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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1993 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 .
The aggregate market value of voting stock held by
nonaffiliates of the registrant was $135,477,693 as of March 18,
1994.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
3,971,367
Documents Incorporated by Reference
None
TABLE OF CONTENTS
Item Page
PART I
1. Business . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . .19
3. Legal Proceedings. . . . . . . . . . . . . . . . . . .21
4. Submission of Matters to a Vote of Security Holders. .21
PART II
5. Market for Registrant's Common Stock and Related
Security Holder Matters. . . . . . . . . . . . . . .21
6. Selected Financial Data. . . . . . . . . . . . . . . .22
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .23
8. Financial Statements and Supplementary Data. . . . . .31
9. Changes in and Disagreements with
Accountants and Financial Disclosure . . . . . . . .50
PART III
10. Directors and Executive Officers of the Registrant . .50
11. Director and Officer Compensation. . . . . . . . . . .53
12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . .58
13. Certain Relationships and Related Transactions . . . .59
PART IV
14. Exhibits, Financial Statement Schedules
and Reports on Form 8K. . . . . . . . . . . . . . . .59
Signatures
PART I
Item 1. Business
A. Organization and General Development of Business
First Financial Bankshares, Inc. (the "Registrant" or
"Bankshares"), is a Texas corporation duly registered as a multi-
holding company under the Bank Holding Company Act of 1956, as
amended. On December 31, 1993 Bankshares owned (through its
wholly-owned Delaware subsidiary) all of the capital stock of six
banks located in Texas: First National Bank of Abilene, Abilene,
Texas ("First Abilene"); Hereford State Bank, Hereford, Texas
("Hereford"); First National Bank Sweetwater, Texas ("First
Sweetwater"); Eastland National Bank, Eastland, Texas ("Eastland");
First National Bank in Cleburne, Cleburne, Texas ("First
Cleburne"); and Stephenville Bank & Trust, Stephenville, Texas
("Stephenville").
Bankshares was formed in 1956 at the direction of the Board
of Directors of the Farmers and Merchants National Bank of Abilene
(a national bank organized in Abilene, Texas, in 1889, changing its
name to First National Bank of Abilene in 1957). The corporation's
initial name was F & M Operating Company (F & M), and it was
originally authorized to and did issue ten shares of stock having
a par value of $100.00 each. The ten shares were issued to three
officers of the Bank under a trust agreement by which the three
trustees would hold the F & M stock for the ratable benefit of the
shareholders of First National Bank of Abilene. The original
purposes in organizing the corporation were to provide a separate
entity to own, operate and maintain parking lots, parking garages,
buildings and real estate, and to buy, sell and lease personal
property such as bank notes and automobiles.
In 1968, F & M purchased 200,000 shares of newly authorized
and issued stock of Bank of Commerce, Abilene, Texas ("BOC"). The
purchase was made after the State Banking Commission of Texas
required that new capital funds be injected into BOC. In the
resulting increased capitalization of BOC, the authorized and
outstanding shares of BOC common stock were increased from 300,000
to 700,000, with the 400,000 new shares being offered at $2.00 per
share. In addition, F & M acquired by proxy assignments the power
to vote an additional 66,000 shares of BOC stock. These proxies
expired January 1, 1975. The First National Bank Employees' Profit
Sharing Trust originally purchased 28,177 shares of BOC stock.
In November, 1971, the Board of Directors of First Abilene
authorized the reorganization of F & M into a multi-bank holding
company and the commencement of proceedings to effect a merger
which would permit First Abilene to be wholly-owned by the holding
company. The merger was submitted for review and approval by
federal regulatory authorities in April, 1972.
B. Reorganization, Mergers, and Acquisitions
F & M's reorganization was accomplished in September, 1972.
Its name was changed to First Abilene Bankshares, Inc., and it was
recapitalized by reducing the par value of its stock to $10.00 per
share and increasing the authorized shares to 500,000. The merger
was approved in January, 1973 and became effective in April of that
same year. As a result, the shareholders of First Abilene became
shareholders in Bankshares, and Bankshares became the owner of all
of the outstanding shares of First Abilene (except for the
qualifying shares owned by directors).
In 1974, Bankshares acquired the remaining outstanding common
stock of BOC (except for six shares amounting to approximately
.01%) by an offer (registered under the Securities Act of 1933) to
exchange one share of Bankshares' common stock for each 13-1/3
outstanding shares of BOC common stock. The exchange was effected
on May 1, 1974. In late 1987 Bankshares purchased the remaining
six shares of BOC stock, paying $82.00 in cash for each share.
Effective April 1, 1974, Bankshares acquired all the
outstanding capital stock of Hereford through an offer (also
registered under the Securities Act of 1933) to exchange one share
of Bankshares' common stock and $175 cash for each outstanding
share of Hereford.
Effective September 4, 1981, Bankshares acquired all the
outstanding capital stock of First Sweetwater through an offer
(registered under the 1933 Act) to exchange one share of
Bankshares' common stock for each outstanding share of First
Sweetwater stock.
Effective June 8, 1982, Bankshares acquired all of the
outstanding capital stock of Eastland through an offer (registered
under the 1933 Act) to exchange 3-1/2 shares of Bankshares' common
stock for each outstanding share of Eastland stock.
Effective July 31, 1987, American National Bank of Abilene
("American National") was merged with and into First Abilene.
Following approval of the merger by the Board of Directors and
Shareholders of each bank, all of the issued and outstanding common
stock of American National were tendered for exchange and First
Abilene paid $11.50 for each of American National's 200,000 shares
of common stock. The merger was approved by the Office of the
Comptroller of the Currency, the Federal Reserve Board, the Federal
Deposit Insurance Corporation and the United States Department of
Justice. The premises formerly occupied by American National, both
its main banking offices and drive-in banking facility, are now
being operated by First Abilene as a branch bank.
On July 21, 1988, Hereford acquired 11,576 shares of First
Tule Bancorp, Inc. in Tulia, Texas, a registered bank holding
company, the principal asset of which is all, or substantially all,
of the capital stock of The First National Bank, Tulia, Texas.
Although the Bank Holding Company Act of 1956, as amended,
generally requires approval of the Federal Reserve Board prior to
acquiring more than 5% of the outstanding capital stock of any bank
or bank holding company, the acquisition by Hereford of the First
Tule Bancorp, Inc. stock was effected under an exemption for
acquisitions of voting securities in satisfaction of debt
previously contracted. The shares of First Tule Bancorp, Inc. were
transferred to Hereford in partial satisfaction of indebtedness
owed to Hereford by three individuals and secured, in part, by such
shares of stock in First Tule Bancorp, Inc. Since the date it
acquired the stock, Hereford has been attempting to sell or
otherwise dispose of the stock, but has been unable to do so
because of pending litigation against the subsidiary bank of First
Tule Bancorp, Inc. Full disclosure of the acquisition by Hereford
of the First Tule Bancorp, Inc. stock was made to federal and state
banking authorities and continued holding of the stock was approved
by bank regulatory authorities while Hereford attempted to sell
such stock. However, under the Bank Holding Company Act (and
Regulation Y adopted by the Federal Reserve Board pursuant to the
Act), Hereford was required to dispose of the First Tule Bancorp,
Inc. stock within five (5) years after having acquired the same,
but has not been able to do so. While Hereford is in technical
violation of the Act and Regulation Y, such circumstance exists
with the knowledge and apparent acquiescence of federal and state
banking authorities and neither Registrant nor Hereford has any
reason to believe that any adverse action will be taken against
Hereford or Registrant by reason of Hereford's continued ownership
of the shares of First Tule Bancorp, Inc. so long as Hereford, in
good faith, continues its efforts to liquidate or dispose of such
shares. Neither First Tule Bancorp, Inc. nor The First National
Bank, Tulia, Texas, is deemed or considered to be a subsidiary of
the Registrant. By reason of the recent settlement or other
disposition of the remaining lawsuits against the subsidiary bank
of First Tule Bancorp, Inc., as well as efforts being made by the
remaining shareholders of First Tule Bancorp, Inc. to find a
purchaser for their shares or those of The First National Bank,
Tulia, Texas, Registrant and Hereford are hopeful that a purchaser
for Hereford's shares of First Tulia Bancorp, Inc. can now be
found. Effective January 1, 1989, BOC was merged with and into
First Abilene and its state charter surrendered to the State of
Texas for cancellation. First Abilene received all of the assets
of BOC and assumed all of its liabilities. The banking offices and
drive-in facility of BOC are now being operated as a branch banking
facility of First Abilene. The merger and branch banking action
was undertaken to achieve greater efficiency from the combined
operation of First Abilene and BOC and to provide improved
convenience for each bank's customers.
In January of 1990, Bankshares' Board of Directors authorized
a state franchise tax savings program designed to substantially
reduce the amount of corporate franchise taxes paid by Bankshares.
Pursuant to that program, a second bank holding company was formed
in the State of Delaware, First Abilene Bankshares of Delaware,
Inc. (the "Delaware BHC"). With the approval of the Federal
Reserve Board, and effective March 28, 1990, the Delaware BHC
became the owner and holder of all of the outstanding shares of
Bankshares' subsidiary banks and, in turn, the Delaware BHC became
the sole subsidiary of Bankshares and is wholly-owned and
controlled by Bankshares. The corporate offices of the Delaware
BHC are located in the State of Delaware and, as defined by Texas
franchise tax statutes, the new subsidiary is not considered to be
doing business in the State of Texas.
Effective December 21, 1990, the Delaware BHC, using funds
provided by Bankshares, purchased all of the outstanding stock of
The First National Bank of Cleburne, in Cleburne, Texas, for
$4,700,000 in cash.
On December 3, 1992, the Texas Secretary of State issued a
Certificate of Incorporation for First Financial Investments, Inc.,
which is, or shall become, a wholly-owned subsidiary of Bankshares
and the initial capital of which shall consist of $100,000
represented by 100,000 shares of common stock to be issued to
Bankshares. First Financial Investments, Inc. ("FFI") was intended
to be a securities brokerage subsidiary and on or about December 8,
1992, Bankshares submitted to the Federal Reserve Board its
Application to Engage in Non-Banking Activity (Form FR Y-4) to
engage, de novo, in providing securities brokerage services
pursuant to Section 225.25(b)(15) of FRB Regulation Y and Section
4(c)(a) of the Bank Holding Company Act of 1956, as amended. At
the end of 1992 Bankshares and FFI were engaged in the process of
securing all approvals, and meeting all other requirements, for FFI
to become a broker-dealer registered with the National Association
of Securities Dealers, the Securities and Exchange Commission and
the Texas State Securities Board. At that time it was anticipated
that the activities of FFI would be limited to buying and selling
stocks, bonds and other securities as agent for the account of the
customers of Bankshares' subsidiaries, which securities would
include equities, mutual funds and municipal, corporate and
government bonds, but without providing investment advice or
research services. Securities brokerage services shall be provided
on, or adjacent to, the premises and banking offices of Bankshares'
subsidiary banks. It was anticipated that Bankshares, through FFI,
would begin providing securities brokerage services during the
second quarter of 1993. On February 3, 1993 Bankshares received
Federal Reserve approval to engage, de novo, in providing
securities brokerage services through FFI. Following the lapse of
time in which FFI was to begin operations under this approval,
Bankshares notified the Federal Reserve that plans to offer
brokerage services through a separate subsidiary were being
delayed. As an alternative, Bankshares' subsidiary banks will be
providing brokerage services through a shared employee arrangement
with a national brokerage firm (The Stephens Company, headquartered
in Little Rock, Arkansas). First Sweetwater was the only
subsidiary operating under such an arrangement at December 31,
1993.
Effective February 25, 1993, the Delaware BHC, using funds
provided by Bankshares, acquired all the outstanding capital stock
of Stephenville Bank & Trust Co., Stephenville, Texas, through an
offer (registered under the 1933 Act) to pay $7,750,000 to the
Stephenville shareholders for all the Stephenville Bank & Trust's
outstanding stock.
Effective September 23, 1993, First Cleburne acquired by
purchase the Cleburne, Texas Branch office facility of Bank One,
Texas, N.A., and assumed deposit liabilities of approximately $19
million. The aggregate value of the land, buildings, loans and
other assets purchased by First Cleburne was approximately $2
million. The former Bank One facility is now being operated as a
branch office of First Cleburne.
On October 26, 1993, at a Special Shareholders Meeting called
for such purpose, the name of the Registrant was changed to First
Financial Bankshares, Inc. Similarly, the corporate name of the
Delaware BHC was changed to First Financial Bankshares of Delaware,
Inc. effective December 7, 1993.
On December 7, 1993, Bankshares entered into a Stock Exchange
Agreement and Plan of Reorganization ("the Exchange Agreement")
with Concho Bancshares, Inc., a Texas corporation and bank holding
company ("Concho") and Concho's subsidiary, Southwest Bank of San
Angelo, a Texas state bank located in the City of San Angelo, Tom
Green County, Texas. Pursuant to the Exchange Agreement,
Bankshares has made an offer (registered under the 1933 Act) to
acquire all (but not less than 90%) of the outstanding capital
(common) stock of Concho. If the requisite number of shares of
Concho stock are tendered for exchange and other conditions
precedent to closing are satisfied, Bankshares will exchange 1.15
shares of its common stock for each share of Concho stock received;
provided that no fractional shares of Bankshares stock will be
issued and cash will be paid in lieu of issuing fractional shares
on the basis of each share of Bankshares stock having a Market
Value (as defined in the Exchange Agreement) of $41.50 per share.
If the exchange offer is consummated, Concho will be merged with
and into the Delaware BHC and Southwest Bank of San Angelo will
become a subsidiary of the Delaware BHC.
C. Mode of Conducting Business
Bankshares operates principally in order to give the
affiliated banks access to additional management and technical
resources which help them to improve or expand their banking
services while continuing their local activity and autonomy. Each
of the affiliated banks operates under the day-to-day management of
its Board of Directors and officers, with substantial authority in
making decisions concerning their own investments, loan policies,
interest rates and service charges. Bankshares provides assistance
to the affiliated banks, especially with respect to decisions
concerning major capital expenditures, employee fringe benefits,
including pension plans, group insurance, dividend policies,
appointment of officers and directors of affiliated banks and their
compensation. The internal audit and loan review functions are
centralized at Bankshares. Each of these corporate staff groups
perform on-site operational audits and loan reviews of the
subsidiary banks. Bankshares, through First Abilene, provides
advice to and specialized services for the affiliated banks in such
areas as lending, investments, purchasing, advertising, public
relations, and computer services. In addition, through First
Abilene, Bankshares coordinates various transactions among the
affiliated banks, including loan participation. Bankshares makes
the services of the Trust Department of First Abilene available to
customers of the other affiliated banks, as well as investment and
computer services. Such specialized services are not ordinarily
offered by smaller banks.
Each Bankshares' subsidiary is engaged in the general
commercial banking business consisting of the acceptance of
checking, savings and time deposits, the making of loans,
transmitting funds and performing such other banking services as
are usual and customary for commercial banks. While all subsidiary
banks, with the exception of Eastland, have trust powers only First
Abilene, First Sweetwater, and Stephenville have active trust
departments.
The trust departments offer a complete range of services to
individuals, associations and corporations. They include the
administration of estates, testamentary trusts and various types of
living trusts and agency accounts. Other sources of revenue are
services for businesses, including administering pension, profit
sharing and other employee benefit plans, acting as stock transfer
agents or stock registrar, and providing paying agent services.
D. Competition
Commercial banking in Texas is very competitive and
Bankshares, holding less than 1% of deposits, represents only a
minor segment of the industry. Success is dependent upon being
able to compete in the areas of interest rates paid or charged and
scope of services offered and prices charged therefore. Subsidiary
banks of Bankshares compete in their respective service areas with
highly competitive banks, savings and loan associations, small loan
companies, credit unions and brokerage firms, all of which are
engaged in providing financial products and services.
First Abilene, the largest of Bankshares' subsidiary banks,
competes in the City of Abilene with three locally owned banks and
the branches of two major regional banks. At December 31, 1993,
First Abilene was the largest of this group on the basis of local
market share. First Abilene also competes with savings and loan
institutions, finance companies, brokerage firms and credit unions
located in the City of Abilene. Hereford is the smaller of two
banks serving Hereford, Texas and must also compete with larger
banks located in larger cities in its general area. First
Sweetwater is the only bank located in Sweetwater, Texas, although
a smaller bank in another town operates a branch office in
Sweetwater. In 1989 First Sweetwater acquired certain assets and
assumed the deposit liabilities of Texas Bank and Trust Company, a
failed bank which, at the time, was the only other bank located in
Sweetwater. Although located within the 16-county area surrounding
Abilene, First Sweetwater does not directly compete with banks
located in Abilene. Eastland is the largest of five banks in
Eastland County, Texas. Although it, too, lies within the
geographic area served by First Abilene, Eastland is not in direct
competition with First Abilene. First Cleburne is located in
Johnson County and competes with local branches of three area
banks, as well as branches of three major regional banks.
