-----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, NC1ra7M9ZXxLM2fq5b3BbrnWR3VBn6WbMtN56Lny+tPtciAf4ZDIpxhMj6ElZgLS p97qL2SVerDqkEzbAR2k2A== 0000036029-02-000018.txt : 20021113 0000036029-02-000018.hdr.sgml : 20021113 20021113100930 ACCESSION NUMBER: 0000036029-02-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 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: 02818652 BUSINESS ADDRESS: STREET 1: 400 PINE STREET STREET 2: STE 600 CITY: ABILENE STATE: TX ZIP: 79601-0701 BUSINESS PHONE: 9156757155 10-Q 1 tenq9-02.txt FIRST FINANCIAL BANKSHARES, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 November 1, 2002. Class Number of Shares Outstanding ---------------------------------------- ---------------------------- Common Stock, Par Value $10.00 Per Share 12,358,910 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 4. Controls and Procedures 12 Signatures 14 PART II OTHER INFORMATION 6. Exhibits 15 -2- PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. The consolidated balance sheets of First Financial Bankshares, Inc. at September 30, 2002 and 2001, and December 31, 2001, and the consolidated statements of earnings and comprehensive earnings for the three months and nine months ended September 30, 2002 and 2001, changes in shareholders' equity for the year ended December 31, 2001 and nine months ended September 30, 2002, and cash flows for the nine months ended September 30, 2002 and 2001, follow on pages 4 through 8. -3- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, ---------------------------------------- Unaudited ---------------------------------------- December 31, 2002 2001 2001 ------------------- ------------------- ------------------ ASSETS Cash and due from banks $ 100,504,696 $ 87,504,488 $ 112,150,214 Federal funds sold 52,575,000 41,258,066 72,975,000 ------------------- ------------------- ------------------ Cash and cash equivalents 153,079,696 128,762,554 185,125,214 Interest-bearing deposits in banks 2,566,449 304,497 1,374,285 Investment securities: Securities held-to-maturity (market value of $235,108,463 and $335,347,542 at September 30, 2002 and 2001, respectively; $298,569,794 at December 31, 2001) 222,450,034 313,989,514 290,674,490 Securities available-for-sale, at market value 548,681,206 401,043,693 431,019,205 ------------------- ------------------- ------------------ Total investment securities 771,131,240 715,033,207 721,693,695 Loans 950,291,585 935,557,546 940,130,975 Less: Allowance for loan losses 11,530,150 10,504,589 10,602,419 ------------------- ------------------- ------------------ Net loans 938,761,435 925,052,957 929,528,556 Bank premises and equipment, net 40,982,215 41,823,428 42,012,431 Goodwill and intangible assets 24,610,602 25,122,311 24,711,969 Other assets 21,956,163 25,227,130 25,247,980 ------------------- ------------------- ------------------ TOTAL ASSETS $ 1,953,087,800 $ 1,861,326,084 $ 1,929,694,130 =================== =================== ================== LIABILITIES Noninterest-bearing deposits $ 419,554,456 $ 346,159,673 $ 389,406,666 Interest-bearing deposits 1,252,968,421 1,259,910,504 1,295,755,932 ------------------- ------------------- ------------------ Total deposits 1,672,522,877 1,606,070,177 1,685,162,598 Dividends payable 4,325,619 3,697,242 3,699,976 Securities sold under agreements to repurchase 28,466,138 23,225,722 19,847,067 Other liabilities 9,848,932 14,982,173 7,330,476 ------------------- ------------------- ------------------ Total liabilities 1,715,163,566 1,647,975,314 1,716,040,117 ------------------- ------------------- ------------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock - $10 par value; authorized 