10-Q 1 tenq6-03.txt FIRST FINANCIAL BANKSHARES - JUNE 30, 2003 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 ------------- Commission file number 0-7674 ------ FIRST FINANCIAL BANKSHARES, INC. -------------------------------- (Exact name of registrant as Specified in its charter) Texas 75-0944023 --------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 400 Pine Street, Abilene, Texas 79601 ------------------------------------- (Address of principal executive offices) (Zip Code) (325)627-7155 ------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- ---- Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of The Exchange Act). Yes X No . --- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 6, 2003: Class Number of Shares Outstanding ----- ---------------------------- Common Stock, $10.00 par value 15,475,267 per share TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item Page ---- ---- Forward-Looking Statement Disclaimer 3 1. Consolidated Financial Statements and Notes to Consolidated Financial Statements 3 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 3. Quantitative and Qualitative Disclosures About Market Risk 16 4. Controls and Procedures 16 PART II OTHER INFORMATION 6. Exhibits and Reports on Form 8-K 17 Signatures 18 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as "anticipate", "believe", "estimate", "expect", "intend", "predict", "project", and similar expressions, as they relate to us or management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to: o general economic conditions; o legislative and regulatory actions and reforms; o competition from other financial institutions and financial holding companies; o the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board; o changes in the demand for loans; o fluctuations in the value of collateral and loan reserves; o inflation, interest rate, market and monetary fluctuations; o changes in consumer spending, borrowing and savings habits; o acquisitions and integration of acquired businesses; and o other factors described in "Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Such statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. The consolidated balance sheets of First Financial Bankshares, Inc. at June 30, 2003 and 2002 and December 31, 2002, and the consolidated statements of earnings and comprehensive earnings for the three and six months ended June 30, 2003 and 2002, changes in shareholders' equity for the year ended December 31, 2002 and six months ended June 30, 2003, and cash flows for the six months ended June 30, 2003 and 2002, follow on pages 4 through 8. On April 22, 2003, the Company's Board of Directors declared a five for four stock split in the form of a 25% stock dividend for shareholders of record on May 16, 2003. All per share amounts in this report have been restated to reflect this stock split. An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from retained earnings to common stock in the consolidated financial statements. 3 FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, --------------------------------- December 31, 2003 2002 2002 --------------- --------------- --------------- ASSETS (Unaudited) Cash and due from banks $ 104,575,826 $ 93,908,407 $ 108,436,645 Federal funds sold 43,725,000 46,450,000 70,000,000 --------------- --------------- --------------- Cash and cash equivalents 148,300,826 140,358,407 178,436,645 Interest-bearing deposits in banks 5,219,177 21,071 2,324,425 Investment securities: Securities held-to-maturity (market value of $179,751,258, $250,770,960 and $211,862,151 at June 30, 2003, June 30, 2002 and December 31, 2002, respectively) 168,667,372 241,270,327 200,449,784 Securities available-for-sale, at fair value 710,513,311 517,584,102 571,806,629 --------------- --------------- --------------- Total investment securities 879,180,683 758,854,429 772,256,413 Loans 920,941,697 935,174,382 964,039,773 Less: Allowance for loan losses (11,523,162) (11,119,945) (11,218,729) --------------- --------------- --------------- Net loans 909,418,535 924,054,437 952,821,044 Bank premises and equipment, net 40,995,682 41,355,266 40,605,401 Goodwill and intangible assets 24,803,210 24,644,391 24,870,788 Other assets 20,407,757 21,252,815 21,868,220 --------------- --------------- --------------- TOTAL ASSETS $ 2,028,325,870 $ 1,910,540,816 $ 1,993,182,936 =============== =============== =============== LIABILITIES Noninterest-bearing deposits $ 443,674,597 $ 398,219,497 $ 425,473,353 Interest-bearing deposits 1,300,142,994 1,249,649,814 1,286,088,863 --------------- --------------- --------------- Total deposits 1,743,817,591 1,647,869,311 1,711,562,216 Dividends payable 4,796,143 4,323,622 4,327,374 Securities sold under agreements to repurchase 12,056,116 22,349,997 26,708,994 Other liabilities 16,475,782 8,282,439 11,816,707 --------------- --------------- --------------- Total liabilities 1,777,145,632 1,682,825,369 1,754,415,291 --------------- --------------- --------------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock - $10 par value; authorized 20,000,000 shares; 15,471,429, 12,354,111 and 12,364,201 shares issued and outstanding at June 30, 2003, June 30, 2002 and December 31, 2002, respectively 154,714,290 123,541,110 123,642,010 Capital surplus 58,172,924 57,980,651 58,087,687 Retained earnings 23,238,355 37,048,374 45,647,522 Accumulated other comprehensive income 15,054,669 9,145,312 11,390,426 --------------- --------------- --------------- Total shareholders' equity 251,180,238 227,715,447 238,767,645 --------------- --------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,028,325,870 $ 1,910,540,816 $ 1,993,182,936 =============== =============== =============== See notes to consolidated financial statements.