Stephenville is located in Erath County and competes with local
branches of major regional holding companies, a savings and loan
association, and a locally owned bank.
The Registrant's business is not dependent upon any single
customer or upon any few customers, the loss of any one of which
would have a materially adverse effect upon the business of
Bankshares. Customers of Bankshares and its subsidiaries include
its officers and directors, as well as other entities with which
they are affiliated. It is the policy of Bankshares and its
subsidiaries to make loans to officers and directors, and entities
with which they are affiliated in the ordinary course of business.
When such loans are made, they are made on substantially the same
terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other persons.
E. Employees
The Registrant and its subsidiaries employed approximately 485
full-time employees at February 8, 1994. Management believes that
its employee relations have been and will continue to be good.
F. Supervision and Regulation
Bankshares is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended, and is registered as
such with the Federal Reserve Board. Bankshares is subject to the
reporting requirements of, and supervision and examination by, the
Federal Reserve Board under the provisions of the Act.
As a bank holding company, Bankshares is required to file with
the Federal Reserve Board an annual report and such additional
information as the Federal Reserve Board may require. The Federal
Reserve Board may also make examination of Bankshares and its
subsidiaries or "affiliates."
The Act requires every bank holding company to obtain the
prior approval of the Federal Reserve Board before the holding
company may acquire direct or indirect ownership or control of more
than 5% of the voting shares of any bank which is not majority-
owned. (As noted in Section B of this Item 1, however, Hereford
State Bank, a subsidiary of the Registrant, has acquired more than
5% of the voting shares of First Tule Bancorp, Inc. under an
exemption from the prior approval requirements of the Act and
Regulation Y, but is required to divest itself of such shares as
soon as reasonably possible.) The Act provides that the Federal
Reserve Board shall not approve any acquisition, merger or
consolidation which would result in a monopoly, or which would be
in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the
United States, or any other proposed acquisition, merger or
consolidation, the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the
country, or which in any other manner would be a restraint of
trade, unless the anticompetitive effects of the proposed
combination are clearly the convenience and needs of the community
to be served. Further, a bank holding company is prohibited from
engaging in certain tie-in arrangements in connection with the
extension of credit or provisions of any property or service.
With certain limited exceptions, the Act provides that a bank
holding company may not engage in any business other than that of
banking, managing or controlling banks and other authorized
subsidiaries of which it owns or controls 25% or more of the voting
shares, and may not own or control more than 5% of the voting
shares of any company which is not a bank. Among the exceptions,
one provides services to the bank holding company or its subsidiary
banks. Another exception permits a bank holding company to acquire
shares which are eligible for investment by a national banking
association. In addition, the Act permits a bank holding company
to acquire shares of any company, the activities of which the
Federal Reserve Board, after due notice and opportunity for
hearing, has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto.
In approving acquisitions by bank holding companies of banks
and companies engaged in banking-related activities, the Federal
Reserve Board considers a number of factors, including the expected
benefits to the public such as greater convenience, increased
competition or gains in efficiency as weighed against the risks of
possible adverse effects such as undue concentration of resources,
decreased or unfair competition, conflicts of interest, or unsound
banking practices. The Federal Reserve Board is also empowered to
differentiate between new activities and activities commenced
through acquisition of a going concern.
The Federal Reserve Board has issued regulations setting forth
certain activities regarded as closely related to banking or
managing or controlling banks and thus permissible for bank holding
companies. Such activities include, among others: (1) the making
or acquiring of loans or other extensions of credit; (2) the
servicing of loans for any person; (3) the performing of certain
trust functions; (4) the making of equity and debt investments in
projects or corporations designated primarily to promote community
welfare; (5) providing bookkeeping and data processing services
for the internal operations of a bank holding company and its
subsidiaries, and the storing and processing of other banking,
financial or related economic data, such as performing payroll,
accounts receivable or payable, or billing services; (6) acting
as an insurance agent or broker under certain circumstances and
with respect to certain types of insurance; (7) providing certain
securities brokerage services; (8) certain leasing of real and
personal property; (9) insurance underwriting and insurance
activities; (10) underwriting and dealing in government
obligations and money market instruments; (11) acting or
servicing as an investment or financial advisor; (12) real estate
and personal property appraising; (13) consumer financial
counseling; and (14) tax planning and preparation. Regulations
have also been issued with respect to ownership by bank holding
companies of so-called "non-bank banks," i.e., banks which do not
accept demand deposits or do not make commercial loans. The
Federal Reserve Board has cease-and-desist powers over parent
holding companies and nonbanking subsidiaries where their actions
would constitute a serious threat to the safety, soundness or
stability of a subsidiary bank. Registered bank holding companies
are required to divest themselves of all activities not permitted
by these regulations.
The Act prohibits the acquisition by a bank holding company
of shares of a bank located outside the state in which the
operations of its banking subsidiaries are principally conducted
unless such an acquisition is specifically authorized by statute of
the state in which the bank is located. Further, the Act and the
Federal Reserve Board's regulations thereunder prohibit a bank
holding company and its subsidiaries from certain tie-in
arrangements in connection with any extension of credit or lease or
sale of any property or the furnishing of services. A subsidiary
bank of a bank holding company is subject to certain restrictions
imposed by the Federal Reserve Act with regard to (i) loans or
extensions of credit to the bank holding company or any of its
subsidiaries, (ii) the purchase of or investment in securities
issued by the bank holding company or any of its subsidiaries,
(iii) the purchase of other assets from the bank holding company or
any of its subsidiaries, and (iv) the acceptance of securities
issued by the bank holding company or any of its subsidiaries as
collateral for a loan or extension of credit.
The Texas Banking Code of 1943, as amended, grants to the
Banking Commissioner of Texas the authority to disapprove any
acquisition (or activity regulated by Section 4 of the Bank Holding
Company Act of 1956, as amended, which does not include the
acquisition of banks or certain banking activities), by a bank
holding company doing business in the State, unless he finds that
is can reasonably be expected to produce benefits to the public,
such as greater convenience or increased competition, that outweigh
possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound
banking practices. Prior to 1987 the banking laws of the State of
Texas did not permit acquisition by an out-of-state bank holding
company of a Texas state bank, a national bank located in Texas or
a bank holding company owning or controlling a state or national
bank located in Texas. However, by amendments to the Texas Banking
Code which became effective January 1, 1987, a bank located in the
State of Texas, or a bank holding company owning or controlling a
bank located in Texas, may be acquired by an out-of-state bank
holding company upon compliance with the provisions of the Banking
Code and the Commissioner's regulations.
First Abilene, First Sweetwater, First Cleburne, and Eastland
are chartered under the National Bank Act and are subject to the
supervision and regulation of, and are regularly examined by, the
Comptroller of the Currency of the United States. Hereford and
Stephenville are chartered under the Texas Banking Code and are
similarly supervised, regulated and examined by the Banking
Commissioner of the State of Texas. The supervision and regulation
of the banks by all of these authorities is primarily intended to
protect the interest of depositors, though shareholders are
likewise benefited. Various requirements and restrictions under
the laws of the United States and the State of Texas affect the
operations of each of the banks, including the requirement to
maintain reserves against deposits, restrictions on the nature and
amount of loans which may be made and the interest that may be
charged thereon, and restrictions relating to investments and other
activities.
First Abilene, Hereford, First Sweetwater, First Cleburne,
Eastland, and Stephenville are members of the Federal Deposit
Insurance Corporation. The Federal Deposit Insurance Act requires
that the Federal Deposit Insurance Corporation approve any merger
or consolidation by or with an insured bank or any establishment of
branches by an insured bank, and it is also empowered to regulate
interest rates paid by insured banks. The approval of the Federal
Deposit Insurance Corporation must also be obtained by an insured
bank before it retires any part of its common or preferred stocks
or retires any part of its capital notes or debentures. However,
an insured bank which is a member of the Federal Reserve System is
regulated with respect to the foregoing matters by the Federal
Reserve System.
In addition, the Federal Deposit Insurance Act makes
applicable to insured banks provisions of the federal banking laws
which establish limitations with respect to loans to, extensions of
credit to, or purchases of securities from affiliates. Affiliates
include any bank holding company of which a bank is a subsidiary
and any other subsidiary of a bank holding company of which the
bank is a subsidiary. Bankshares and each of its subsidiary banks
are affiliates of each other.
First Abilene, First Sweetwater, First Cleburne and Eastland
are member banks of the Federal Reserve System. By being a member
bank in good standing, each of such banks has available the bank
credit facilities of the Federal Reserve Bank of Dallas, and thus
may obtain discounts, advancements and accommodations from that
Reserve Bank.
As a condition of membership in the Federal Reserve System,
First Abilene, First Sweetwater, First Cleburne and Eastland must
hold shares of stock in the Federal Reserve Bank of Dallas. First
Abilene had paid $990,000, First Sweetwater $150,000, First
Cleburne $171,000 and Eastland $105,000, for such stock. Pursuant
to law, each bank has paid only one-half of the par value of such
shares and is subject in the future to a call for the remaining 50%
should it be determined that such a call is in the best interest of
the Federal Reserve Bank.
As member banks, First Abilene, First Sweetwater, First
Cleburne, and Eastland are subject to the regulations of the Board
of Governors of the Federal Reserve System and to the limitations
and restrictions imposed upon the Bank by such regulations and by
the Federal Reserve Act. Bankshares, Hereford, and Stephenville
may be deemed to be "affiliates" within the meaning of such Act,
which imposes restrictions on loans by subsidiary banks to
Bankshares on investments by those banks in the stock or securities
of Bankshares and on the use of such stock or securities as
collateral security for loans by those banks to any borrower.
Bankshares is also subject to certain restrictions with respect to
engaging in the business of issuing, underwriting, public sale and
distribution of securities.
The ability of Bankshares to pay dividends is largely
dependent upon the amount of dividends declared by the Delaware BHC
and its subsidiary banks and any subsequently-acquired affiliated
banks. Under the Texas Banking Code of 1943, as amended, before
any dividend may be paid to Bankshares by an affiliated state bank,
the state bank must transfer to "certified surplus" an amount which
is not less than 10% of the net profits of such bank earned since
the last dividend was declared; provided, however, that a transfer
is not required to certified surplus of a sum which would increase
the certified surplus to more than the capital of the bank. Under
the Federal Reserve Act, the approval of the Federal Reserve Board
is required if dividends declared by any subsidiary state bank
which is a member of the Federal Reserve System in any year should
exceed the total of net profits for that year combined with the
retained net profits for the preceding two years. Approval of the
Comptroller of the Currency, or his designate, is required for any
dividend to Bankshares from an affiliated national bank if the
total of all dividends, including any proposed dividend, declared
by such bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for
the preceding two years, less any required transfers to surplus or
a fund for the retirement of any preferred stock of such bank. At
December 31, 1993, approximately $9,605,000 was available for the
declaration of dividends by Bankshares' subsidiary banks without
approval of regulatory agencies. All dividends declared by
subsidiary banks are paid to the Delaware BHC and dividends must
then be declared and paid by the Delaware BHC to Bankshares.
Stockholders of banks (including bank holding companies which
own stock in banks) may be compelled by bank regulatory authorities
to invest additional capital, in the event their bank's experience
either significant operating losses or rapid growth of loans or
deposits. In addition, Bankshares may also be required to provide
additional capital to the banks which it acquires, as a condition
to obtaining the approvals and consents of regulatory authorities
in connection with such acquisitions.
The State of Texas has various usury laws that place ceilings
on interest rates that can be charged by banks on particular kinds
of loans or on loans to particular classes of borrowers. Moreover,
the federal government, by statute and regulation, preempted, for
certain categories of loans and for designated periods of time, the
usury laws of the several states and imposed or, in some cases,
removed ceilings on interest rates for particular kinds of loans or
on loans to particular classes of borrowers.
Commercial banking is affected not only by general economic
conditions but also by the fiscal and monetary policies of the
Federal Reserve Board. Changes in the discount rate on member bank
borrowings, availability of borrowings at the "discount window,"
open market operations, the imposition of and changes in reserve
requirements against member banks' deposits and assets of foreign
branches, the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates and the
placing of limits on interest rates which member banks may pay on
time and savings deposits are some of the instruments of fiscal and
monetary policy available to the Federal Reserve Board. These
fiscal and monetary policies influence to a significant extent the
overall growth of bank loans, investments and deposits and the
interest rates charged on loans or paid on time and savings
deposits.
Bankshares is unable to predict the nature or the extent of
the effects on its business and earnings which fiscal or monetary
policies or economic controls may have in the future.
In 1986 the Texas Constitution was amended to permit limited
branch banking in Texas. Although the Constitutional amendment and
legislation authorized only limited branch banking, a federal court
decision in June of 1988 and a later opinion of the Texas Attorney
General held that national banks and state-chartered banks in Texas
have State-wide branch banking authority.
G. Statistical Disclosure
Information related to industry segments and foreign
operations required by Regulation S-K is not applicable.
Information required by Guide 3, "Statistical Disclosure by Bank
Holding Companies", and in accordance with the instructions set
forth in such Guide, is set forth in the following tables.
1. Average daily balances sheets.
2. Income and average yield on interest-earning assets
and expense and average rate on interest-bearing
liabilities.
3. Analysis of changes in interest income and interest
expense.
4. Composition of investment securities.
5. Maturity and yield on securities.
6. Composition of loans.
7. Loan maturities and sensitivity to changes in
interest rates.
8. Risk elements.
9. Loan loss experience and allowance for loan losses.
10. Composition of deposits.
11. Maturity distribution of time certificates of
$100,000 or more.
12. Return on equity and assets.
Table 1 - Average Daily Balance Sheets
The following table shows the Company's consolidated balances of assets,
liabilities and capital computed principally on an average daily basis for the
three years ended December 31, 1993 (000's omitted):
Year ended December 31,
ASSETS 1993 1992 1991
Cash and due from banks $ 46,311$ 42,451$ 43,787
Interest-bearing deposits in banks 957 1,016 3,170
Federal funds sold 47,112 44,934 59,167
Taxable investment securities 393,784 346,420 302,795
Tax-exempt investment securities 14,152 13,573 20,489
Net loans 352,555 312,483 303,756
Bank premises and equipment 25,697 25,150 26,669
Other assets 18,701 19,556 20,106
$ 899,269 $ 805,583 $ 779,939
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 160,223 $ 137,956 $ 132,766
Time deposits 642,547 579,245 563,696
Total deposits 802,770 717,201 696,462
Federal funds purchased and
other short-term borrowings 51 679 1,068
Dividends payable 1,084 860 736
Long-term debt -- -- 1,902
Other liabilities 6,328 8,2098,514
Shareholders' equity 89,036 78,634 71,257
$ 899,269 $ 805,583 $ 779,939
Table 2 - Income and Average Yield on Interest-Earning Assets and
Expense and Average Rate on Interest-Bearing Liabilities
The following table shows the interest income and average yield on
interest-earning assets and interest expense and average rate on interest-bearing
liabilities for the three years ended December 31, 1993, (000's omitted). The
calculations of average yields and rates are based upon the average daily
balances in Table 1. Non-accrual loans are included in the average daily balance
of loans and any interest income recognized on a cash basis is included in
interest income on loans:
1993 1992 1991
Income Yield Income Yield Income Yield
(Expense) (Rate) Expense)(Rate) (Expense) (Rate)
Federal funds sold $ 1,371 2.9% $ 1,506 3.4% $ 3,365 5.5%
Interest-earning deposits 46 4.8 49 4.8 237 7.5
Taxable investment securities 22,997 5.9 24,801 7.2 24,482 8.3
Tax-exempt investment
securities (1) 1,131 8.0 1,286 9.4 2,105 9.5
Loans (1) 29,284 8.3 28,443 8.9 32,516 10.4
Interest income 54,829 6.8 56,085 7.7 62,705 9.0
Time deposits (18,016)(2.9) (21,395)(3.7) (31,951)(5.7)
Federal funds purchased
and other
short-term borrowings (2)(2.9) (20)(3.5) (43) (5.3)
Long-term debt -- -- -- -- (244)(9.9)
Interest expense (18,018)(2.9) (21,415) (3.7) (32,238)(5.7)
Net interest
income and spread $ 36,811 3.9% $ 34,670 4.0% $ 30,467 3.3%
Net interest yield (2) 4.6% 4.8% 4.4%
(1) Income and yield on tax-exempt investment securities and tax-exempt loans
have been adjusted to a tax-equivalent basis based upon the Federal income
tax rate of 34.4% in 1993 and 34% in 1992 and 1991, adjusted for disallowed
interest deductions in accordance with Federal income tax regulations.
(2) The net yield on interest-earning assets is computed by dividing net
interest income by total interest-earning assets.
