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 September 30, 2001
------------------
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
------
FIRST FINANCIAL BANKSHARES, INC.
--------------------------------
(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
-------------------------------------
(Address of principal executive offices)
(Zip Code)
(915)627-7155
-------------
(Registrant's telephone number, including area code)
NO CHANGE
---------
(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 November 1, 2001.
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, Par Value $10.00 Per Share 12,324,141
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
---- ----
1. Consolidated Financial Statements and Notes
to Consolidated Financial Statements 3
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
3. Quantitative and Qualitative Disclosures
About Market Risk 14
Signatures 15
-2-
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at September
30, 2001 and 2000, and December 31, 2000, and the consolidated statements of
earnings and comprehensive earnings for the three and nine months ended
September 30, 2001 and 2000, and the changes in shareholders' equity for the
year ended December 31, 2000 and nine months ended September 30, 2001, and the
cash flows for the nine months ended September 30, 2001 and 2000, follow on
pages 4 through 8.
-3-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
---------------------------------------
Unaudited
--------------------------------------- December 31,
2001 2000 2000
------------------ ------------------ ------------------
ASSETS
Cash and due from banks $ 87,504,488 $ 75,752,498 $ 100,300,424
Federal funds sold 41,258,066 28,988,293 62,230,288
------------------ ------------------ ------------------
Cash and cash equivalents 128,762,554 104,740,791 162,530,712
Interest-bearing deposits in banks 304,497 104,268 104,338
Investment securities:
Securities held-to-maturity (market value of
$335,347,542 and $411,316,933 at September 30, 2001 313,989,514 423,207,056 391,918,076
and 2000, respectively; $393,590,628 at December 31, 2000)
Securities available-for-sale, at market value 401,043,693 248,557,951 262,334,642
------------------ ------------------ ------------------
Total investment securities 715,033,207 671,765,007 654,252,718
Loans 935,557,546 841,836,075 859,270,728
Less: Allowance for loan losses 10,504,589 9,516,300 9,887,646
------------------ ------------------ ------------------
Net loans 925,052,957 832,319,775 849,383,082
Bank premises and equipment, net 41,823,428 40,383,912 40,090,733
Goodwill, net 25,122,311 18,925,646 18,515,304
Other assets 25,227,130 28,731,925 28,937,327
------------------ ------------------ ------------------
TOTAL ASSETS $ 1,861,326,084 $ 1,696,971,324 $ 1,753,814,214
================== ================== ==================
LIABILITIES
Noninterest-bearing deposits $ 346,159,673 $ 326,949,272 $ 336,276,933
Interest-bearing deposits 1,259,910,504 1,142,383,096 1,183,596,767
------------------ ------------------ ------------------
Total deposits 1,606,070,177 1,469,332,368 1,519,873,700
Dividends payable 3,697,242 3,267,050 3,256,540
Securities sold under agreements to repurchase 23,225,722 25,831,099 26,164,359
Other liabilities 14,982,173 9,054,014 8,398,727
------------------ ------------------ ------------------
Total liabilities 1,647,975,314 1,507,484,531 1,557,693,326
------------------ ------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized 20,000,000 shares;
12,324,141 and 9,977,153 issued and outstanding at
September 30,2001 and 2000, respectively; 9,983,002
shares issued and 9,856,902 shares oustanding at
December 31, 2000 123,241,410 99,771,530 99,830,020
Capital surplus 57,735,976 60,541,892 60,592,310
Retained earnings 24,544,462 34,030,917 38,003,195
Treasury stock, at cost - 126,100 shares at
December 31, 2000 and 99,500 shares at September 30, 2000 - (3,093,219) (3,925,069)
Unrealized gain (loss) on investment securities
available-for-sale, net 7,828,922 (1,764,327) 1,620,432
------------------ ------------------ ------------------
Total shareholders' equity 213,350,770 189,486,793 196,120,888
------------------ ------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,861,326,084 $ 1,696,971,324 $ 1,753,814,214
================== ================== ==================
See notes to consolidated financial statements.
