-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P2HYa3em0y+CJKY9Q2D74oNO/mCLdHuI58mVyB2gr23cJ7213IiDrG3qdUTrqFOW C7K5Krcgokxp4sRKpcqFDQ== 0000036029-02-000014.txt : 20020814 0000036029-02-000014.hdr.sgml : 20020814 20020814095225 ACCESSION NUMBER: 0000036029-02-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL BANKSHARES INC CENTRAL INDEX KEY: 0000036029 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 750944023 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07674 FILM NUMBER: 02731939 BUSINESS ADDRESS: STREET 1: 400 PINE STREET STREET 2: STE 600 CITY: ABILENE STATE: TX ZIP: 79601-0701 BUSINESS PHONE: 9156757155 10-Q 1 tenq6-02.txt FIRST FINANCIAL BANKSHARES - JUNE 30, 2002 - 10Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-7674 ------ FIRST FINANCIAL BANKSHARES, INC. -------------------------------- (Exact name of registrant as Specified in its charter) Texas 75-0944023 - --------------------------------------------- --------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 400 Pine Street, Abilene, Texas 79601 ------------------------------------- (Address of principal executive offices) (Zip Code) (915)627-7155 ------------- (Registrant's telephone number, including area code) NO CHANGE --------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 2, 2002. Class Number of Shares Outstanding ----- ---------------------------- Common Stock, Par Value $10.00 Per Share 12,355,782 TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item Page ---- ---- 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements 3 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 3. Quantitative and Qualitative Disclosures About Market Risk 12 Signatures 13 PART II OTHER INFORMATION 6. Exhibits 14 -2- PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. The consolidated balance sheets of First Financial Bankshares, Inc. at June 30, 2002 and 2001, and December 31, 2001, and the consolidated statements of earnings and comprehensive earnings for the three months and six months ended June 30, 2002 and 2001, changes in shareholders' equity for the year ended December 31, 2001 and six months ended June 30, 2002, and cash flows for the six months ended June 30, 2002 and 2001, follow on pages 4 through 8. -3- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, ------------------------------------ Unaudited ------------------------------------ December 31, 2002 2001 2001 ---------------- ---------------- ----------------- ASSETS Cash and due from banks $ 93,908,407 $ 78,397,631 $ 112,150,214 Federal funds sold 46,450,000 74,125,000 72,975,000 ---------------- ---------------- ----------------- Cash and cash equivalents 140,358,407 152,522,631 185,125,214 Interest-bearing deposits in banks 21,071 304,455 1,374,285 Investment securities: Securities held-to-maturity (market value of $250,770,960 and $338,568,090 at June 30, 2002 and 2001, respectively; $298,569,794 at December 31, 2001) 241,270,327 321,058,211 290,674,490 Securities available-for-sale, at market value 514,055,402 339,525,470 431,019,205 ---------------- ---------------- ----------------- Total investment securities 755,325,729 660,583,681 721,693,695 Loans 935,174,382 862,786,862 940,130,975 Less: Allowance for loan losses 11,119,945 9,672,505 10,602,419 ---------------- ---------------- ----------------- Net loans 924,054,437 853,114,357 929,528,556 Bank premises and equipment, net 41,355,266 40,754,291 42,012,431 Goodwill and intangible assets 24,644,391 17,694,621 24,711,969 Other assets 24,781,515 26,384,417 25,247,980 ---------------- ---------------- ----------------- TOTAL ASSETS $ 1,910,540,816 $ 1,751,358,453 $ 1,929,694,130 ================ ================ ================= LIABILITIES Noninterest-bearing deposits $ 398,219,497 $ 330,407,818 $ 389,406,666 Interest-bearing deposits 1,249,649,814 1,188,058,484 1,295,755,932 ---------------- ---------------- ----------------- Total deposits 1,647,869,311 1,518,466,302 1,685,162,598 Dividends payable 4,323,622 3,695,865 3,699,976 Securities sold under agreements to