Table 3 - Analysis of Changes in Interest Income and Interest Expense
The following table sets forth the dollar amount of increase (decrease)
in interest income and interest expense resulting from changes in the volume of
interest-earning assets and interest-bearing liabilities and from changes in
yields and rates (000's omitted):
1993 Compared to 1992
1992 Compared to 1991
Yield/ Yield/
Volume Rate Total Volume Rate Total
Federal funds sold and
interest-bearing deposits$ 92$ (230)$ (138) $ (1,074) $ (973) $(2,047)
Taxable investment
securities 3,418(5,222) (1,804) 4,282 (3,963) 319
Tax-exempt investment
securities (1) 51 (206) (155) (738) (81) (819)
Loans (1) 1,727 (886) 841 656 (4,729) (4,073)
Interest income 5,288 (6,544) (1,256) 3,126 (9,746) (6,620)
Time deposits 2,368(5,747)(3,379) 1,056 (11,612) (10,556)
Federal funds purchased
and other short-term
borrowings (18) -- (18) (7) (16) (23)
Long-term debt -- -- -- (244) -- (244)
Interest expense 2,350 (5,747) (3,397) 805 (11,628) (10,823)
Net interest
income $ 2,938 $ (797)$ 2,141 $ 2,321 $ 1,882 $ 4,203
(1) Income on tax-exempt investment securities and tax-exempt loans has been
adjusted to a tax-equivalent basis based upon the Federal income tax rate
of 34.4% in 1993 and 34% in 1992 and 1991, adjusted for disallowed
interest deductions in accordance with Federal income tax regulations.
Note: Volume/rate variances (changes in volume times changes in
rate) have
been allocated to amounts attributable to changes in volume and
to
changes in rates in proportion to the amounts directly attributable
to those changes.
Table 4 - Composition of Investment Securities
The table below sets forth the composition of investment securities at the dates
indicated:
December 31,
1993 1992 1991
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $ 363,737,702 $ 331,819,344 $ 311,347,277
Obligations of states and
political subdivisions 17,484,96512,461,59717,220,534
Mortgage-backed securities 39,092,949 24,932,410 26,234,199
Total debt securities 420,315,616 369,213,351 354,802,010
Other securities 1,420,000 1,420,000 1,420,000
Total investment securities $ 421,735,616 $ 370,633,351 $ 356,222,010
Table 5 - Maturity and Yield on Securities
The following table shows the maturities of investment
securities at December 31, 1993, and the weighted average yields
(for tax-exempt obligations on a fully taxable basis assuming a
34.4% tax rate adjusted for disallowed interest deductions in
accordance with Federal income tax regulations) of such securities:
Maturing
After one butAfter five but
Within one yearwithin five years within ten yearsAfter ten years
Amount Yield Amount Yield Amount YieldAmount Yield
U.S. Treasury$ 28,179,272 5.7% $ 61,629,849 4.7%$ - - % $ -
- - %
U.S. Government
agencies 71,226,117 6.4 210,896,510 5.2 19,950,321 6.0 10,948,582
6.7
State and political
subdivisions 3,386,021 8.2 9,131,063 7.3 3,184,878 6.3 1,783,003 8.7
Other - - - - - - 1,420,000 -
$ 102,791,4106.3%$ 281,657,422 5.2% $23,135,199 6.1% $ 14,151,585
6.9%
Table 6 - Composition of Loans
The table below sets forth the amount of loans outstanding at
the end of the years indicated, according to type of loan:
1993 1992 1991 1990 1989
Real estate loans:
Construction $ 5,340,796 $ 3,500,484 $ 2,196,053 $ 2,708,183 $
2,722,880
Mortgage 73,501,64277,917,54283,138,995 86,327,332 65,549,591
Commercial, financial
and agricultural
loans 208,811,960 178,578,608 166,887,515 186,906,944
173,756,350
Installment loans to
individuals 88,836,683 71,294,708 58,399,955 43,419,655
33,531,600
Total loans $376,491,081 $331,291,342 $310,622,518 $319,362,114
$275,560,421
Table 7 - Loan Maturities and Sensitivity to Changes in Interest
Rates
The amounts of total loans (excluding real estate mortgages
and installment consumer loans) outstanding as of December 31,
1993, which, based on remaining scheduled repayments of principal,
are due in (1) one year or less, (2) more than one year but less
than five years, and (3) more than five years, are shown in the
following table. The amounts due after one year are classified
according to the sensitivity to changes in interest rates.
Aggregate maturities of loan balances which are due:
After one year
In one yearbut within After
or less five years five years
Real estate construction $ 4,851,051$ 489,745 $ -
Commercial, financial and
agricultural loans 151,873,254 45,535,080 11,403,626
Loans with maturities after one year for which:
Interest rates are fixed or predetermined $ 21,527,072
Interest rates are floating or adjustable 35,901,379
$ 57,428,451
Table 8 - Risk Elements
The following table shows the outstanding balances of accruing
loans which were 90 days or more past due:
90 Days
or more
Date Past Due
December 31, 1993 $ 58,141
December 31, 1992 576,162
December 31, 1991 74,206
December 31, 1990 243,552
December 31, 1989 75,345
At December 31, 1993, 1992, 1991, 1990, and 1989, there were
loans totaling $2,787,764, $1,951,168, $3,540,844, $5,641,195, and
$3,040,553, respectively, which had been placed on a nonaccrual
basis. Loans are placed on a nonaccrual basis when management
believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful. At December 1990 loans
aggregating $44,696 had been restructured to provide a reduction or
deferral of interest or principal because of deterioration in the
financial position of the borrower. There were no such
restructured loans at December 31, 1993, 1992, 1991, and 1989. Had
interest been earned on the nonaccrual loans outstanding at
December 31, 1993, 1992, 1991, and 1990 at the original rate, the
Company would have accrued approximately $377,000, $327,000,
$525,000 and $500,000 for the years ended December 1993, 1992,
1991, and 1990, respectively. The Company actually recognized
approximately $53,000, $0, $1,000 and $3,000, respectively. At
December 31, 1993, potential problem loans that management had
serious doubts as to the ability of the borrower to comply with
present loan payment terms totaled approximately $522,616.
Also at December 31, 1993, the Company had loans outstanding to
companies in farm and agriculture related industries of
approximately $60,543,752, representing 16.1% of total loans.
At December 31, 1993, 1992, 1991, 1990 and 1989, the allowance
for loan losses has been allocated within the categories of loans
set forth below, according to the amount deemed to be reasonably
necessary to provide for the possibility of losses being incurred.
Table 8 - Risk Elements - Continued
The amount of such components and the ratio of the corresponding
loan amounts to total loans outstanding are as follows:
Ratio of Loan
Amount to
Allowance Total Loans
Amount Outstanding
December 31, 1993
Construction loans $ 88,646 1.4%
Mortgage loan 3,271,486 19.5
Commercial, financial and agricultural loans 2,721,324 55.5
Installment loans to individuals 2,304,371 23.6
$ 8,385,827 100.0%
December 31, 1992
Construction loans $ 100,554 1.1%
Mortgage loans 2,434,284 23.5
Commercial, financial and agricultural loans 4,105,353 53.9
Installment loans to individuals 1,059,813 21.5
$ 7,700,004 100.0%
December 31, 1991
Construction loans $ 59,995 .8%
Mortgage loans 2,254,516 26.7
Commercial, financial and agricultural loans 3,635,434 53.7
Installment loans to individuals 1,211,189 18.8
$ 7,161,134 100.0%
December 31, 1990
Construction loans $ 53,021 .8%
Mortgage loans 2,485,960 26.6
Commercial, financial and agricultural loans 3,992,854 57.6
Installment loans to individuals 769,962 15.0
$ 7,301,797 100.0%
December 31, 1989
Construction loans $ 157,849 1.0%
Mortgage loans 846,582 23.8
Commercial, financial and agricultural loans 2,991,212 63.0
Installment loans to individuals 352,126 12.2
$ 4,347,769 100.0%
Table 9 - Loan Loss Experience and Allowance for Loan Losses
The following table summarizes the daily average amount of net
loans outstanding; changes in the allowance for loan losses arising
from loans charged off, and recoveries on loans previously charged
off, by loan category; additions to the allowance which have been
charged to operating expense; and the ratio of net loans charged
off to average loans outstanding:
1993 1992 1991 1990 1989
Daily average amount of
net loans outstanding$352,555,000 $312,483,000 $303,756,000 $263,314,000
$266,040,000
Balances of allowance for loan
losses at beginningof period$ 7,700,004 $ 7,161,134 $ 7,301,797 $ 4,347,769 $
4,141,150
Loans charged off
Commercial, financial
and agricultural 1,125,569 1,042,373 1,749,075 1,819,962 3,327,936
Loans to individuals 471,472 636,089 521,598 571,462 863,916
All other loans 338,449 167,487 362,420 13,137
56,683
Total loans charged off 1,935,490 1,845,949 2,633,093 2,404,561 4,248,535
Recoveries of loans previously
charged off
Commercial, financial and
agricultural 1,152,759 1,221,734 1,168,849 927,295 401,744
Loans to individuals 310,697 169,202 176,583 164,567 281,384
All other loans 100,625 53,813 26,998 7,500 4,958
Total recoveries 1,564,081 1,444,749 1,372,430 1,099,362 688,086
Net loans charged off 371,409 401,2001,260,663 1,305,199 3,560,449
Reserves established from
acquisition of Bank 712,222 - - 1,564,227 -
Additions to allowance charged
to operating expense (1) 345,010 940,070 1,120,000 2,695,000
3,767,068
Balance at end of period $ 8,385,827 $ 7,700,004 $ 7,161,134 $ 7,301,797 $
4,347,769
Ratio of net charge offs to
the daily average amount of
loans outstanding .10% .13% .42% .50% 1.34%
(1) Additions to the allowance were based primarily on historical experience,
current
economic conditions, and the condition of the loan portfolio at year-end.Table 10
- - Composition of Deposits
The following table presents the average daily amount and the
average rate paid on deposits (000's omitted):
1993 1992 1991
Amount Rate Amount Rate
Amount Rate
Noninterest bearing
demand deposits $ 160,223 0.0% $ 137,9560.0% $ 132,766
0.0%
Interest bearing demand deposits 154,490 2.9 130,9032.7 110,228 4.5
Savings and money market accounts 173,222 3.1 140,7963.1 121,130
5.0
Time deposits:
Less than $100,000 238,828 228,892 245,416
$100,000 or more 76,007 78,654 86,922
Total time deposits 314,835 4.3% 307,5464.4% 332,338 6.3%
Total deposits $ 802,770 $ 717,201 $ 696,462
Table 11 - Maturity Distribution of Time Certificates of $100,000
or More
Time certificates of $100,000 or more outstanding at December
31, 1993 will mature as follows (000's omitted):
Under 3 months $ 33,872
3 to 6 months 19,975
6 to 12 months 11,955
Over 12 months 12,211
$ 78,013
Table 12 - Return on Equity and Assets
The ratio of net earnings to average shareholders' equity and
daily average total assets and certain other ratios are presented
below:
Year ended December 31,
1993 1992 1991
Before Cumulative Change in Accounting for Income Taxes
Percentage of net earnings to
Average total assets 1.35% 1.37% 1.12%
Average shareholders' equity 13.59% 13.98% 12.15%
Percentage of dividends declared per
common share to earnings per common share 34.04% 32.00%
34.79%
After Cumulative Change in Accounting for Income Taxes
Percentage of net earnings to
Average total assets 1.47% 1.37% 1.12%
Average shareholders' equity 14.86% 13.98% 12.15%
Percentage of dividends declared per
common share to earnings per common share 37.61% 32.00%
34.79%
Percentage of average shareholders'
equity to daily average total assets 9.90% 9.76% 9.18%
Item 2. Properties
A. First Financial Bankshares/First National Bank of Abilene
The principal offices of Bankshares and First Abilene are
located in the First National Bank Building at 400 Pine Street in
downtown Abilene, Texas. First Abilene occupies the first four
floors of the building and the remaining six floors of this 170,842
square foot facility are available for lease to tenants. The First
National Bank Building is connected to the First National West
Building, a six-story modern facility owned by First Abilene which
contains 52,800 square feet of lease space which is rented to
business and professional tenants. First Abilene began occupying
the First National Bank Building in June of 1984 and, at the same
time, a new four-level drive-in parking garage was completed
immediately South across the street from the new bank building,
which is connected to the bank building by an over-the-street,
enclosed pedestrian bridge. The total cost of the project was
$14,000,000. Until January 1, 1989, both the new First National
Bank Building and the connected parking garage were owned by a
joint venture between First Abilene and the Trammell Crow Company.
Effective January 1, 1989, First Abilene purchased the interest of
Trammell Crow Company and is now the sole owner of the First
National Bank building and the connecting parking garage. A note
payable to Aetna Life Insurance Company in the amount of $
7,000,000 which was previously secured by this property was paid in
full during 1991.
First Abilene also owns a five-story office building known as
the First National/Ely Building, which is located directly south
across the street from the First National West Building and
connected to the First National West Building by an underground
pedestrian tunnel. The First National/Ely Building contains
approximately 34,000 square feet of space and is leased to business
and professional tenants. The premises also includes a ground
level parking lot with spaces for 22 cars which are leased to
tenants and others. Both the First National/Ely Building and the
parking lot are situated on land leased by First Abilene. The
lease has 20 years remaining at this time and provides an option to
purchase the underlying property for $360,000.
First Abilene owns and operates a 17-lane drive-in banking
facility which was completed in 1981 and which is also located on
Pine Street, two blocks north of First Abilene's main banking
facilities. In 1987 First Abilene completed construction of a
branch banking facility located at the northwest corner of North
Judge Ely Boulevard and East North Tenth Street in the City of
Abilene. The cost of the site was $412,383 and the construction
cost for the building and improvements was $ 554,318. The new
branch banking facility includes a one-story office building
containing 2,960 square feet and six lane drive-in facility.
As a result of the merger between First Abilene and American
National, First Abilene acquired title to the drive-in banking
facility owned by American National on Buffalo Gap Road in the
southwest part of the City of Abilene, Texas. The drive-in
facility is located on 2.23 acres of land adjoining a five-story
office building in which American National leased office space for
its banking operations. Following its merger with American
National First Abilene entered into a 10-year lease covering 11,009
square feet of office space on the ground floor of the building
adjacent to the drive-in facility, which office space includes all,
or substantially all, of the space formerly leased and occupied by
American National for its primary banking facility. In addition to
the original 10-year term of the lease, the lease provides three
renewal options on the leased premises, each option being for a
renewal term of five years. The drive-in banking facility was
constructed to provide for seventeen (17) lanes, but only eight
drive-in teller windows and lanes are presently being utilized.
As a result of the merger between First Abilene and BOC,
First Abilene acquired title to the banking faaility at the corner
of South 14th and Willis Streets in Abilene, Texas, occupying the
first floor and renting 27,000 square feet of office space to
tenants. The building is of steel reinforced concrete and masonry
construction with air conditioning throughout. The building was
constructed in 1966 and is of modern design. It was purchased from
C M & M, a partnership, subject to a mortgage and promissory note
payable to Connecticut General Life Insurance Company. BOC did not
assume the mortgage note, but the property was conveyed to the Bank
by warranty deed dated March 30, 1967, subject to the mortgage.
The mortgage note was paid in full in 1991. BOC's facilities are
located on six (6) acres of land, all of which is subject to the
above-described mortgage. During 1978 BOC conveyed approximately
4-1/2 acres (not included in the above six acres) of its property
(considered to be surplus) for fair market value to an individual
from Fort Worth, Texas, who developed the property into offices and
parking. In 1976 a 12-lane drive-in facility located adjacent to
the main banking facility was completed. In 1982 BOC completed
construction of an addition to the teller service area for the
drive-in facility at an estimated cost of $200,000. In December
1984, BOC purchased property (approximately 1.85 acres) located on
Southwest Drive in the City of Abilene, Texas for future
construction of a full-service banking facility. The cost of such
property was $344,937.02. As a result of the mergers of American
National and BOC with First Abilene and the operation of the
banking facilities of American National and BOC as branch banks of
First Abilene, it is unlikely that First Abilene, which acquired
all of BOC's assets in the merger, will proceed with construction
of banking facilities at the property on Southwest Drive and the
property is presently listed for sale.
B. Hereford State Bank
Hereford owns its main banking house located at 212 North
Sampson Street, Hereford, Texas. The building contains 16,000
square feet (not including drive-in facilities) and is of concrete
block-brick face construction with air conditioning throughout.
This new facility was completed during 1977. The drive-in complex
is 12 years old, is of brick construction, and is connected to the
bank by a walk-through tunnel.
C. First National Bank, Sweetwater, Texas
First Sweetwater owns its main banking house located at 201
Elm Street in The City of Sweetwater, Texas. The building contains
20,000 square feet and is constructed of steel-reinforced concrete
and marble, with air conditioning throughout. The building was
constructed in 1974 and is of modern design. First Sweetwater also
maintains a drive-in facility located on the same premises as its
main banking facility. In December 1987, First Sweetwater
completed construction of a basement to its banking facility at a
cost of $289,000.
