UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
-------------
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)
(325)627-7155
-------------
(Registrant's telephone number, including area code)
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 by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of The Exchange Act). Yes X No .
--- ----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 6, 2003:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $10.00 par value 15,475,267
per share
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item Page
- ---- ----
Forward-Looking Statement Disclaimer 3
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 16
4. Controls and Procedures 16
PART II
OTHER INFORMATION
6. Exhibits and Reports on Form 8-K 17
Signatures 18
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this Form 10-Q, words such as "anticipate",
"believe", "estimate", "expect", "intend", "predict", "project", and similar
expressions, as they relate to us or management, identify forward-looking
statements. These forward-looking statements are based on information currently
available to our management. Actual results could differ materially from those
contemplated by the forward-looking statements as a result of certain factors,
including but not limited to:
o general economic conditions;
o legislative and regulatory actions and reforms;
o competition from other financial institutions and financial
holding companies;
o the effects of and changes in trade, monetary and fiscal policies and
laws, including interest rate policies of the Federal Reserve Board;
o changes in the demand for loans;
o fluctuations in the value of collateral and loan reserves;
o inflation, interest rate, market and monetary fluctuations;
o changes in consumer spending, borrowing and savings habits;
o acquisitions and integration of acquired businesses; and
o other factors described in "Part I, Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Such statements reflect the current views of our management with respect to
future events and are subject to these and other risks, uncertainties and
assumptions relating to our operations, results of operations, growth strategy
and liquidity. All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by this paragraph.
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. at June 30,
2003 and 2002 and December 31, 2002, and the consolidated statements of earnings
and comprehensive earnings for the three and six months ended June 30, 2003 and
2002, changes in shareholders' equity for the year ended December 31, 2002 and
six months ended June 30, 2003, and cash flows for the six months ended June 30,
2003 and 2002, follow on pages 4 through 8.
On April 22, 2003, the Company's Board of Directors declared a five for four
stock split in the form of a 25% stock dividend for shareholders of record on
May 16, 2003. All per share amounts in this report have been restated to reflect
this stock split. An amount equal to the par value of the additional common
shares issued pursuant to the stock split was reflected as a transfer from
retained earnings to common stock in the consolidated financial statements.
3
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
--------------------------------- December 31,
2003 2002 2002
--------------- --------------- ---------------
ASSETS (Unaudited)
Cash and due from banks $ 104,575,826 $ 93,908,407 $ 108,436,645
Federal funds sold 43,725,000 46,450,000 70,000,000
--------------- --------------- ---------------
Cash and cash equivalents 148,300,826 140,358,407 178,436,645
Interest-bearing deposits in banks 5,219,177 21,071 2,324,425
Investment securities:
Securities held-to-maturity (market value of $179,751,258,
$250,770,960 and $211,862,151 at June 30, 2003,
June 30, 2002 and December 31, 2002, respectively) 168,667,372 241,270,327 200,449,784
Securities available-for-sale, at fair value 710,513,311 517,584,102 571,806,629
--------------- --------------- ---------------
Total investment securities 879,180,683 758,854,429 772,256,413
Loans 920,941,697 935,174,382 964,039,773
Less: Allowance for loan losses (11,523,162) (11,119,945) (11,218,729)
--------------- --------------- ---------------
Net loans 909,418,535 924,054,437 952,821,044
Bank premises and equipment, net 40,995,682 41,355,266 40,605,401
Goodwill and intangible assets 24,803,210 24,644,391 24,870,788
Other assets 20,407,757 21,252,815 21,868,220
--------------- --------------- ---------------
TOTAL ASSETS $ 2,028,325,870 $ 1,910,540,816 $ 1,993,182,936
=============== =============== ===============
LIABILITIES
Noninterest-bearing deposits $ 443,674,597 $ 398,219,497 $ 425,473,353
Interest-bearing deposits 1,300,142,994 1,249,649,814 1,286,088,863
--------------- --------------- ---------------
Total deposits 1,743,817,591 1,647,869,311 1,711,562,216
Dividends payable 4,796,143 4,323,622 4,327,374
Securities sold under agreements to repurchase 12,056,116 22,349,997 26,708,994
Other liabilities 16,475,782 8,282,439 11,816,707
--------------- --------------- ---------------
Total liabilities 1,777,145,632 1,682,825,369 1,754,415,291
--------------- --------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized 20,000,000 shares; 15,471,429,
12,354,111 and 12,364,201 shares issued and outstanding
at June 30, 2003, June 30, 2002 and December 31, 2002, respectively 154,714,290 123,541,110 123,642,010
Capital surplus 58,172,924 57,980,651 58,087,687
Retained earnings 23,238,355 37,048,374 45,647,522
Accumulated other comprehensive income 15,054,669 9,145,312 11,390,426
--------------- --------------- ---------------
Total shareholders' equity 251,180,238 227,715,447 238,767,645
--------------- --------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,028,325,870 $ 1,910,540,816 $ 1,993,182,936
=============== =============== ===============
See notes to consolidated financial statements.