-4-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- --------------------------------------
2001 2000 2001 2000
--------------- --------------- ----------------- -----------------
INTEREST INCOME
Interest and fees on loans $ 18,921,994 $ 19,440,985 $ 57,289,318 $ 55,449,284
Interest on investment securities:
Taxable 8,292,472 8,457,372 23,858,497 25,188,990
Exempt from federal income tax 1,627,261 1,451,133 4,645,604 4,282,321
Interest on federal funds sold and
interest-bearing deposits in banks 658,318 498,866 2,865,430 2,354,856
--------------- --------------- ----------------- -----------------
Total interest income 29,500,045 29,848,356 88,658,849 87,275,451
INTEREST EXPENSE
Interest-bearing deposits 10,756,921 12,187,427 34,999,907 34,839,534
Other 201,044 306,330 763,615 677,165
--------------- --------------- ----------------- -----------------
Total interest expense 10,957,965 12,493,757 35,763,522 35,516,699
--------------- --------------- ----------------- -----------------
NET INTEREST INCOME 18,542,080 17,354,599 52,895,327 51,758,752
Provision for loan losses 538,833 426,000 1,402,550 1,586,250
--------------- --------------- ----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,003,247 16,928,599 51,492,777 50,172,502
NONINTEREST INCOME
Trust department income 1,451,525 1,376,699 4,446,890 4,120,221
Service fees on deposit accounts 3,688,601 3,561,381 10,937,274 10,492,613
ATM fees 495,788 407,815 1,425,510 1,122,289
Real estate mortgage fees 433,902 298,642 1,203,756 794,452
Net gain on securities transactions 177 - 67,789 -
Other 779,425 805,302 2,526,107 2,649,167
--------------- --------------- ----------------- -----------------
Total noninterest income 6,849,418 6,449,839 20,607,326 19,178,742
NONINTEREST EXPENSE
Salaries and employee benefits 7,266,165 6,718,219 21,138,214 20,343,732
Net occupancy expense 1,082,346 903,012 2,972,769 2,673,285
Equipment expense 1,135,747 1,045,528 3,274,867 3,119,065
Goodwill amortization 410,437 410,341 1,231,120 1,231,026
Other expenses 4,153,671 3,852,420 12,090,564 11,425,759
--------------- --------------- ----------------- -----------------
Total noninterest expense 14,048,366 12,929,520 40,707,534 38,792,867
--------------- --------------- ----------------- -----------------
EARNINGS BEFORE INCOME TAXES 10,804,299 10,448,918 31,392,569 30,558,377
Income tax expense 3,271,428 3,236,767 9,568,931 9,471,147
--------------- --------------- ----------------- -----------------
NET EARNINGS $ 7,532,871 $ 7,212,151 $ 21,823,638 $ 21,087,230
=============== =============== ================= =================
EARNINGS PER SHARE, BASIC (1) $ 0.61 $ 0.58 $ 1.77 $ 1.69
EARNINGS PER SHARE, ASSUMING DILUTION (1) $ 0.61 $ 0.57 $ 1.76 $ 1.68
DIVIDENDS PER SHARE (2) $ 0.30 $ 0.26 $ 0.86 $ 0.77
<FN>
(1)Earnings per share are calculated using weighted average shares outstanding
for each period presented with prior periods adjusted for 25% stock dividend
issued June 1, 2001.
(2)Dividends per share are calculated using actual number of shares outstanding
at the end of each period presented with prior periods adjusted for 25% stock
dividend issued June 1, 2001.