D. Eastland National Bank
Eastland owns its banking facilities located at 201 East Main
Street in Eastland, Texas. The building contains 13,000 square
feet and is of steel and stucco construction with air conditioning
throughout. It was constructed in 1980 and is of modern design.
Eastland also maintains a drive-in facility located on the same
premises as its main banking facility.
E. The First National Bank of Cleburne
First Cleburne owns its banking facilities located at 403
North Main Street in Cleburne, Texas. The building contains 18,000
square feet and is of steel and brick masonry construction with air
conditioning throughout. it was constructed in 1978 and is of
modern design. Cleburne also maintains a drive-in facility located
on the same premises as its main banking facility. On September
23, 1993 First Cleburne acquired the Cleburne branch of Bank One
Texas, N.A. The building is of brick masonry construction,
contains 4,400 square feet and includes a drive-in teller window.
Now operating as a branch of First Cleburne, the facility is
located approximately 3 miles west of the main office.
F. Stephenville Bank & Trust
Stephenville Bank & Trust owns its banking facility which is
located at 298 West Washington in Stephenville, Texas. The
building is a brick masonry structure with approximately 10,000
square feet. Stephenville owns and operates a drive-in facility
that is located across the street from their main banking facility,
and a branch facility consisting of 1,000 square feet located on
the west side of the city.
Item 3. Legal Proceedings
Other than regular, routine examinations by state and federal
banking authorities, there are no proceedings pending or known to
be contemplated by any governmental authorities. Other than
routine litigation in the normal course of business, there are no
material pending legal proceedings to which Bankshares, the
Delaware BHC or its subsidiary banks or any of their properties are
subject, nor are there any known material legal proceedings
involving directors, officers or affiliates of Bankshares.
Item 4. Submission of Matters to a Vote of Security Holders
Following the required notice to shareholders of record at
the close of business on September 15, 1993, a special meeting of
shareholders was held on October 26, 1993. The purpose of the
meeting was to approve a proposal by the Board of Directors to
amend the Company's Articles of Incorporation and change the
Company's name to First Financial Bankshares, Inc. Proxies were
solicited pursuant to Regulation 14a of the 1934 Act. A total of
3,412,004 votes were cast: 3,359,565 for, 41,558 against and
10,881 abstain. A total of 329,798 shares were not voted.
PART II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters
As of February 8, 1994 there were 1,230 holders of
Bankshares' stock reflected on its records. Except for shares held
by First Abilene and First Sweetwater in various fiduciary
capacities (see Item 12 following), no shareholder or shareholder
group known to Bankshares owns five percent (5%) or more of
Bankshares' issued and outstanding stock. Market, price and
dividend information about the stock for the past three years is
set forth on page 30 under Item 7. Restrictions on Bankshares'
present or future ability to pay dividends have been discussed
under Item 1, above, under the topic "Supervision and Regulation."
Item 6. Selected Financial Data
First Financial Bankshares, Inc.
Selected Consolidated Financial Data
(Dollars in thousands, except per share data)
Year ended December 31,
1993 1992 1991 1990 1989
Summary Income Statement Information:
Interest income $ 54,438 $ 55,574 $ 61,822 $ 57,804 $ 58,062
Interest expense 18,018 21,415 32,238 31,443 32,233
Net interest income 36,420 34,159 29,584 26,361 25,829
Provision for loan losses 345 940 1,120 2,695 3,767
Non-interest income 9,840 8,649 8,371 7,953 6,669
Non-interest expense 28,190 25,881 24,413 21,280 20,587
Income before income taxes 17,725 15,987 12,422 10,339 8,144
Provision for income taxes 5,747 4,998 3,777 2,756
1,824
Net income before cumulative
effect of accounting change11,978 10,989 8,645 7,583
6,320
Cumulative effect of
accounting change(1) 1,255 - - -
-
Net income $ 13,233 $ 10,989 $ 8,645 $ 7,583 $ 6,320
Per Share Data(2):
Net income before cumulative
effect of accounting change$ 3.20 $ 2.95 $ 2.35 $ 2.06
$ 1.67
Net income per share 3.53 2.95 2.35 2.06 1.67
Cash dividends declared1.20 0.95 0.82 0.70 0.60
Book value at period end 24.14 21.87 20.00 18.44 17.06
Earnings performance ratios(3):
Return on average assets 1.35 %1.37 % 1.12 % 1.13 % 0.96 %
Return on average equity 13.59 13.98 12.15 11.71 10.17
Summary balance sheet data (period-end):
Investment securities $ 421,736 $ 370,633 $ 356,222 $ 287,533 $
263,067
Loans, net of allowance for loan loss368,105 323,591 303,461 312,060
271,213
Total assets 924,630 839,474 834,500 794,863 688,588
Deposits 828,431 750,445 751,172 709,010 609,443
Total liabilities 834,187 758,041 760,972 727,037 625,653
Total shareholders' equity 90,443 81,433 73,528 67,826 62,935
Asset quality ratios:
Allowance for loan loss/Period-end loans 2.23 %2.32 % 2.31 % 2.29 %
1.58 %
Nonperforming assets/Period-end loans
plus foreclosed assets 1.14 1.26 2.12 2.76 2.29
Net charge-offs/Average loans .10 .13 .42 .80 1.32
Capital ratios(4):
Shareholders' equity/Assets 9.78 %9.70 % 8.81 % 8.53 % 9.14 %
Leverage ratio(5) 9.63 9.55 8.69 - -
Total risk-based captial ratio(6)18.45 18.65 17.23 - -
Dividend payout ratio 34.04 32.00 34.79 33.95 35.80
(1) Adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income
Taxes."
(2) Historical amounts adjusted for stock dividends and stock splits.
(3) Computed on net income before cumulative accounting adjustment
(4) Computed using period-end balances.
(5) Shareholders' equity less intangibles (goodwill and core deposit
premium)/total assets less
intangibles.
(6) Shareholders' equity less intangibles plus allowance for loan losses (to the
extent allowed
under regulatory guidelines)/risk- weighted assets.
Item 7. Management s Discussion and Analysis of Financial
Condition and Results of Operations
This discussion is provided on pages 24 through 30.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVIEW OF OPERATING RESULTS
Net earnings from operations for 1993 were $11.9 million or
9.00% above the $10.9 million earned in 1992. On a per share
basis, 1993 operating earnings of $3.20 were 8.5% above the $2.95
reported in 1992. The lower percentage gain in earnings per share
is due to a higher number of average shares and resulted from the
exercise of stock options during 1993. For earnings per share
calculation purposes, these shares are considered outstanding for
the full year. Additionally, during 1993 the Company recorded a
nonrecurring gain of $1.2 million, or $ .33 per share, which
represented the cumulative effect of the adoption of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The
Company earned $8.6 million, or $2.35 per share, during 1991.
Excluding the nonrecurring gain, return on average assets for
1993 was 1.35% compared to 1.37% in 1992 and 1.12% in 1991. Also
exclusive of the nonrecurring gain, the Company's 1993 return on
shareholders' equity was 13.59% compared to 13.98% in 1992 and
12.15% in 1991.
The Company's 1993 earnings reflect favorable interest
margins, increased non-interest revenue, and a lower loan loss
provision. The earnings gain in 1992 related primarily to increased
net interest income. The 1992 consolidated operating results do
not include the operations of Stephenville Bank & Trust Co. which
was acquired in a cash purchase in February 1993. Consequently,
comparability of 1993 income and expense items to the prior year is
affected. This discussion will highlight those items materially
affected and considered meaningful to the analysis of 1993 results.
Net Interest Income - For analysis purposes in this
discussion, interest income has been adjusted for the tax benefit
of tax exempt securities and loans. On a taxable equivalent basis,
net interest income in 1993 totaled $36.8 million, an increase of
$2.1 million over the 1992 amount which was $4.2 million higher
than 1991. Table 1 provides the income and average yield earned on
earning assets and the interest expense and average rate paid on
interest bearing liabilities for the years 1991 through 1993.
Table 2 presents year to year changes in net interest income and
allocates the changes between the amount attributable to the
variances in average volume and rates. The 1993 increase in net
interest income is attributed to growth in earning assets, a
substantial amount of which relates to the addition of the
Stephenville bank, offset by a slight decrease in the interest
spread and net yield. The lower spread and yield reflects the 1993
maturities of higher yielding fixed rate investments which were
reinvested at the lower current market rates. The Company's near
term projection shows further reduction in the net yield which
reached a record high in 1992 when the drop in market interest
rates drove down funding costs. Earning asset growth was also a
significant factor contributing to the 1992 increase in net
interest income.
Table 1 - Analysis of Average Rates and Yields (000's omitted):
1993 1992 1991
Income/ Yields/ Income/Yields/ Income/ Yields/
(Expense) Rates (Expense) Rates (Expense) Rates
Short-term
investments $ 1,417 2.97% $ 1,555 3.38% $ 3,602 5.78%
Taxable investment
securities22,997 5.92 24,801 7.16 24,482 8.32
Tax-exempt investment
securities 1,131 8.01 1,286 9.37 2,105 9.51
Loans 29,284 8.31 28,443 8.89 32,516 10.37
Total interest income 54,829 6.80 56,085 7.74 62,705 9.03
Interest bearing
deposits (18,016) (2.85) (21,395) (3.70)(31,951) (5.71)
Short-term borrowings (2) (2.96) (20) (3.52) (43) (5.34)
Long-term debt - - - - (244) (9.86)
Total interest
expense (18,018) (2.85) (21,415) (3.70) (32,238) (5.72)
Net interest income
and spread $ 36,811 3.95% $ 34,670 4.04% $ 30,467 3.31%
Net interest yield 4.57% 4.78% 4.38%
Table 2 - Analysis of Changes in Interest Income and Interest Expense (000's omitted):
1993 Compared to 1992 1992 Compared to 1991
Volume Rate Total Volume Rate Total
Short-term investments $ 92 $ (230) $ (138) $ (1,074) $
(973) $(2,047)
Taxable investment
securities 3,418 (5,222) (1,804) 4,282 (3,963) 319
Tax-exempt investment
securities 51 (206) (155) (738) (81) (819)
Loans 1,727 (886) 841 656 (4,729) (4,073)
Interest income 5,288 (6,544) (1,256) 3,126 (9,746) (6,620)
Interest bearing deposits 2,368 (5,747) (3,379) 1,056 (11,612) (10,556)
Short-term borrowings (18) - (18) (7) (16) (23)
Long-term debt - - - (244) - (244)
Interest expense 2,350 (5,747) (3,397) 805 (11,628) (10,823)
Net interest income $ 2,938 $ (797) $ 2,141 $ 2,321 $ 1,882
$ 4,203
Provision for Loan Losses - The provision for loan losses is a charge to earnings for
potential losses inherent in the loan portfolio. The amount of provision is determined
based
on an evaluation of the adequacy of the allowance for losses on loans which is described
in
Note 1 to the consolidated financial statements. A number of factors enter into the
determination of the provision, and the amount of losses cannot always be predicted with
certainty. The 1993 provision totaled $345 thousand as compared to $940 thousand in
1992 and
$1.1 million in 1991. This trend in lower provisions is attributed to improvement in
problem
credits and lower net charge offs. Net charge offs as a percent of average loans were
.10%,
.13%, and .42%, respectively, for 1993, 1992, and 1991. Note 3 to the consolidated
financial
statements summarizes the changes in the allowance for loan loss account which
amounted to
2.23% of loans at December 31, 1993, as compared to 2.32% the prior year-end. Table
3 presents
the components of nonperforming assets at December 31, 1993, which includes $900
thousand added
from the Stephenville acquisition.
Table 3 - Nonperforming Assets (000's omitted):
At December 31,
1993 1992 1991
Nonaccrual loans $ 2,788 $ 1,951 $ 3,541
Loans past due 90 days or more 58 576 74
Nonperforming loans 2,846 2,527 3,615
Foreclosed assets 1,474 1,678 3,018
Total nonperforming assets $ 4,320 $ 4,205 $ 6,633
As a % of loans and
foreclosed assets 1.14% 1.26% 2.12%
Other Income - Other income increased 13.8% in 1993 to $9.8 million as compared
to $8.6
million and $8.3 million, respectively, in 1992 and 1991. The Stephenville bank
accounted for
$538 thousand of the $1.2 million increase recorded in 1993. Trust fees amounted to
$2.9
million in 1993 compared to $2.7 million in 1992 which was slightly below the 1991 total.
Service fees on deposit accounts in 1993 increased 7.1% from the 1992 amount which
reflected
a 12.4% gain over 1991. These increases relate primarily to growth in transaction
account
activity. Table 4 presents year to year changes for other income. Other miscellaneous
represents various revenue items, including recoveries of amounts taken as losses in prior
years. During 1993 such recoveries were approximately $200 thousand higher than the
prior
year. In order to reduce the level of investment in a federally-sponsored lending agency,
two
subsidiary banks sold debt securities of that agency which resulted in a $62 thousand gain
and
also contributed to the 1993 increase in other miscellaneous income.
Table 4 - Other Income (000's omitted):
Increase Increase
1993 (Decrease) 1992 (Decrease) 1991
Trust department income $ 2,946 $ 176 $ 2,770 $ (30) $ 2,800
Service fees on
deposit accounts 4,766 461 4,305 475 3,830
Mastercard merchant fees 493 103 390 (56) 446
Safe deposit rental fees 237 18 219 (9) 228
Exchange fees 187 31 156 4 152
Data processing fees 105 (37) 142 (16) 158
Other miscellaneous 1,106 439 667 (91) 758
$ 9,840$ 1,191 $ 8,649$ 277 $ 8,372
Other Expenses - Non-interest expense for 1993 totaled $28.2
million, an increase of $2.3 million, or 8.9%, over 1992. The 1992
total of $25.9 million was $1.5 million, or 6.0%, over 1991.
Excluding the operating expenses at the Stephenville bank which was
purchased in February, 1993, total non-interest expenses in 1993
were up by only $235 thousand from the prior year.
The largest component of non-interest expense is salaries and
employee benefits which increased $1.8 million, or 14.5% in 1993.
The addition of the Stephenville bank accounted for $1.0 million of
the increase. Total salaries and employee benefits in 1992 totaled
$12.4 million, an increase of $834 thousand, or 7.2%, from 1991.
Net occupancy expense of $2.1 million in 1993 was slightly
below 1992 and was due primarily to lower property taxes. The 1992
increase over 1991 resulted from higher depreciation and insurance
expense. Equipment-related expenses for 1993 were up 4.1% with the
increase resulting primarily from higher depreciation. Equipment
expenses in 1992 were virtually unchanged from 1991.
In 1994 the Company's lead bank, First National Bank of
Abilene, will install a new data processing system and begin adding
to the Abilene data center the affiliate banks which are now
processed by outside service providers. The capital expenditures
for the new data processing system and facilities plus related
conversion expenses are projected to total approximately $4.5
million Company-wide. The expected increase in the Company's future
data processing expense will be offset to some extent by the
elimination of fees now being paid to outside sources and expected
operating efficiencies. Also in 1994, Stephenville Bank & Trust
will have projected capital expenditures of $1.8 million related to
the relocation of its main banking office.
FDIC insurance expense in 1993 was $148 thousand higher than
1992 and was due primarily to acquisitions. The 1992 amount was
$188 thousand higher than 1991 and was caused by a rate increase.
Correspondent Bank charges represent fees paid primarily by
First National Bank of Abilene to its major upstream correspondent
banks for check clearing services. This expense also includes the
cost of clearing items for non affiliated banks which utilize First
National Bank of Abilene as their primary clearing bank. In those
situations First National Bank of Abilene recovers its cost through
account analysis fees or deposit balances. Year to year changes
for this expense relate to volume.
Other miscellaneous as shown in Table 5 consists of outside
director fees, travel, communication, insurance, and various other
operating expenses. The 1993 total of other miscellaneous
includes $356 thousand for the settlement of legal claims against
one of the subsidiary banks.
The Company utilizes the ratio of total non-interest expense
to net revenue (taxable equivalent net interest income plus other
income) as a key indicator of operating efficiency. As shown in
Table 5, the ratio increased slightly in 1993 following a decrease
in 1992 and compared favorably to the Company's Federal Reserve
peer group average of 65.55%.
Table 5 - Other Expenses (000's omitted):
Increase Increase
1993 (Decrease) 1992 (Decrease) 1991
Salaries $ 11,132 $ 1,395 $ 9,737 $ 490 $ 9,247
Profit sharing 1,102 57 1,045 214 831
Pension and other benefits 2,010 348 1,662 131 1,531
14,244 1,800 12,444 835 11,609
Net occupancy 2,119 (34) 2,153 154 1,999
Equipment expense 1,780 70 1,710 33 1,677
FDIC insurance expense 1,762 148 1,614 188 1,426
Correspondent bank
service charges 836 67 769 (6) 775
Printing and supplies745 23 722 122 600
Outside data processing fees 551 (51) 602 21 581
Postage 689 33 656 58 598
Advertising 509 4 505 103 402
Professional fees 551 12 539 191 348
Other miscellaneous 4,404 237 4,167 (231) 4,398
Total noninterest expense $ 28,190 $ 2,309 $ 25,881 $ 1,468 $24,413
As a % of Net Revenue 60.43% 59.75% 62.86%
Income Taxes - Income tax expense for 1993 amounted to $5.7
million compared to $4.9 million in 1992 and $3.8 million in 1991.