repurchase 22,349,997 12,586,776 19,847,067 Other liabilities 8,282,439 9,961,101 7,330,476 ---------------- ---------------- ----------------- Total liabilities 1,682,825,369 1,544,710,044 1,716,040,117 ---------------- ---------------- ----------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock - $10 par value; authorized 20,000,000 shares; 12,354,111 amd 12,319,549 issued and outstanding at June 30, 2002 and 2001, respectively; 12,333,252 issued and outstanding at December 31, 2001 123,541,110 123,195,490 123,332,520 Capital surplus 57,980,651 57,721,279 57,824,061 Retained earnings 37,048,374 20,708,837 28,375,353 Unrealized gain on investment securities available-for-sale, net 9,145,312 5,022,803 4,122,079 ---------------- ---------------- ----------------- Total shareholders' equity 227,715,447 206,648,409 213,654,013 ---------------- ---------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,910,540,816 $ 1,751,358,453 $ 1,929,694,130 ================ ================ =================
See notes to consolidated financial statements. -4- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------------- ----------------------------------- 2002 2001 2002 2001 --------------- --------------- --------------- --------------- INTEREST INCOME Interest and fees on loans $ 16,205,273 $ 18,792,018 $ 32,721,285 $ 38,367,324 Interest on investment securities: Taxable 8,110,070 7,759,393 16,031,768 15,566,024 Exempt from federal income tax 1,786,690 1,540,063 3,517,634 3,018,344 Interest on federal funds sold and interest-bearing deposits in banks 312,244 1,120,820 570,653 2,207,112 --------------- --------------- --------------- --------------- Total interest income 26,414,277 29,212,294 52,841,340 59,158,804 INTEREST EXPENSE Interest-bearing deposits 6,174,507 11,531,888 13,159,675 24,242,985 Other 71,196 247,051 158,496 562,571 --------------- --------------- --------------- --------------- Total interest expense 6,245,703 11,778,939 13,318,171 24,805,556 --------------- --------------- --------------- --------------- NET INTEREST INCOME 20,168,574 17,433,355 39,523,169 34,353,248 Provision for loan losses 510,334 497,334 908,834 863,717 --------------- --------------- --------------- --------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,658,240 16,936,021 38,614,335 33,489,531 NONINTEREST INCOME Trust department income 1,448,115 1,478,317 2,872,185 2,995,365 Service fees on deposit accounts 3,807,718 3,741,899 7,364,577 7,248,672 ATM fees 591,208 478,447 1,102,212 929,691 Real estate mortgage fees 369,130 497,458 791,158 769,854 Net gain on securities transactions 19,256 12,763 19,256 67,612 Other 960,049 852,343 2,016,615 1,746,716 --------------- --------------- --------------- --------------- Total noninterest income 7,195,476 7,061,227 14,166,003 13,757,910 NONINTEREST EXPENSE Salaries and employee benefits 7,870,706 6,985,845 15,710,117 13,872,049 Net occupancy expense 1,031,438 953,849 1,985,623 1,890,423 Equipment expense 1,156,209 1,058,845 2,341,096 2,139,121 Printing, stationery & supplies 439,231 243,583 860,661 470,103 Correspondent bank service charges 375,845 329,584 738,837 633,409 Amortization of intangible assets 33,789 410,437 67,578 820,778 Other expenses 3,769,600 3,526,259 7,207,223 6,833,285 --------------- --------------- --------------- --------------- Total noninterest expense 14,676,818 13,508,402 28,911,135 26,659,168 --------------- --------------- --------------- --------------- EARNINGS BEFORE INCOME TAXES 12,176,898 10,488,846 23,869,203 20,588,273 Income tax expense 3,655,140 3,201,825 7,168,792 6,297,502 --------------- --------------- --------------- --------------- NET EARNINGS $ 8,521,758 $ 7,287,021 $ 16,700,411 $ 14,290,771 =============== =============== =============== =============== EARNINGS PER SHARE, BASIC (1) $ 0.69 $ 0.59 $ 1.35 $ 1.16 EARNINGS PER SHARE, ASSUMING DILUTION (1) $ 0.69 $ 0.59 $ 1.35 $ 1.15 DIVIDENDS PER SHARE (1) $ 0.35 $ 0.30 $ 0.65 $ 0.56 (1) Per share amounts are adjusted to reflect 25% stock dividend issued June 1, 2001.