-4-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
2003 2002 2003 2002
-------------- --------------- --------------- ---------------
INTEREST INCOME
Interest and fees on loans $ 14,472,914 $ 16,088,389 $ 29,259,463 $ 32,406,928
Interest on investment securities:
Taxable 7,577,369 8,158,394 15,256,189 16,130,658
Exempt from federal income tax 1,755,727 1,786,690 3,501,474 3,517,634
Interest on federal funds sold and
interest-bearing deposits in banks 183,707 312,244 329,289 570,653
-------------- --------------- --------------- ---------------
Total interest income 23,989,717 26,345,717 48,346,415 52,625,873
INTEREST EXPENSE
Interest-bearing deposits 4,454,474 6,174,507 9,108,972 13,159,675
Other 27,659 71,196 95,385 158,496
-------------- --------------- --------------- ---------------
Total interest expense 4,482,133 6,245,703 9,204,357 13,318,171
-------------- --------------- --------------- ---------------
NET INTEREST INCOME 19,507,584 20,100,014 39,142,058 39,307,702
Provision for loan losses 225,867 510,334 736,368 908,834
-------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 19,281,717 19,589,680 38,405,690 38,398,868
NONINTEREST INCOME
Trust department income 1,478,862 1,448,116 2,912,668 2,872,185
Service fees on deposit accounts 3,987,738 3,807,718 7,795,560 7,364,577
ATM fees 737,650 591,208 1,403,304 1,102,212
Real estate mortgage fees 815,331 369,130 1,499,694 791,158
Net gain (loss) on sale of securities (4,752) 19,256 (4,752) 19,256
Net gain on sale of student loans 1,606,120 116,885 1,842,635 314,360
Other 887,775 911,723 2,125,295 1,917,722
-------------- --------------- --------------- ---------------
Total noninterest income 9,508,724 7,264,036 17,574,404 14,381,470
NONINTEREST EXPENSE
Salaries and employee benefits 8,591,855 7,870,709 16,813,242 15,710,117
Net occupancy expense 1,021,432 1,031,438 1,964,011 1,985,623
Equipment expense 1,188,760 1,156,208 2,376,726 2,341,096
Printing, stationery & supplies 330,709 383,557 673,758 860,661
Correspondent bank service charges 364,606 375,845 759,660 738,837
Amortization of intangible assets 33,789 33,789 67,578 67,578
Other expenses 3,988,980 3,825,272 7,971,414 7,207,223
-------------- --------------- --------------- ---------------
Total noninterest expense 15,520,131 14,676,818 30,626,389 28,911,135
-------------- --------------- --------------- ---------------
EARNINGS BEFORE INCOME TAXES 13,270,310 12,176,898 25,353,705 23,869,203
Income tax expense 4,049,492 3,655,140 7,683,296 7,168,792
-------------- --------------- --------------- ---------------
NET EARNINGS $ 9,220,818 $ 8,521,758 $ 17,670,409 $ 16,700,411
============== =============== =============== ===============
EARNINGS PER SHARE, BASIC $ 0.60 $ 0.55 $ 1.14 $ 1.08
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.59 $ 0.55 $ 1.14 $ 1.08
DIVIDENDS PER SHARE $ 0.31 $ 0.28 $ 0.59 $ 0.52
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
NET EARNINGS $ 9,220,818 $ 8,521,758 $ 17,670,409 $ 16,700,411
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
Change in unrealized gain on
investment securities available-for-sale 9,846,796 9,429,036 5,632,545 7,747,307
Reclassification adjustment for realized
losses (gains) on investment securities
included in net earnings, before income tax 4,752 (19,256) 4,752 (19,256)
-------------- -------------- -------------- --------------
Total other items of comprehensive earnings 9,851,548 9,409,780 5,637,297 7,728,051
Income tax expense related to other
items of comprehensive earnings (3,448,042) (3,293,423) (1,973,054) (2,704,818)
-------------- -------------- -------------- --------------
COMPREHENSIVE EARNINGS $ 15,624,324 $ 14,638,115 $ 21,334,652 $ 21,723,644
============== ============== ============== ==============
See notes to consolidated financial statements.
