FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7674
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FIRST FINANCIAL BANKSHARES, INC.
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(Exact name of registrant as Specified in its charter)
Texas 75-0944023
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
400 Pine Street, Abilene, Texas 79601
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(Address of principal executive offices)
(Zip Code)
(915)627-7155
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(Registrant's telephone number, including area code)
NO CHANGE
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of August 1, 2000.
Class Number of Shares Outstanding
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Common Stock, Par Value $10.00 Per Share 9,976,453
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
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1. Consolidated Financial Statements and Notes to Consolidated
Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
3. Quantitative and Qualitative Disclosures About Market Risk 12
Signatures 13
-2-
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at June 30,
2000 and 1999, and December 31, 1999, and the consolidated statements of
earnings and comprehensive earnings for the three and six months ended June 30,
2000 and 1999, and the changes in shareholders' equity for the year ended
December 31, 1999 and six months ended June 30, 2000, and the cash flows for the
six months ended June 30, 2000 and 1999, follow on pages 4 through 8.
-3-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
----------------------------------
2000 December 31,
(Unaudited) 1999 1999
--------------- --------------- ---------------
ASSETS
Cash and due from banks $ 78,551,793 $ 73,661,442 $ 119,228,650
Federal funds sold 30,206,548 95,170,912 68,741,408
--------------- --------------- ---------------
Cash and cash equivalents 108,758,341 168,832,354 187,970,058
Interest-bearing deposits in banks 104,199 204,001 4,080
Investment securities:
Securities held-to-maturity (market value of
$414,828,996 and $426,988,041 at June 30, 2000
and 1999, and $414,407,070 at December 31, 1999) 423,573,107 434,791,682 422,362,918
Securities available-for-sale, at market value 248,557,951 211,588,088 233,854,837
--------------- --------------- ---------------
Total investment securities 672,131,058 646,379,770 656,217,755
Loans 812,147,143 769,581,429 797,275,325
Less: Allowance for loan 9,587,639 9,221,191 8,937,542
--------------- --------------- ---------------
Net loans 802,559,504 760,360,238 788,337,783
Bank premises and equipment, net 40,388,723 41,515,926 41,536,094
Goodwill, net 19,335,988 20,977,354 20,156,671
Other assets 29,429,903 26,224,021 29,146,756
--------------- --------------- ---------------
TOTAL ASSETS $ 1,672,707,716 $ 1,664,493,664 $ 1,723,369,197
=============== =============== ===============
LIABILITIES
Noninterest-bearing deposits $ 325,657,904 $ 317,357,809 $ 340,513,737
Interest-bearing deposits 1,134,688,021 1,158,624,543 1,184,190,709
--------------- --------------- ---------------
Total deposits 1,460,345,925 1,475,982,352 1,524,704,446
Dividends payable 3,292,229 2,739,548 2,992,292
Securities sold under agreements to repurchase 14,486,306 4,607,868 9,637,734
Other liabilities 8,399,083 7,868,599 7,371,782
--------------- --------------- ---------------
Total liabilities 1,486,523,543 1,491,198,367 1,544,706,254
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized
20,000,000 shares; issued and outstanding 9,976,453
and 9,961,981 shares at June 30, 2000 and 1999, respectively,
and 9,974,306 shares at December 31, 1999 99,764,530 99,619,810 99,743,060
Capital surplus 60,535,858 60,411,109 60,517,351
Retained earnings 30,085,817 15,136,712 22,495,259
Unrealized loss on investment securities available-for-sale, net (4,202,032) (1,872,334) (4,092,727)
--------------- --------------- ---------------
Total shareholders' equity 186,184,173 173,295,297 178,662,943
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,672,707,716 $ 1,664,493,664 $ 1,723,369,197
=============== =============== ===============
See notes to consolidated financial statements.