During 1993 the new tax law increased the rate paid on taxable
income above $10 million to 35%. The effective tax rates on
pre-tax income were 32.4%, 31.3%, and 28.3% for years 1993, 1992,
and 1991, respectively. Note 6 to the consolidated financial
statements provides additional analysis of income tax expense for
these years.
BALANCE SHEET REVIEW
Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Investments", requires
all entities to disclose the fair value of their financial
investment assets and liabilities. Note 7 to the consolidated
financial statements provides the required disclosures and
describes the methodologies which the Company used to determine
fair values. Due to the wide range of permitted valuation
techniques and numerous estimates given the absence of active
secondary markets, the reasonable comparability between financial
institutions may be affected. Comments in this discussion pertain
to recorded book values which are based on historical costs.
Total Assets - Total assets at December 31, 1993, totaled
$924.6 million, up from $839.4 million at the end of 1992, with the
increase due largely to the addition of the $88 million asset
Stephenville bank and a $20 million asset branch office acquired by
the First National Bank in Cleburne. On a daily average basis,
total assets were $899.3 million in 1993 as compared to $805.5
million in 1992.
Investment Securities - At December 31, 1993, the investment
portfolio was $421.7 million, an increase of $51.1 million, or
13.8%, over the previous year-end balance. The increase over the
prior year is attributed to the 1993 acquisitions and consisted
primarily of U. S. Treasury and U. S. Government agency securities.
Note 2 to the consolidated financial statements provides further
detail on the mix, maturities, and values of the securities
portfolio at December 31, 1993. Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", was issued in 1993 and requires that such
securities be classified as held-to-maturity, available-for-sale,
or trading. Securities classified as held-to-maturity will be
recorded at amortized cost. Securities classified as
available-for-sale will be recorded at fair value, with unrealized
gains and losses reported in a separate component of shareholders'
equity. Securities classified as trading will be recorded at fair
value, with unrealized gains and losses included in earnings. The
Company will adopt this accounting standard at the beginning of
1994 and expects that the resulting adjustment to assets and equity
will not be material.
Loans - Total loans at December 31, 1993, amounted to $376.5
million, up $45.2 million, or 13.6%, from the 1992 year-end
balance, $24.6 million of which related to the Stephenville
acquisition. Overall, the change reflects an increase of $30.2
million in commercial loans, an increase of $17.5 million in
consumer loans, and $2.5 million decrease in real estate loans.
During 1993 total loans averaged $361.1 million which was $48.6
million, or 12.8%, above the prior year average.
Deposits - Total deposits at December 31, 1993, amounted to
$828.4 million as compared to $750.4 million at the end of 1992.
Excluding the deposits at the Stephenville bank and the Cleburne
branch, total deposits were down $15.1 million from the prior
year-end and reflect movement of bank interest-bearing deposits to
higher yielding nonbank investments. Excluding the effect of the
acquisitions, non-interest bearing deposits were virtually
unchanged from the 1992 year-end balance. For the year, total
deposits averaged $802.8 million as compared to the 1992 average of
$717.2 million.
Capital - At the end of 1993, total shareholders' equity was
$90.4 million, up $9.0 million from December 31, 1992. The
Company's total risk-based capital ratio at year-end was 18.5%
compared to 18.7% at December 31, 1992. The risk-based guideline
assigns weighted levels of risk to asset categories to measure
capital adequacy and requires a minimum ratio of 8.0%. On April
27, 1993, the Board of Directors approved a 10% stock dividend
which was paid June 1, 1993. The Company does not anticipate any
significant changes in dividend policy which has yielded cash
dividend payout ratios of 34.0%, 32.0%, and 34.8%, respectively, in
1993, 1992, and 1991.
Liquidity Position - Liquidity is the ability of the Company
to meet its cash needs as they arise. Such cash needs can develop
from loan demand, deposit withdrawals and acquisition
opportunities. The statements of cash flows which are included in
the consolidated financial statements present the changes in cash
and cash equivalents which consist of cash and due from banks and
Federal funds sold. The subsidiary banks continue to maintain
relatively low loan to deposit ratios (combined 44.9% at December
31, 1993) and highly liquid investment portfolios with short
maturities. In view of these factors and the parent company's $5.0
million available line of credit, Management considers the current
liquidity position to be adequate.
Asset/Liability Management - Asset/liability management is
the funding and investment strategies necessary to maintain an
appropriate balance between interest-sensitive assets and
liabilities. It is the policy of the Company that each subsidiary
establish asset/liability policies for balance sheet management.
Interest-sensitivity analysis is one of the tools used to monitor
interest rate risk resulting from periodic mismatches or "gap" in
the maturities of assets and liabilities. The consolidated interest
sensitivity ratios at December 31, 1993, as shown in Table 6,
remain relatively unchanged from the prior year-end. Historically,
the strong core deposit base which does not reprice on a
contractual basis has protected the Company from the earnings
volatility indicated in the analysis.
Table 6 - Interest Sensitivity Analysis (000's omitted):
Within 3 4-6 7-12 1-5 Over 5
Months Months Months Years Years Total
Interest-earning assets:
Total loans $ 205,476 $ 19,290 $ 27,296 $ 114,161 $ 10,264 $
376,487
Investment securities 40,755 15,977 66,743 267,844 30,418 421,737
Short-term investments 38,356 194 493 100 39,143
Total interest-earning
assets 284,587 35,461 94,532 382,105 40,682 837,367
Interest-bearing liabilities:
Transaction deposit
accounts 280,998 280,998
Time deposits 201,993 72,603 52,039 41,936 1
368,572
Total interest-bearing
liabilities $ 482,991 $ 72,603 $ 52,039 $ 41,936 $ 1 $ 649,570
Interest sensitivity gap $ (198,404) $ (37,142)$ 42,493 $ 340,169 $
40,681 $ 187,797
Cumulative interest
sensitivity gap (198,404) (235,546) (193,053) 147,116 187,797
187,797
Ratio of interest sensitive
assets to interest
sensitive liabilities 0.59 0.49 1.82 9.11 -
Cumulative ratio of
interest sensitive assets
to interest sensitive
liabilities 0.59 0.58 0.68 1.23 3.32
Cumulative interest
sensitivity gap as a
percent of earning assets-23.69% -28.13%-23.05% 17.57% 22.43%
Market and Dividends - The following Table 7 provides the high and low bid prices
and
dividends paid with respect to the Company's common stock for the periods indicated.
All
amounts have been adjusted for the 10% stock dividend on June 1, 1993. On November
1, 1993,
the Company's stock was listed on the NASDAQ National Market under the trading
symbol FFIN.
Table 7 - Common Stock Data
Dividends
Quarter High Low Declared
1993
Fourth $ 41.50 $ 40.00$ 0.32
Third 40.00 39.00 0.32
Second 39.00 37.00 0.32
First 37.00 35.50 0.25
1992
Fourth $ 35.50 $ 31.00$ 0.25
Third 31.00 23.00 0.25
Second 23.00 20.00 0.25
First 20.00 18.00 0.21
1991
Fourth $ 18.00 $ 17.50 $ 0.21
Third 17.50 16.50 0.21
Second 16.50 16.00 0.21
First 16.00 15.50 0.19
Table 8-Quarterly Financial Data (Unaudited)
(Dollars in thousands, except per share data)
1993
4th 3rd 2nd 1st
Summary Income Statement Information:
Interest income $ 13,648 $ 13,677 $ 13,734 $ 13,379
Interest expense 4,524 4,476 4,565 4,453
Net interest income 9,124 9,201 9,169 8,926
Provision for loan losses (8) 172 108 73
Net interest income after provision for
loan losses 9,132 9,029 9,061 8,853
Non-interest income 2,745 2,449 2,383 2,263
Non-interest expense 7,583 6,956 7,151 6,500
Income before income taxes 4,294 4,522 4,293 4,616
Provision for income taxes 1,407 1,480 1,375 1,485
Net income before cumulative
effect of accounting change 2,887 3,042 2,918 3,131
Cumulative effect of accounting change(1) - - - 1,255
Net income $ 2,887 $ 3,042 $ 2,918 $ 4,386
Per Share Data(2):
Net income before cumulative
effect of accounting change $ 0.77 $ 0.81 $ 0.78 $ 0.84
Net income per share 0.77 0.81 0.78 1.17
Cash dividends declared 0.32 0.32 0.32 0.25
Book value at period end 24.14 23.70 23.24 22.80
Market value (period end) bid 41.50 40.00 39.00 37.00
Market value (bid):
High 41.50 40.00 39.00 37.00
Low 40.00 39.00 37.00 35.50
Quarterly Financial Data (Unaudited) - continued
(Dollars in thousands, except per share data)
1992
4th 3rd 2nd 1st
Summary Income Statement Information:
Interest income $ 13,448$ 13,599 $ 14,030 $ 14,497
Interest expense 4,586 5,041 5,591 6,197
Net interest income 8,862 8,558 8,439 8,300
Provision for loan losses 318 136 226 260
Net interest income after provision for loan losses 8,544 8,422 8,213 8,040
Non-interest income 2,231 2,110 2,093 2,215
Non-interest expense 6,780 6,342 6,226 6,533
Income before income taxes 3,995 4,190 4,080 3,722
Provision (benefit) for income taxes 1,270 1,331 1,263 1,134
Net income $ 2,725$ 2,859 $ 2,817 $ 2,588
Per Share Data(2):
Net income per share $ 0.73$ 0.76 $ 0.76 $ 0.70
Cash dividends declared 0.25 0.25 0.25 0.21
Book value at period end 21.87 21.38 20.90 20.42
Market value (period end) bid 35.50 31.00 23.00 20.00
Market value (bid):
High 35.50 31.00 23.00 20.00
Low 31.00 23.00 20.00 18.00
(1) Adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for
Income Taxes."
(2) Historical amounts adjusted for stock dividends and stock splits. The quarterly
price range of the Company's stock is the closing price, as reported by The
Principal/Eppler, Guerin & Turner, Inc., of Abilene, Texas. The Company's stock
was
traded local over-the-counter prior to November 1, 1993, the effective date of
listing on the NASDAQ National Market. Such over-the-counter market
quotations
reflect inter-dealer prices without retail markup, markdown, or commission and
may
not necessarily represent actual transactions.
Item 8. Financial Statements and Supplementary Data
The independent auditor s report, and consolidated financial
statements of Bankshares at December 31, 1993 and 1992 and for each
of the three years in the period ended December 31 are provided on
pages 32 through 49. Also included for the year ended December 31,
1993 (first required year) is management s report on responsibility
for the financial statements.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--DECEMBER 31, 1993 AND 1992
ASSETS 1993 1992
CASH AND DUE FROM BANKS(Note 2) $ 51,171,307$ 61,836,625
FEDERAL FUNDS SOLD 38,356,000 40,705,000
Total cash and cash equivalents 89,527,307102,541,625
INTEREST-BEARING DEPOSITS IN BANKS 787,000 791,000
INVESTMENT SECURITIES (market value of $426,312,702
in 1993 and $377,596,751 in 1992)(Note 2) 421,735,616 370,633,351
LOANS(Notes 3 and 13) 376,491,081 331,291,342
Less- Allowance for loan losses 8,385,827 7,700,004
Net loans 368,105,254 323,591,338
BANK PREMISES AND EQUIPMENT, net(Notes 4 and 8)
27,227,71624,290,301
OTHER ASSETS 17,247,039 17,626,219
Total assets $924,629,932 $839,473,834
LIABILITIES AND SHAREHOLDERS' EQUITY
DEMAND DEPOSITS $179,112,763$162,327,571
TIME DEPOSITS(Note 5) 649,318,566
588,117,556
Total deposits 828,431,329 750,445,127
DIVIDENDS PAYABLE 1,198,940913,892
OTHER LIABILITIES 4,556,424 6,681,857
Total liabilities 834,186,693 758,040,876
COMMITMENTS AND CONTINGENCIES(Note 8)
SHAREHOLDERS' EQUITY(Note 14):
Common stock, $l0 par value; authorized 5,000,000 shares;
issued and outstanding 3,746,687 shares in 1993 and
3,384,785 shares in 1992 37,466,870 33,847,850
Capital surplus 13,672,409 4,299,902
Retained earnings 39,303,960 43,285,206
Total shareholders' equity 90,443,239 81,432,958
Total liabilities and shareholders' equity$924,629,932 $839,473,834
The accompanying notes are an integral part of these consolidated statements.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
INTEREST INCOME:
Interest and fees on loans $29,277,659 $28,356,420 $32,373,815
Interest on investment securities-
Taxable 22,996,639 24,800,45524,481,871
Exempt from federal income tax 746,195 862,0111,364,203
Interest on federal funds sold and interest-bearing
deposits in banks 1,417,218 1,555,290 3,601,927
54,437,711 55,574,176 61,821,816
INTEREST EXPENSE:
Interest on time deposits(Note 5) 18,016,432 21,394,40431,950,828
Interest on federal funds purchased and other
short-term borrowings 1,510 20,385 43,147
Interest on long-term debt - - 244,314
18,017,942 21,414,789 32,238,289
Net interest income 36,419,76934,159,387 29,583,527
PROVISION FOR LOAN LOSSES(Note 3) 345,010 940,070
1,120,000
Net interest income after provision
for loan losses 36,074,759 33,219,317 28,463,527
OTHER INCOME:
Trust department income 2,945,840 2,769,8932,800,421
Service fees on deposit accounts 4,766,464 4,305,3493,830,398
Other 2,128,187 1,574,105 1,740,797
9,840,491 8,649,347 8,371,616
OTHER EXPENSE:
Salaries and employee benefits 14,244,21512,443,926 11,609,106
Net occupancy expense 2,119,222 2,152,9111,998,982
Equipment expense 1,780,223 1,709,5401,677,174
FDIC assessments 1,761,566 1,614,4591,426,307
Correspondent bank service charges 836,376 768,707 774,427
Other expenses 7,448,892 7,191,778 6,926,964
28,190,494 25,881,321 24,412,960
EARNINGS BEFORE INCOME TAXES 17,724,75615,987,343 12,422,183
INCOME TAX EXPENSE(Note 6) 5,746,509 4,998,018 3,777,146
NET EARNINGS BEFORE CUMULATIVE ADJUSTMENT
FOR CHANGE IN ACCOUNTING FOR INCOME TAXES 11,978,247
10,989,325 8,645,037
CUMULATIVE ADJUSTMENT FOR CHANGE IN
ACCOUNTING FOR INCOME TAXES(Note 1) 1,254,808 -
-
NET EARNINGS $13,233,055 $10,989,325$ 8,645,037
Earnings per share before cumulative adjustment
for change in accounting for income taxes $3.20 $2.95$2.35
Net earnings per share $3.53 $2.95 $2.35
The accompanying notes are an integral part of these consolidated statements.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
Common Stock Capital Retained
Shares Amount Surplus Earnings
BALANCE at December 31, 1990 2,229,795 $22,297,950 $15,278,625
$30,249,364
Net earnings - - - 8,645,037
Stock issuances 12,591 125,910 132,867 -
Cash dividends declared, $.82 per share - - - (3,009,534)
Purchase and retirement of common
stock (7,345) (73,450) (50,460) (68,896)
BALANCE at December 31, 1991 2,235,041 22,350,410 15,361,032
35,815,971
Net earnings - - - 10,989,325
Stock issuances 31,228 312,280 124,030 -
Stock split, 3 for 2 effective
June 1, 1992 1,118,516 11,185,160 (11,185,160) -
Cash dividends declared, $.95 per
share - - - (3,520,090)
BALANCE at December 31, 1992 3,384,785 33,847,850 4,299,902
43,285,206
Net earnings - - - 13,233,055
Stock issuances 23,386 233,860 48,388 -
Cash dividends declared, $1.20 per share - - - (4,505,022)
Stock dividend, 10% 338,516 3,385,160 9,324,119 (12,709,279)
BALANCE at December 31, 1993 3,746,687 $37,466,870 $13,672,409
$39,303,960
The accompanying notes are an integral part of these consolidated statements.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 13,233,055 $ 10,989,325 $ 8,645,037
Adjustments to reconcile net earnings to net
cash provided by operating activities-
Depreciation and amortization 2,175,585 2,175,971 2,369,782
Provision for loan losses 345,010 940,070 1,120,000
Premium amortization, net of
discount accretion 5,189,292 3,699,508 2,623,097
Gain on sale of investment securities (61,638) - (22,500)
Deferred federal income tax benefit (1,417,478)(375,613) (65,102)
(Increase) decrease in other assets 2,750,474 2,144,239 (751,351)
Increase (decrease) in other liabilities (2,772,707) (1,026,941) 321,850
Total adjustments 6,208,538 7,557,234 5,595,776
Net cash provided by operating
activities 19,441,593 18,546,559 14,240,813
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in interest-bearing
deposits in banks 194,000 394,000 1,704,000
Cash and cash equivalents received through
acquisition, net of payment for
stock(Note 16) 5,511,888 - -
Cash and cash equivalents received
through purchase
of assets and liabilities, net of cash
paid(Note 16) 16,876,513 - -
Proceeds from sale of investment securities8,682,805 - 22,500
Proceeds from maturities of investment
securities 186,331,303 152,773,289 105,922,563
Purchase of investment securities (203,916,974) (170,884,138) (177,234,187)
Net (increase) decrease in loans (20,103,090) (21,630,385) 6,010,111
Capital expenditures (3,620,335) (733,162)(805,653)
Proceeds from sale of other assets 1,750,925 1,670,580 1,150,857
Net cash used in investing activities (8,292,965) (38,409,816) (63,229,809)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits 2,879,995 (568,380) 5,820,958
Net increase (decrease) in time deposits (23,105,215)(158,067) 36,343,680
Net decrease in other short-term borrowings - (934,192) (289,548)
Repayment of long-term debt - - (8,064,367)
Payments to repurchase common stock - - (192,806)
Proceeds of stock issuances 282,248 436,310 258,777
Dividends paid (4,219,974) (3,388,462) (2,895,686)
Net cash provided by (used in)
financing activities (24,162,946) (4,612,791) 30,981,008
NET DECREASE IN CASH AND CASH EQUIVALENTS (13,014,318)
(24,476,048) (18,007,988)
CASH AND CASH EQUIVALENTS, beginning of year 102,541,625 127,017,673
145,025,661
CASH AND CASH EQUIVALENTS, end of year $ 89,527,307 $102,541,625
$127,017,673
The accompanying notes are an integral part of these consolidated statements.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992, AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting policies of First Financial
Bankshares, Inc. and subsidiaries (the "Company," formerly First
Abilene Bankshares, Inc.) applied in the preparation of the
accompanying consolidated financial statements follows. The
accounting principles followed by the Company and the methods of
applying them are in conformity with both generally accepted
accounting principles and prevailing practices of the banking
industry.