-6-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other Comprehensive Income
-------------------------
Common Stock Unrealized Gain Minimum Total
------------------------ Capital Retained on Securities Pension Shareholders'
Shares Amount Surplus Earnings Available-for-Sale Liability Equity
---------- ------------- ------------ ------------- ------------ ------------ -------------
Balances at December 31, 2001 12,333,252 $ 123,332,520 $ 57,824,061 $ 28,375,353 $ 4,122,079 $ - $ 213,654,013
Net earnings - - - 33,952,550 - - 33,952,550
Stock issuances 30,949 309,490 263,626 - - - 573,116
Cash dividends declared,
$1.08 per share - - - (16,680,381) - - (16,680,381)
Minimum liability pension
adjustment, net of
related taxes - - - - - (1,440,283) (1,440,283)
Change in unrealized gain in
investment securities
available-for-sale,
net of related income taxes - - - - 8,708,630 - 8,708,630
---------- ------------- ------------ ------------- ------------ ------------ -------------
Balances at December 31, 2002 12,364,201 123,642,010 58,087,687 45,647,522 12,830,709 (1,440,283) 238,767,645
Net earnings - - - 17,670,409 - - 17,670,409
Stock issuances 14,233 142,330 85,237 - - - 227,567
Cash dividends declared,
$0.59 per share - - - (9,149,626) - - (9,149,626)
Change in unrealized gain in
investment securities
available-for-sale,
net of related income taxes - - - - 3,664,243 - 3,664,243
Five for four stock split in the
form of a 25% stock dividend 3,092,995 30,929,950 - (30,929,950) - - -
---------- ------------- ------------ ------------- ------------ ------------ -------------
Balances at June 30, 2003 (unaudited) 15,471,429 $ 154,714,290 $ 58,172,924 $ 23,238,355 $ 16,494,952 $ (1,440,283) $ 251,180,238
========== ============= ============ ============= ============ ============ =============
See notes to consolidated financial statements.
-7-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Six Months Ended June 30,
---------------------------------
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 17,670,409 $ 16,700,411
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,096,240 2,151,454
Provision for loan losses 736,368 908,834
Premium amortization, net of discount accretion 2,605,227 2,037,782
Loss on sale of assets 3,385 75,290
Deferred federal income tax benefit (741,823) (478,789)
Decrease (increase) in other assets 314,400 (1,610,784)
Increase in other liabilities 5,400,899 951,963
--------------- ---------------
Total adjustments 10,414,696 4,035,750
--------------- ---------------
Net cash provided by operating activities 28,085,105 20,736,161
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks (2,894,752) 1,353,214
Activity in available-for-sale securities:
Sales 41,152,973 2,213,004
Maturities 97,745,538 32,247,526
Purchases (274,508,292) (113,749,043)
Activity in held-to-maturity securities:
Maturities 33,212,829 52,865,349
Purchases (1,500,000) (1,494,822)
Net decrease in loans 41,820,337 4,317,452
Capital expenditures (2,479,791) (1,462,272)
Proceeds from sale of assets 81,027 35,545
--------------- ---------------
Net cash used in investing activities (67,370,131) (23,674,047)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 18,201,244 8,812,831
Net increase (decrease) in interest-bearing deposits 14,054,131 (46,106,118)
Net (decrease) increase in securities sold under
agreements to repurchase (14,652,878) 2,502,930
Proceeds from stock issuances 227,567 365,180
Dividends paid (8,680,857) (7,403,744)
--------------- ---------------
Net cash provided by (used in) financing activities 9,149,207 (41,828,921)
--------------- ---------------
Net decrease in cash and cash equivalents (30,135,819) (44,766,807)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 178,436,645 185,125,214
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 148,300,826 $ 140,358,407
=============== ===============
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 8,828,151 13,811,522
Federal income tax paid 7,533,118 7,413,227
Assets acquired through foreclosure 845,804 424,358
Loans to finance the sale of other real estate - 176,526
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 and
six months ended June 30, 2003, are not necessarily indicative of the results to
be expected, due to seasonality and other factors, for the year ending December
31, 2003. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted under SEC rules and
regulations.
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 periods. In computing diluted earnings per common share for the three months
and six months ended June 30, 2003 and 2002, the Company assumes that all
outstanding options to purchase common stock have been exercised at the
beginning of the year (or the 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
periods. The weighted average common shares outstanding used in computing basic
earnings per common share for the three months ended June 30, 2003 and 2002,
were 15,466,371 and 15,435,191 shares, respectively. The weighted average common
shares outstanding used in computing basic earnings per common share for the six
months ended June 30, 2003 and 2002, were 15,461,477 and 15,430,344,
respectively. The weighted average common shares outstanding used in computing
diluted earnings per common share for the three months ended June 30, 2003 and
2002, were 15,519,299 and 15,506,123 shares, respectively. The weighted average
common shares outstanding used in computing diluted earnings per common share
for the six months ended June 30, 2003 and 2002, were 15,514,470 and 15,502,040,
respectively. See note 4 below.
Note 3 - Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants using the intrinsic value method
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"). Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Had compensation cost for the plan been
determined consistent with Statement of Financial Accounting Standard No. 123,
Accounting for Stock-Based Compensation, the Company's net earnings and earnings
per share would have been reduced by insignificant amounts on a pro forma basis
for the three months and six months ended June 30, 2003 and 2002.
During the three months ended June 30, 2002, the Company granted 71,560 options
to key employees under the 2002 Incentive Stock Option Plan. The options were
granted at market price on grant date, as adjusted for the five for four stock
split.