See notes to consolidated financial statements. -5- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- NET EARNINGS $ 8,521,758 $ 7,287,021 $ 16,700,411 $ 14,290,771 OTHER ITEMS OF COMPREHENSIVE EARNINGS Change in unrealized gain on investment securities available-for-sale, before income taxes 9,429,036 1,756,146 7,747,307 5,302,029 Reclassification adjustment for realized gains on investment in securities included in net earnings, before income taxes (19,256) (12,763) (19,256) (67,612) ------------- ------------- ------------- ------------- Total other items of comprehensive earnings, before tax 9,409,780 1,743,383 7,728,051 5,234,417 Income tax expense related to other items of comprehensive earnings 3,293,423 610,184 2,704,818 1,832,046 ------------- ------------- ------------- ------------- COMPREHENSIVE EARNINGS $ 14,638,115 $ 8,420,220 $ 21,723,644 $ 17,693,142 ============= ============= ============= =============
See notes to consolidated financial statements. -6- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized Gain on Investment Common Stock Securities Total ------------------------- Capital Retained Treasury Available Shareholders' Shares Amount Surplus Earnings Stock,at cost For Sale,Net Equity ---------- ------------- ------------ ------------ ----------- ----------- ------------- Balances at December 31, 2000 9,983,002 $ 99,830,020 $ 60,592,310 $ 38,003,195 $(3,925,069) $ 1,620,432 $ 196,120,888 Net earnings - - - 29,354,505 - - 29,354,505 Stock split-up, effected in the form of a 25% stock dividend 2,461,770 24,617,700 - (24,617,700) - - - Stock issuances 24,480 244,800 111,870 - - - 356,670 Cash dividends declared, $1.16 per share - - - (14,364,647) - - (14,364,647) Acquisition of treasury stock - - - - (315,050) - (315,050) Retirement of treasury stock (136,000) (1,360,000) (2,880,119) - 4,240,119 - - Change in unrealized gain on investment securities available-for-sale, net - - - - - 2,501,647 2,501,647 ---------- ------------- ------------ ------------ ----------- ----------- ------------- 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 - - - 16,700,411 - - 16,700,411 Stock issuances 20,859 208,590 156,590 - - - 365,180 Cash dividends declared, $.65 per share - - - (8,027,390) - - (8,027,390) Change in unrealized gain on investment securities available-for-sale, net - - - - - 5,023,233 5,023,233 ---------- ------------- ------------ ------------ ----------- ----------- ------------- Balances at June 30,2002(unaudited) 12,354,111 $ 123,541,110 $ 57,980,651 $ 37,048,374 $ - $ 9,145,312 $ 227,715,447 ========== ============= ============ ============ =========== =========== =============
See notes to consolidated financial statements. -7- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Six Months Ended June 30, ------------------------------------ 2002 2001 ----------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 16,700,411 $ 14,290,771 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,151,454 2,781,694 Provision for loan losses 908,834 863,717 Premium amortization, net of discount accretion 2,037,782 397,684 Loss (gain) on sale of assets 75,290 (53,909) Deferred federal income tax benefit (478,789) (795,754) (Increase) decrease in other assets (1,610,784) 1,428,986 Increase in other liabilities 951,963 1,562,374 ----------------- ---------------- Total adjustments 4,035,750 6,184,792 ----------------- ---------------- Net cash provided by operating activities 20,736,161 20,475,563 CASH FLOWS FROM INVESTING ACTIVITIES Net decrease (increase) in interest-bearing deposits in banks 1,353,214 (200,117) Activity in available-for-sale securities: Sales 2,213,004 12,629,496 Maturities 32,247,526 46,790,210 Purchases (113,749,043) (122,185,407) Activity in held-to-maturity securities: Maturities 52,865,349 121,471,592 Purchases (1,494,822) (60,132,509) Net (increase) decrease in loans 4,317,452 (4,615,481) Capital expenditures (1,462,272) (2,708,673) Proceeds from sale of assets 35,545 178,522 ----------------- ---------------- Net cash used in investing activities (23,674,047) (8,772,367) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in noninterest-bearing deposits 8,812,831 (5,869,115) Net (decrease) increase in interest-bearing deposits (46,106,118) 4,461,717 Net incresase (decrease) in securities sold under agreements to repurchase 2,502,930 (13,577,583) Common stock transactions: Acquisition of treasury stock - (315,050) Proceeds from stock issuances 365,180 116,858 Dividends paid (7,403,744) (6,528,104) ----------------- ---------------- Net cash used in financing activities (41,828,921) (21,711,277) ----------------- ---------------- Net decrease in cash and cash equivalents (44,766,807) (10,008,081) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 185,125,214 162,530,712 ----------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 140,358,407 $ 152,522,631 ================= ================ SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS Interest paid $ 13,811,522 $ 24,387,048 Federal income tax paid 7,413,227 6,378,823 Assets acquired through foreclosure 424,358 54,614 Loans to finance the sale of other real estate 176,526 - Retirement of treasury stock - 4,240,119
