Abilene Reporter By Thaddeus DeJesus / Reporter-News Staff Writer
October 19, 2003
In the oft-chaotic world of bulls and bears, dollars and cents, the foundation of First Financial Bankshares rests squarely on the tried and true.
Bank officials cite good customer service as a driver for stability, but a deeply rooted corporate philosophy to "stay with what you know" has shaped the company’s growth, keeping it from expanding into unfamiliar locales and offerings, such as insurance.
"You have a business that does a hell of a good job, and they get ambitious and they branch out," said Walter Johnson, First Financial’s former board chairman. "Then, they get into trouble."
First Financial Bankshares has grown to become the holding company of 10 member banks, including First National Bank of Abilene. It is the only publicly traded company headquartered in Abilene, and it reached a milestone this year, its 30th anniversary, when its assets topped $2 billion. In third-quarter earnings announced Thursday, the company reported it has earned about $26.8 million in profits to date this year, up 5 percent from last year.
Most recently, the bank has charted a strategy of conservative growth that emulates the performance of other regional banks in the Sunbelt, Curtis Carpenter said. Carpenter is director of mergers and advisory services for the Austin-based banking consulting company Alex Sheshunoff Management Services.
Carpenter said First Financial has followed the model of Compass Bancshares, headquartered in Birmingham, Ala., but not as aggressively. Compass used its capital as leverage to expand into high-growth cities such as Atlanta, Austin and Denver.
First Financial’s venture into the Dallas-Fort Worth Metroplex beginning in the 1990s has proven wise and profitable, Carpenter said.
"Any successful plan involves taking away business from another local bank, but that’s a harder assignment versus positioning yourself in a high-growth market and getting a share of the overall area," he said.
Even though First Financial has expanded and grown conservatively, it has consistently turned an annual profit since being incorporated in 1973 and paid healthy stock dividends over the years. The prospects for growth are good, officials say.
Birth and boom
Although First Financial is relatively young, its history stretches back to 1889, when the lead bank was chartered. First National Bank of Abilene, once known as Farmers & Merchants National, has weathered the Great Depression, recessions and the 1980s banking industry bust that ruined many financial institutions. It has emerged as the grande dame of the holding company’s 10 affiliates.
With $50,000 capital, former Confederate Gen. F.W. James of Baird formally opened Farmers & Merchants National for business Jan. 2, 1890, after receiving the bank’s charter the previous November.
The total amount of money placed on deposit that first day of business was $33,000, according to Reporter-News files.
One of the biggest tests the bank faced was enduring the Great Depression, touched off by the 1929 stock market crash. The bank, known simply as F&M, was one of the few Texas banks at the time that did not receive financial assistance from the federal government to survive because it was financially solvent.
"The company that exists today has a lot to be thankful for the bank leadership from those days," said Johnson, First National Bank of Abilene’s president from 1954-75.
Johnson relinquished his duties as chief executive officer in 1982, but served as bank chairman until 1985. He is also the man many insiders credit for First Financial’s success and stability.
Johnson, now 86, was instrumental in forming First Financial Bankshares, originally known as First Abilene Bankshares when it began in 1973. From 1973-86, he served as president and, ultimately, chairman of the board for the holding company.
Banks once were prohibited from owning other banks, but were permitted to own about 25 percent of another bank’s stock. As a result, First Financial began as a holding company for First National Bank of Abilene, along with owning a minority stake in Abilene’s Bank of Commerce.
As banking regulations eased in the 1970s, First Financial acquired the Bank of Commerce in full in 1974, as well as Hereford State Bank in the Panhandle. The Bank of Commerce was later merged into First National Bank of Abilene.
Because of those acquisitions, the company’s 1974 earnings surged nearly 61 percent to $1.7 million. Growth during the 1970s also can be attributed to the oil boom, which extended into the early 1980s. First Financial acquired First National Bank, Sweetwater, in 1981, and Eastland National Bank in 1982.
By that time, competition in the banking industry hit a fevered pitch as some of the regulations regarding mergers and acquisitions were lifted. According to research from the Federal Reserve Bank of Philadelphia, the banking industry averaged 423 mergers annually from 1980-94. The same research finds that banks that had interstate acquisitions fared better in financial performance because diversification lessened risk.
First Financial began setting the course for diversification, but a downturn in the economy and in the banking industry would postpone plans for growth.
Down then up
In many ways, 1982 was a watershed year.
That year, oil prices began to fall, signaling the end of the boom. That year also marks the beginning of shrinking quarterly profits for First Financial.