Note 4 - Stock Split and Stock Repurchase
On April 22, 2003, the Company's Board of Directors declared a five for four
stock split in the form of a 25% stock dividend effective June 2, 2003 for
shareholders of record on May 16, 2003. All share and per share amounts in this
report have been restated to reflect this stock split. An amount equal to the
par value of the additional common shares issued pursuant to the stock split was
reflected as a transfer from retained earnings to common stock in the
consolidated financial statements.
9
Additionally, on April 22, 2003, the Company's Board of Directors authorized the
repurchase of up to 500,000 shares of common stock (representing approximately
four percent of outstanding shares) over the next three years. The plan
authorizes management to repurchase the stock at such time as repurchases are
considered beneficial to stockholders. Any repurchases of the stock will be
through the open market or in privately negotiated transactions in accordance
with applicable laws and regulations. No stock has been repurchased under this
plan as of June 30, 2003.
Note 5 - Reclassifications
Certain prior period balances have been reclassified to conform with the current
period presentation.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of operations and financial condition should be read in
conjunction with the financial statements and accompanying footnotes included in
Item 1 of this Form 10-Q as well as those included in the Company's 2002 Annual
Report on Form 10-K. On April 22, 2003, the Company's Board of Directors
declared a five for four stock split in the form of a 25% stock dividend
effective June 2, 2003 for shareholders of record on May 16, 2003. All share and
per share amounts in this report have been restated to reflect this stock split.
Critical Accounting Policies
- ----------------------------
The preparation of the Company's consolidated financial statements is based on
the selection of certain accounting policies, based on generally accepted
accounting principles and customary practices in the banking industry. These
policies, in certain areas, require management to make significant estimates and
assumptions. A policy is deemed critical if (i) the accounting estimate requires
the Company to make assumptions about matters that are highly uncertain at the
time the accounting estimate was made; and (ii) different estimates that
reasonably could have been used in the current period, or changes in the
accounting estimate that are reasonably likely to occur from period to period,
would have a material impact on the financial statements.
The following discussion addresses the Company's allowance for loan loss and its
provision for loan losses which is deemed by management to be its most critical
accounting policy. We have other key accounting policies and continue to
evaluate the materiality of their impact on our consolidated financial
statements, but we believe that these other policies either do not generally
require us to make estimates and judgments that are difficult or subjective, or
it is less likely that they would have a material impact on our reported results
for a given period.
The allowance for loan losses is an amount that management believes will be
adequate to absorb inherent estimated losses on existing loans in which full
collectibility is unlikely based on management's review and evaluation of the
loan portfolio, including letters of credit, lines of credit and unused
commitments to provide financing. The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
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 by our loan review department and
regulatory examiners. A consistent, well documented loan review methodology has
been developed that includes allowances assigned to specific loans and
nonspecific allowances that are based on the factors noted in the prior
sentence. While each subsidiary bank is responsible for the adequacy of their
allowance, our independent loan review department is responsible for reviewing
this evaluation for all of our subsidiary banks to ensure consistent methodology
and overall adequacy for the Company.
Although we believe that we use the best information available to make loan loss
allowance determinations, future adjustments could be necessary if circumstances
or economic conditions differ substantially from the assumptions used in making
our initial determinations. A downturn in the economy and employment could
result in increased levels of non-performing assets and charge-offs, increased
loan loss provisions and reductions in income. Additionally, as an integral part
of their examination process, bank regulatory agencies periodically review our
allowance for loan losses. The banking agencies could require the recognition of
additions to the loan loss allowance based on their judgment of information
available to them at their time of examination.
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 the collection of interest is
doubtful.
11
The Company's policy requires measurement of the allowance for an impaired
collateral dependent loan based on the fair value of the collateral. Other loan
impairments are measured based on the present value of expected future cash
flows or the loan's observable market price.
Operating Results
- -----------------
Three-months ended June 30, 2003 and 2002
- -----------------------------------------
Net income for the second quarter of 2003 totaled $9.2 million, an increase of
$699 thousand or 8.2% for the same period last year. The earnings improvement
over the same period for the prior year resulted primarily from an increase in
the gain from student loan sales and real estate mortgage fees totaling $2.4
million for the quarter ended June 30, 2003 compared to $486 thousand for the
same period in 2002. Off-setting these increases was a decrease in the interest
margin resulting from the early prepayment and reinvestment of investment
securities. Interest rates have declined to the lowest level in 40 years which
has decreased our interest income on our interest-earning assets and likewise
decreased our cost of funds but has generally resulted in a reduced interest
margin. On a basic earnings per share basis, earnings amounted to $0.60 per
share for the second quarter of 2003 as compared to $0.55 per share for the
second quarter of 2002. Return on average assets and return on average equity
for the second quarter of 2003 amounted to 1.84% and 15.09%, respectively. For
the same periods in 2002, return on average assets and return on average equity
amounted to 1.80% and 15.73%, respectively. The decline in return on average
equity was a result of the Company's equity growing at a higher percentage than
its earnings, primarily from an increase in the unrealized gain on securities
available for sale.