See notes to consolidated financial statements. -8- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation In the opinion of management, the unaudited consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company's financial position and unaudited results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the three months and six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ended December 31, 2002. Note 2 - Earnings Per Share Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the period. In computing diluted earnings per common share for the three months and six months ended June 30, 2002 and 2001, the Company assumes that all outstanding options to purchase common stock have been exercised at the beginning of the year (or time of issuance, if later). The dilutive effect of the outstanding options is reflected by application of the treasury stock method, whereby, the proceeds from the exercised options are assumed to be used to purchase common stock at the average market price during the respective period. The weighted average common shares outstanding used in computing basic earnings per common share for the quarters ended June 30, 2002 and 2001, were 12,348,153 and 12,319,900 shares, respectively. The weighted average common shares outstanding used in computing basic earnings per common share for the six-months periods ended June 30, 2002 and 2001, were 12,344,275 and 12,312,706 shares, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the quarters ended June 30, 2002 and 2001, were ,12,404,898 and 12,363,974 shares, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the six-month periods ended June 30, 2002 and 2001, were 12,401,632 and 12,366,251shares, respectively. Note 3 - Goodwill and Other Intangible Assets - Adoption of Statement 142 In June 2001, the Financial Accounting Standards Board issued Statement on Financial Accounting (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that goodwill no longer be amortized, but instead be reviewed for impairment. The Company adopted SFAS 142 on January 1, 2002 and discontinued amortization on goodwill amounting to $23,765,896. The Company conducted its initial impairment test in the three months ending June 30, 2002. There was no reduction of recorded goodwill resulting from the impairment test. A reconciliation adjusting comparative net earnings and earnings per share for the three months and six months ended June 30, 2002 and 2001, follows:
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ------------------------------ 2002 2001 2002 2001 ------------ ----------- ------------ ------------ Reported net earnings $ 8,521,758 $ 7,287,021 $ 16,700,411 $ 14,290,771 Add back: Goodwill amortization, net of tax benefit - 305,436 - 610,778 ------------ ----------- ------------ ------------ Adjusted net earnings $ 8,521,758 $ 7,592,457 $ 16,700,411 $ 14,901,549 ============ =========== ============ ============ Basic earnings per share: Reported net earnings $ .69 $ .59 $ 1.35 $ 1.16 Goodwill amortization, net of tax benefit - .03 - .05 ------------ ----------- ------------ ------------ Adjusted net earnings $ .69 $ .62 $ 1.35 $ 1.21 ============ =========== ============ ============ Earnings per share, assuming dilution: Reported net earnings $ .69 $ .59 $ 1.35 $ 1.15 Goodwill amortization, net of tax benefit - .02 - .05 ------------ ----------- ------------ ------------ Adjusted net earnings $ .69 $ .61 $ 1.35 $ 1.20 ============ =========== ============ ============
-9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - ----------------- For the six months ended June 30, 2002, the Company's net income amounted to $16.7 million, or $1.35 per basic share. For the same period last year, net income amounted to $14.3 million, or $1.16 per basic share. Return on average assets and return on average equity for the six months ended June 30, 2002, amounted to 1.78 percent and 15.62 percent, respectively. The Company's return on average assets and return on average equity for the same period last year amounted to 1.64 percent and 14.48 percent, respectively. Net income for the second quarter 2002 totaled $8.5 million, or $0.69 per basic share, as compared to $7.3 million, or $0.59 per basic share, earned in the second quarter 2001. Return on average