-4-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
INTEREST INCOME
Interest and fees on loans $18,359,511 $16,755,126 $36,008,300 $33,671,257
Interest on investment securities:
Taxable 8,431,214 7,969,941 16,731,616 15,879,335
Exempt from federal income tax 1,421,235 1,135,561 2,831,189 2,242,598
Interest on federal funds sold and interest-bearing deposits in banks 955,593 1,278,313 1,855,313 2,375,037
----------- ----------- ----------- -----------
Total interest income 29,167,553 27,138,941 57,426,418 54,168,227
INTEREST EXPENSE
Interest-bearing deposits 11,522,982 10,602,452 22,652,108 21,343,459
Other 215,183 32,722 370,158 38,221
----------- ----------- ----------- -----------
Total interest expense 11,738,165 10,635,174 23,022,266 21,381,680
----------- ----------- ----------- -----------
NET INTEREST INCOME 17,429,388 16,503,767 34,404,152 32,786,547
Provision for loan losses 419,500 308,000 1,160,250 778,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 17,009,888 16,195,767 33,243,902 32,008,547
NONINTEREST INCOME
Trust department income 1,397,284 1,262,114 2,743,522 2,500,409
Service fees on deposit accounts 3,542,862 3,287,215 6,931,232 6,410,584
Real estate mortgage fees 263,783 346,666 495,809 711,723
Other 1,058,504 1,281,536 2,558,335 2,740,278
----------- ----------- ----------- -----------
Total noninterest income 6,262,433 6,177,531 12,728,898 12,362,994
NONINTEREST EXPENSE
Salaries and employee benefits 6,794,304 6,763,138 13,625,513 13,515,907
Net occupancy expense 895,994 962,040 1,770,271 1,949,951
Equipment expense 1,059,775 1,026,816 2,073,537 2,044,056
Goodwill amortization 410,341 408,546 820,683 820,922
Other expenses 3,763,136 3,798,224 7,573,338 7,720,756
----------- ----------- ----------- -----------
Total noninterest expense 12,923,550 12,958,764 25,863,342 26,051,592
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 10,348,771 9,414,534 20,109,458 18,319,949
Income tax expense 3,220,204 2,942,162 6,234,379 5,721,037
----------- ----------- ----------- -----------
NET EARNINGS $ 7,128,567 $ 6,472,372 $13,875,079 $12,598,912
=========== =========== =========== ===========
EARNINGS PER SHARE, BASIC $ 0.71 $ 0.65 $ 1.39 $ 1.27
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.71 $ 0.65 $ 1.39 $ 1.27
DIVIDENDS PER SHARE $ 0.33 $ 0.275 $ 0.63 $ 0.55
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
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2000 1999 2000 1999
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NET EARNINGS $ 7,128,567 $ 6,472,372 $ 13,875,079 $ 12,598,912
OTHER ITEMS OF COMPREHENSIVE EARNINGS
Change in unrealized gain (loss) on investment
securities available-for-sale, before income taxes (162,345) (2,684,140) (168,162) (5,237,055)
----------- ----------- ------------ ------------
Total other items of comprehensive earnings (162,345) (2,684,140) (168,162) (5,237,055)
----------- ----------- ------------ ------------
OTHER COMPREHENSIVE EARNINGS, BEFORE INCOME TAXES 6,966,222 3,788,232 13,706,917 7,361,857
Income tax benefit related to other
items of comprehensive earnings (56,821) (939,449) (58,857) (1,832,969)
----------- ----------- ------------ ------------
COMPREHENSIVE EARNINGS $ 7,023,043 $ 4,727,681 $ 13,765,774 $ 9,194,826
=========== =========== ============ ============
See notes to consolidated financial statements.