-4- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ---------------------------------- 2003 2002 2003 2002 -------------- --------------- --------------- --------------- INTEREST INCOME Interest and fees on loans $ 14,472,914 $ 16,088,389 $ 29,259,463 $ 32,406,928 Interest on investment securities: Taxable 7,577,369 8,158,394 15,256,189 16,130,658 Exempt from federal income tax 1,755,727 1,786,690 3,501,474 3,517,634 Interest on federal funds sold and interest-bearing deposits in banks 183,707 312,244 329,289 570,653 -------------- --------------- --------------- --------------- Total interest income 23,989,717 26,345,717 48,346,415 52,625,873 INTEREST EXPENSE Interest-bearing deposits 4,454,474 6,174,507 9,108,972 13,159,675 Other 27,659 71,196 95,385 158,496 -------------- --------------- --------------- --------------- Total interest expense 4,482,133 6,245,703 9,204,357 13,318,171 -------------- --------------- --------------- --------------- NET INTEREST INCOME 19,507,584 20,100,014 39,142,058 39,307,702 Provision for loan losses 225,867 510,334 736,368 908,834 -------------- --------------- --------------- --------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,281,717 19,589,680 38,405,690 38,398,868 NONINTEREST INCOME Trust department income 1,478,862 1,448,116 2,912,668 2,872,185 Service fees on deposit accounts 3,987,738 3,807,718 7,795,560 7,364,577 ATM fees 737,650 591,208 1,403,304 1,102,212 Real estate mortgage fees 815,331 369,130 1,499,694 791,158 Net gain (loss) on sale of securities (4,752) 19,256 (4,752) 19,256 Net gain on sale of student loans 1,606,120 116,885 1,842,635 314,360 Other 887,775 911,723 2,125,295 1,917,722 -------------- --------------- --------------- --------------- Total noninterest income 9,508,724 7,264,036 17,574,404 14,381,470 NONINTEREST EXPENSE Salaries and employee benefits 8,591,855 7,870,709 16,813,242 15,710,117 Net occupancy expense 1,021,432 1,031,438 1,964,011 1,985,623 Equipment expense 1,188,760 1,156,208 2,376,726 2,341,096 Printing, stationery & supplies 330,709 383,557 673,758 860,661 Correspondent bank service charges 364,606 375,845 759,660 738,837 Amortization of intangible assets 33,789 33,789 67,578 67,578 Other expenses 3,988,980 3,825,272 7,971,414 7,207,223 -------------- --------------- --------------- --------------- Total noninterest expense 15,520,131 14,676,818 30,626,389 28,911,135 -------------- --------------- --------------- --------------- EARNINGS BEFORE INCOME TAXES 13,270,310 12,176,898 25,353,705 23,869,203 Income tax expense 4,049,492 3,655,140 7,683,296 7,168,792 -------------- --------------- --------------- --------------- NET EARNINGS $ 9,220,818 $ 8,521,758 $ 17,670,409 $ 16,700,411 ============== =============== =============== =============== EARNINGS PER SHARE, BASIC $ 0.60 $ 0.55 $ 1.14 $ 1.08 EARNINGS PER SHARE, ASSUMING DILUTION $ 0.59 $ 0.55 $ 1.14 $ 1.08 DIVIDENDS PER SHARE $ 0.31 $ 0.28 $ 0.59 $ 0.52 See notes to consolidated financial statements.