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and
transactions have been eliminated.
Investment Securities
Investment securities are stated at cost adjusted for premium
amortization and discount accretion, which are recognized as
adjustments to interest income using the interest method. The
adjusted cost of the identified investments sold is used to
determine security gains and losses. The Company had no trading
securities at December 31, 1993 or 1992, and has the positive
intent and ability to hold investment securities until maturity.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. Unearned
income on installment loans is recognized in income over the
terms of the loans in decreasing amounts using a method which
approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances
of the principal amounts outstanding. The allowance for loan
losses is established through a provision for loan losses charged
to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the
principal is unlikely.
The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may
become uncollectible based upon management's review and
evaluation of the loan portfolio. The factors considered in the
evaluation of the loans include general economic conditions, the
financial condition of the borrower, the value and liquidity of
collateral, delinquency, prior loan loss experience, and the
results of periodic reviews of the portfolio. Accrual of
interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that
collection of interest is doubtful.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed principally on a straight-line basis over the estimated
useful lives of the related assets. Leasehold improvements are
amortized over the life of the respective lease or the estimated
useful lives of the improvements, whichever is shorter.
Excess of Cost Over Fair Value of Tangible Assets Acquired
(Goodwill)
Goodwill, relating to acquisitions of certain subsidiary banks,
is being amortized by the straight-line method over periods of 15
and 40 years.
Per Share Data
Earnings per share are based on the weighted average number of
common shares and common share equivalents outstanding in 1993,
1992, and 1991 of 3,746,687, 3,723,264, and 3,676,268,
respectively, adjusted retroactively for stock dividends and
splits. Common share equivalents represent the dilutive effect
of stock options. Additionally, dividends per share have been
retroactively adjusted for the effect of stock dividends and
splits.
Reclassifications
Certain 1992 and 1991 amounts have been reclassified to conform
to the 1993 presentation.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, and federal funds
sold.
Change in Accounting for Income Taxes
In February 1992, Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," was issued. This
statement requires an asset and liability approach for financial
accounting and reporting for income taxes and supersedes
"Accounting for Income Taxes" required by Statement of Financial
Accounting Standards No. 96 and APB Opinion No. 11. The Company
adopted this statement effective January 1, 1993, with the
resulting cumulative adjustment to income increasing other assets
by $1,254,808.
Accounting Standards Not Yet Adopted
In May 1993, Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," was issued. This statement requires management to
classify debt and equity securities as held-to-maturity,
available-for-sale, or trading based on their intent. Securities
classified as held-to-maturity will be recorded at amortized
cost. Securities classified as available-for-sale will be
recorded at fair value, with unrealized gains and losses excluded
from earnings and reported in a separate component of
shareholders' equity. Securities classified as trading will be
recorded at fair value, with unrealized gains and losses included
in earnings. This statement is effective for fiscal years
beginning after December 15, 1993. It is to be initially applied
as of the beginning of the fiscal year and cannot be applied
retroactively. The Company will adopt this statement during the
first quarter of 1994. The resulting adjustment to assets and
stockholders' equity is not expected to be material.
In May 1993, Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan," was issued.
This statement requires that impaired loans, within the scope of
the statement, be measured based on the present value of expected
future cash flows discounted at the loan's effective interest
rate or market price or the fair value of the collateral if the
loan is collateral dependent. This statement applies to fiscal
years beginning after December 15, 1994, and is not expected to
have a material effect on the accompanying financial statements.
2. CASH AND INVESTMENT SECURITIES:
Certain subsidiary banks are required to maintain reserve
balances with the Federal Reserve Bank. During 1993 and 1992,
such average balances totaled approximately $13,974,000 and
$12,622,000, respectively.
The amortized cost, estimated market values, and gross unrealized
gains and losses of investment securities as of December 31, 1993
and 1992, are as follows:
December 31, 1993
Gross Gross Estimated
Amortized UnrealizedUnrealized Market
Cost Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 363,737,702 $ 4,282,799 $ (581,805) $ 367,438,696
Obligations of states and
political subdivisions 17,484,965 239,978 (62,245) 17,662,698
Mortgage-backed securities 39,092,949 836,425 (138,066)
39,791,308
Total debt securities 420,315,616 5,359,202 (782,116) 424,892,702
Other securities 1,420,000 - - 1,420,000
Total investment
securities $ 421,735,616 $ 5,359,202 $ (782,116) $ 426,312,702
December 31, 1992
Gross Gross Estimated
Amortized UnrealizedUnrealized Market
Cost Gains Losses Value
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 331,819,344 $ 6,635,976$ (707,436) $ 337,747,884
Obligations of states and
political subdivisions 12,461,597 290,413 (36,269) 12,715,741
Mortgage-backed securities 24,932,410 804,631 (23,915) $ 25,713,126
Total debt securities 369,213,351 7,731,020 (767,620) 376,176,751
Other securities 1,420,000 - - 1,420,000
Total investment
securities $ 370,633,351 $ 7,731,020$ (767,620) $ 377,596,751
The Company and its subsidiaries invest in securities that have
expected maturities that differ from their contractual
maturities. These differences arise because borrowers may have
the right to call or prepay obligations with or without a
prepayment penalty. These securities include collateralized
mortgage obligations and asset-backed securities. The expected
maturities of these securities at December 31, 1993, were
computed by using scheduled amortization of balances and
historical prepayment rates.
The amortized cost and estimated market value of debt securities
at December 31, 1993, by contractual and expected maturity, are
shown below.
Estimated
Amortized Market
Cost Value
Due in one year or less $102,791,410 $104,250,183
Due after one year through five years 281,657,422 284,429,016
Due after five years through ten years 23,135,199 23,309,729
Due after ten years 12,731,585 12,903,774
Total debt securities $420,315,616 $424,892,702
Investment securities carried at approximately $91,098,000 and
$84,658,000 at December 31, 1993 and 1992, respectively, were
pledged as collateral for public or trust fund deposits and for
other purposes required or permitted by law.
3. LOANS AND ALLOWANCES FOR LOAN LOSSES:
Major classifications of loans are as follows:
December 31,
1993 1992
Commercial, financial, and agricultural $ 208,811,960 $ 178,578,608
Real estate - construction 5,340,796 3,500,484
Real estate - mortgage 73,501,642 77,917,542
Installment 95,457,007 77,713,964
383,111,405 337,710,598
Unearned income (6,620,324) (6,419,256)
Total loans $ 376,491,081 $ 331,291,342
At December 31, 1993 and 1992, the Company was carrying
nonaccrual loans of approximately $2,788,000 and $1,951,000,
respectively. Had these loans performed according to their
original contract terms, the Company would have accrued interest
of approximately $377,000 and $327,000 for the years ended
December 31, 1993 and 1992, respectively, as compared to amounts
actually recognized of approximately $53,000 and $0,
respectively. In management's opinion, the allowance for loan
losses is adequate to absorb any losses which may arise from
these and other loans in the portfolio.
Changes in the allowance for loan losses are summarized as
follows:
Year Ended December 31,
1993 1992
1991
Balance at beginning of year$7,700,004 $7,161,134 $7,301,797
Allowance of acquired bank (Note 16) 712,222 - -
Provision charged to operations345,010 940,070 1,120,000
Loans charged off (1,935,490) (1,845,949) (2,633,093)
Recoveries 1,564,081 1,444,749 1,372,430
BALANCE AT END OF THE YEAR $ 8,385,827 $ 7,700,004 $ 7,161,134
4. BANK PREMISES AND EQUIPMENT:
The following is a summary of bank premises and equipment:
December 31,
1993 1992
Land $ 4,165,743 $ 3,121,168
Buildings 26,773,800 26,068,479
Furniture and equipment 11,212,839 10,188,525
Leasehold improvements 6,631,728 4,342,804
48,784,110 43,720,976
Accumulated depreciation and amortization (21,556,394) (19,430,675)
$ 27,227,716 $ 24,290,301
5. TIME DEPOSITS:
Time deposits of $100,000 or more totaled approximately
$78,013,000 and $75,623,000 at December 31, 1993 and 1992,
respectively. Interest expense on these deposits was
approximately $2,335,000, $3,551,000, and $5,895,000 during 1993,
1992, and 1991, respectively.
6. INCOME TAXES:
The Company files a consolidated federal income tax return.
Income tax expense (benefit) is comprised of the following:
Year Ended December 31,
1993 1992 1991
Current federal income tax$ 5,909,179 $ 5,373,631 $ 3,477,897
Deferred federal income tax benefit (162,670) (375,613) (65,102)
State income tax - - 364,351
Income tax expense $ 5,746,509 $ 4,998,018 $ 3,777,146
During 1993, the federal income tax rate for the Company's
taxable income greater than $10,000,000 changed from 34 percent
to 35 percent. The adjustment to the Company's deferred tax
assets and liabilities for this change was insignificant.
The provision for income tax expense (benefit), as a percentage
of pretax earnings, differs from the statutory federal income tax
rate as follows:
As a Percent of Pretax Earnings
1993 1992 1991
Expected tax expense 34.4% 34.0% 34.0%
Reductions in taxes resulting from
interest income exempt from
federal income tax (1.5)% (2.2)% (5.0)%
Other (0.5)% (0.5)% (0.7)%
Income tax expense 32.4% 31.3% 28.3%
The approximate effects of each type of difference that gave rise to the
Company's deferred tax assets and liabilities at December 31, 1993, are as
follows:
Asset Liability Total
Tax basis of loans in excess
of financial
statement basis $ 2,888,398 $ - $ 2,888,398
Financial statement basis of
fixed assets in
excess of tax basis - (1,183,552)(1,183,552)
Nondeductible write-downs and
adjustments to other real
estate owned and repossessed
assets 275,060 - 275,060
Accretion on investments
recognized for financial
reporting purposes, but not
recognized for tax purposes- (107,071) (107,071)
Benefits of a subsidiary bank
net operating loss carryforward 961,534 - 961,534
Other 938 - 938
$ 4,125,930 $ (1,290,623) 2,835,307
Valuation allowance (480,767)
Net deferred tax asset $ 2,354,540
At December 31, 1993, the First National Bank in Cleburne
("Cleburne"), a subsidiary bank, had a net operating loss
carryforward for federal income tax purposes of approximately
$2,747,000. In its consolidated return, subject to certain
yearly limitations, the Company can utilize Cleburne's
preacquisition net operating loss carryforward to offset future
consolidated taxable income only to the extent Cleburne has
future taxable income. If not used, the net operating loss
carryforward expires as follows: $1,822,000 in 2001, $560,000 in
2002, and $365,000 in 2005.
The valuation allowance was established to recognize the
uncertainty of realization of the benefit related to Cleburn's
net operating loss carryforward. The following summarizes the
changes in the allowance account:
Initial allowance established at January 1, 1993 $524,638
Reduction in valuation allowance based on current
period utilization of net operating loss carryforward (43,871)
Valuation allowance at December 31, 1993 $480,767
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," requires all entities
to disclose the estimated fair value of its financial instrument
assets and liabilities. For the Company, as for most financial
institutions, approximately 95% of its assets and 99% of its
liabilities are considered financial instruments as defined in
Statement No. 107. Many of the Company's financial instruments,
however, lack an available trading market as characterized by a
willing buyer and willing seller engaging in an exchange
transaction. It is also the Company's general practice and
intent to hold its financial instruments to maturity and to not
engage in trading or sales activities. Therefore, significant
estimations and present value calculations were used by the
Company for the purposes of this disclosure.
Estimated fair values have been determined by the Company using
the best available data, as generally provided in the Company's
Regulatory Reports, and an estimation methodology suitable for
each category of financial instruments. For those loans and
deposits with floating interest rates, it is presumed that
estimated fair values generally approximate the recorded book
balances.The estimation methodologies used, the estimated fair
values, and recorded book balances at December 31, 1993 were as
follows:
- Financial instruments actively traded in a secondary
market have been valued using quoted available market
prices.
Estimated Estimated Recorded Recorded
Fair Fair Book Book
Value Value Balance Balance
1993 1992 1993 1992
Cash and due from
banks $ 51,171,307 $ 61,836,625 $ 51,171,307 $ 61,836,625
Federal funds sold38,356,00040,705,000 38,356,000 40,705,000
Interest-bearing
deposits in banks 787,000 791,000 787,000 791,000
Investment securities
(Note 2) 426,312,702 377,596,751 421,735,616 370,633,351
- Financial instruments with stated maturities have been
valued using a present value discounted cash flow with a
discount rate approximating current market for similar
assets and liabilities. Financial instrument assets with
variable rates and financial instrument liabilities with
no stated maturities have an estimated fair value equal to
both the amount payable on demand and the recorded book
balance.
Estimated EstimatedRecordedRecorded
Fair Fair Book Book
Value Value Balance Balance
1993 1992 1993 1992
Deposits with stated
maturities $308,512,178 $294,625,218 $306,806,246 $292,975,617
Deposits with no stated
maturities 521,625,083 457,569,510 521,625,083 457,469,510
Net loans 372,915,014 329,113,894 368,105,254 323,591,338
Changes in assumptions or estimation methodologies may have a
material effect on these estimated fair values.
The Company's remaining assets and liabilities which are not
considered financial instruments have not been valued differently
than has been customary with historical cost accounting. No
disclosure of the relationship value of the Company's deposits is
required by Statement No. 107 nor has the Company estimated its
value. There is no material difference between the notional
amount and the estimated fair value of off-balance-sheet unfunded
loan commitments which total $82,053,000 and $67,356,000 at
December 31, 1993 and 1992, respectively, and are generally
priced at market at the time of funding. Letters of credit
discussed in Note 9 have an estimated fair value based on fees
currently charged for similar agreements. At December 31, 1993
and 1992, fees related to the unexpired term of the letters of
credit are not significant.
Management is concerned that reasonable comparability between
financial institutions may not be likely due to the wide range of
permitted valuation techniques and numerous estimates which must
be made given the absence of active secondary markets for many of
the financial instruments. This lack of uniform valuation
methodologies also introduces a greater degree of subjectivity to
these estimated fair values.
8. COMMITMENTS AND CONTINGENCIES:
The Company is engaged in legal actions arising from the normal
course of business. In management's opinion, the Company has
adequate legal defenses with respect to these actions, and the
resolution of these matters should have no material adverse
effects upon the results of operations or financial condition of
the Company.
The Company has an unused line of credit with a bank under which
it may borrow up to $5,000,000 at the London Interbank Offered
Rate plus 1%, adjusted for reserves and deposit insurance
expense. The line of credit is unsecured and matures on
August 1, 1994. The Company paid no fee to secure the unused
line of credit and accordingly has not estimated a fair value of
the unused line of credit at December 31, 1993 or 1992.
