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 September 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
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(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 November 7, 2003:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, $10.00 par value 15,475,767
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 September
30, 2003 and 2002 and December 31, 2002, and the consolidated statements of
earnings and comprehensive earnings for the three and nine months ended
September 30, 2003 and 2002, changes in shareholders' equity for the nine months
ended September 30, 2003 and the year ended December 31, 2002, and cash flows
for the nine months ended September 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
September 30, December 31,
-----------------------------------
2003 2002 2002
--------------- ---------------- ----------------
ASSETS (Unaudited)
Cash and due from banks $ 110,524,394 $ 100,504,696 $ 108,436,645
Federal funds sold 30,750,000 52,575,000 70,000,000
--------------- ---------------- ----------------
Cash and cash equivalents 141,274,394 153,079,696 178,436,645
Interest-bearing deposits in banks 1,491,978 2,566,449 2,324,425
Investment securities:
Securities held-to-maturity (market value of $157,974,511,
$235,108,463 and $211,862,151 at September 30, 2003,
September 30, 2002 and December 31, 2002, respectively) 148,816,926 222,450,034 200,449,784
Securities available-for-sale, at fair value 751,767,671 552,984,956 571,806,629
--------------- ---------------- ----------------
Total investment securities 900,584,597 775,434,990 772,256,413
Loans 948,521,401 950,291,585 964,039,773
Less: Allowance for loan losses (11,461,925) (11,530,150) (11,218,729)
--------------- ---------------- ----------------
Net loans 937,059,476 938,761,435 952,821,044
Bank premises and equipment, net 42,844,071 40,982,215 40,605,401
Goodwill and intangible assets 24,769,421 24,610,602 24,870,788
Other assets 21,834,825 17,652,413 21,868,220
--------------- ---------------- ----------------
TOTAL ASSETS $ 2,069,858,762 $ 1,953,087,800 $ 1,993,182,936
=============== ================ ================
LIABILITIES
Noninterest-bearing deposits $ 446,795,912 $ 419,554,456 $ 425,473,353
Interest-bearing deposits 1,341,546,877 1,252,968,421 1,286,088,863
--------------- ---------------- ----------------
Total deposits 1,788,342,789 1,672,522,877 1,711,562,216
Dividends payable 4,797,333 4,325,619 4,327,374
Securities sold under agreements to repurchase 13,933,662 28,466,138 26,708,994
Other liabilities 13,696,413 9,848,932 11,816,707
--------------- ---------------- ----------------
Total liabilities 1,820,770,197 1,715,163,566 1,754,415,291
--------------- ---------------- ----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $10 par value; authorized 20,000,000 shares;
15,475,767, 12,358,910 and 12,364,201 shares issued and
outstanding at September 30, 2003, September 30, 2002
and December 31, 2002, respectively 154,757,670 123,589,100 123,642,010
Capital surplus 58,215,719 58,018,533 58,087,687
Retained earnings 27,555,147 41,423,413 45,647,522
Accumulated other comprehensive income 8,560,029 14,893,188 11,390,426
--------------- ---------------- ----------------
Total shareholders' equity 249,088,565 237,924,234 238,767,645
--------------- ---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,069,858,762 $ 1,953,087,800 $ 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 September 30, Nine Months Ended September 30,
---------------------------------- ---------------------------------
2003 2002 2003 2002
-------------- --------------- -------------- --------------
INTEREST INCOME
Interest and fees on loans $ 14,127,672 $ 15,846,423 $ 43,387,135 $ 48,253,348
Interest on investment securities:
Taxable 6,826,173 8,230,989 22,082,362 24,367,194
Exempt from federal income tax 2,156,872 1,757,725 5,658,345 5,275,357
Interest on federal funds sold and
interest-bearing deposits in banks 98,547 216,442 427,838 787,098
-------------- --------------- -------------- --------------
Total interest income 23,209,264 26,051,579 71,555,680 78,682,997
INTEREST EXPENSE
Interest-bearing deposits 4,073,260 5,750,249 13,182,232 18,909,925
Other 24,399 67,752 119,784 226,248
-------------- --------------- -------------- --------------
