ------------- ------------- Total investment securities 511,058,430 481,894,616 481,116,562 Loans 561,069,913 488,578,514 514,695,730 Less: Allowance for loan losses 9,658,327 9,164,433 9,598,024 Unearned discount 7,786,791 8,181,800 7,362,115 -------------- -------------- ------------- Net loans 543,624,795 471,232,281 497,735,591 Bank premises and equipment-net 34,326,184 31,837,344 31,776,992 Goodwill 5,686,235 1,125,014 1,106,052 Other assets 20,812,047 20,629,002 20,130,839 -------------- ------------- ------------- TOTAL ASSETS $ 1,202,620,993 $ 1,089,165,504 $ 1,125,887,020 ============== ============== ============== LIABILITIES Noninterest-bearing deposits $ 223,304,991 $ 203,807,180 $ 218,784,465 Interest-bearing demand deposits 290,931,361 299,360,398 312,163,265 Interest-bearing time deposits 549,818,323 459,130,833 466,630,618 -------------- -------------- -------------- Total deposits 1,064,054,675 962,298,411 997,578,348 Short-term borrowings 100,000 65,000 85,000 Dividends payable 1,876,998 1,553,761 1,554,717 Other liabilities 8,525,435 7,692,405 6,641,144 -------------- -------------- -------------- Total liabilities 1,074,557,108 971,609,577 1,005,859,209 SHAREHOLDERS' EQUITY Capital stock-$10 par value; 10,000,000 shares authorized 67,035,660 53,361,100 53,391,930 Capital surplus 36,870,236 36,865,052 36,870,604 Retained earnings 24,616,965 27,557,985 29,917,438 Unrealized (loss) on investment securities available for sale (458,976) (228,210) (152,161) --------------- -------------- -------------- Total Shareholders'equity 128,063,885 117,555,927 120,027,811 --------------- -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,202,620,993 $ 1,089,165,504 $ 1,125,887,020 ============== ============== ============== 1 Restated to reflect pooling-of-interests. </TABLE> 4
<TABLE> <CAPTION> FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS Three Months Ended Nine Months Ended September 30, September 30, --------------------------- ---------------------------- 1996 1995 (1) 1996 1995 (1) ------------ ------------ ------------ ------------- <S> <C> <C> <C> <C> INTEREST INCOME Loans, including fees $ 13,132,999 $ 11,866,691 $ 38,958,262 $ 33,803,321 Investment income-taxable 7,242,091 6,555,848 21,580,048 19,373,686 Investment income-tax exempt 266,465 208,813 721,388 626,305 Interest on interest bearing deposits 14,541 19,177 61,240 27,248 Interest on federal funds sold and other 390,235 517,385 1,392,403 1,377,110 ------------ ------------ ------------ ------------- Total interest income 21,046,331 19,167,914 62,713,341 55,207,670 INTEREST EXPENSE Interest-bearing deposits 8,425,302 7,722,112 25,094,020 21,560,768 Short-term borrowings 2,709 11,515 31,793 20,099 Interest on mortgage notes payable 1,513 2,268 4,505 13,053 ------------ ------------ ------------ ------------- Total interest expense 8,429,524 7,735,895 25,130,318 21,593,920 ------------ ------------ ------------ ------------- NET INTEREST INCOME 12,616,807 11,432,019 37,583,023 33,613,750 Provision for loan losses 80,000 43,000 963,000 64,000 ------------ ------------ ------------ ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,536,807 11,389,019 36,620,023 33,549,750 NONINTEREST INCOME Trust fees 847,486 769,759 2,575,247 2,308,068 Service fees on deposit accounts 2,122,563 1,598,330 5,897,434 4,689,936 Net gain (loss) on sale of foreclosed assets 7,224 52,617 106,202 2,123,037 Other 1,086,824 845,158 3,228,874 2,549,187 ------------ ------------ ------------ ------------- Total noninterest income 4,064,097 3,265,864 11,807,757 11,670,228 NONINTEREST EXPENSE Salaries and employee benefits 5,001,339 4,393,316 14,790,577 13,032,739 Net occupancy and equipment expenses 853,766 677,204 2,390,226 1,925,359 Equipment expense 841,537 630,641 2,203,536 1,772,290 FDIC assessments 3,501 (71,955) 12,503 961,994 Printing and supplies 279,317 254,437 790,538 676,824 Other 2,644,794 2,425,514 7,750,951 7,233,096 ------------ ------------ ------------ ------------- Total noninterest expense 9,624,254 8,309,157 27,938,331 25,602,302 ------------ ------------ ------------ ------------- EARNINGS BEFORE INCOME TAXES 6,976,650 6,345,726 20,489,449 19,617,676 Provision for income tax 2,374,796 2,139,341 6,995,376 6,608,478 ------------ ------------ ------------ ------------- NET EARNINGS $ 4,601,854 $ 4,206,385 $ 13,494,073 $ 13,009,198 ============ ============ ============ ============= EARNINGS PER SHARE 2 $ 0.69 $ 0.63 $ 2.01 $ 1.95 ============ ============ ============ ============= DIVIDENDS PER SHARE 3 $ 0.28 $ 0.25 $ 0.81 $ 0.72 ============ ============ ============ ============= 1 Restated to reflect 1996 pooling-of-interests. 