20,000,000 shares; 12,358,910 and 12,324,141 issued and outstanding at September 30, 2002 and 2001, respectively; 12,333,252 shares issued and outstanding at December 31, 2001 123,589,100 123,241,410 123,332,520 Capital surplus 58,018,533 57,735,976 57,824,061 Retained earnings 41,423,413 24,544,462 28,375,353 Unrealized gain on investment securities available-for-sale, net 14,893,188 7,828,922 4,122,079 ------------------- ------------------- ------------------ Total shareholders' equity 237,924,234 213,350,770 213,654,013 ------------------- ------------------- ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,953,087,800 $ 1,861,326,084 $ 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 Nine Months Ended September 30, September 30, ------------------------------------ ------------------------------------ 2002 2001 2002 2001 --------------- --------------- --------------- --------------- INTEREST INCOME Interest and fees on loans $ 16,157,691 $ 18,921,994 $ 48,878,976 $ 57,289,318 Interest on investment securities: Taxable 8,184,561 8,292,472 24,221,876 23,858,497 Exempt from federal income tax 1,757,725 1,627,261 5,275,357 4,645,604 Interest on federal funds sold and interest-bearing deposits in banks 216,442 658,318 787,098 2,865,430 --------------- --------------- --------------- --------------- Total interest income 26,316,419 29,500,045 79,163,307 88,658,849 INTEREST EXPENSE Interest-bearing deposits 5,750,249 10,756,921 18,909,925 34,999,907 Other 67,752 201,044 226,248 763,615 --------------- --------------- --------------- --------------- Total interest expense 5,818,001 10,957,965 19,136,173 35,763,522 --------------- --------------- --------------- --------------- NET INTEREST INCOME 20,498,418 18,542,080 60,027,134 52,895,327 Provision for loan losses 652,000 538,833 1,560,834 1,402,550 --------------- --------------- --------------- --------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,846,418 18,003,247 58,466,300 51,492,777 NONINTEREST INCOME Trust department income 1,439,434 1,451,525 4,311,619 4,446,890 Service fees on deposit accounts 3,946,986 3,688,601 11,311,561 10,937,274 ATM fees 626,590 495,788 1,728,755 1,425,510 Real estate mortgage fees 526,091 433,902 1,317,250 1,203,756 Net (loss) gain on securities transactions (2,883) 177 16,373 67,789 Other 987,615 779,425 3,021,208 2,526,107 --------------- --------------- --------------- --------------- Total noninterest income 7,523,833 6,849,418 21,706,766 20,607,326 NONINTEREST EXPENSE Salaries and employee benefits 7,939,817 7,266,165 23,649,935 21,138,214 Net occupancy expense 1,044,037 1,082,346 3,029,660 2,972,769 Equipment expense 1,238,535 1,135,747 3,579,632 3,274,867 Printing, stationery & supplies 362,310 293,994 1,096,806 764,095 Correspondent bank service charges 367,576 350,781 1,106,414 984,190 Amortization of intangible assets 33,789 410,437 101,367 1,231,120 Other expenses 3,915,856 3,508,896 11,271,269 10,342,279 --------------- --------------- --------------- --------------- Total noninterest expense 14,901,920 14,048,366 43,835,083 40,707,534 --------------- --------------- --------------- --------------- EARNINGS BEFORE INCOME TAXES 12,468,331 10,804,299 36,337,983 31,392,569 Income tax expense 3,768,124 3,271,428 10,936,915 9,568,931 --------------- --------------- --------------- --------------- NET EARNINGS $ 8,700,207 $ 7,532,871 $ 25,401,068 $ 21,823,638 =============== =============== =============== =============== EARNINGS PER SHARE, BASIC $ 0.70 $ 0.61 $ 2.06 $ 1.77 EARNINGS PER SHARE, ASSUMING DILUTION $ 0.70 $ 0.61 $ 2.05 $ 1.76 DIVIDENDS PER SHARE $ 0.35 $ 0.30 $ 1.00 $ 0.86 See notes to consolidated financial statements.