-5- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- ------------------------------- 2003 2002 2003 2002 -------------- -------------- -------------- -------------- NET EARNINGS $ 9,220,818 $ 8,521,758 $ 17,670,409 $ 16,700,411 OTHER ITEMS OF COMPREHENSIVE EARNINGS: Change in unrealized gain on investment securities available-for-sale 9,846,796 9,429,036 5,632,545 7,747,307 Reclassification adjustment for realized losses (gains) on investment securities included in net earnings, before income tax 4,752 (19,256) 4,752 (19,256) -------------- -------------- -------------- -------------- Total other items of comprehensive earnings 9,851,548 9,409,780 5,637,297 7,728,051 Income tax expense related to other items of comprehensive earnings (3,448,042) (3,293,423) (1,973,054) (2,704,818) -------------- -------------- -------------- -------------- COMPREHENSIVE EARNINGS $ 15,624,324 $ 14,638,115 $ 21,334,652 $ 21,723,644 ============== ============== ============== ============== See notes to consolidated financial statements.
-6- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Other Comprehensive Income ------------------------- Common Stock Unrealized Gain Minimum Total ------------------------ Capital Retained on Securities Pension Shareholders' Shares Amount Surplus Earnings Available-for-Sale Liability Equity ---------- ------------- ------------ ------------- ------------ ------------ ------------- Balances at December 31, 2001 12,333,252 $ 123,332,520 $ 57,824,061 $ 28,375,353 $ 4,122,079 $ - $ 213,654,013 Net earnings - - - 33,952,550 - - 33,952,550 Stock issuances 30,949 309,490 263,626 - - - 573,116 Cash dividends declared, $1.08 per share - - - (16,680,381) - - (16,680,381) Minimum liability pension adjustment, net of related taxes - - - - - (1,440,283) (1,440,283) Change in unrealized gain in investment securities available-for-sale, net of related income taxes - - - - 8,708,630 - 8,708,630 ---------- ------------- ------------ ------------- ------------ ------------ ------------- Balances at December 31, 2002 12,364,201 123,642,010 58,087,687 45,647,522 12,830,709 (1,440,283) 238,767,645 Net earnings - - - 17,670,409 - - 17,670,409 Stock issuances 14,233 142,330 85,237 - - - 227,567 Cash dividends declared, $0.59 per share - - - (9,149,626) - - (9,149,626) Change in unrealized gain in investment securities available-for-sale, net of related income taxes - - - - 3,664,243 - 3,664,243 Five for four stock split in the form of a 25% stock dividend 3,092,995 30,929,950 - (30,929,950) - - - ---------- ------------- ------------ ------------- ------------ ------------ ------------- Balances at June 30, 2003 (unaudited) 15,471,429 $ 154,714,290 $ 58,172,924 $ 23,238,355 $ 16,494,952 $ (1,440,283) $ 251,180,238 ========== ============= ============ ============= ============ ============ ============= See notes to consolidated financial statements.