assets for the second quarter 2002 amounted to 1.80 percent as compared to 1.65 for the second quarter 2001. Return on average equity for the second quarter 2002 amounted to 15.73 percent as compared to 14.47 percent for the second quarter 2001. Net interest income on a tax-equivalent basis for the six months ended June 30, 2002, totaled $41.3 million as compared to $35.8 million for the same period last year. Net interest income on a tax-equivalent basis for the second quarter of 2002 totaled $21.1 million as compared to $18.2 million for the second quarter 2001. The increases in tax-equivalent net interest income for 2002 resulted from growth in average earning assets, primarily investment securities and loans, coupled with improved net interest margins. Earning assets averaged $1.725 billion for the six months ended June 30, 2002, and were $122.9 million above the same period last year. Earning assets averaged $1.735 billion for second quarter 2002 and were $117.1 million above the second quarter 2001. When compared to the same periods last year, approximately $72.0 million of the growth in earning assets is attributable to the cash purchase acquisition finalized in July 2001.The net interest margin amounted to 4.83 percent for the first six months of 2002 as compared to 4.51 percent for the same period last year. For the second quarter 2002, the net interest margin was 4.88 percent, as compared to 4.51 percent for the first quarter 2001. The improved net interest margins for 2002 resulted primarily from the re-pricing of interest bearing liabilities following the rapid decrease in interest rates during the first six months of 2001. For the six months ended June 30, 2002, the provision for loan losses amounted to $909 thousand as compared to $864 thousand for the same period last year. Net charge offs for the six months ended June 30, 2002, totaled $391 thousand as compared to $1.1 million for the same period last year. Net charge offs on an annualized basis amounted to .09 percent of average loans as compared to .25 percent for the first six months last year. At June 30, 2002, the allowance for loan losses was 1.19 percent of loans and was considered by Management to be adequate. For the second quarter 2002, the provision for loan losses was $510 thousand as compared to $497 thousand for the second quarter 2001. Net charge offs for the second quarter 2002 totaled $248 thousand as compared to $400 thousand for same quarter last year. Total noninterest income for the six months ended June 30, 2002, amounted to $14.2 million as compared to $13.8 million for the same period last year. Trust fees for the first six months of 2002 totaled $2.9 million as compared to $3.0 million for the same period last year. Lower trust fees for 2002 reflect lower market values of trust asset as compared to the same period last year. Service charges on deposit accounts for the six months ended June 30, 2002, totaled $7.4 million as compared to $7.3 million for the same period last year. The modest increase for 2002 is attributable to a lower volume of insufficient funds items when compared to the same period last year. ATM fees which includes fees earned on check card transactions totaled $1.1 million for the first six months as compared to $930 thousand for the same period last year. The increase for 2002 is attributable to an increase in both the number of cardholders and an increase in the volume of transactions. For the six months ended June 30, 2002 real estate mortgage fees totaled $791 thousand as compared to $770 thousand for the same period last year. The modest increase for 2002 reflects a lower growth in the volume of new loan and refinance transactions during the first six months of 2002 as compared to the same period last year. Other noninterest income for the first six months of 2002 totaled $2.0 million as compared to $1.7 million for the first six months ended June 30, 2001. Other noninterest income for 2002 includes $325 thousand, which represents check printing fees that, in periods prior to 2002, were recorded as a reduction in printing and supplies expense. -10- This change in classification for check printing fees was made in response to a change in bank regulatory financial reporting guidelines. Noninterest income for the second quarter 2002 amounted to $7.2 million as compared to $7.1 million for the same period last year. The various factors contributing to the second quarter 2002 variances from the second quarter 2001 were, for the most part, the factors contributing to changes in the year-to-date June 30, 2002, amounts as compared to the first six months last year. Noninterest expense for the six months ended June 30, 2002, totaled $28.9 million as compared to $26.7 million for the same period last year. Salaries and employee benefits expense for first six months of 2002 totaled $15.7 million, which was $1.8 million above the same period last year. The cash purchase acquisition finalized in July 2001 accounted for $622 thousand of the increase over the 2001 amount with the balance attributable primarily to salary increases and higher profit sharing and pension expense. Combined occupancy and equipment expense for the first six months of 2002 totaled $4.3million, which was $297 thousand above the combined amounts for the same period last year. When compared to the same period last year, the higher occupancy and equipment expense for the first six months of 2002 relates primarily to the cash purchase acquisition finalized in July 2001. Printing and supplies expense for the first six months of 2002 totaled $861 thousand and was $391 thousand above the same period last year. The increase for 2002 was due primarily to $325 thousand in check printing fees included in noninterest income in 2002 versus as a reduction in expense for prior years. As compared to the same period last year, intangible asset amortization expense for the six months ended June 30, 2002, was down $753 thousand due to a change in accounting principles which was effective January 1, 2002. Other noninterest expense for the first six months of 2002 totaled $7.2 million as compared to $6.8 million for the same period last year. The increase was attributable primarily to higher ATM processing fees and higher examination fees and audit and accounting fees, which were up $130 thousand and $80 thousand, respectively, from amounts recorded for the first six months of 2001. Noninterest expense for the second quarter 2002 totaled $14.7 million, an increase of $1.2 million over the $13.5 million reported for the second quarter 2001. The second quarter 2002 increase over the same quarter last year was attributable primarily to: (i) an $885 thousand increase for salaries and benefits; (ii) a $175 thousand increase in equipment and occupancy expense; (iii) a $196 thousand increase for printing and supplies expense; (iv) a $376 thousand decrease for amortization of intangibles; (v) an $87 thousand increase in ATM transaction processing expense (included in other noninterest expense); and (vi) a $42 thousand increase in examination fees and audit and accounting fees (included in other noninterest expense). The efficiency ratio (noninterest expense as a percent of net interest income plus noninterest income) is a key indicator of how well noninterest expense is controlled. The Company's 52.11 percent efficiency ratio for the first six months of 2002 reflected improvement when compared to 53.83 percent for the same period last year. Balance Sheet Review - -------------------- Total assets at June 30, 2002, totaled $1.911 billion as compared to $1.930 billion at December 31, 2001, and $1.751 billion at June 30, 2001. The balance sheets presented reflect normal recurring adjustments and accruals. Loans at June 30, 2002, totaled $935 million as compared to $940 million at year-end 2001 and $863 million at June 30, 2001. As compared to year-end 2001 amounts, loans at June 30, 2002, reflect (i) a $1.4 million increase in commercial loans; (ii) a $9.4 million increase in real estate loans; and (iii) a $15.8 million decrease in agricultural loans. The decrease in loans during the first half of 2002 reflects pay-downs on several significant commercial loan relationships coupled with seasonal pay-downs from loans to farm and cattle operations. Investment securities at June 30, 2002, totaled $755 million as compared to $722 million at year-end 2001 and $661 million at June 30, 2001. The net unrealized gain in the investment portfolio at June30, 2002, amounted to $23.6 million and had an overall yield of 5.90 percent. At June 30, 2002, the Company did not hold any structured notes or CMOs that entail higher risks than standard mortgage-backed securities. Total deposits at June 30, 2002, amounted to $1.648 billion as compared to $1.685 billion at year-end 2001 and $1.518 billion at June 30, 2001. As compared to year-end 2001 amounts, -11- noninterest-bearing demand deposits increased $8.8 million and interest-bearing deposits decreased $46.1 million which reflects the Company's continued strategy not to match higher market rates on certain interest-bearing deposit products. Nonperforming assets at June 30, 2002, totaled $5.1 million as compared to $4.8 million at December 31, 2001. The increase resulted primarily from a $309 thousand increase in nonaccrual loans. At .55 percent of loans plus foreclosed assets, Management considers nonperforming assets to be at a manageable level and is unaware