Tax equivalent net interest income for the second quarter of 2003 amounted to
$20.4 million as compared to $20.8 million for the same period last year. The
decrease of $379 thousand was due to a decrease in net interest spread partially
offset by an increase in volume of interest earning assets. Average earning
assets were $1.8 billion for the second quarter of 2003 which is $109.2 million,
or 6.3% greater than the second quarter of 2002. The Company's yield on those
average earning assets declined to 5.41% for 2003 compared to 6.25% for 2002 as
the Company's experienced lower rates from the early prepayment and reinvestment
of investment securities and maturing loans. The Company was able to reprice its
interest bearing liabilities to offset some of the decline in rates on its
earning assets. The Company's net interest margin was 4.44% for the second
quarter of 2003 compared to 4.81% for the same period of 2002.
The provision for loan losses for the first quarter of 2003 totaled $226
thousand compared to $510 thousand for the same period in 2002. Gross chargeoffs
for the quarter ended June 30, 2003 totaled $347 thousand compared to $449
thousand for the same period of 2002. Recoveries of previously charged-off loans
totaling $281 thousand in the quarter ended June 30, 2003 (as compared to $201
thousand in 2002) offset the increase in chargeoffs experienced. On an
annualized basis, net chargeoffs as a percentage of average loans was 0.03% for
the second quarter of 2003 as compared to 0.09% for the same period in 2002. The
Company's allowance for loan losses totaled $11.5 million at June 30, 2003
compared to $11.1 million at June 30, 2002, the increase due primarily to an
overall increase in loans, net of the sale of student loans. As a percentage of
nonperforming loans, the Company's allowance amounted to 823.7% at June 30,
2003. As of June 30, 2003, management of the Company believes that the Company's
balance in allowance for loan losses is adequate to provide for losses existing
in its portfolio that are deemed uncollectible.
Total noninterest income for the second quarter of 2003 was $9.5 million, as
compared to $7.3 million for the same period last year. During the second
quarter, the Company sold $53 million in student loans recognizing a gain of
$1.6 million as compared to selling $8 million in loans in the second quarter of
2002 resulting in $117 thousand in gains. The Company was presented an
opportunity to receive an additional premium by accelerating the sale of student
loans that would normally have occurred ratably over the next six to eight
months. In addition, real estate mortgage fees increased to $815 thousand for
the second quarter of 2003 from $369 thousand for the same period of 2002 as the
Company's customers took advantage of decreased interest rates to refinance
their mortgages at the lowest home mortgage interest rates experienced in years.
Trust fees totaled $1.5 million for 2003, relatively flat from the previous
year. The lack of increase in trust fees is primarily a result of the depressed
equity markets. As certain trust fees are based on a percentage of the
12
market value of trust assets, the lower market valuations have resulted in lower
trust fees. Service fees on deposits increased 4.7% to $4.0 million due to an
increased number of accounts and transaction volumes. ATM fees totaled $738
thousand for the second quarter of 2003 compared to $591 thousand for the second
quarter in 2002 due to consumers increased use of debit cards, increased volume
and an increase in fees charged for non-Company customer usage.
Noninterest expense for the second quarter of 2003 amounted to $15.5 million
compared to $14.7 million for the same period in 2002, an increase of 5.7%.
Salaries and benefits expense, the Company's largest noninterest expense item,
increased 9.2% to $8.6 million in 2003 due to salary increases and the increased
cost of employee benefits. Net occupancy expense and equipment expense were
relatively flat in the second quarter of 2003 compared to the second quarter of
2002.
The Company's other expense increased only 4.3% in the second quarter of 2003
compared to the second quarter of 2002. This is a result of Company wide efforts
to curtail such expenses. We believe a key indicator of our operating efficiency
is expressed by the ratio that is calculated by dividing noninterest expense by
the sum of net interest income (on a tax equivalent basis) and noninterest
income. This ratio in effect measures the amount of funds expended to generate
revenue. Our goal is to continue to decrease the ratio, which indicates what we
believe to be a more efficiently run company. We maintained this ratio at
comparable levels of 52.11% for the second quarter of 2002 and 51.88% for the
second quarter of 2003.
Six-months ended June 30, 2003 and 2002
- ---------------------------------------
Net income for the six months of 2003 totaled $17.7 million, an increase of $970
thousand or 5.8% for the same period last year. The earnings improvement over
the same period for the prior year resulted primarily from an increase in the
gain from student loan sales and real estate mortgage fees totaling $3.3 million
for the six months ended June 30, 2003 compared to $1.1 million for the same
period in 2002. Off-setting these increases was a decrease in the interest
margin resulting from the early prepayment and reinvestment of our investment
securities. Interest rates have declined to the lowest level in 40 years which
has decreased our interest income on our interest-earning assets and likewise
decreased our cost of funds but has generally resulted in a reduced overall
interest margin. On a basic earnings per share basis, earnings amounted to $1.14
per share as compared to $1.08 per share for the six months of 2002. Return on
average assets and return on average equity for the first six months of 2003
amounted to 1.78% and 14.70%, respectively. For the same periods in 2002, return
on average assets and return on average equity amounted to 1.78% and 15.62%,
respectively. The decline in the return of average equity was primarily a result
of the Company's equity growing at a higher percentage than its earnings,
primarily from an increase in the unrealized gain on securities available for
sale.