-7- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
Six Months Ended June 30, --------------------------------- 2003 2002 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 17,670,409 $ 16,700,411 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,096,240 2,151,454 Provision for loan losses 736,368 908,834 Premium amortization, net of discount accretion 2,605,227 2,037,782 Loss on sale of assets 3,385 75,290 Deferred federal income tax benefit (741,823) (478,789) Decrease (increase) in other assets 314,400 (1,610,784) Increase in other liabilities 5,400,899 951,963 --------------- --------------- Total adjustments 10,414,696 4,035,750 --------------- --------------- Net cash provided by operating activities 28,085,105 20,736,161 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in interest-bearing deposits in banks (2,894,752) 1,353,214 Activity in available-for-sale securities: Sales 41,152,973 2,213,004 Maturities 97,745,538 32,247,526 Purchases (274,508,292) (113,749,043) Activity in held-to-maturity securities: Maturities 33,212,829 52,865,349 Purchases (1,500,000) (1,494,822) Net decrease in loans 41,820,337 4,317,452 Capital expenditures (2,479,791) (1,462,272) Proceeds from sale of assets 81,027 35,545 --------------- --------------- Net cash used in investing activities (67,370,131) (23,674,047) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in noninterest-bearing deposits 18,201,244 8,812,831 Net increase (decrease) in interest-bearing deposits 14,054,131 (46,106,118) Net (decrease) increase in securities sold under agreements to repurchase (14,652,878) 2,502,930 Proceeds from stock issuances 227,567 365,180 Dividends paid (8,680,857) (7,403,744) --------------- --------------- Net cash provided by (used in) financing activities 9,149,207 (41,828,921) --------------- --------------- Net decrease in cash and cash equivalents (30,135,819) (44,766,807) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 178,436,645 185,125,214 --------------- --------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 148,300,826 $ 140,358,407 =============== =============== SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS Interest paid $ 8,828,151 13,811,522 Federal income tax paid 7,533,118 7,413,227 Assets acquired through foreclosure 845,804 424,358 Loans to finance the sale of other real estate - 176,526 See notes to consolidated financial statements.
-8- FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1 - Basis of Presentation In the opinion of Management, the unaudited consolidated financial statements reflect all adjustments necessary for a fair presentation of the Company's financial position and unaudited results of operations. All adjustments were of a normal recurring nature. However, the results of operations for the three and six months ended June 30, 2003, are not necessarily indicative of the results to be expected, due to seasonality and other factors, for the year ending December 31, 2003. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted under SEC rules and regulations. Note 2 - Earnings Per Share Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares outstanding during the periods. In computing diluted earnings per common share for the three months and six months ended June 30, 2003 and 2002, the Company assumes that all outstanding options to purchase common stock have been exercised at the beginning of the year (or the time of issuance, if later). The dilutive effect of the outstanding options is reflected by application of the treasury stock method, whereby, the proceeds from the exercised options are assumed to be used to purchase common stock at the average market price during the respective periods. The weighted average common shares outstanding used in computing basic earnings per common share for the three months ended June 30, 2003 and 2002, were 15,466,371 and 15,435,191 shares, respectively. The weighted average common shares outstanding used in computing basic earnings per common share for the six months ended June 30, 2003 and 2002, were 15,461,477 and 15,430,344, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the three months ended June 30, 2003 and 2002, were 15,519,299 and 15,506,123 shares, respectively. The weighted average common shares outstanding used in computing diluted earnings per common share for the six months ended June 30, 2003 and 2002, were 15,514,470 and 15,502,040, respectively. See note 4 below. Note 3 - Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants using the intrinsic value method prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Had compensation cost for the plan been determined consistent with Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, the Company's net earnings and earnings per share would have been reduced by insignificant amounts on a pro forma basis for the three months and six months ended June 30, 2003 and 2002. During the three months ended June 30, 2002, the Company granted 71,560 options to key employees under the 2002 Incentive Stock Option Plan. The options were granted at market price on grant date, as adjusted for the five for four stock split. Note 4 - Stock Split and Stock Repurchase On April 22, 2003, the Company's Board of Directors declared a five for four stock split in the form of a 25% stock dividend effective June 2, 2003 for shareholders of record on May 16, 2003. All share and per share amounts in this report have been restated to reflect this stock split. An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from retained earnings to common stock in the consolidated financial statements. 