</FN>
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2001 2000 2001 2000
--------------- ----------------- --------------- --------------
NET EARNINGS $ 7,532,871 $ 7,212,151 $ 21,823,638 $ 21,087,230
OTHER ITEMS OF COMPREHENSIVE EARNINGS
Change in unrealized gain on investment
securities available-for-sale,
before income taxes 4,317,283 3,750,316 9,619,312 3,582,154
Reclassification adjustment for realized
gains on investment in securities included
in net earnings, before income taxes (177) - (67,789) -
--------------- ----------------- --------------- --------------
Total other items of comprehensive earnings,
before tax 4,317,106 3,750,316 9,551,523 3,582,154
--------------- ----------------- --------------- --------------
Income tax expense related to other
items of comprehensive earnings 1,510,987 1,312,611 3,343,033 1,253,754
--------------- ----------------- --------------- --------------
COMPREHENSIVE EARNINGS $ 10,338,990 $ 9,649,856 $ 28,032,128 $ 23,415,630
=============== ================= =============== ==============
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 Treasury Securities Total
------------------------ Capital Retained Stock, Available Shareholders'
Shares Amount Surplus Earnings at cost For Sale, Net Equity
---------- ------------- ------------ ------------ ----------- ----------- -------------
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 - - - 28,316,047 - - 28,316,047
Stock issuances 8,696 86,960 74,959 - - - 161,919
Cash dividends declared,
$1.29 per share - - - (12,808,111) - - (12,808,111)
Acquisition of treasury stock - - - - (3,925,069) - (3,925,069)
Change in unrealized gain (loss)
on investment securities
available-for-sale, net - - - - - 5,713,159 5,713,159
---------- ------------- ------------ ------------ ----------- ----------- -------------
Balances at December 31, 2000 9,983,002 99,830,020 60,592,310 38,003,195 (3,925,069) 1,620,432 196,120,888
Net earnings - - - 21,823,638 - - 21,823,638
Stock split-up, effected in the
form of a 25% stock dividend 2,461,770 24,617,700 - (24,617,700) - - -
Stock issuances 15,369 153,690 23,785 - - - 177,475
Cash dividends declared,
$.86 per share - - - (10,664,671) - - (10,664,671)
Acquisition of treasury stock - - - - (315,050) - (315,050)
Retirement of treasury stock (136,000) (1,360,000) (2,880,119) - 4,240,119 - -
Change in unrealized gain
on investment securities
available-for-sale, net - - - - - 6,208,490 6,208,490
---------- ------------- ------------ ------------ ----------- ----------- -------------
Balances at September 30, 2001(unaudited) 12,324,141 $ 123,241,410 $ 57,735,976 $ 24,544,462 $ - $ 7,828,922 $ 213,350,770
========== ============= ============ ============ =========== =========== =============
See notes to consolidated financial statements.
-7-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Nine Months Ended
September 30,
------------------------------------
2001 2000
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 21,823,638 $ 21,087,230
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 4,219,424 4,306,211
Provision for loan losses 1,402,550 1,586,250
Premium amortization, net of discount accretion 992,913 1,344,389
Gain on sale of assets (52,815) (5,694)
Deferred federal income tax expense (benefit) 158,302 (374,435)
Decrease (increase) in other assets 847,959 (484,229)
Increase in other liabilities 5,873,371 1,682,232
----------------- ----------------
Total adjustments 13,441,704 8,054,724
----------------- ----------------
Net cash provided by operating activities 35,265,342 29,141,954
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest-bearing deposits in banks (200,159) (100,188)
Payment for stock of City Bancshares, Inc., net of cash acquired (6,848,231) -
Activity in available-for-sale securities:
Sales 12,926,715 -
Maturities 56,572,060 9,602,976
Purchases (150,343,528) (28,869,707)
Activity in held-to-maturity securities:
Maturities 150,907,110 63,600,687
Purchases (92,498,613) (57,643,443)
Net increase in loans (26,186,131) (45,838,881)
Capital expenditures (3,912,942) (2,009,332)
Proceeds from sale of assets 178,945 382,402
----------------- ----------------
Net cash used in investing activities (59,404,773) (60,875,486)
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposits (2,067,026) (13,564,465)
Net increase (decrease) in interest-bearing deposits 5,738,481 (41,807,613)
Net (decrease) increase in securities sold under agreements to repurchase (2,938,637) 16,193,365
Common stock transactions:
Acquisition of treasury stock (315,050) (3,093,219)
Proceeds from stock issuances 177,475 53,011
Dividends paid (10,223,969) (9,276,814)
----------------- ----------------
Net cash used in financing activities (9,628,726) (51,495,735)
----------------- ----------------
Net decrease in cash and cash equivalents (33,768,158) (83,229,267)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 162,530,712 187,970,058
----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 128,762,554 $ 104,740,791
================= ================
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 35,978,699 $ 35,193,198
Federal income tax paid 6,378,823 9,884,787
Assets acquired through foreclosure 209,566 270,639
Retirement of treasury stock 4,240,119 -
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 unaudited consolidated financial statements
reflect all adjustments necessary for a fair presentation of the Company's
financial position and unaudited results of operations. All adjustments were of
a normal recurring nature. However, the results of operations for the three
months and nine months ended September 30, 2001 are not necessarily indicative
of the results to be expected for the year ended December 31, 2001.