Tax equivalent net interest income for the first six months of 2003 amounted to
$40.9 million as compared to $41.0 million for the same period last year. The
decrease of $98 thousand was due to a decreasing net interest spread partially
offset by an increase in volume of net interest earning assets. Average earning
assets were $1.8 billion for the first six months of 2003 which is $104.1
million, or 6.0% greater than the first six months of 2002. The Company's yield
on those average earning assets declined to 5.52% for 2003 compared to 6.34% for
2002 as the Company experienced lower rates from the early prepayment and
reinvestment of investment securities and maturing loans. The Company was able
to reprice its interest bearing liabilities to offset some of the decline in
rates on its earning assets. The Company's net interest margin was 4.51% for the
first six months of 2003 compared to 4.83% for the first six months of 2002.
The provision for loan losses for the first six months of 2003 totaled $736
thousand compared to $909 thousand for the same period in 2002. Gross chargeoffs
for the six months ended June 30, 2003 totaled $1.25 million compared to $883
thousand for the same period of 2002. Recoveries of previously charged-off loans
totaling $816 thousand in the six months ended June 30, 2003 (as compared to
$492 thousand in 2002) offset the increase in chargeoffs experienced in the
first six months of 2003. On an annualized basis, net chargeoffs as a percentage
of average loans was 0.09% for the first six months of 2003 as
13
compared to 0.08% for the same period in 2002. The Company's allowance for loan
losses totaled $11.5 million at June 30, 2003 compared to $11.1 million at June
30, 2002, the increase due primarily to an overall increase in loans, net of the
sale of student loans. As a percentage of nonperforming loans, the Company's
allowance amounted to 823.7% at June 30, 2003. As of June 30, 2003, management
of the Company believes that the Company's balance in allowance for loan losses
is adequate to provide for losses existing in its portfolio that are deemed
uncollectible.
Total noninterest income for the first six months of 2003 was $17.6 million, as
compared to $14.4 million for the same period last year. During the second
quarter, the Company sold $53 million in student loans recognizing a gain of
$1.6 million as compared to selling $8 million in loans in the 2002 second
quarter resulting in $117 thousand in gains. The Company was presented an
opportunity to receive an additional premium by accelerating the sale of student
loans that would normally have occurred ratably over the next six to eight
months. In addition, real estate mortgage fees increased to $1.5 million for the
first six months of 2003 from $791 thousand in the same period of 2002 as the
Company's customers took advantage of decreased interest rates to refinance
their mortgages at the lowest home mortgage interest rates experienced in years.
Trust fees totaled $2.9 million for 2003, relatively flat from the previous
year. The lack of increase in trust fees in primarily a result of the depressed
equity markets. As certain trust fees are based on a percentage of the market
value of trust assets, the lower market valuations have resulted in lower trust
fees. Service fees on deposits increased 5.9% to $7.8 million due to an
increased number of accounts and transaction volumes. ATM fees totaled $1.4
million for the first six months of 2003 compared to $1.1 million for the first
six months in 2002 due to consumer increased use of debit cards, increased
volume and an increase in fees charged for non-Company customer usage.
Noninterest expense for the first six months of 2003 amounted to $30.6 million
compared to $28.9 million for the same period in 2002, an increase of 5.9%.
Salaries and benefits expense, the Company's largest noninterest expense item,
increased 7.0% to $16.8 million in 2003 due to salary increases and the
increased cost of employee benefits. Net occupancy expense and equipment expense
were relatively flat in the first six months of 2003 compared to the first six
months of 2002.
Increased costs in legal and professional, outside service and courier expenses
were the primary cause for the increase in other expenses in 2003 over 2002. The
Company also experienced $242 thousand in losses from check fraud compared to
$152 thousand in the prior year six months. The banking industry is experiencing
more losses from fraud. The Company has increased its review procedures and
invested in new software products to combat this problem. We believe a key
indicator of our operating efficiency is expressed by the ratio that is
calculated by dividing noninterest expense by the sum of net interest income (on
a tax equivalent basis) and noninterest income. This ratio in effect measures
the amount of funds expended to generate revenue. Our goal is to continue to
decrease the ratio, which indicates what we believe to be a more efficiently run
company. We maintained this ratio at comparable levels of 52.11% for the first
six months of 2002 and 52.35% for the first six months of 2003.
Balance Sheet Review
- --------------------
Total assets at June 30, 2003 amounted to $2.028 billion as compared to $1.993
billion at December 31, 2002, and $1.911 billion at June 30, 2002. Since
December 31, 2002, loans decreased $43.1 million primarily as a result of the
student loan sales discussed above. Deposits increased $32.3 million at June 30,
2003 compared to December 31, 2002, most of which were in non interest bearing
deposits ($18.2 million) which has lowered the Company's costs of funds.