9 Additionally, on April 22, 2003, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of common stock (representing approximately four percent of outstanding shares) over the next three years. The plan authorizes management to repurchase the stock at such time as repurchases are considered beneficial to stockholders. Any repurchases of the stock will be through the open market or in privately negotiated transactions in accordance with applicable laws and regulations. No stock has been repurchased under this plan as of June 30, 2003. Note 5 - Reclassifications Certain prior period balances have been reclassified to conform with the current period presentation. 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company's 2002 Annual Report on Form 10-K. On April 22, 2003, the Company's Board of Directors declared a five for four stock split in the form of a 25% stock dividend effective June 2, 2003 for shareholders of record on May 16, 2003. All share and per share amounts in this report have been restated to reflect this stock split. Critical Accounting Policies ---------------------------- The preparation of the Company's consolidated financial statements is based on the selection of certain accounting policies, based on generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require management to make significant estimates and assumptions. A policy is deemed critical if (i) the accounting estimate requires the Company to make assumptions about matters that are highly uncertain at the time the accounting estimate was made; and (ii) different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the financial statements. The following discussion addresses the Company's allowance for loan loss and its provision for loan losses which is deemed by management to be its most critical accounting policy. We have other key accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe that these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely that they would have a material impact on our reported results for a given period. The allowance for loan losses is an amount that management believes will be adequate to absorb inherent estimated losses on existing loans in which full collectibility is unlikely based on management's review and evaluation of the loan portfolio, including letters of credit, lines of credit and unused commitments to provide financing. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on general economic conditions, the financial condition of the borrower, the value and liquidity of collateral, delinquency, prior loan loss experience, and the results of periodic reviews of the portfolio by our loan review department and regulatory examiners. A consistent, well documented loan review methodology has been developed that includes allowances assigned to specific loans and nonspecific allowances that are based on the factors noted in the prior sentence. While each subsidiary bank is responsible for the adequacy of their allowance, our independent loan review department is responsible for reviewing this evaluation for all of our subsidiary banks to ensure consistent methodology and overall adequacy for the Company. Although we believe that we use the best information available to make loan loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A downturn in the economy and employment could result in increased levels of non-performing assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of their examination process, bank regulatory agencies periodically review our allowance for loan losses. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at their time of examination. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts that the borrower's financial condition is such that the collection of interest is doubtful. 11 The Company's policy requires measurement of the allowance for an impaired collateral dependent loan based on the fair value of the collateral. Other loan impairments are measured based on the present value of expected future cash flows or the loan's observable market price. Operating Results ----------------- Three-months ended June 30, 2003 and 2002 ----------------------------------------- Net income for the second quarter of 2003 totaled $9.2 million, an increase of $699 thousand or 8.2% for the same period last year. The earnings improvement over the same period for the prior year resulted primarily from an increase in the gain from student loan sales and real estate mortgage fees totaling $2.4 million for the quarter ended June 30, 2003 compared to $486 thousand for the same period in 2002. Off-setting these increases was a decrease in the interest margin resulting from the early prepayment and reinvestment of investment securities. Interest rates have declined to the lowest level in 40 years which has decreased our interest income on our interest-earning assets and likewise decreased our cost of funds but has generally resulted in a reduced interest margin. On a basic earnings per share basis, earnings amounted to $0.60 per share for the second quarter of 2003 as compared to $0.55 per share for the second quarter of 2002. Return on average assets and return on average equity for the second quarter of 2003 amounted to 1.84% and 15.09%, respectively. For the same periods in 2002, return on average assets and return on average equity amounted to 1.80% and 15.73%, respectively. The decline in return on average equity was a result of the Company's equity growing at a higher percentage than its earnings, primarily from an increase in the unrealized gain on securities available for sale. Tax equivalent net interest income for the second quarter of 2003 amounted to $20.4 million as compared to $20.8 million for the same period