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 September 30, 2001 and 2000, 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 September 30, 2001 and 2000, were 12,321,964 and
12,432,878 shares, respectively. The weighted average common shares outstanding
used in computing basic earnings per common share for the nine-month periods
ended September 30, 2001 and 2000, were 12,315,826 and 12,456,286 shares,
respectively. The weighted average common shares outstanding used in computing
diluted earnings per common share for the quarters ended September 30, 2001 and
2000, were 12,412,979 and 12,464,512 shares, respectively. The weighted average
common shares outstanding used in computing diluted earnings per common share
for the nine-month periods ended September 30, 2001 and 2000, were 12,362,422
and 12,492,585 shares, respectively.
Note 3 - Recent Accounting Standards
In June 2001, the Financial Accounting Standards Board issued SFAS No.141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS 141 prospectively prohibits the pooling of interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 142
requires that goodwill no longer be amortized, but instead be reviewed for
impairment. The Company will fully adopt SFAS 142 on January 1, 2002. Upon full
adoption, the Company will assign goodwill to the lowest reporting unit level
and perform an initial impairment test. Subsequently, an impairment test will be
performed annually or on an interim basis if an event occurs or circumstances
change that would reduce the fair value of a reporting unit below its carrying
value. On January 1, 2002, the Company will discontinue amortizing goodwill
recorded prior to June 30, 2001. Goodwill initially recorded subsequent to June
30, 2001, is not being amortized. The Company is in the process of evaluating
but has not yet determined the financial statement impact of SFAS 142.
In July 2001, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 102, "Selected Loan Loss Allowance Methodology and
Documentation Issues" ("SAB 102"). This staff accounting bulletin expresses
certain of the SEC staff's views on the development, documentation, and
application of a systematic methodology that the staff normally would expect
registrants to prepare and maintain in support of their allowances for loan
losses. The Company believes it is substantially in compliance with the
provisions of SAB 102 and expects the guidance to have no impact on its
financial reporting process. Parallel guidance was issued by federal banking
agencies through the Federal Financial Institutions Examination Council as
interagency guidance, "Policy Statement on Allowance for Loan and Lease Losses
Methodologies and Documentation for Banks and Savings Institutions."
-9-
Note 4 - Business Combination
In July 2001, the Company purchased all of the outstanding stock of City
National Bancshares, Inc. ("City") and its subsidiary, City National Bank for
$16,500,000 in cash. The total purchase price exceeded the fair market value of
net assets acquired by approximately $7,800,000, which was recorded by the
Company as goodwill. Initially, no portion of the excess price was assigned to
intangible assets other than goodwill. The primary purpose of the acquisition
was to expand the Company's market share in areas with close proximity to
Dallas/Ft. Worth, Texas. Factors that contributed to a purchase price resulting
in goodwill include City's historically stable record of earnings, capable
management and its geographic location, which complements the Company's existing
service locations. Subsequent to the acquisition, the Company liquidated the
stock of City and City National Bank is operating as a subsidiary of the
Company. The results of operations of City National Bank are included in the
consolidated earnings of the Company commencing July 1, 2001.
The following is a condensed consolidated balance sheet disclosing estimated
fair value amounts assigned to the major asset and liability captions at the
acquisition date. These amounts are preliminary and subject to adjustment.
ASSETS
Cash and cash equivalents $ 9,651,769
Investment in securities 29,717,834
Loans, net 51,061,735
Goodwill 7,838,032
Other assets 1,465,727
--------------
Total assets $ 99,735,097
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest-bearing deposits $ 11,949,766
Interest-bearing deposits 70,575,256
Other liabilities 710,075
Shareholders' equity 16,500,000
--------------
Total liabilities and shareholder's equity $ 99,735,097
==============
Goodwill recorded in the acquisition of City will be accounted for in accordance
with SFAS 142. Accordingly, goodwill will not be amortized, rather it will be
tested for impairment annually. The goodwill recorded is not expected to be
deductible for federal income tax purposes. The proforma impact of City is not
material to the Company's financial statements.