-5- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------- ---------------------------------- 2002 2001 2002 2001 --------------- ---------------- --------------- --------------- NET EARNINGS $ 8,700,207 $ 7,532,871 $ 25,401,068 $ 21,823,638 OTHER ITEMS OF COMPREHENSIVE EARNINGS Change in unrealized gain on investment securities available-for-sale, before income taxes 8,840,003 4,317,283 16,587,310 9,619,312 Reclassification adjustment for realized losses (gains) on investment securities included in net earnings, before income taxes 2,883 (177) (16,373) (67,789) --------------- ---------------- --------------- --------------- Total other items of comprehensive earnings, before tax 8,842,886 4,317,106 16,570,937 9,551,523 Income tax expense related to other items of comprehensive earnings 3,095,010 1,510,987 5,799,828 3,343,033 --------------- ---------------- --------------- --------------- COMPREHENSIVE EARNINGS $ 14,448,083 $ 10,338,990 $ 36,172,177 $ 28,032,128 =============== ================ =============== =============== 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 - - - 25,401,068 - - 25,401,068 Stock issuances 25,658 256,580 194,472 - - - 451,052 Cash dividends declared, $1.00 per share - - - (12,353,008) - - (12,353,008) Change in unrealized gain on investment securities available-for-sale, net - - - - - 10,771,109 10,771,109 ---------- ------------- ------------ ------------ ------------ ------------ ------------ Balances at September 30,2002 (unaudited) 12,358,910 $ 123,589,100 $ 58,018,533 $ 41,423,413 $ - $ 14,893,188 $237,924,234 ========== ============= ============ ============ ============ ============ ============ See notes to consolidated financial statements.
-7- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Nine Months Ended September 30, ------------------------------------ 2002 2001 ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 25,401,068 $ 21,823,638 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,221,412 4,219,424 Provision for loan losses 1,560,834 1,402,550 Premium amortization, net of discount accretion 3,660,305 992,913 Loss (gain) on sale of assets 37,094 (52,815) Deferred federal income tax (benefit) expense (595,790) 158,302 (Increase) decrease in other asset (1,760,942) 847,959 Increase in other liabilities 2,518,456 5,873,371 ---------------- ----------------- Total adjustments 8,641,369 13,441,704 ---------------- ----------------- Net cash provided by operating activities 34,042,437 35,265,342 CASH FLOWS FROM INVESTING ACTIVITIES Net increase in interest-bearing deposits in banks (1,192,164) (200,159) Payment for stock of City Bancshares, Inc., net of cash acquired - (6,848,231) Activity in available-for-sale securities: Sales 2,724,931 12,926,715 Maturities 55,730,144 56,572,060 Purchases (163,686,609) (150,343,528) Activity in held-to-maturity securities: Maturities 70,490,816 150,907,110 Purchases (1,769,822) (92,498,613) Net increase in loans (11,149,286) (26,186,131) Capital expenditures (2,126,689) (3,912,942) Proceeds from sale of assets 187,687 178,945 ---------------- ----------------- Net cash used in investing activities (50,790,992) (59,404,774) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in noninterest-bearing deposits 30,147,790 (2,067,026) Net (decrease) increase in interest-bearing deposits (42,787,511) 5,738,481 Net increase (decrease) in securities sold under agreements to repurchase 8,619,071 (2,938,637) Common stock transactions: Acquisition of treasury stock - (315,050) Proceeds from stock issuances 451,052 177,475 Dividends paid (11,727,365) (10,223,969) ---------------- ----------------- Net cash used in financing activities (15,296,963) (9,628,726) ---------------- ----------------- Net decrease in cash and cash equivalents (32,045,518) (33,768,158) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 185,125,214 162,530,712 ---------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 153,079,696 $ 128,762,554 ================ ================= SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS Interest paid $ 20,028,463 $ 35,978,699 Federal income tax paid 11,318,471 6,378,823 Assets acquired through foreclosure 559,115 209,566 Loans to finance the sale of other real estate 203,542 - Retirement of treasury stock - 4,240,119 See notes to consolidated financial statements.