2 Earnings per share are calculated using weighted average shares outstanding for each period presented with the prior periods restated to reflect 1996 pooling-of-interests and adjusted for 25% stock dividend issued June 3, 1996. 3 Dividends per share are calculated using actual number of shares outstanding at the end of each period presented with the prior periods restated to reflect 1996 pooling-of-interests and adjusted for 25% stock dividend issued June 3, 1996. </TABLE> 5
<TABLE> FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY <CAPTION> Unrealized (Loss) On Investment Total Securities Stock- Capital Stock Capital Retained Available holders' Shares Amount Surplus Earnings for Sale Equity <S> <C> <C> <C> <C> <C> <C> Balances at December 31, 1994 (1) 5,321,191 $ 53,211,910 $ 36,863,701 $ 18,964,400 $ (739,628) $ 108,300,383 Net earnings - year to date (1) 17,015,613 17,015,613 Cash dividends (6,062,575) (6,062,575) Exercise of stock options 18,002 180,020 6,903 186,923 Change in unrealized gain (loss) 587,467 587,467 --------- ------------ ------------ ------------ ------------ ------------- Balances at December 31, 1995 5,339,193 53,391,930 36,870,604 29,917,438 (152,161) 120,027,811 Net earnings - year to date 13,494,073 13,494,073 Cash dividends (5,425,526) (5,425,526) Exercise of stock options 27,471 274,710 (368) 274,342 Stock dividend (25%) 1,336,902 13,369,020 (13,369,020) Change in unrealized gain (loss) (306,815) (306,815) --------- ------------ ------------ ------------ ------------ ------------- Balances at September 30, 1996 6,703,566 $ 67,035,660 $ 36,870,236 $ 24,616,965 $ (458,976) $ 128,063,885 ========= ============ ============ ============ ============= ============= (1) December 31, 1994 balances restated to reflect pooling-of-interests. </TABLE> 6
<TABLE> FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS <CAPTION> Nine Months Ended September 30, 1996 1995 (1) <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 13,494,073 $ 13,009,198 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,743,121 2,161,420 Provision for loan losses 963,000 64,000 Premium amortization, net of discount accretion 1,974,303 1,902,102 Loss on sale of investment securities 2,705 857 (Gain) on sale of foreclosed assets (7,224) (2,091,842) Deferred federal income tax expense (benefit) (358,315) 195,886 (Increase) decrease in other assets 466,295 (1,640,043) Increase in other liabilities 1,427,645 1,700,420 ------------ ------------ Total adjustments 7,211,530 2,292,800 ------------ ------------ Net cash provided by operating activities 20,705,603 15,301,998 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in interest-bearing deposits in banks 1,285,567 (93,000) Cash payment for stock, net of cash and cash equivalents acquired through acquisition (4,554,417) (1,539,559) Proceeds from sale of securities available for sale 2,000,000 4,215,604 Proceeds from maturity of securities available for sale 1,855,111 4,414,621 Proceeds from maturity of securities held to maturity 131,525,831 117,236,381 Purchase of securities available for sale (14,269,422) (8,097,421) Purchase of securities held to maturity (108,819,457) (96,624,092) Net (increase) in loans (10,782,685) (28,714,652) Capital expenditures (2,733,877) (2,736,935) Proceeds from sale of assets 578,277 2,379,758 ------------ ------------ Net cash used in investing activities (3,915,072) (9,559,295) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in noninterest-bearing deposits (9,637,294) (7,088,069) Net decrease in interest-bearing deposits (8,081,202) 932,057 Net (decrease) in other short-term borrowings (460,438) (1,187,125) Proceeds from stock issuances 274,342 150,541 Dividends paid (5,103,054) (4,353,317) ------------ ------------ Net cash used in financing activities (23,007,646) (11,545,913) ------------ ------------ Net decrease in cash and cash equivalents (6,217,115) (5,803,210) (1) Restated to reflect pooling-of-interests. 7