Loans at June 30, 2003, totaled $921 million as compared to $964 million at
year-end 2002 and $935 million at June 30, 2002. As compared to June 30, 2002
amounts, loans at June 30, 2003 reflects (i) a $10.8 million increase in
commercial, financial and agricultural loans; (ii) a $33.9 million increase in
real estate loans; and (iii) a $58.7 million decrease in consumer and student
loans. Investment securities at June 30, 2003, totaled $879 million as compared
to $772 million at year-end 2002 and $759 million at June 30, 2002. The net
unrealized gain in the investment portfolio at June 30, 2003, amounted to $25.4
million and had an overall tax equivalent yield of 4.93% At June 30, 2003, the
Company did not hold any
14
structured notes and management does not believe that their collateralized
mortgage obligations have an interest, credit or other risk greater than their
other investments. Total deposits at June 30, 2003, amounted to $1.744 billion
as compared to $1.712 billion at year-end 2002 and $1.648 billion at June 30,
2002. The increase in deposits at June 30, 2003 when compared to year end 2002
represents the continued movement of funds away from the equity markets to what
consumers believe to be a safer banking environment.
Non performing assets at June 30, 2003, totaled $2.8 million as compared to $4.3
million at December 31, 2002. The decrease resulted primarily from the
collection of two loans previously included in nonperforming loans and the
charge-off of a previously nonperforming loan. At 0.31% of loans plus foreclosed
assets, management considers nonperforming assets to be at a manageable level
and is unaware of any material classified credit non properly disclosed as
nonperforming.
Liquidity and Capital
- ---------------------
Liquidity is our ability to meet cash demands as they arise. Such needs can
develop from loan demand, deposit withdrawals or acquisition opportunities.
Potential obligations resulting from the issuance of standby letters of credit
and commitments to fund future borrowings to our loan customers are other
factors affecting our liquidity needs. Many of these obligations and commitments
are expected to expire without being drawn upon; therefore the total commitment
amounts do not necessarily represent future cash requirements affecting our
liquidity position. The potential need for liquidity arising from these types of
financial instruments is represented by the contractual notional amount of the
instrument. Asset liquidity is provided by cash and assets, which are readily
marketable or which will mature in the near future. Liquid assets include cash,
federal funds sold, and short-term investments in time deposits in banks.
Liquidity is also provided by access to funding sources, which includes core
depositors and correspondent banks that maintain accounts with and sell federal
funds to our subsidiary banks. Other sources of funds include our ability to
sell securities under agreement to repurchase, and an unfunded $20.0 million
line of credit established with a nonaffiliated bank which matures on June 30,
2004. We believe the line of credit will be renewed upon maturity.
Given the strong core deposit base and relatively low loan to deposit ratios
maintained at the subsidiary banks, management considers the current liquidity
position to be adequate to meet short- and long-term liquidity needs.
In addition, we anticipate that any future acquisition of financial institutions
and expansion of branch locations could also place a demand on our cash
resources, Available cash at our parent company, available dividends from
subsidiary banks, utilization of available lines of credit, and future debt or
equity offerings are expected to be the source of funding for these potential
acquisitions or expansions.
The Company's consolidated statements of cash flows are presented on page 8 of
this report. Total equity capital amounted to $251.2 million at June 30, 2003,
which was up from $238.8 million at year-end 2002 and $227.7 million at June 30,
2002. The Company's risk-based capital and leverage ratios at June 30, 2003 were
20.22% and 10.46%, respectively. The second quarter 2003 cash dividend of $0.31
per share totaled $4.8 million and represented 52.3% of second quarter earnings.
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. The Company and 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 June 30, 2003, management
15
estimates that, over the next twelve months, an upward shift of interest rates
by 150 basis points would result in an increase in projected net interest income
of 4.3% and a downward shift of interest rates by 100 basis points would result
in a reduction in projected net interest income of 3.8%. These are good faith
estimates and assume that the composition of our interest sensitive assets and
liabilities existing at June 30, 2003, will remain constant over the relevant
twelve 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 reprice 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. Since
these correlations are based on competitive and market conditions, our future
results could in management's belief, be different from the foregoing estimates,
and such results could be material.
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.
Item 4. Controls and Procedures
As of June 30, 2003, we carried out an evaluation, under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to the Securities
Exchange Act Rule 15d-15. Our management, including the principal executive
officer and principal financial officer, does not expect that our disclosure
controls and procedures will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected. Our principal executive officer and principal financial officer
have concluded, based on our evaluation of our disclosure controls and
procedures, that our disclosure controls and procedures under Rule 13a-14 (c)
and Rule 15d - 14 (c) of the Securities Exchange Act of 1934 are effective.