The Company leases portions of its banking premises under
operating leases. Total rental expense for these leases was
approximately $246,000, $224,000, and $224,000 for the years
ended December 31, 1993, 1992, and 1991, respectively. The
Company is a lessor for portions of its banking premises.
Total rental income for all leases included in net occupancy
expense was approximately $1,214,000, $1,219,000, and $1,318,000
for the years ended December 31, 1993, 1992, and 1991,
respectively. At December 31, 1993, approximate future minimum
lease commitments and lease receivables are summarized as
follows:
Lease Lease
CommitmentsReceivables
1994 $ 200,400$ 778,900
1995 205,400 489,800
1996 212,400 216,700
1997 123,900 76,400
1998 and Thereafter - -
Total $ 742,100$1,561,800
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the
balance sheet.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is
represented by the contractual notional amount of these
instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-
balance-sheet instruments.
Contract or
Notional Amount
Financial instruments whose
contract amounts
represent credit risk-
Commitments to extend credit $ 82,053,000
Standby letters of credit 3,394,000
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation
of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. The average collateral value held on
letters of credit is 73%.
10. CONCENTRATION OF CREDIT RISK:
The Company grants commercial, retail, agriculture, and
residential loans to customers primarily in North Central and
West Texas. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the local economic sector.
11. PENSION AND PROFIT SHARING PLANS:
The Company has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on
years of service and a percentage of the employee's qualifying
compensation during the final years of employment. The Company's
funding policy is to contribute annually the amount necessary to
satisfy the Internal Revenue Service's funding standards.
Contributions are intended to provide not only for benefits
attributed to service to date but also for those expected to be
earned in the future.
The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheet at December 31,
1993 and 1992.
December 31,
1993 1992
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $4,257,607 and
$3,830,354 in 1993 and 1992, respectively$ 4,369,543 $ 3,962,429
Projected benefit obligation for service
rendered to date $ (4,776,193) $ (4,248,923)
Plan assets at fair value, primarily
corporate bonds and equity securities 6,422,398 6,294,282
Plan assets in excess of projected benefit obligation 1,646,205 2,045,359
Unrecognized net gain from past experience
different than that assumed and effects of
changes in assumptions (271,131) (576,034)
Unrecognized net asset at January 1, 1987,
being recognized over 10.7 years (534,298) (676,502)
Prepaid pension cost included in other assets$ 840,776 $ 792,823
Net pension cost (credit) for the years ended December 31, 1993, 1992, and 1991,
included
the following components:
Year Ended December 31,
1993 1992 1991
Service cost - benefits earned
during the period $ 358,084 $ 307,643 $ 291,861
Interest cost on projected benefit
obligation 369,861 322,416 289,606
Actual return on plan assets (282,192)(578,291)(426,068)
Net amortization and deferral (398,544) (78,592) (185,584)
Net periodic pension cost (credit) $ 47,209 $ (26,824) $ (30,185)
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the projected benefit obligations was 8.5% and 4.0%,
respectively. The expected long-term rate of return on assets
was 8.5%.
Under the provisions of the Tax Reform Act of 1986, the Company
was required to amend its pension plan by December 31, 1992, with
an effective date of January 1, 1989. During 1992, the Company
amended the pension plan without causing a significant change in
funding requirements or future benefits.
The Company also provides a profit sharing plan which covers
substantially all full-time employees. The profit sharing plan
is a defined contribution plan and allows employees to contribute
up to 5% of their base annual salary. Employees are fully vested
to the extent of their contributions and become fully vested in
the Company's contributions over a seven-year period. Profit
sharing plan costs were $1,037,000, $1,045,000, and $831,000 in
1993, 1992, and 1991, respectively.
12. DIVIDENDS FROM SUBSIDIARIES:
At December 31, 1993, approximately $9,605,000 was available for
the declaration of dividends by the Company's subsidiary banks
without the prior approval of regulatory agencies.
13. LOANS TO RELATED PARTIES:
An analysis of the changes in loans to officers, directors,
principal shareholders, or associates of such persons for the two
years ended December 31, 1993, (determined as of each respective
year-end) follows:
Balance at Balance at
BeginningAdditional End
of Period Loans Payments of Period
Year ended December 31, 1993$27,289,817 $65,681,463 $(59,130,059)
$33,841,221
Year ended December 31, 1992$26,641,481 $37,703,642 $(39,982,661)
$24,362,462
In the opinion of management, those loans are on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the time for comparable
transactions with unaffiliated persons.
14. STOCK OPTION PLAN:
The Company has adopted an incentive stock plan to provide for
the granting of options to senior management of the Company at
prices not less than market at the date of grant. At
December 31, 1993, the Company had reserved 260,691 shares of
stock for issuance under the plan. The plan provides that
options granted are exercisable after two years from date of
grant, at a rate of 20% each year cumulatively during the 10-year
term of the option. At December 31, 1993, 48,709 shares were
exercisable. An analysis of stock option activity for the years
ended December 31, 1993 and 1992, is as follows:
Number Option Price
of Shares of Shares
Options outstanding at December 31, 1991 155,969 $10.77 - 18.18
Canceled (1,237) $18.18
Exercised (35,726) $10.77 - 13.77
Granted - -
Options outstanding at December 31, 1992 119,006 $10.77 - 18.18
Canceled (500) $40.00
Exercised (23,822) $10.77 - 18.18
Granted 25,650 $40.00
Options outstanding at December 31, 1993 120,334 $10.77 - 40.00
Stock options have been adjusted retroactively for the effects of stock dividends and
splits.
15. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY:
Condensed Balance Sheets-December 31, 1993 and 1992
1993 1992
ASSETS
Cash in subsidiary bank $ 460,649$ 162,211
Investment securities 8,185,20411,463,022
Investment in subsidiaries, at equity 82,380,55369,766,514
Excess of cost over fair value of tangible assets acquired909,593 955,728
Other assets 316,125 148,021
Total assets $92,252,124 $82,495,496
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities $ 1,808,885 $ 1,062,538
Shareholders' equity-
Common stock 37,466,870 33,847,850
Capital surplus 13,672,4094,299,902
Retained earnings 39,303,960 43,285,206
Total shareholders' equity 90,443,239 81,432,958
Total liabilities and shareholders' equity $92,252,124 $82,495,496
Condensed Statements of Earnings
For the Years Ended December 31, 1993, 1992, and 1991
1993 1992 1991
INCOME
Cash dividends from subsidiary banks$ 8,935,000 $ 9,365,000$7,700,000
Excess of earnings over dividends
of subsidiary banks 4,860,292 1,997,734 1,317,760
Other income 550,543 589,051 448,444
14,345,835 11,951,785 9,466,204
EXPENSES
Salaries and employee benefits829,148 694,927 617,778
Franchise taxes 5,799 4,428 11,030
Other operating expenses 505,323 430,390 359,628
1,340,270 1,129,745 988,436
EARNINGS BEFORE INCOME TAXES 13,005,565 10,822,040 8,477,768
Income tax benefit 251,862 167,285 167,269
Net earnings before cumulative adjustment
for change in accounting for income taxes 13,257,427 10,989,3258,645,037
Cumulative adjustment for change in
accounting for income taxes (24,372) - -
NET EARNINGS $13,233,055 $10,989,325 $ 8,645,037
Condensed Statements of Cash Flows
For the Years Ended December 31, 1993, 1992, and 1991
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $13,233,055 $10,989,325 $8,645,037
Adjustments to reconcile net earnings
to net cash provided by operating
activities-
Excess of earnings over dividends of
subsidiary banks (4,860,292) (1,997,734) (1,317,760)
Depreciation 21,177 19,811 15,610
Discount accretion, net of premium
amortization (30,616) (64,838) (65,389)
Amortization of excess of cost over
fair value of assets acquired 46,135 46,135 46,135
(Increase) decrease in other assets (117,587) (42,140) 16,713
Increase (decrease) in liabilities 461,298 34,390 (100,873)
Net cash provided by operating
activities 8,753,170 8,984,949 7,239,473
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Stephenville Bank & Trust (7,750,000) - -
Capital expenditures (71,693) (22,513) (7,505)
Proceeds from maturity of investment
securities 20,800,000 18,000,000 3,700,000
Purchases of investment securities (17,495,313) (26,402,477) (6,630,318)
Net cash used in investing
activities (4,517,006) (8,424,990) (2,937,823)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to repurchase common stock - - (192,806)
Proceeds of stock issuance 282,248 436,310 258,777
Cash dividends paid (4,219,974) (3,388,462) (2,895,686)
Net cash used in financing
activities (3,937,726) (2,952,152) (2,829,715)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 298,438 (2,392,193) 1,471,935
CASH IN SUBSIDIARY BANK AT BEGINNING
OF THE YEAR 162,211 2,554,404 1,082,469
CASH IN SUBSIDIARY BANK AT END
OF THE YEAR $ 460,649 $ 162,211 $2,554,404
16. ACQUISITION:
Effective February 1993, the Company purchased 100% of the
outstanding common and preferred stock of Stephenville Bank &
Trust ("Stephenville") for $7,750,000 in cash. The fair market
value of net assets acquired exceeded the purchase price by
approximately $317,500. This excess (negative goodwill) was
applied to reduce long-term assets (primarily bank premises).
The value assigned to assets acquired and liabilities assumed is
as follows:
Assets acquired (primarily cash, securities, and loans)
$87,419,000
Liabilities assumed (primarily deposits) 79,669,000
Cash paid for stock 7,750,000
The unaudited pro forma consolidated results of operations, as if
Stephenville had been acquired as of the beginning of 1992, are
as follows:
1993 1992
Interest income $ 55,276,000 $ 60,650,000
Net earnings 13,350,000 11,653,000
Earnings per share 3.56 3.13
The pro forma results of operations are not necessarily
indicative of the actual results of operations that would have
occurred had the purchase been made at the beginning of 1992.
17. CASH FLOW INFORMATION:
Supplemental information on cash flows and noncash transactions
is as follows:
Year Ended December 31,
1993 1992 1991
Supplemental cash flow information-
Interest paid $22,013,739 $22,659,559 $33,081,506
Federal income taxes paid 6,256,742 5,515,8294,164,214
Schedule of noncash investing and
financing activities-
Assets acquired through foreclosure 530,950 569,360 1,468,822
18. SUBSEQUENT EVENT (UNAUDITED):
In March 1994, the Company completed a business combination to be
accounted for as a pooling of interests with Concho Bankshares,
Inc. ("Concho") and its wholly owned subsidiary, Southwest Bank
of San Angelo. In connection with the transaction, Concho
shareholders exchanged substantially all of their common stock at
the rate of one share of Concho common stock for 1.15 shares of
the Company's common stock.
The following supplemental information presents the effects of
the combination of the Company and Concho on the accompanying
reported financial position and results of operations as of and
for the years ended:
1993 1992 1991
Total assets $1,017,983,000 $ 928,338,000$ 915,308,000
Total equity 96,605,000 87,139,000 78,615,000
Interest income 60,206,000 61,441,000 68,127,000
Net earnings 13,746,000 11,734,000 9,076,000
Earnings per share 3.49 2.96 2.31
FIRST FINANCIAL BANKSHARES, INC.
MANAGEMENT'S REPORT
ON RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Management of First Financial Bankshares, Inc. is
responsible for the preparation, integrity and fair presentation
of its annual financial statements as of December 31, 1993, and
the year then ended. The financial statements have been prepared
in accordance with generally accepted accounting principles and,
as such, include amounts based on judgments and estimates made by
management. Management has also prepared the other information
included in this Annual Report and is responsible for its
accuracy and consistency with the financial statements.
The annual financial statements referred to above have been
audited by Arthur Andersen & Co., who have been given
unrestricted access to all financial records and related data,
including minutes of all meetings of shareholders and the Board
of Directors. Management believes that all representations made
to Arthur Andersen & Co. during the audit were valid and
appropriate.
Kenneth T. Murphy Curtis R. Harvey
Chairman of the Board Executive Vice President
and Chief Executive Officer and Chief Financial Officer
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
First Financial Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of
First Financial Bankshares, Inc., formerly First Abilene
Bankshares, Inc. (a Texas corporation), and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated
statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As explained in Note 1 to the consolidated financial statements,
effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and changed its method of accounting for income taxes.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of First Financial Bankshares, Inc. and subsidiaries as of
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted
accounting principles.
Arthur Andersen & Co.
Dallas, Texas,
January 12, 1994
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
a.) Election of Directors
A Board of Directors is to be elected at the annual meeting.
Each Director elected will hold office until the next annual
meeting of the shareholders and until his or her successor shall be
elected and qualified. Under the Bylaws of the Company, an
individual may not stand for election or reelection as Director
upon attainment of 72 years of age unless such individual owns at
least 1% of the outstanding shares of the Company and is less than
75 years of age. While Bylaws of the Company fix the number of
Directors at a number not less than three nor more than thirty,
fifteen nominees are named and proposed by management. The reason
that the number of Directors authorized exceeds the number of
nominees is to avoid the necessity of amending the Bylaws of the
Company each time that it would appear to be to the advantage of
the Company to increase the number of its Directors. The proxies
accompanying the proxy statement mailed to shareholders cannot be
voted by the proxy committee for a greater number of persons than
the number of nominees named. Other Directors could be elected
after nominations from the floor at the annual meeting if such
nominees each receive a majority vote of the shareholders.
Although the management of the Company does not contemplate that
any of the nominees will be unable to serve, if such a situation
arises prior to the annual meeting, the proxy committee will vote
in accordance with its best judgment.
During the last full year, four regular quarterly meetings
of the Board of Directors were called and held. All directors were
able to attend at least 75% of the aggregate of the meetings of the
Board of Directors and the meetings held by all committees of the
Board on which they served. Directors who are not officers of the
Company receive $800 for each Board meeting attended.
First Financial Bankshares, Inc. does not have a standing
nominating or compensation committee of the Board of Directors.
The Company has a standing Executive Committee whose
responsibilities include functioning as a compensation committee
and a nominating committee with appropriate recommendations to the
entire Board. The Executive Committee met nine times during 1993
and, among other items, considered and took action on matters
relating to its capacity as Compensation and/or Nominating
Committee. In its capacity as Nominating Committee, the Executive
Committee will consider director nominations from security holders.
There are no prescribed procedures which the security holder must
follow. The Company has a Directors' Audit Committee which has the
responsibility of acting on behalf of the Board in receiving and
reviewing both internal and external audit reports. During 1993
the Audit Committee met two times. The Company also has an
Administrative Committee for the Profit Sharing, Pension and
Flexible Spending Account Benefit Plans. Pursuant to the 1992
Incentive Stock Option Plan for Key Employees of First Financial
Bankshares, Inc. and its Subsidiaries, the Board of Directors has
also appointed a Stock Option Committee composed of five members.
Directors who are not officers of the Company receive $400 for each
committee meeting attended.
b.) Executive Officers
Term of Years Served Principal Occupation
Name Age Office Office In Such Office During Past 5 Years
Kenneth T. Murphy 56 Chairman, 1 year 7 years Chairman,
President and Chief
President and Executive Officer; Chairman,
Chief Executive First National Bank of Abilene,
Officer Abilene, Texas*
Curtis R. Harvey 48 ExecutiveVice 1 year 3 years Executive
Vice President and
President and Chief Financial Officer since
Chief Financial December 1, 1990;
Officer Executive Vice President, Bank
One, Texas, N.A.
*The bank shown is a subsidiary of the Company.
c.) Compliance with Section 16(a) of the Exchange Act
During 1993 only one person subject to the reporting
requirements of Section 16(a) of the Exchange Act failed to file or
timely file reports required in connection therewith. Dian Owen
was elected as a Director of the Company at the annual meeting held
in April of 1993 and a Form 3 (Initial Statement of Beneficial
Ownership of Securities) was filed at that time. However, the
original Form 3 inadvertently omitted certain shares of the
Company's stock owned by Ms. in street name. In addition, Ms. Owen
either was not aware of, or simply overlooked, her responsibility
to report acquisition by her of share of the Company's stock during
the six-month period preceding her election and during the
remainder of the Company's fiscal year following her election. A
Form 5 was filed by Dian Owen on January 26, 1994 covering Ms.
Owen's ownership and acquisitions of the Company's stock which
should have been previously reported by her.
The names and principal occupations of Registrant's
Directors, together with the length of service as a Director are as
follows:
Years as Principal Occupation
Name Age Office Director (1) During Last Five Years
J. Allen Baird 71 Director 30 Chairman, Mrs Baird's Bakeries, Inc.
since December 16, 1992;
President, Mrs. Baird's Bakeries, Inc.