Nine Months Ended September 30, 1996 1995 (1) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 92,543,959 86,971,457 ------------ ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 86,326,844 $81,168,247 ============ =========== SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Assets acquired through foreclosure $ 47,342 $ 416,649 Loans to finance sales of other real estate - 219,250 Change in unrealized (loss) on investment securities available for sale (447,923) 785,780 The Company acquired all of the capital stock of Weatherford Bancshares, Inc. in exchange for capital stock of the Company, as follows: Capital stock 3,239,770 - Capital surplus - - Retained earnings (including unrealized gain on securities available for sale) 1,871,392 - ------------ 5,111,162 - The Company purchased substantially all of the capital stock of The Citizens National Bank of Weatherford for $6,394,800. In conjunction with the acquisition, liabilities were assumed, as follows: Fair value of assets acquired 98,061,501 - Cash paid for the capital stock (6,394,800) - ------------ Liabilities assumed 91,666,701 - The Company, through a bank subsidiary, purchased all of the capital stock of Citizens State Bank of Roby for $2,125,000. In conjunction with the acquisition, liabilities were assumed, as follows: Fair value of assets acquired - 20,531,923 Cash paid for the capital stock - (2,125,000) ----------- Liabilities assumed - 18,406,923 =========== OTHER DISCLOSURES Interest paid 25,316,201 20,602,300 Federal income tax paid 4,888,040 6,523,221 1 Restated to reflect pooling of interests. </TABLE> 8
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Business Combinations In January 1996, the Company acquired Citizens Equity Corporation and its subsidiary bank, Citizens National Bank of Weatherford, in a cash transaction accounted for as a purchase. The operations of Citizens National Bank are only included in 1996. Also in January 1996, the Company acquired Weatherford National Bancshares, Inc. and its subsidiary bank, Weatherford National Bank, through an exchange of stock. The transaction was accounted for as a pooling-of-interests; therefore, prior period financial statements have been restated to include Weatherford National Bancshares, Inc. The following table shows the effect of Weatherford National Bancshares, Inc.'s operations for the periods prior to combination: <TABLE> <CAPTION> First Weatherford ($ thousands) Financial National Combined - ----------------------------------------------------- --------- ------------- -------- <S> <C> <C> <C> Three Months Ended September 30, 1995: Net Interest Income $ 10,849 $ 583 $ 11,432 Net Income 4,025 181 4,206 Nine Months Ended September 30, 1995: Net Interest Income $ 31,913 $ 1,701 $ 33,614 Net Income 12,404 605 13,009 </TABLE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results For the nine months ended September 30, 1996, the Company's net income amounted to $13.5 million, or $2.01 per share. For the same period last year, net income amounted to $13.0 million, or $1.95 per share, amounts which included after tax nonrecurring income of $1.3 million, or $ .20 per share, resulting from the sale of foreclosed assets. Exclusive of nonrecurring gains in the prior year, comparative earnings for the nine months ended September 30, 1996, are up 15 percent. Net income for the third quarter 1996 totaled $4.6 million, or $ .69 per share, as compared to $4.2 million, or $ .63 per share, earned in the third quarter of 1995. Return on average assets and return on average equity for the nine months ended September 30, 1996, amounted to 1.51 percent and 14.79 percent, respectively. Excluding nonrecurring gains, the Company's return on average assets and return on average equity for the same period last year amounted to 1.47 percent and 13.80 percent, respectively. Net