At the end of 1982, First Financial’s net income had climbed to $8.2 million, then a record high for the young holding company. Earnings consistently shrank the next four years, bottoming out at $3.8 million in 1986.
First National Bank’s competitor, Abilene National Bank, would be the first casualty in a chain of bank failures that would greatly alter the local banking landscape. Of the 26 Big Country bank failures recorded by the U.S. Federal Deposit Insurance Corp., 22 happened in a span of 10 years, from 1982-92.
Many financial institutions made risky loans and investments during that period, and current First Financial CEO Scott Dueser admits First National Bank had its share of write-offs. However, the Abilene bank had a reputation for being selective with loans.
"Your job as a loan officer is to make sure the customer stays out of trouble," said Dueser, who was a loan officer during the 1980s. "Sometimes, the best answer is ‘no.’"
Dueser also credited the company’s customers, whom he said tend to be financially conservative and avoid risky investments.
The acquisition of American National Bank in 1987 signaled the end of declining profits. American National Bank was immediately merged into First National Bank of Abilene. First Financial’s net income surged about 36 percent to $5.2 million because of the economy’s upswing and the addition of American National’s assets to its portfolio.
Although the 1980s were a turbulent time for banks, the resulting mergers and acquisitions stemming from that period allowed many financial institutions to grow. The pattern continued into the next decade.
In December 1990, the company would gain an important toehold in the Dallas-Fort Worth Metroplex when it bought First Financial Bank in Cleburne, about 25 miles south of downtown Fort Worth. Bank officials deem expansion into the Metroplex a priority because of that region’s growth.
Half of First Financial’s mergers and acquisitions from 1990 to 2000 were in the western portion of the Metroplex. Those acquisitions represented a jump from the company’s rural and small-city roots to the suburban market.
The company reached a milestone in 1994 when it recorded its first billion in assets.
Although expanding eastward into the growing Metroplex has been a priority, company officials said they have no intention of opening a branch in Dallas or Fort Worth proper.
"We don’t understand that (urban) market," First Financial chairman Ken Murphy said.
Company officials cite the same reason as to why they are not eyeing another growing region — far South Texas along the Mexican border — as well as expansion beyond the state’s borders.
But Central Texas, particularly the Austin area, is one prospect for expansion because of the population growth there, Murphy said.
Growth, for the company overall, remains priority one, said Dueser, First Financial’s CEO and president.
First Financial has grown the customer base at its acquired banks because of the way in which the company is structured, he said. Rather than having one central board of directors and having one uniform bank charter, each of the 10 member banks operate semi-autonomously under their respective charters, and each has a board comprised of local residents.
This structure has allowed the affiliates to keep a hometown feel, even though its corporate bosses are in Abilene, Dueser said.
The company, though, has moved to consolidate its separate trust companies.
First Financial Trust & Asset Management Co., officially launched Oct. 3 after a year of regulatory red tape, combines the trust departments of four member banks in Abilene, San Angelo, Stephenville and Sweetwater. First Financial will extend trust services to its six other member banks.
The four combined trust offices have assets topping $1 billion.
The idea behind the new service is that it pools the resources of its staff to better serve current clients, as well as to build a well-rounded financial management team to lure prospective customers, Dueser said. The Stephenville staff, for example, is versed in the world of ranching, whereas the Abilene office has experts in oil and the stock market, he said.
In due time, the banking company could also open trust and asset management offices in cities where it does not have a presence, said Bob Patterson, the trust company’s president and chief executive officer.
Company officials believe the bank is perched for growth. They are actively seeking prospects to acquire.
"We have the capital and the cash to buy banks," Dueser said. "We need to utilize and put that to work."
DETAILS
Established: 1973
Total assets (as of Sept. 30): $2.07 billion
2003 earnings (as of Sept. 30): $26.8 million
NASDAQ Ticker symbol: FFIN
Stock price: $41.95
Affiliates: First National Bank of Abilene; First Financial Bank, N.A., Cleburne; Eastland National Bank; Hereford State Bank; City National Bank, Mineral Wells; San Angelo National Bank; First Financial Bank, N.A., Southlake; Stephenville Bank & Trust Co.; First National Bank, Sweetwater; Weatherford National Bank
Senior leadership: Kenneth Murphy, chairman of the board; F. Scott Dueser, chief executive officer; J. Bruce Hildebrand, executive vice president and chief financial officer; Gary Webb, executive vice president; Gary Gragg, senior vice president; Robert Patterson, senior vice president; Bill Rowe, vice president; Gaila Kilpatrick, administrative officer.
Web site: www.ffin.com
Contact staff writer Thaddeus DeJesus at dejesust@reporternews.com or 325-676-6744