-8- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation In the opinion of Management, the unaudited consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company's financial position and unaudited results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the three months and nine months ended September 30, 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 nine months ended September 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 September 30, 2002 and 2001, were 12,356,709 and 12,321,964 shares, respectively. The weighted average common shares outstanding used in computing basic earnings per common share for the nine-months periods ended September 30, 2002 and 2001, were 12,348,465 and 12,315,826 shares, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the quarters ended September 30, 2002 and 2001, were 12,405,265 and 12,412,979 shares, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the nine-month periods ended September 30, 2002 and 2001, were 12,397,797 and 12,362,422 shares, 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 nine months ended September 30, 2002 and 2001, follows:
Three Months Ended September 30, Nine Months Ended September 30, --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ----------- ------------ ------------ Reported net earnings $ 8,700,207 $ 7,532,871 $ 25,401,068 $ 21,823,638 Add back: Goodwill amortization, net of tax - 305,389 - 916,167 ----------- ----------- ------------ ------------ Adjusted net earnings $ 8,700,207 $ 7,838,260 $ 25,401,068 $ 22,739,805 =========== =========== ============ ============ Basic earnings per share: Reported net earnings $ .70 $ .61 $ 2.06 $ 1.77 Goodwill amortization, net of tax - .03 - .08 ----------- ----------- ------------ ------------ Adjusted net earnings $ .70 $ .64 $ 2.06 $ 1.85 =========== =========== ============ ============ Earnings per share,assuming dilution: Reported net earnings $ .70 $ .61 $ 2.05 $ 1.76 Goodwill amortization, net of tax - .02 - .08 ----------- ----------- ------------ ------------ Adjusted net earnings $ .70 $ .63 $ 2.05 $ 1.84 =========== =========== ============ ============
-9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results - ----------------- For the nine months ended September 30, 2002, the Company's net income amounted to $25.4 million, or $2.06 per basic share. For the same period last year, net income amounted to $21.8 million, or $1.77 per basic share. Return on average assets and return on average equity for the nine months ended September 30, 2002, amounted to 1.79 percent and 15.45 percent, respectively. The Company's return on average assets and return on average equity for the same period last year amounted to 1.64 percent and 14.48 percent, respectively. Net income for the third quarter 2002 totaled $8.7 million, or $0.70 per basic share, as compared to $7.5 million, or $0.61 per basic share, earned in the third quarter 2001. Return on average assets for the third quarter 2002 amounted to 1.80 percent as compared to 1.62 for the third quarter 2001. Return on average equity for the third quarter 2002 amounted to 15.14 percent as compared to 14.47 percent for the third quarter 2001. Net interest income on a tax-equivalent basis for the nine months ended September 30, 2002, totaled $62.8 million as compared to $55.2 million for the same period last year. Net interest income on a tax-equivalent basis for the third quarter of 2002 totaled $21.4 million as compared to $19.4 million for the third 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 $1.735 billion for the nine months ended September 30, 2002, and were $103.3 million above the same period last year. Earning assets averaged $1.755 billion for the third quarter 2002 and were $65.8 million above the third quarter 2001. The net interest margin amounted to 4.84 percent for the first nine months of 2002 as compared to 4.52 percent for the same period last year. For the third quarter 2002, the net interest margin was 4.85 percent, as compared to 4.55 percent for the third 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 2001. For the nine months ended September 30, 2002, the provision for loan losses amounted to $1.6 million as compared to $1.4 million for the same period last year. Net charge offs for the nine months ended September 30, 2002, totaled $633 thousand, which on an annualized basis amounted to .09 percent of average loans as compared to .18 percent for the first nine months last year. At September 30, 2002, the allowance for loan losses was 1.21 percent of loans and was considered by Management to be adequate. For the third quarter 2002, the provision for loan losses was $652 thousand as compared to $539 thousand for the third quarter 2001. Total noninterest income for the nine months ended September 30, 2002, amounted to $21.7 million as compared to $20.6 million for the same period last year. Trust fees for the first nine months of 2002 totaled $4.3 million as compared to $4.4 million for the same period last year. Lower trust fees for 2002 reflect lower market values of trust assets as