Total interest expense 4,097,659 5,818,001 13,302,016 19,136,173
-------------- --------------- -------------- --------------
NET INTEREST INCOME 19,111,605 20,233,578 58,253,664 59,546,824
Provision for loan losses 232,500 652,000 968,868 1,560,834
-------------- --------------- -------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,879,105 19,581,578 57,284,796 57,985,990
NONINTEREST INCOME
Trust department income 1,498,959 1,439,434 4,411,627 4,311,619
Service fees on deposit accounts 3,982,741 3,946,986 11,778,301 11,311,561
ATM fees 704,797 626,590 2,108,101 1,728,755
Real estate mortgage fees 983,525 526,091 2,483,219 1,317,250
Net gain (loss) on sale of securities 20,435 (2,883) 15,684 16,373
Net gain on sale of student loans 17,947 311,266 1,839,151 625,626
Net gain on sale of real estate and other assets 702,176 10,048 727,570 10,032
Other 945,807 931,141 3,067,137 2,865,860
-------------- --------------- -------------- --------------
Total noninterest income 8,856,387 7,788,673 26,430,790 22,187,076
NONINTEREST EXPENSE
Salaries and employee benefits 8,028,687 7,939,817 24,841,928 23,649,935
Net occupancy expense 1,004,557 1,044,037 2,968,568 3,029,660
Equipment expense 1,226,162 1,238,535 3,602,888 3,579,632
Printing, stationery & supplies 360,347 362,310 1,034,104 1,096,806
Correspondent bank service charges 367,668 367,576 1,127,328 1,106,414
Amortization of intangible assets 33,789 33,789 101,367 101,367
Other expenses 3,883,674 3,915,856 11,855,089 11,271,269
-------------- --------------- -------------- --------------
Total noninterest expense 14,904,884 14,901,920 45,531,272 43,835,083
-------------- --------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES 12,830,608 12,468,331 38,184,314 36,337,983
Income tax expense 3,716,483 3,768,124 11,399,779 10,936,915
-------------- --------------- -------------- --------------
NET EARNINGS $ 9,114,125 $ 8,700,207 $ 26,784,535 $ 25,401,068
============== =============== ============== ==============
EARNINGS PER SHARE, BASIC $ 0.59 $ 0.56 $ 1.73 $ 1.65
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.59 $ 0.56 $ 1.73 $ 1.64
DIVIDENDS PER SHARE $ 0.31 $ 0.28 $ 0.90 $ 0.80
See notes to consolidated financial statements.
-5-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
-------------- -------------- -------------- --------------
NET EARNINGS $ 9,114,125 $ 8,700,207 $ 26,784,535 $ 25,401,068
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
Change in unrealized gain on
investment securities available-for-sale (9,971,318) 8,840,003 (4,338,772) 16,587,310
Reclassification adjustment for realized
losses (gains) on investment securities
included in net earnings, before income tax (20,435) 2,883 (15,684) (16,373)
-------------- -------------- -------------- --------------
Total other items of comprehensive earnings (9,991,753) 8,842,886 (4,354,456) 16,570,937
Income tax expense related to other
items of comprehensive earnings 3,497,113 (3,095,010) 1,524,059 (5,799,828)
-------------- -------------- -------------- --------------
COMPREHENSIVE EARNINGS $ 2,619,485 $ 14,448,083 $ 23,954,138 $ 36,172,177
============== ============== ============== ==============
See notes to consolidated financial statements.
-6-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Other Comprehensive Income
------------------------
Unrealized Gain
Common Stock on Securities Minimum Total
----------------------- Capital Retained Available- Pension Shareholders'
Shares Amount Surplus Earnings 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,
$0.80 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 - - - 26,784,535 - - 26,784,535
Stock issuances 18,571 185,710 128,032 - - - 313,742
Cash dividends declared,
$0.90 per share - - - (13,946,960) - - (13,946,960)
Change in unrealized gain in
investment securities
available-for-sale,
net of related income taxes - - - - (2,830,397) - (2,830,397)
Five for four stock split in the
form of a 25% stock dividend 3,092,995 30,929,950 - (30,929,950) - - -
---------- ------------ ----------- ----------- ----------- ----------- ------------
Balances at September 30, 2003(unaudited) 15,475,767 $154,757,670 $58,215,719 $27,555,147 $10,000,312 $(1,440,283) $249,088,565
========== ============ =========== =========== =========== =========== ============
See notes to consolidated financial statements.