16
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
3.1 Articles of Incorporation, and all amendments thereto, of the
Registrant (incorporated by reference from Exhibit 1 of the
Registrant's Amendment No. 2 to Form 8-A filed on Form 8-A/A
No. 2 on November 21, 1995).
3.2 Amended and Restated Bylaws, and all amendments thereto, of the
Registrant (incorporated by reference from Exhibit 2 of the
Registrant's Amendment No. 1 to Form 8-A filed on Form 8-A/A
No. 1 on January 7, 1994).
4.1 Specimen certificate of First Financial Common Stock (incorporated
by reference from Exhibit 3 of the Registrant's Amendment No. 1 to
Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
10.1 Deferred Compensation Agreement, dated October 28, 1992, between the
Registrant and Kenneth T. Murphy (incorporated by reference from
Exhibit 10.1 of the Registrant's Form 10-K Annual Report for the year
ended December 31, 2002).
10.2 Revised Deferred Compensation Agreement, dated December 28, 1995,
between the Registrant and Kenneth T. Murphy (incorporated by
reference from Exhibit 10.2 of the Registrant's Form 10-K Annual
Report for the year ended December 31, 2002).
10.3 Executive Recognition Plan (incorporated by reference from Exhibit
10.3 of the Registrant's Form 10-K Annual Report for the year ended
December 31, 2002).
10.4 Form of Executive Recognition Agreement (incorporated by reference
from Exhibit 10.4 of the Registrant's Form 10-K Annual Report for the
year ended December 31, 2002).
10.5 1992 Incentive Stock Option Plan (incorporated by reference from
Exhibit 10.5 of the Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1998).
10.6 2002 Incentive Stock Option Plan (incorporated by reference from
Appendix A of the Registrant's Schedule 14a Definitive Proxy Statement
for the 2002 Annual Meeting of Shareholders).
10.7 Consulting Agreement dated January 1, 2003 between the Registrant and
Kenneth T. Murphy (incorporated by reference from Exhibit 10.7 of the
Registrant's Form 10-K Annual Report for the year ended December 31,
2002).
16.1 Letter regarding Change in Certifying Accountant (incorporated
by reference from Exhibit 16.1 of the Registrant's Form 8-K filed on
March 25, 2002).
21.1 Subsidiaries of the Registrant (incorporated by reference from
Exhibit 21.1 of the Registrant's Form 10-K Annual Report for the
year ended December 31, 2002).
31.1 Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer
of First Fincial Bankshares, Inc.
31.2 Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer
of First Financial Bankshares, Inc.
32.1 Section 1350 Certification of Chief Executive Officer of First
Financial Bankshares, Inc.
32.2 Section 1350 Certification of Chief Financial Officer of First
Financial Bankshares, Inc.
(b) On July 16, 2003, we furnished a report on Form 8-K relating to our
earnings release for the quarter ended June 30, 2003.
17
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 6, 2003 By:/S/ F. Scott Dueser
------------------------- -------------------------------------
F. Scott Dueser
President and Chief Executive Officer
Date: August 6, 2003 By:/S/ J. Bruce Hildebrand
------------------------- -------------------------------------
J. Bruce Hildebrand
Executive Vice President and
Chief Financial Officer
18
Exhibit 31.1
------------
Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.
I, F. Scott Deuser, President and Chief Executive Officer of First Financial
Bankshares, Inc., certify that:
1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) [Intentionally Omitted];
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 6, 2003
/S/ F. Scott Dueser
-------------------
F. Scott Dueser
President and Chief Executive Officer
19
Exhibit 31.2
------------
Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.
I, J. Bruce Hildebrand, Executive Vice President and Chief Financial Officer of
First Financial Bankshares, Inc., certify that:
1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) [Intentionally Omitted];
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 6, 2003
S/J. Bruce Hildebrand
---------------------
J. Bruce Hildebrand
Executive Vice President and Chief
Financial Officer
20
Exhibit 32.1
------------
Certification of
Chief Executive Officer
of First Financial Bankshares, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United
States code) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q")
for the quarter ended June 30, 2003 of First Financial Bankshares, Inc.
I, F. Scott Dueser, the President and Chief Executive Officer of the Issuer
certify that:
1. the Form 10-Q fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d); and
2. the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: August 6, 2003
/S/ F. Scott Dueser
-------------------
F. Scott Dueser
Chief Executive Officer
Subscribed and sworn to before me this 6th day of August 2003.
/S/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2005
21
Exhibit 32.2
------------
Certification of
Chief Financial Officer
of First Financial Bankshares, Inc.
This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United
States code) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q")
for the quarter ended June 30, 2003 of First Financial Bankshares, Inc.
I, J. Bruce Hildrebrand, the Executive Vice President and Chief Financial
Officer of the Issuer certify that:
1. the Form 10-Q fully complies with the requirements of section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or
78o(d); and
2. the information contained in the Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: August 6, 2003
/S/ J. Bruce Hildebrand
-----------------------
J. Bruce Hildebrand
Chief Financial Officer
Subscribed and sworn to before me this 6th day of August 2003.
/S/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2005
22