Cash flow information relative to the acquisition of City is, as follows:
Fair value of assets acquired $ 91,897,065
Cash paid for the capital stock of City 16,500,000
--------------
Liabilities assumed $ 75,397,065
==============
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating Results
- -----------------
For the nine months ended September 30, 2001, the Company's net income amounted
to $21.8 million, or $1.77 per basic share. For the same period last year, net
income amounted to $21.1 million, or $1.69 per basic share. Return on average
assets and return on average equity for the nine months ended September 30,
2001, amounted to 1.64 percent and 14.48 percent, respectively, on an annualized
basis. The Company's return on average assets and return on average equity for
the same period last year amounted to 1.67 percent and 15.46 percent,
respectively, on an annualized basis. Net income for the third quarter 2001
totaled $7.5 million, or $0.61 per basic share, as compared to $7.2 million, or
$0.58 per basic share, earned in the third quarter 2000.
Net interest income on a tax-equivalent basis for the nine months ended
September 30, 2001, amounted to $55.2 million as compared to $53.8 million for
the same period last year. Net interest income on a tax-equivalent basis for the
third quarter 2001 amounted to $19.4 million, as compared to $18.1 million
reported for the same period last year. The higher net interest income for 2001
is attributable primarily to an acquisition finalized July 3, 2001. For the
first nine months of 2001, the net interest margin was 4.52 percent as compared
to 4.69 percent for the same period last year. For the third quarter 2001, the
net interest margin was 4.55 percent, a slight improvement over 4.52 percent for
the second quarter 2001, but below the 4.71 percent reported for the third
quarter last year. The lower net interest margin for 2001 reflects the
significant decline in interest rates that has occurred during 2001.
For the nine months ended September 30, 2001, the provision for loan losses
amounted to $1.4 million as compared to $1.6 million for the same period last
year. Net charge offs for the nine months ended September 30, 2001, totaled $1.2
million, which on an annualized basis amounted to .18 percent of average loans
and was unchanged from the .18 percent reported for the full year of 2000. At
September 30, 2001, the allowance for loan losses was 1.12 percent of loans and
was considered by Management to be adequate. For the third quarter 2001, the
provision for loan losses was $539 thousand as compared to $426 thousand for the
third quarter 2000.
Total noninterest income for the nine months ended September 30, 2001, amounted
to $20.6 million as compared to $19.2 million for the same period last year. The
increase was primarily a result of (i) an increase in trust fees of $327
thousand due primarily to growth in trust assets; (ii) an increase of $444
thousand in service fees on deposit accounts which reflects an increase in
accounts and transaction volumes; (iii) an increase of $409 thousand in real
estate mortgage fees resulting from the increased volume of mortgage loan
transactions during 2001; and an increase of $303 thousand in ATM fees which
reflects growth in the cardholder base and transaction volumes. Noninterest
income for the third quarter 2001 amounted to $6.8 million as compared to $6.4
million for the same period last year. The improvement resulted primarily from
higher trust fees, service fees on deposit accounts, and real estate mortgage
fees which increased $75 thousand, $127 thousand, and $135 thousand,
respectively.
Noninterest expense for the nine months ended September 30, 2001, totaled $40.7
million, an increase of $1.9 million above the $38.8 million reported for the
same period last year. The higher level of noninterest expenses was primarily a
result of (i) a $794 thousand increase in salaries and benefits; (ii) a $300
thousand increase in occupancy expense due primarily to higher utilities
expense; (iii) a $152 thousand increase in professional fees, primarily fees
relating to implementation of information systems enhancements; and (iv)a $134
thousand increase in printing and supplies expense. Noninterest expense for the
third quarter 2001 amounted to $14.0 million, an increase of $1.1 million above
the $12.9 million reported for the same period last year. The increase over the
third quarter 2000 is attributable primarily to a $548 thousand increase in
salaries and benefits, and a $269 thousand combined increase in net occupancy
and equipment expense. The Company's efficiency ratio for the first nine months
of 2001 amounted to 53.74 percent as compared to 53.14 percent for the same
period last year.