-7-
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Nine Months Ended September 30,
---------------------------------------
2003 2002
----------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 26,784,535 $ 25,401,068
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 3,199,936 3,221,412
Provision for loan losses 968,868 1,560,834
Premium amortization, net of discount accretion 3,940,082 3,660,305
Gain on sale of assets (2,582,405) (652,031)
Deferred federal income tax benefit (427,674) (595,790)
Decrease (increase) in other assets 832,069 (1,697,443)
Increase in other liabilities 3,831,439 2,518,456
----------------- -------------------
Total adjustments 9,762,315 8,015,743
----------------- -------------------
Net cash provided by operating activities 36,546,850 33,416,811
----------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in interest-bearing deposits in banks 832,447 (1,192,164)
Activity in available-for-sale securities:
Sales 47,202,878 2,724,931
Maturities 145,068,529 55,730,144
Purchases (382,104,021) (163,686,609)
Activity in held-to-maturity securities:
Maturities 55,590,576 70,490,816
Purchases (2,365,000) (1,769,822)
Net decrease (increase) in loans 15,745,499 (10,523,660)
Capital expenditures (5,619,005) (2,126,689)
Proceeds from sale of bank premises and equipment and other assets 1,097,014 187,687
----------------- -------------------
Net cash used in investing activities (127,551,083) (50,165,366)
----------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 21,322,559 30,147,790
Net increase (decrease) in interest-bearing deposits 55,458,014 (42,787,511)
Net (decrease) increase in securities sold under agreements to repurchase (12,775,332) 8,619,071
Proceeds from stock issuances 313,742 451,052
Dividends paid (13,477,001) (11,727,365)
----------------- -------------------
Net cash provided by (used in) financing activities 50,841,982 (15,296,963)
----------------- -------------------
Net decrease in cash and cash equivalents (37,162,251) (32,045,518)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 178,436,645 185,125,214
----------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 141,274,394 $ 153,079,696
================= ===================
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS
Interest paid $ 13,664,584 $ 20,028,463
Federal income tax paid 10,976,193 11,318,471
Assets acquired through foreclosure 905,752 559,115
Loans to finance the sale of other real estate 19,400 203,542
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
nine months ended September 30, 2003, are not necessarily indicative of the
results to be expected for the year ending December 31, 2003, 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 nine months ended September 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 September 30, 2003 and
2002, were 15,474,478 and 15,445,886 shares, respectively. The weighted average
common shares outstanding used in computing basic earnings per common share for
the nine months ended September 30, 2003 and 2002, were 15,465,858 and
15,435,581, respectively. The weighted average common shares outstanding used in
computing diluted earnings per common share for the three months ended September
30, 2003 and 2002, were 15,542,769 and 15,506,581 shares, respectively. The
weighted average common shares outstanding used in computing diluted earnings
per common share for the nine months ended September 30, 2003 and 2002, were
15,523,260 and 15,497,246, 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 nine months ended September 30, 2003 and 2002.
During the nine months ended September 30, 2003, 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 September 30, 2003.
Note 5 - New Accounting Pronouncement
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin (ARB) No. 51." The Interpretation
changes whether entities are consolidated by their sponsors and introduces a new
consolidation model which determines control and consolidation based on
potential variability in gains and losses of the entity being evaluated for
consolidation. The Interpretation was effective for the interim period beginning
after June 15, 2003 but on October 8, 2003, the FASB deferred the effective date
to the end of periods ending after December 15, 2003. The Company is evaluating
the effect of the Interpretation on its financial position and results of
operations and the effect is not expected to be significant.
Note 6 - 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 its own
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 bank regulatory 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 September 30, 2003 and 2002
- ----------------------------------------------
Net income for the third quarter of 2003 totaled $9.1 million, an increase of
$414 thousand or 4.8% 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 sale of real estate and other assets and real estate mortgage fees
which totaled $1.7 million for the quarter ended September 30, 2003 compared to
$536 thousand for the same period in 2002. Off-setting these increases were a
decrease in the interest margin resulting primarily from the early prepayment
and reinvestment of investment securities and maturing loans. 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 $0.59 per share for the third quarter of 2003
as compared to $0.56 per share for the third quarter of 2002. Return on average
assets and return on average equity for the third quarter of 2003 amounted to
1.78% and 14.69%, respectively. For the same periods in 2002, return on average
assets and return on average equity amounted to 1.80% and 14.85%, respectively.
Tax equivalent net interest income for the third quarter of 2003 amounted to
$20.2 million as compared to $21.2 million for the same period last year. The
decrease of $964 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 third quarter of 2003 which is $104.1 million,
or 6.0% greater than the third quarter of 2002. The Company's interest spread
declined to 4.00% for 2003 compared to 4.36% 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 4.35% for the third quarter of 2003 compared
to 4.83% for the same period of 2002.