-6-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized
Gain (Loss) on
Investment
Common Stock Securities Total
----------------------- Capital Retained Available Shareholders'
Shares Amount Surplus Earnings For Sale, Net Equity
--------- ----------- ----------- ----------- ----------- ------------
Balances at December 31, 1998 9,952,683 $99,526,830 $60,375,373 $ 8,015,303 $ 1,531,752 $169,449,258
Net earnings -- -- -- 25,690,541 -- 25,690,541
Stock issuances 21,623 216,230 141,978 -- -- 358,208
Cash dividends declared,
$1.125 per share -- -- -- (11,210,585) -- (11,210,585)
Change in unrealized gain (loss)
on investment securities
available-for-sale, net -- -- -- -- (5,624,479) (5,624,479)
--------- ----------- ----------- ----------- ----------- ------------
Balances at December 31, 1999 9,974,306 99,743,060 60,517,351 22,495,259 (4,092,727) 178,662,943
Net earnings -- -- -- 13,875,079 -- 13,875,079
Stock issuances 2,147 21,470 18,507 -- -- 39,977
Cash dividends declared,
$.63 per share -- -- -- (6,284,521) -- (6,284,521)
Change in unrealized gain (loss)
on investment securities
available-for-sale, net -- -- -- -- (109,305) (109,305)
--------- ----------- ----------- ----------- ----------- ------------
Balances at June 30, 2000(unaudited) 9,976,453 $99,764,530 $60,535,858 $30,085,817 $(4,202,032) $186,184,173
========= =========== =========== =========== =========== ============
See notes to consolidated financial statements.
-7-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Six Months Ended
June 30,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 13,875,079 $ 12,598,912
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,881,036 2,983,454
Provision for loan losses 1,160,250 778,000
Premium amortization, net of discount accretion 946,028 1,359,308
Gain on sale of assets (6,083) (227,009)
Deferred federal income tax expense 58,024 71,289
(Increase) decrease in other assets (211,583) 853,598
Increase (decrease) in other liabilities 1,027,301 (1,219,531)
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Total adjustments 5,854,973 4,599,109
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Net cash provided by operating activities 19,730,052 17,198,021
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits in banks (100,119) (90)
Activity in available-for-sale securities
Maturities 5,952,639 23,183,580
Purchases (20,981,825) (32,696,733)
Activity in held-to-maturity securities
Maturities 39,785,258 67,025,072
Purchases (41,783,566) (84,597,183)
Net (increase) decrease in loans (15,649,135) 9,262,515
Capital expenditures (917,081) (1,690,550)
Proceeds from sale of assets 206,616 947,235
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Net cash used in investing activities (33,487,213) (18,566,154)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (14,855,833) (17,361,323)
Net decrease in interest-bearing deposits (49,502,688) (11,512,165)
Net increase in securities sold under agreements to repurchase 4,848,572 4,090,910
Proceeds from stock issuances 39,977 128,716
Dividends paid (5,984,584) (5,474,644)
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Net cash used in financing activities (65,454,556) (30,128,506)
------------ ------------
Net decrease in cash and cash equivalents (79,211,717) (31,496,640)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 187,970,058 200,328,994
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $108,758,341 $168,832,354
============ ============
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 23,138,254 $ 21,785,532
Federal income tax paid 6,702,275 6,085,614
Assets acquired through foreclosure 267,164 260,421
See notes to consolidated financial statements.
-8-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 - Basis of Presentation
In the opinion of management, the consolidated financial statements reflect
all adjustments necessary for a fair presentation of the Company's financial
position and results of operations. All adjustments were of a normal
recurring nature. However, the results of operations for the three months
and six months ended June 30, 2000 are not necessarily indicative of the
results to be expected for the year ended December 31, 2000.