-11-
Balance Sheet Review
- --------------------
Total assets at September 30, 2001, amounted to $1.861 billion as compared to
$1.754 billion at December 31, 2000, and $1.697 billion at September 30, 2000.
The acquisition finalized July 3, 2001 accounted for approximately $90 million
in the increase in total assets when compared to year-end 2000 and September 30,
2000.
Loans at September 30, 2001, totaled $936 million as compared to $859 million at
year-end 2000 and $842 million at September 30, 2000. As compared to year-end
2000 amounts, loans at September 30, 2001, reflect (i) a $3 million increase in
commercial, financial and agricultural loans; (ii) a $65 million increase in
real estate loans; and (iii) an $8 million increase in loans to individuals.
Investment securities at September 30, 2001, totaled $715 million as compared to
$654 million at year-end 2000 and $672 million at September 30, 2000. The net
unrealized gain in the investment portfolio at September 30, 2001, amounted to
$33.4 million and had an overall yield of 6.14 percent. At September 30, 2001,
the Company did not hold any structured notes or CMOs that entail higher risks
than standard mortgage-backed securities. Total deposits at September 30, 2001,
amounted to $1.606 billion as compared to $1.520 billion at year-end 2000 and
$1.469 billion at September 30, 2000.
Nonperforming assets at September 30, 2001, totaled $3.5 million as compared to
$4.1 million at December 31, 2000. The decrease resulted primarily from a $525
thousand decrease in nonaccrual loans. At .38 percent of loans plus foreclosed
assets, management considers nonperforming assets to be at a manageable level
and is unaware of any material classified credit not properly disclosed as
nonperforming.
Liquidity and Capital
- ---------------------
The Company's consolidated statements of cash flows are presented on page 8 of
this report. At September 30, 2001, the parent company had no debt outstanding
under its $25 million line of credit with an unaffiliated financial institution.
Total equity capital amounted to $213.4 million at September 30, 2001, which was
up from $196.1 million at year-end 2000 and $189.5 million at September 30,
2000. The Company's risk-based capital and leverage ratios at September 30,
2001, were 17.91 percent and 9.91 percent, respectively. The third quarter 2001
cash dividend of $0.30 per share totaled $3.7 million and represented 49.1
percent of third quarter earnings. On October 23, 2001, the Company declared a
$0.30 per share cash dividend payable October 1, 2001.
Interest Rate Risk
- ------------------
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. As of September 30, 2001, Management estimates that, over
the next 12 months, an upward shift of interest rates by 200 basis points would
result in an increase of projected net interest income of 4.7 percent and a
downward shift of interest rates by 200 basis points would result in a reduction
in projected net interest income of 13.1 percent. These are good faith estimates
and assume that the composition of our interest sensitive assets and liabilities
existing at September 30, 2001, will remain constant over the relevant 12 month
measurement period and that changes in market interest rates are instantaneous
and sustained across the yield curve regardless of duration of pricing
characteristics of specific assets or liabilities. Also, this analysis does not
contemplate any actions that we might undertake in response to changes in market
interest rates. In Management's belief, these estimates are not necessarily
indicative of what actually could occur in the event of immediate interest rate
increases or decreases of this magnitude. As interest-bearing assets and
liabilities re-price at different time frames and proportions to market interest
rate movements, various assumptions must be made based on historical
relationships of these variables in reaching any conclusion.
-12-
Since these correlations are based on competitive and market conditions, our
future results would, in Management's belief, be different from the foregoing
estimates, and such results could be material.
-13-
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.
-14-
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: November 13, 2001 By:/S/CURTIS R. HARVEY
------------------ ----------------------------
Curtis R. Harvey
Executive Vice President and
Chief Financial Officer
Date: November 13, 2001 By:/S/SANDY LESTER
------------------ ------------------------------
Sandy Lester
Secretary-Treasurer
-15-