interest income for the nine months ended September 30, 1996, was $3.9 million above the same period last year, with the increase attributed primarily to loan growth. The net interest margin of 4.66 percent for 1996 reflects a slight decrease from last year's 4.71 percent. The September 30, 1996, year-to-date provision for loan losses has totaled $963 thousand as compared to $64 thousand for the same period last year. Higher loan loss provisions have been required in 1996 at subsidiary banks located in markets where agriculture was affected by severe drought conditions. Total noninterest income for the nine months ended September 30, 1996, amounted to $11.8 million as compared to the prior year total of $11.7 million, which included $2.1 million in nonrecurring gains from the sale of foreclosed assets. Through September 30, 1996, trust fees and service fees on deposit accounts are up $267 thousand and $1.2 million, respectively. Other noninterest income, which includes merchant credit card fees, real estate mortgage fees, ATM transaction fees, and various service-related fees, totaled $3.2 million, an increase of $680 thousand from the September 1995 year-to-date amount. Noninterest expense for the nine months ended September 30, 1996, totaled $27.9 million as compared to $25.6 million during the same period in 1996. The 1996 year to date total reflects a significant reduction in FDIC insurance expense, which resulted from lower assessment rates implemented in mid-year 1995. The Company's key indicator of operating efficiency, noninterest expense as a percent of net interest income and noninterest income, improved to 56.84 percent for the nine months ended September 30, 1996, as compared to 59.32 percent for the same period last year. Balance Sheet Review Consolidated assets at September 30, 1996, totaled $1.20 billion as compared to $1.13 billion at year-end 1995 and $1.09 billion at September 30, 1995. Approximately $90 million of the Company's asset growth is attributed to the cash purchase acquisition completed in early 1996. The balance sheets presented reflect normal recurring adjustments and accruals with prior periods restated to reflect the 1996 acquisition accounted for as a pooling-of-interests. Loans at September 30, 1996, amounted to $553 million as compared to $507 million at December 31, 1995, and $480 million at September 30, 1995. Since year-end 1995, real estate loans and consumer loans have increased $31 million and $23 million, respectively, and commercial loans have decreased $8 million. At September 30, 1996, the investment portfolio had an average yield of 6.12 percent and reflected a net unrealized loss of $3.3 million. The portfolio did not include any CMOs that entail higher risks than standard mortgage-backed securities. Amortized cost of structured notes at September 30, 1996, totaled $15.0 million 10
as compared to an approximate market value of $14.6 million. Total deposits at September 30, 1996, amounted to $1.06 billion as compared to $998 million at year-end 1995 and $962 million at September 30, 1995. Nonperforming assets at September 30, 1996, totaled $4.2 million, or .77 percent of loans and foreclosed assets, and were up $1.3 million from the December 31, 1995, amount. The increase was due primarily to the addition of nonaccrual agricultural-related credits. At September 30, 1996, the allowance for loan losses amounted to 227.4 percent of nonperforming assets. Management is not aware of any material classified credits 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 September 30, 1996, the balance sheet reflects adequate liquidity and the parent company has no funded debt under its $10 million line of credit. Total equity capital amounted to $128.1 million at September 30, 1996, which was up from $120.0 million at year-end 1995 and $117.6 million at September 30, 1995. The Company's risk-based capital and leverage ratios at September 30, 1996, were 20.32 percent and 10.3 percent, respectively. The third quarter cash dividend of $ .28 per share totaled $1.9 million and represented 40.8 percent of earnings. 11
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 12