Note 2 - Earnings Per Share
Basic earnings per common share is computed by dividing net income available
to common shareholders by the weighted average number of shares outstanding
during the period. In computing diluted earnings per common share for the
quarters ended June 30, 2000 and 1999, the Company assumes that all
outstanding options to purchase common stock have been exercised at the
beginning of the year (or time of issuance, if later). The dilutive effect
of the outstanding options is reflected by application of the treasury stock
method, whereby the proceeds from the exercised options are assumed to be
used to purchase common stock at the average market price during the
respective period. The weighted average common shares outstanding used in
computing basic earnings per common share for the quarters ended June 30,
2000 and 1999, were 9,974,683 and 9,956,156 shares, respectively. The
weighted average common shares outstanding used in computing basic earnings
per share for the six-month periods ended June 30, 2000 and 1999, was
9,974,495 and 9,956,156 shares, respectively. The weighted average common
shares outstanding used in computing diluted earnings per common share for
the quarters ended June 30, 2000 and 1999, were 10,002,002 and 9,997,221
shares, respectively. The weighted average common shares outstanding used in
computing diluted earnings per common share for the six-month periods ended
June 30, 2000 and 1999, was 9,998,392 and 9,998,669 shares, respectively.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
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For the six months ended June 30, 2000, the Company's net income amounted to
$13.9 million, or $1.39 per basic share. For the same period last year, net
income amounted to $12.6 million, or $1.27 per basic share. Return on average
assets and return on average equity for the six months ended June 30, 2000,
amounted to 1.65 percent and 15.45 percent, respectively. The Company's return
on average assets and return on average equity for the same period last year
amounted to 1.53 percent and 14.85 percent, respectively. Net income for the
second quarter 2000 totaled $7.1 million, or $0.71 per basic share, as compared
to $6.5 million, or $0.65 per basic share, earned in the second quarter of 1999.
Net interest income on a tax-equivalent basis for the six months ended June 30,
2000, amounted to $35.8 million, up $1.9 million from the same period last year.
The improvement in net interest income resulted primarily from growth in average
loans coupled with an increase in interest rates. For the first six months of
2000, the Company's net interest margin was 4.69 percent as compared to 4.52
percent for the same period in 1999. Net interest income on a tax-equivalent
basis for the second quarter of 2000 amounted to $18.1 million, an increase of
$1.0 million over the second quarter of 1999.
For the six months ended June 30, 2000, the provision for loan losses amounted
to $1.2 million as compared to $778 thousand for the same period last year. Net
charge offs for the six months ended June 30, 2000, totaled $510 thousand, which
on an annualized basis amounted to .13 percent of average loans as compared to
.27 percent for the full year of 1999. At June 30, 2000, the allowance for loan
losses was 1.18 percent of loans and was considered by Management to be
adequate. For the second quarter of 2000, the provision for loan losses was $420
thousand as compared to $308 thousand for the second quarter in 1999.
Total noninterest income for the six months ended June 30, 2000, amounted to
$12.7 million as compared to $12.4 million for the same period last year. The
increase resulted primarily from a $243 thousand, or 9.7 percent increase in
trust fees and a $521 thousand, or 8.1 percent increase in service fees on
deposit accounts. The improvement in these areas is attributed to growth in the
number of accounts and volume of transactions. For the first half of 2000, real
estate mortgage fees amounted to $496 thousand as compared to $712 thousand for
the same period last year. The decrease represents a lower volume of new
mortgage and refinancing transactions which can be attributable to the increase
in interest rates during 2000. Other noninterest income for the six months ended
June 30, 2000, totaled $2.6 million as compared to $2.7 million for the same
period last year. The decrease is attributable primarily to a $225 thousand gain
on sale of bank premises which was recorded in 1999. Noninterest income for the
second quarter of 2000 totaled $6.3 million as compared to $6.2 million for the
same period last year. For the second quarter, trust fees were up $135 thousand,
or 10.7 percent, and service fees on deposit accounts were up $256 thousand, or
7.8 percent, over the second quarter 1999 amounts. Real estate mortgage fees for
the second quarter amounted to $264 thousand as compared to $347 thousand for
the second quarter in 1999. Other noninterest income totaled $1.1 million for
the second quarter of 2000 as compared to $1.3 million for the second quarter of
1999. The decrease resulted primarily from a decrease in miscellaneous
recoveries and previously mentioned gain on sale of bank premises which was
recorded in the second quarter of 1999.
Noninterest expense for the six months ended June 30, 2000, totaled $25.9
million, $200 thousand below the $26.1 million reported for the same period last
year. A modest increase in employee expense coupled with reductions in net
occupancy expense, printing and supplies expense, and item processing fees has
contributed to the reduced level of noninterest expense through the first half
of 2000. The Company's efficiency ratio for the first half of 2000 improved to
53.34 percent from 56.36 percent for the same period last year. Noninterest
expense for the second quarter of 2000 totaled $12.9 million, virtually
unchanged from the second quarter 1999 amount.