The provision for loan losses for the third quarter of 2003 totaled $233
thousand compared to $652 thousand for the same period in 2002. Gross chargeoffs
for the quarter ended September 30, 2003 totaled $526 thousand compared to $413
thousand for the same period of 2002. Recoveries of previously charged-off loans
totaling $232 thousand in the quarter ended September 30, 2003 (as compared to
$171 thousand in 2002) offset the increase in chargeoffs experienced. On an
annualized basis, net chargeoffs as a percentage of average loans was 0.12% for
the third quarter of 2003 as compared to 0.10% for the same period in 2002. The
Company's allowance for loan losses totaled $11.5 million at September 30, 2003,
virtually unchanged from the balance at September 30, 2002. As a percentage of
nonperforming loans, the Company's allowance amounted to 711.1% at September 30,
2003. As of September 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 third quarter of 2003 was $8.9 million, as
compared to $7.8 million for the same period last year. During the third
quarter, the Company sold two parcels of real estate for a gross sales price of
$785,000, recognizing a gain, after netting selling costs, of $669 thousand. In
addition, real estate mortgage fees increased to $984 thousand for the third
quarter of 2003 from $526 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, up slightly from the previous year. The lack
of increase in trust fees is primarily a result of the depressed equity markets,
although slight improvement is being experienced. As 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 totaled $4.0 million for
the third quarter of 2003 compared to $3.9 million for the same period of 2002.
ATM fees totaled $705 thousand for the third quarter of 2003 compared to $627
thousand for the third quarter in 2002 due to consumers increased use of debit
cards, increased volume and an increase in fees charged for non-Company customer
usage of ATMs.
12
Noninterest expense for the third quarter of 2003 amounted to $14.9 million,
virtually unchanged from the same period in 2002. Salaries and benefits expense,
the Company's largest noninterest expense item, increased 1.1% to $8.0 million
in 2003. Net occupancy expense and equipment expense were relatively flat in the
third quarter of 2003 compared to the third quarter of 2002.
The Company's other expense decreased $32 thousand in the third quarter of 2003
compared to the third 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 decreased this ratio from
51.44% for the third quarter of 2002 to 51.27% for the third quarter of 2003.
Nine-months ended September 30, 2003 and 2002
- ---------------------------------------------
Net income for the nine months of 2003 totaled $26.8 million, an increase of
$1.4 million or 5.5% 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, gain from sale of real estate and other assets
and real estate mortgage fees all of which totaled $5.0 million for the nine
months ended September 30, 2003 compared to $2.0 million for the same period in
2002. Off-setting these increases were a decrease in the interest margin
resulting primarily from the early prepayment and reinvestment of our investment
securities and maturing loans. Interest rates remain at 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 $1.73 per share as compared to $1.65 per share for the nine months of 2002.
Return on average assets and return on average equity for the first nine 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 1.79%
and 15.22%, respectively.
Tax equivalent net interest income for the first nine months of 2003 amounted to
$61.1 million as compared to $62.3 million for the same period last year. The
decrease of $1.2 million was due to a decreasing net interest spread partially
offset by an increase in volume of net interest earning assets. Average earning
assets were $1.9 billion for the first nine months of 2003 which is $108.0
million, or 6.1% greater than the first nine months of 2002. The Company's
interest spread declined to 4.00% for 2003 compared to 4.19% 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 4.38% for the first nine
months of 2003 compared to 4.74% for the first nine months of 2002.
The provision for loan losses for the first nine months of 2003 totaled $969
thousand compared to $1.6 million for the same period in 2002. Gross chargeoffs
for the nine months ended September 30, 2003 totaled $1.8 million compared to
$1.3 million for the same period of 2002. Recoveries of previously charged-off
loans totaling $1.0 million in the nine months ended September 30, 2003 (as
compared to $663 thousand in 2002) offset the increase in chargeoffs experienced
in the first nine months of 2003. On an annualized basis, net chargeoffs as a
percentage of average loans was 0.10% for the first nine months 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 September 30, 2003, virtually unchanged from the
balance at September 30, 2002. As a percentage of nonperforming loans, the
Company's allowance amounted to 711.1% at September 30, 2003. As of September
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 nine months of 2003 was $26.4 million, as
compared to $22.2 million for the same period last year. During the nine months
ended September 30, 2003, the Company sold $70.4 million in student loans
recognizing gains of $1.8 million as compared to selling $36.1 million in loans
13
in the 2002 third quarter resulting in $626 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 throughout the
year. In addition, real estate mortgage fees increased to $2.5 million for the
first nine months of 2003 from $1.3 million 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.