of any material classified credit not properly disclosed as nonperforming. Liquidity and Capital - --------------------- The Company's consolidated statements of cash flows are presented on page 8 of this report. At June 30, 2002, the parent company had no debt outstanding under its $25 million line of credit with an unaffiliated financial institution. Total equity capital amounted to $227.7 million at June 30, 2002, which was up from $213.6 million at year-end 2001 and $206.6 million at June 30, 2001. The Company's risk-based capital and leverage ratios at June 30, 2002, were 19.26 percent and 10.37 percent, respectively. The second quarter 2002 cash dividend of $0.35 per share totaled $4.3 million and represented 50.6 percent of second quarter earnings. On July 23, 2002, the Company declared a $0.35 per share cash dividend payable October 1, 2002. Interest Rate Risk - ------------------ Interest rate risk results when the maturity or re-pricing intervals of interest-earning assets and interest-bearing liabilities are different. The Company's exposure to interest rate risk is managed primarily through the Company's strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities which generate favorable earnings, while limiting the potential negative effects of changes in market interest rates. The Company uses no off-balance-sheet financial instruments to manage interest rate risk. Each subsidiary bank has an asset/liability committee, which monitors interest rate risk and compliance with investment policies. Interest-sensitivity gap and simulation analysis are among the ways that the subsidiary banks track interest rate risk. As of June 30, 2002, Management estimates that, over the next 12 months, an upward shift of interest rates by 150 basis points would result in an increase of projected net interest income of 3.00 percent and a downward shift of interest rates by 150 basis points would result in a reduction in projected net interest income of 6.89 percent. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at June 30, 2002, will remain constant over the relevant 12 month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. In Management's belief, these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities re-price at different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, our future results would, in Management's belief, be different from the foregoing estimates, and such results could be material. 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. -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST FINANCIAL BANKSHARES, INC. Date: August 14, 2002 By:/S/ F. Scott Dueser --------------- -------------------------------------- F. Scott Dueser President and Chief Executive Officer Date: August 14, 2002 By:/S/ Curtis R. Harvey --------------- -------------------------------------- Curtis R. Harvey Executive Vice President and Chief Financial Officer -13- PART II OTHER INFORMATION Item 6. Exhibits The following exhibits are filed as part of this report: 99.1 Certification of Chief Executive Officer of First Financial Bankshares, Inc. 99.2 Certification of Chief Financial Officer of First Financial Bankshares, Inc. -14- Exhibit 99.1 ------------ 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 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended June 30, 2002 of First Financial Bankshares, Inc. (the "Issuer"). I, F. Scott Dueser, the President and Chief Executive Officerof the Issuer certify that: (i) 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 (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: August 14, 2002 /S/ F. Scott Dueser -------------------- Name: F. Scott Dueser Title: President and Chief Executive Officer Subscribed and sworn to before me this 14th. day of August, 2002. /S/ Gaila N. Kilpatrick - ----------------------- Name: Gaila N. Kilpatrick ------------------- Title: Notary Public My commission expires: April 15, 2005 Exhibit 99.2 ------------ 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 and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended June 30, 2002 of First Financial Bankshares, Inc. (the "Issuer"). I, Curtis R. Harvey, the Executive Vice President and Chief Financial Officer of the Issuer certify that : (i) 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 (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: August 14, 2002 /S/ Curtis R. Harvey -------------------- Name: Curtis R. Harvey Title: Executive Vice President and CFO Subscribed and sworn to before me this 14th. day of August, 2002. /S/ Gaila N. Kilpatrick - ----------------------- Name: Gaila N. Kilpatrick ------------------- Title: Notary Public My commission expires: April 15, 2005 -----END PRIVACY-ENHANCED MESSAGE-----