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Balance Sheet Review
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Total assets at June 30, 2000, amounted to $1.673 billion as compared to $1.723
billion at December 31, 1999, and $1.664 billion at June 30, 1999. The decrease
in total assets is attributable primarily to lower total deposits at June 30,
2000, as compared to year-end 1999 and at the end of the second quarter last
year. The balance sheets presented reflect normal recurring adjustments and
accruals.
Investment securities at June 30, 2000, totaled $672 million as compared to $656
million at December 31, 1999. The increase was funded through a reduction in
cash and cash equivalents. The net unrealized loss in the portfolio at June 30,
2000, amounted to $15.2 million. With an overall yield of 6.32 percent, the
investment portfolio continues to provide a positive contribution to the
Company's earnings. At June 30, 2000, the Company did not hold any CMOs that
entail higher risks than standard mortgage-backed securities.
Loans at June 30, 2000, totaled $812 million as compared to $797 million at
year-end 1999. As compared to year-end 1999, loans at June 30, 2000, reflect (i)
a $2.0 million increase in commercial loans; (ii) an $8.3 million decrease in
agricultural loans; (iii) a $22.5 million increase in real estate loans; and
(iv) due to a $5.4 million reduction in indirect auto loans, consumer loans
decreased overall by $1.2 million.
Total deposits at June 30, 2000, totaled $1.460 billion as compared to $1.525
billion at year-end 1999. The ratio of noninterest-bearing deposits to total
deposits at June 30, 2000, amounted to 22.3 percent and was unchanged from the
year-end 1999 ratio. The ratio of loans to deposits at June 30, 2000, amounted
to 55.6 percent, up slightly from 52.3 percent at year-end 1999. The decrease in
total deposits since December 31, 1999, reflects the Company's ability to fund
loan growth through reduction in cash and cash equivalents and avoid matching
highly competitive pricing of interest-bearing deposits.
Liquidity and Capital
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The Company's consolidated statements of cash flows are presented on page 8 of
this report. At June 30, 2000, the parent company had no debt outstanding under
its $25 million line of credit with an unaffiliated financial institution. Total
equity capital amounted to $186.2 million at June 30, 2000, which was up from
$178.7 million at year-end 1999. The Company's risk-based capital and leverage
ratios at June 30, 2000, were 19.08 percent and 10.22 percent, respectively. The
second quarter 2000 cash dividend of $0.33 per share totaled $3.3 million and
represented 46.2 percent of second quarter earnings. On July 25, 2000, the
Company declared a $0.33 per share cash dividend payable October 2, 2000.
Interest Rate Risk
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Interest rate risk results when the maturity or repricing intervals of
interest-earning assets and interest-bearing liabilities are different. The
Company's exposure to interest rate risk is managed primarily through the
Company's strategy of selecting the types and terms of interest-earning assets
and interest-bearing liabilities which generate favorable earnings, while
limiting the potential negative effects of changes in market interest rates. The
Company uses no off-balance-sheet financial instruments to manage interest rate
risk. Each subsidiary bank has an asset/liability committee which monitors
interest rate risk and compliance with investment policies. Interest-sensitivity
gap and simulation analysis are among the ways that the subsidiary banks track
interest rate risk. Since year-end 1999, there has been no material change in
the Company's interest rate risk.
-11-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management considers interest rate risk to be a significant market risk for the
Company. See "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" for disclosure regarding this market risk.
The Company has procedures to monitor market risk and has determined that no
material changes in market risk have occurred since December 31, 1999.
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST FINANCIAL BANKSHARES, INC.
Date: August 10, 2000 By:/S/CURTIS R. HARVEY
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Curtis R. Harvey
Executive Vice President and
Chief Financial Officer
Date: August 10, 2000 By:/S/SANDY LESTER
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Sandy Lester
Secretary-Treasurer