last year. The decrease of $379 thousand was due to a decrease in net interest spread partially offset by an increase in volume of interest earning assets. Average earning assets were $1.8 billion for the second quarter of 2003 which is $109.2 million, or 6.3% greater than the second quarter of 2002. The Company's yield on those average earning assets declined to 5.41% for 2003 compared to 6.25% for 2002 as the Company's experienced lower rates from the early prepayment and reinvestment of investment securities and maturing loans. The Company was able to reprice its interest bearing liabilities to offset some of the decline in rates on its earning assets. The Company's net interest margin was 4.44% for the second quarter of 2003 compared to 4.81% for the same period of 2002. The provision for loan losses for the first quarter of 2003 totaled $226 thousand compared to $510 thousand for the same period in 2002. Gross chargeoffs for the quarter ended June 30, 2003 totaled $347 thousand compared to $449 thousand for the same period of 2002. Recoveries of previously charged-off loans totaling $281 thousand in the quarter ended June 30, 2003 (as compared to $201 thousand in 2002) offset the increase in chargeoffs experienced. On an annualized basis, net chargeoffs as a percentage of average loans was 0.03% for the second quarter of 2003 as compared to 0.09% for the same period in 2002. The Company's allowance for loan losses totaled $11.5 million at June 30, 2003 compared to $11.1 million at June 30, 2002, the increase due primarily to an overall increase in loans, net of the sale of student loans. As a percentage of nonperforming loans, the Company's allowance amounted to 823.7% at June 30, 2003. As of June 30, 2003, management of the Company believes that the Company's balance in allowance for loan losses is adequate to provide for losses existing in its portfolio that are deemed uncollectible. Total noninterest income for the second quarter of 2003 was $9.5 million, as compared to $7.3 million for the same period last year. During the second quarter, the Company sold $53 million in student loans recognizing a gain of $1.6 million as compared to selling $8 million in loans in the second quarter of 2002 resulting in $117 thousand in gains. The Company was presented an opportunity to receive an additional premium by accelerating the sale of student loans that would normally have occurred ratably over the next six to eight months. In addition, real estate mortgage fees increased to $815 thousand for the second quarter of 2003 from $369 thousand for the same period of 2002 as the Company's customers took advantage of decreased interest rates to refinance their mortgages at the lowest home mortgage interest rates experienced in years. Trust fees totaled $1.5 million for 2003, relatively flat from the previous year. The lack of increase in trust fees is primarily a result of the depressed equity markets. As certain trust fees are based on a percentage of the 12 market value of trust assets, the lower market valuations have resulted in lower trust fees. Service fees on deposits increased 4.7% to $4.0 million due to an increased number of accounts and transaction volumes. ATM fees totaled $738 thousand for the second quarter of 2003 compared to $591 thousand for the second quarter in 2002 due to consumers increased use of debit cards, increased volume and an increase in fees charged for non-Company customer usage. Noninterest expense for the second quarter of 2003 amounted to $15.5 million compared to $14.7 million for the same period in 2002, an increase of 5.7%. Salaries and benefits expense, the Company's largest noninterest expense item, increased 9.2% to $8.6 million in 2003 due to salary increases and the increased cost of employee benefits. Net occupancy expense and equipment expense were relatively flat in the second quarter of 2003 compared to the second quarter of 2002. The Company's other expense increased only 4.3% in the second quarter of 2003 compared to the second quarter of 2002. This is a result of Company wide efforts to curtail such expenses. We believe a key indicator of our operating efficiency is expressed by the ratio that is calculated by dividing noninterest expense by the sum of net interest income (on a tax equivalent basis) and noninterest income. This ratio in effect measures the amount of funds expended to generate revenue. Our goal is to continue to decrease the ratio, which indicates what we believe to be a more efficiently run company. We maintained this ratio at comparable levels of 52.11% for the second quarter of 2002 and 51.88% for the second quarter of 2003. Six-months ended June 30, 2003 and 2002 --------------------------------------- Net income for the six months of 2003 totaled $17.7 million, an increase of $970 thousand or 5.8% for the same period last year. The earnings improvement over the same period for the prior year resulted primarily from an increase in the gain from student loan sales and real estate mortgage fees totaling $3.3 million for the six months ended June 30, 2003 compared to $1.1 million for the same period in 2002. Off-setting these increases was a decrease in the interest margin resulting from the early prepayment and reinvestment of our investment securities. Interest rates have declined to the lowest level in 40 years which has decreased our interest income on our interest-earning assets and likewise decreased our cost of funds but has generally resulted in a reduced overall interest margin. On a basic earnings per share basis, earnings amounted to $1.14 per share as compared to $1.08 per share for the six months of 2002. Return on average