F. Scott Dueser (2) 40 Director 3 President and Chief
Executive Officer,
First National Bank of Abilene, Abilene,
Texas*,since May 18, 1993; President,
First National Bank of Abilene, Abilene,
Texas*,January 15,1991,to May 18,
1993;
Executive Vice President, First National
Bank of Abilene, Abilene, Texas*
Patrick N. Gerald 54 Director 13 Chairman and President, First
National
Bank, Sweetwater, Sweetwater,Texas*
Robert E. Hitt 69 Director 21 Investments
(2)(3)
(4)(5)
Ralph N. Hooks
(2)(3) 74 Director 38 Chairman, Lydick-Hooks
Roofing Company
Joe B. Matthews (5) 49 Director 6 Geologist
Raymond A. McDaniel, 60 Director 2 McDaniel & Associates
Jr.(3)
Bynum Miers(5) 57 Director 2 Ranching and Investments
Kenneth T. Murphy (2) 56 Chairman, 22 See "Executive Officers"
on Page 6
President and
Chief Executive
Officer, Director
Dian Graves Owen 54 Director 1 Chairman, Owen Healthcare, Inc.
James M. Parker 63 Director 21 President, Parker Properties, Inc.
(2)(3)(4)
W.V. Ramsey, Jr.,M.D. 66 Director 23 Chairman, Abilene Aero,
Inc. since
(2)(3)(4) July 1, 1991; Radiology
Associates
Craig Smith 51 Director 4 Chairman and President, Hereford
State Bank, Hereford, Texas*
H.T. Wilson(2)
(5) 66 Director 11 Chairman, Eastland National Bank,
Eastland, Texas*
Stanley P. Wilson
(5) 71 Director 23 Retired Executive Vice President and
General Counsel, Central and South West Corporation
(1) The years indicated are the approximate number of years each person has
continuously served
as Director of the Company, or, prior thereto, of First National Bank of
Abilene, which
became a wholly-owned subsidiary of the Company in April, 1973, when all
the then Directors
of First National Bank of Abilene became Directors of the Company.
(2) This Director/Nominee is a member of the Executive Committee.
(3) This Director/Nominee is a member of the Stock Option Committee.
(4) This Director/Nominee is a member of the Administrative Committee of
the Company Profit
Sharing and Pension Plan.
(5) This Director/Nominee is a member of the Directors' Audit Committee.
Item 11. Director and Officer Compensation
a.) Directors who are not officers of the Company
receive $800 for each Board meeting attended and
$400 for each committee meeting attended.
b.) Officer Compensation
The following table provides individual compensation
information on the Chief Executive Officer and the four most highly
compensated officers of the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation
Compensation Awards
Number of All Other
Securities Compen-
Underlying sation
Name and Principal Position Year
Salary($)Options(#)(1)($)(2)
Kenneth T. Murphy, Chairman, 1993 $ 257,0003,000 $ 26,516
President & CEO-First Financial 1992 237,000 - 27,650
Bankshares, Inc. 1991 217,750 4,950 22,981
F. Scott Dueser, President & CEO 1993 151,250 2,000 18,382
First National Bank of Abilene 1992 130,000 - 16,305
1991 114,167 3,300 12,415
Patrick N. Gerald, Chairman and 1993 132,000 1,000 14,031
President & CEO-First National Bank, 1992 125,000 - 13,702
Sweetwater 1991 121,000 1,650 11,713
Craig Smith, Chairman and President 1993 124,500 1,000 15,299
& CEO-Hereford State Bank 1992 117,500 - 15,905
1991 110,000 2,475 13,745
Curtis R. Harvey, Executive Vice Pres- 1993 117,000 1,000 13,050
ident & CFO-First Financial Bankshares, 1992 110,000 - 13,024
Inc. 1991 105,000 2,475 10,852
(1) Adjusted for stock splits and stock dividends.
(2) The Company's contribution to Profit Sharing Plan.
The following table contains information concerning options granted during the past
fiscal year under the Company's Incentive Stock Option Plan to the Company's Chief
Executive
Officer and four other most highly compensated Executive Officers.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
Number of % of Total
SecuritiesOptions
Underlying Granted toExercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#)(1) Year ($/Sh) Date
5% ($) 10% ($)
Kenneth T. Murphy 3,000 11.70%$ 40.00 06/29/03 $ 70,581
$ 183,468
F. Scott Dueser 2,000 7.80 40.00 06/29/03 47,054 122,312
Patrick N. Gerald 1,000 3.90 40.00 06/29/03 23,527 61,156
Craig Smith 1,000 3.90 40.00 06/29/03 23,527 61,156
Curtis R. Harvey 1,000 3.90 40.00 06/29/03 23,527 61,156
(1) Granted under Incentive Stock Option Plan.
The following table contains information concerning each exercise of stock
options
during the last fiscal year by each of the persons named below and the fiscal year-end
value
of unexercised options.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Number of
Securities Value of
Underlying Unexercised
Number of Unexercised In-the-Money
Securities Options at FY- Options at
Underlying End(#)(1) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) UnexercisableUnexercisable
Kenneth T. Murphy 4,343$ 113,536 7,797 213,248
9,683 170,485
F. Scott Dueser 2,723 77,611 660 15,391
5,729 100,869
Patrick N. Gerald - - 2,617 71,575
3,954 69,617
Craig Smith 1,851 50,921 495 11,543
4,614 81,237
Curtis R. Harvey 495 11,296 - -
2,980 36,982
(1) Adjusted for stock splits and stock dividends
Pension Plan
The Company's Pension Plan requires annual contributions
sufficient to provide the pension benefits accruing to employees
under the Plan. The annual benefit for a participant in the
Pension Plan who retires on his normal retirement date is the
Accrued Benefit at December 31, 1988, plus 1.25% of average
compensation multiplied by years of service from January 1, 1989.
"Average Compensation" is the average compensation during the 10
years immediately preceding the date of determination.
Compensation means the total amount paid to an employee during the
year including bonuses, commissions, and overtime pay, but
excluding reimbursed expenses, director fees, group insurance
benefits and pension and profit sharing contributions. There are
provisions in the Plan for early retirement with reduced benefits.
There is no vesting of Plan benefits until a participant has 5 or
more years of credited service with participating employers. Full
(100%) vesting occurs upon the completion of 5 years of credited
service or upon reaching age 65 without regard to credited service.
The following table illustrates estimated retirement benefits
under the Company Pension Plan for persons in specified
remuneration and years of service categories and which benefits are
payable annually for life with 10 years certain. The benefits
listed in the table are not subject to any deduction for social
security or other offset amounts. This illustration does not
reflect any benefit which a participant may have accrued at
December 31, 1988.
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
$ 25,000 $ 4,688 $ 6,250 $ 7,813 $ 9,375 $ 10,938
50,000 9,375 12,500 15,625 18,750 21,875
75,000 14,063 18,750 23,438 28,125 32,813
100,000 18,750 25,000 31,250 37,500 43,750
125,000 23,438 31,250 39,063 46,875 54,688
150,000 28,125 37,500 46,875 56,250 65,625
200,000 37,500 50,000 62,500 75,000 87,500
250,000 46,875 62,500 78,125 93,750 109,375
The maximum annual pension benefit payable allowable under current
law is $112,221.
As of December 31, 1993, Mr. Murphy was credited with 23
years of service under the Company Pension Plan, Mr. Gerald was
credited with 18 years of service, Mr. Smith was credited with 24
years of service, Mr. Dueser was credited with 17 years of service,
and Mr. Harvey was credited with 3 years of service. The covered
compensation of each of these officers and directors during 1993
was $235,840, $132,966, $124,500, $152,482, and $118,810,
respectively.
In 1992 the Board of Directors approved a deferred
compensation agreement between First Financial Bankshares, Inc. and
Kenneth T. Murphy, Chairman, President and Chief Executive Officer.
The agreement was made in recognition of his contribution to the
success of the Company and as an inducement to remain, subject to
the discretion of the Board of Directors, in the emloy of the
Company. The agreement provides that following retirement in
December 2002, or such later date as may be mutually agreed upon by
the parties, the Company will pay Mr. Murphy, or his beneficiary,
the sum of $6,250 per month for a period of 84 months. The monthly
amount is considered to be an appropriate level of supplemental
income to partially offset Mr. Murphy's reduction in personal
income following retirement and is based on an analysis of the
difference in projected final year compensation and retirement
compensation. The agreement also provides for 70% vesting at age
62, 80% vesting at age 63, and 90% vesting at age 64.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
No person who served as a member of the Executive Committee
in its capacity as Compensation Committee was, during the past
fiscal year, an officer or employee of the Company or any of its
subsidiaries, or had any relationship requiring disclosure except
for Mr. Tom Wilson who is a former subsidiary bank officer.
However, committee members Ralph Hooks, James Parker, and Dr. Wayne
Ramsey, Jr. did obtain loans from a subsidiary bank during the past
year. In each case, such loans were made in the ordinary course of
business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable
features. No executive officer of the Company served as a member
of the Compensation Committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the
entire board of directors) of another entity, one of whose
executive officers served as a director of the Company.
EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the past fiscal year the Company's executive
compensation program was administered by the Executive Committee
acting in the capacity of Compensation Committee. The Company's
executive compensation program consists of base salary, profit
sharing, and incentive stock options. With the exception of the
Chief Executive Officer, the base salaries for the executive
officers named on page 6 of this Notice are reviewed in December of
each year with adjustments made effective January 1. Included
among the factors which the Committee considers when approving
annual base salaries are: attainment of planned goals and
objectives, scope of responsibility (asset size of subsidiary bank
and/or degree of influence on the Company's profitability and
operations), tenure with the Company, evaluation input from
subsidiary bank directors, and relationship of base salary to the
base salaries of other members of the executive officer group.
The base salary for Mr. Murphy was reviewed in March 1993
with an adjustment made effective April 1, 1993. The increase was
based on the following factors:
- - The Company's financial performance for 1992 which reflected a
27% increase in net income.
- - Performance of Chief Executive Officer's duties which relate
primarily to leading and -managing the Company within the broad
guidelines set by the Board of Directors.
- - Successful negotiation and completion of acquisition
transaction.
- - Base salary compared to Wyatt Data Services compensation survey
data for chief executive officers of similar size organizations
within the industry.
- - Subjective evaluations of Mr. Murphy's contribution to the
overall success of the Company.
Stock options are granted under the Incentive Stock Option
Plan upon recommendation of the Stock Option Committee of the Board
of Directors. The Executive Committee believes that the Stock
Option Plan is an integral part of the executive compensation
program which encourages key employees to align their long-range
interest with those of shareholders by accomplishing longer-term
corporate goals. When granting options to all named executive
officers for 1993, the Committee evaluated the total number of
shares available, the number of unexercised options held by the
individual, Company's and individual's performance, and the
individual's level of responsibility.
The following line graph compares cumulative total
shareholder return with a performance indication of the overall
stock market, the S&P 500 Stock Index, and a nationally-recognized
banking industry index, the Keefe, Bruyette and Woods, Inc. (KBW)
50 Total Return Index, which is comprised of fifty of the nation's
top banking companies.
The required graphical presentation has been filed under
separate cover of Form SE.
Robert E. Hitt W.V. Ramsey, Jr., M.D.
Ralph N. Hooks H.T. Wilson
James Parker
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security ownership of certain beneficial owners.
There is no person (including any "group" as that term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934)
who is known to the Registrant to be the beneficial owner of more
than five percent of any class of the Registrant's voting
securities. However, as of December 31, 1993, First Abilene and
First Sweetwater held of record in various fiduciary capacities an
aggregate of 803,156 shares, or 21.4% of the Company's issued and
outstanding common stock. These subsidiaries of the Company had
sole power to vote 386,275 shares and 64,548 shares, respectively.
First Abilene also shared with other persons, the power to vote the
remaining 352,423 shares. All of the shares held by each
subsidiary Bank which are registered in its name as fiduciary, or
in the name of its nominee, are owned by many different accounts,
each of which is governed by a separate instrument which sets forth
the powers of the fiduciary with regard to the securities held in
such account.
b.) Security ownership of management
Set forth in the following table is certain information as
of December 31, 1993 as to the number of shares of Common Stock
beneficially owned by each director of the Company, by each nominee
for election as a director, by the Company's chief executive
officer and its four other most highly compensated executive
officers, and by the officers and directors of the Company as a
group.
Number of Shares
Beneficially Percent
Name Owned of Class
J. Allen Baird 7,344 0.2
F. Scott Dueser 19,733 0.5
Patrick N. Gerald 12,401 0.3
Robert E. Hitt 41,439 1.1
Ralph N. Hooks 78,255 2.0
Joe B. Matthews 1,131 -
Raymond McDaniel, Jr. 11,757 0.3
Bynum Miers 10,575 0.3
Kenneth T. Murphy 37,871 1.0
Dian Graves Owen 9,938 0.3
James M. Parker 158,777 4.0
W. V. Ramsey, Jr., M.D. 85,000 2.3
Craig Smith 18,221 0.5
H. T. Wilson 41,349 1.0
Stanley P. Wilson 7,101 0.2
Curtis R. Harvey 660 -
All Officers and Directors as a group 546,167 13.8
c.) Changes in control
There have been no events to the Registrant's knowledge which
have or will result in a change of control of the Registrant.
PART IV
Item 13. Certain Relationships and Related Transactions
Certain of Registrant's officers and directors are customers
of one or more of Registrant's subsidiary banks, as are
corporations and other business entities with which directors of
Bankshares are affiliated as directors, officers or principals.
All loans to directors and officers of Bankshares, or to persons
and firms with which they are or may be affiliated, were and are
made in the ordinary course of business and on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons and did not, and do not, involve more than the normal risk
of collectibility or present other unfavorable features. None of
the transactions involving Bankshares' subsidiaries and Bankshares'
officers and directors, or other businesses with which they may be
affiliated, have been classified or disclosed as nonaccrual, past
due, restructured or potential problems.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
The consolidated financial statements of the Registrant filed
with this report are included on pages 33 through 51. There were
no financial statement schedules filed as a part of this report.
Such information, to the extent applicable, has been made a part of
the consolidated financial statements or included elsewhere in this
report.
An 8-K Current Report was filed during the fourth quarter of
1993 with regard to the Stock Exchange Agreement between the
Registrant Concho Bancshares, Inc., and Southwest Bank of San
Angelo.
An 8-K Current Report was filed during the fourth quarter of
1993 with regard to Articles of Amendment to the Articles of
Incorporation adopted at a Special Meeting of the Shareholders held
October 26, 1993.
An 8-K Current Report was filed during the fourth quarter of
1993 with regard to the branch acquisition by a subsidiary of the
Registrant (First National Bank in Cleburne).
The Registrant's Articles of Incorporation and Bylaws and
material contracts have been filed with the Securities and Exchange
Commission in "Exhibits to Form S-15" under Registration No. 2-
73141.
Copies of the following documents were filed with the Form
10-K Annual Report for the fiscal year ended December 31, 1984.
1. Joint Venture Agreement between First National Bank of
Abilene and Grow-Griffin #1.
2. Lease Agreement between First National Bank of Abilene
and Crow/First Joint Venture.
3. Deferred Compensation Agreement between Bankshares and
Walter F. Johnson.
The following documents were filed with the Form 10-K Annual
Report for the fiscal year ended December 31, 1988.
1. Articles of Amendment to the Articles of Incorporation
adopted at the 1988 Annual Meeting of Shareholders.
2. Restated Bylaws adopted by the Board of Directors on
January 24, 1989.
The following documents were filed with the Form 10-K Annual
Report for the fiscal year ended December 31, 1992.
1. Amendment to Registrant's Bylaws effective January 28,
1992, relative to emeritus directors.
2. Deferred Compensation Agreement between Bankshares and
Kenneth T. Murphy, Chairman of the Board, Chief Executive
Officer and President of the Registrant.
Listed below are all of the financial reports, schedules and
exhibits filed with this report:
See Exhibit 1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By: /S/ KENNETH T. MURPHY By: /S/ CURTIS R. HARVEY
KENNETH T. MURPHY, Chairman CURTIS R.
HARVEY, Executive
of the Board, President, Vice
President, Chief Financial
Chief Executive Officer and Officer,
Controller and Chief
Director Accounting
Officer
Date: March 25 , 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
NAME TITLE DATE
Director March ,
1994
J. Allen Baird
/S/ F. SCOTT DUESER Director March 8 ,
1994
F. Scott Dueser
Director March 8 ,
1994
Patrick N. Gerald
/S/ ROBERT E. HITT Director March 15 ,
1994
Robert E. Hitt
/S/ RALPH N. HOOKS Director March 29 ,
1994
Ralph N. Hooks
/S/ JOE B. MATTHEWS Director March 15 ,
1994
Joe B. Matthews
/S/ RAYMOND A. McDANIEL, JR. Director March 9 ,
1994
Raymond A. McDaniel, Jr.
/S/ BYNUM MIERS Director March 9 ,
1994
Bynum Miers
Director March ,
1994
Dian Graves Owen
/S/ JAMES M. PARKER Director March 9 ,
1994
James M. Parker
/S/ W.V. RAMSEY, JR., M.D. Director March 9 ,
1994
W.V. Ramsey, Jr., M.D.
Director March ,
1994
Craig Smith
/S/ H.T. WILSON Director March 15 ,
1994
H.T. Wilson
/S/ STANLEY P. WILSON Director March 15 ,
1994
Stanley P. Wilson