compared to the same period last year. Service charges on deposit accounts for the nine months ended September 30, 2002, totaled $11.3 million as compared to $10.9 million for the same period last year. During 2002, the Company has experienced a lower volume of insufficient funds items as compared to the same period last year which has limited the growth in deposit service fees. ATM fees, which includes fees earned on check card transactions, totaled $1.7 million for the first nine months as compared to $1.4 million for the same period last year. The increase for 2002 reflects the Company's focus to increase the cardholder base and usage of check cards. For the nine months ended September 30, 2002, real estate mortgage fees totaled $1.3 million as compared to $1.2 million for the same period last year. The increase represents a modest growth in the volume of new loan and refinance transactions during 2002 when compared to the same period last year. Other noninterest income for the first nine months of 2002 totaled $3.0 million as compared to $2.5 million for the nine months ended September 30, 2001. Other noninterest income for 2002 includes $529 thousand, which represents check printing fees that, in periods prior to 2002, were recorded as a reduction in printing and supplies expense. This change in classification for check printing fees was made in response to a change in bank regulatory financial reporting guidelines. -10- Total noninterest income for the third quarter 2002 amounted to $7.5 million as compared to $6.8 million for the same period last year. The higher noninterest income for the third quarter 2002 resulted primarily from: (i) an increase of $258 thousand in service charges on deposit accounts; (ii) $168 thousand in check printing fees (classified as a reduction in printing and supplies in prior years); and (iii) an increase of $131 thousand in ATM fees. Noninterest expense for the nine months ended September 30, 2002, totaled $43.8 million as compared to $40.7 million for the same period last year. Salaries and employee benefits expense for first nine months of 2002 totaled $23.6 million, which was $2.5 million above the same period last year. Salary increases and higher profit sharing and pension expense, coupled with an increase in number of employees, were factors contributing to higher salaries and benefits for 2002. Combined occupancy and equipment expense for the first nine months of 2002 totaled $6.6 million, which was $362 thousand above the combined amounts for the same period last year. When compared the same period last year, the higher occupancy and equipment expense for the first nine months of 2002 resulted primarily from higher depreciation expense. Printing and supplies expense for the first nine months of 2002 totaled $1.1 million and was $333 thousand above the same period last year. The increase for 2002 was due to $529 thousand in checking 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 nine months ended September 30, 2002, was down $1.1 million due to a change in accounting principles which was effective January 1, 2002. Other noninterest expense for the first nine months of 2002 totaled $11.3 million as compared to $10.3 million for the same period last year. The 2002 total reflects: (i) an increase of $213 thousand in ATM expense; (ii) an increase of $118 thousand in examination and audit fees; and (iii) an increase of $140 thousand in operational losses. Noninterest expense for the third quarter 2002 totaled $14.9 million as compared to $14.0 million for the third quarter 2001. When compared to the third quarter last year, third quarter 2002 variances in noninterest expense track closely to the year-to-date increases previously highlighted. The Company's efficiency ratio for the first nine months of 2002 reflected improvement at 51.90 percent as compared to 53.74 percent for the same period last year. Balance Sheet Review - -------------------- Total assets at September 30, 2002, totaled $1.953 billion as compared to $1.930 billion at December 31, 2001, and $1.861 billion at September 30, 2001. The balance sheets presented reflect normal recurring adjustments and accruals. Loans at September 30, 2002, totaled $950 million as compared to $940 million at year-end 2001 and $936 million at September 30, 2001. As compared to year-end 2001 amounts, loans at September 30, 2002, reflect (i) a $500 thousand increase in commercial loans; (ii) an $18.6 million increase in real estate loans; and (iii) a $9.1 million decrease in agricultural loans. Investment securities at September 30, 2002, totaled $771 million as compared to $722 million at year-end 2001 and $715 million at September 30, 2001. The net unrealized gain in the investment portfolio at September 30, 2002, amounted to $35.6 million and had an overall yield of 5.70 percent. At September 30, 2002, the Company did not hold any structured notes or CMOs that entail higher risks than standard mortgage-backed securities. Total deposits at September 30, 2002, amounted to $1.673 billion as compared to $1.685 billion at year-end 2001 