The Company sold two parcels of real estate during the nine months ended
September 30, 2003 for a gross sales price of $785,000, recognizing a gain of
$669,000, after netting selling costs. Trust fees totaled $4.4 million for the
nine months ended 2003, relatively flat from the previous year. The lack of
increase in trust fees in primarily a result of the depressed equity markets,
although slight improvement is being experienced. As 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 4.1% to $11.8
million due to an increased transaction volume. ATM fees totaled $2.1 million
for the first nine months of 2003 compared to $1.7 million for the first nine
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 nine months of 2003 amounted to $45.5 million
compared to $43.8 million for the same period in 2002, an increase of only 3.9%.
Salaries and benefits expense, the Company's largest noninterest expense item,
increased 5.0% to $24.8 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 nine months of 2003 compared to the first nine
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 $289 thousand in losses from check fraud compared to
$328 thousand in the prior year nine months. The banking industry is
experiencing more losses from check 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 51.88%
for the first nine months of 2002 and 51.99% for the first nine months of 2003.
Balance Sheet Review
- --------------------
Total assets at September 30, 2003 amounted to $2.070 billion as compared to
$1.993 billion at December 31, 2002, and $1.953 billion at September 30, 2002.
Since December 31, 2002, loans decreased $15.5 million primarily as a result of
the student loan sales referenced above. Deposits increased $76.8 million at
September 30, 2003 compared to December 31, 2002, most of which were in interest
bearing deposits ($55.5 million).
Loans at September 30, 2003, totaled $948.5 million as compared to $964.0
million at year-end 2002 and $950.3 million at September 30, 2002. As compared
to September 30, 2002 amounts, loans at September 30, 2003 reflects (i) a $9.9
million increase in commercial, financial and agricultural loans; (ii) a $34.3
million increase in real estate loans; and (iii) a $46.4 million decrease in
consumer and student loans. Investment securities at September 30, 2003, totaled
$900.6 million as compared to $772.3 million at year-end 2002 and $775.4 million
at September 30, 2002. The net unrealized gain net of income tax in the
investment portfolio at September 30, 2003, amounted to $10.0 million and had an
overall tax equivalent yield of 4.64%. The decrease in the net unrealized gain
from December 31, 2002 and from June 30, 2003 to September 30, 2003, is a result
of the strengthening of the fixed income bond market in the United States. At
September 30, 2003, the Company did not hold any 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 September 30, 2003, amounted to $1.788 billion as compared to $1.712
billion at year-end 2002 and $1.673 billion at September 30, 2002. The increase
in deposits at September 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 commercial banking environment.
14
Non performing assets at September 30, 2003, totaled $3.0 million as compared to
$4.3 million at December 31, 2002. The decrease resulted primarily from the
collection of certain loans previously included in nonperforming loans and the
charge-off of a certain previously nonperforming loan. At 0.32% 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.
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 $249.1 million at September 30,
2003, which was up from $238.8 million at year-end 2002 and $237.9 million at
September 30, 2002. The Company's risk-based capital and leverage ratios at
September 30, 2003 were 20.17% and 10.55%, respectively. The third quarter 2003
cash dividend of $0.31 per share totaled $4.8 million and represented 52.6% of
third 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 have 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, 2003, management
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 1.4% and a downward shift of interest rates by 100 basis points would result
in a reduction in projected net interest income of 3.6%. These are good faith
estimates and assume that the composition of our interest sensitive assets and
liabilities existing at September 30, 2003, will remain constant over the
relevant twelve month measurement period and that changes in market interest
15
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 September 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 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 October 16, 2003, we furnished a report on Form 8-K relating to our
earnings release for the quarter ended September 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: November 7, 2003 By:/S/ F. Scott Dueser
---------------- -------------------------------------
F. Scott Dueser
President and Chief Executive Officer
Date: November 7, 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: November 7, 2003
/S/ F. Scott Dueser
-------------------
F. Scott Dueser
President and Chief Executive Officer
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: November 7, 2003
/S/J. Bruce Hildebrand
----------------------
J. Bruce Hildebrand
Executive Vice President and Chief Financial Officer
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 September 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: November 7, 2003
/S/ F. Scott Dueser
-------------------
F. Scott Dueser
Chief Executive Officer
Subscribed and sworn to before me this 28th day of October 2003.
/S/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2005
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 September 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: November 7, 2003
/S/ J. Bruce Hildebrand
-----------------------
J. Bruce Hildebrand
Chief Financial Officer
Subscribed and sworn to before me this 28th day of October 2003.
/S/ Gaila N. Kilpatrick
- -----------------------
Gaila N. Kilpatrick
Notary Public
My commission expires: April 15, 2005