and $1.606 billion at September 30, 2001. As compared to year-end 2001 amounts, noninterest-bearing demand deposits increased $30.1 million and interest-bearing deposits decreased $42.8 million which reflects the Company's continued strategy not to match higher rates on certain interest-bearing deposit products. Nonperforming assets at September 30, 2002, totaled $5.4 million as compared to $4.8 million at December 31, 2001. The increase resulted primarily from a $561 thousand increase in nonaccrual loans. At .57 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. -11- Liquidity and Capital - --------------------- The Company's consolidated statements of cash flows are presented on page 8 of this report. At September 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 $237.9 million at September 30, 2002, which was up from $213.7 million at year-end 2001 and $213.4 million at September 30, 2001. The Company's risk-based capital and leverage ratios at September 30, 2002, were 18.51 percent and 10.51 percent, respectively. The third quarter 2002 cash dividend of $0.35 per share totaled $4.3 million and represented 49.7 percent of third quarter earnings. On October 22, 2002, the Company declared a $0.35 per share cash dividend payable January 2, 2003. 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 September 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 3.9 percent and a downward shift of interest rates by 150 basis points would result in a reduction in projected net interest income of 6.8 percent. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at September 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. Item 4. Controls and Procedures The Chairman and Chief Executive Officer and the Chief Financial Officer of First Finanical (its principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by First Financial in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and include controls and procedures designed to -12- ensure that information required to be disclosed by First Financial in such reports is accumulated and communicated to the Company's management, including the Chairman and Chief Executive Officer and the Chief Financial Officer of First Financial, as appropriate to allow timely decisions regarding required disclosure. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation. -13- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST FINANCIAL BANKSHARES, INC. Date: November 13, 2002 By:/S/ F. Scott Dueser ----------------- ------------------- F. Scott Dueser President and Chief Executive Officer Date: November 13, 2002 By:/S/ Curtis R. Harvey ----------------- -------------------- Curtis R. Harvey Executive Vice President and Chief Financial Officer -14- 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. 99.3 Certification of Chief Executive Officer of First Financial Bankshares, Inc. - (ref. - Sec.906-Sarbanes-Oxley Act of 2002) 99.4 Certification of Chief Financial Officer of First Financial Bankshares, Inc. - (ref. - Sec.906-Sarbanes-Oxley Act of 2002) -15- Exhibit 99.1 ------------ Certification of Chief Executive Officer of First Financial Bankshares, Inc. I, F. Scott Deuser, Chairman and Chief Executive Officer of First Financial Bankshares, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bankshares, Inc, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /S/ F. Scott Dueser ------------------- Name: F. Scott Dueser Title: Chief Executive Officer -16- Exhibit 99.2 ------------ Certification of Chief Financial Officer of First Financial Bankshares, Inc. I, Curtis R. Harvey, Chief Financial Officer of First Financial Bankshares,Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of First Financial Bankshares, Inc.; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures 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 quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /S/ Curtis R. Harvey -------------------- Name: Curtis R. Harvey Title: Chief Financial Officer -17- Exhibit 99.3 ------------ 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 September 30, 2002 of First Financial Bankshares, Inc. (the "Issuer"'). 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 Issuer. Date: November 13, 2002 /S/ F. Scott Dueser ------------------- Name: F. Scott Dueser Title: Chief Executive Officer Subscribed and sworn to before me this 13th day of November, 2002. /S/ Gaila N. Kilpatrick - ----------------------- Name: Gaila N. Kilpatrick Title: Notary Public My commission expires: April 15, 2005 -18- Exhibit 99.4 ------------ 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 September 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: 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 Issuer. Date: November 13, 2002 /S/ Curtis R. Harvey -------------------- Name: Curtis R. Harvey Title: Chief Financial Officer Subscribed and sworn to before me this 13th day of November, 2002. /S/ Gaila N. Kilpatrick - ----------------------- Name: Gaila N. Kilpatrick Title: Notary Public My commission expires: April 15, 2005 -19- -----END PRIVACY-ENHANCED MESSAGE-----