assets and return on average equity for the first six months of 2003 amounted to 1.78% and 14.70%, respectively. For the same periods in 2002, return on average assets and return on average equity amounted to 1.78% and 15.62%, respectively. The decline in the return of average equity was primarily a result of the Company's equity growing at a higher percentage than its earnings, primarily from an increase in the unrealized gain on securities available for sale. Tax equivalent net interest income for the first six months of 2003 amounted to $40.9 million as compared to $41.0 million for the same period last year. The decrease of $98 thousand was due to a decreasing net interest spread partially offset by an increase in volume of net interest earning assets. Average earning assets were $1.8 billion for the first six months of 2003 which is $104.1 million, or 6.0% greater than the first six months of 2002. The Company's yield on those average earning assets declined to 5.52% for 2003 compared to 6.34% for 2002 as the Company experienced lower rates from the early prepayment and reinvestment of investment securities and maturing loans. The Company was able to reprice its interest bearing liabilities to offset some of the decline in rates on its earning assets. The Company's net interest margin was 4.51% for the first six months of 2003 compared to 4.83% for the first six months of 2002. The provision for loan losses for the first six months of 2003 totaled $736 thousand compared to $909 thousand for the same period in 2002. Gross chargeoffs for the six months ended June 30, 2003 totaled $1.25 million compared to $883 thousand for the same period of 2002. Recoveries of previously charged-off loans totaling $816 thousand in the six months ended June 30, 2003 (as compared to $492 thousand in 2002) offset the increase in chargeoffs experienced in the first six months of 2003. On an annualized basis, net chargeoffs as a percentage of average loans was 0.09% for the first six months of 2003 as 13 compared to 0.08% for the same period in 2002. The Company's allowance for loan losses totaled $11.5 million at June 30, 2003 compared to $11.1 million at June 30, 2002, the increase due primarily to an overall increase in loans, net of the sale of student loans. As a percentage of nonperforming loans, the Company's allowance amounted to 823.7% at June 30, 2003. As of June 30, 2003, management of the Company believes that the Company's balance in allowance for loan losses is adequate to provide for losses existing in its portfolio that are deemed uncollectible. Total noninterest income for the first six months of 2003 was $17.6 million, as compared to $14.4 million for the same period last year. During the second quarter, the Company sold $53 million in student loans recognizing a gain of $1.6 million as compared to selling $8 million in loans in the 2002 second quarter resulting in $117 thousand in gains. The Company was presented an opportunity to receive an additional premium by accelerating the sale of student loans that would normally have occurred ratably over the next six to eight months. In addition, real estate mortgage fees increased to $1.5 million for the first six months of 2003 from $791 thousand in the same period of 2002 as the Company's customers took advantage of decreased interest rates to refinance their mortgages at the lowest home mortgage interest rates experienced in years. Trust fees totaled $2.9 million for 2003, relatively flat from the previous year. The lack of increase in trust fees in primarily a result of the depressed equity markets. As certain trust fees are based on a percentage of the market value of trust assets, the lower market valuations have resulted in lower trust fees. Service fees on deposits increased 5.9% to $7.8 million due to an increased number of accounts and transaction volumes. ATM fees totaled $1.4 million for the first six months of 2003 compared to $1.1 million for the first six months in 2002 due to consumer increased use of debit cards, increased volume and an increase in fees charged for non-Company customer usage. Noninterest expense for the first six months of 2003 amounted to $30.6 million compared to $28.9 million for the same period in 2002, an increase of 5.9%. Salaries and benefits expense, the Company's largest noninterest expense item, increased 7.0% to $16.8 million in 2003 due to salary increases and the increased cost of employee benefits. Net occupancy expense and equipment expense were relatively flat in the first six months of 2003 compared to the first six months of 2002. Increased costs in legal and professional, outside service and courier expenses were the primary cause for the increase in other expenses in 2003 over 2002. The Company also experienced $242 thousand in losses from check fraud compared to $152 thousand in the prior year six months. The banking industry is experiencing more losses from fraud. The Company has increased its review procedures and invested in new software products to combat this problem. We believe a key indicator of our operating efficiency is expressed by the ratio that is calculated by dividing noninterest expense by the sum of net interest income (on a tax equivalent basis) and noninterest income. This ratio in effect measures the amount of funds expended to generate revenue. Our goal is to continue to decrease the ratio, which indicates what we believe to be a more efficiently run company. We maintained this ratio at comparable levels of 52.11% for the first six months of 2002 and 52.35% for the first six months of 2003. Balance Sheet Review -------------------- Total assets at June 30, 2003 amounted to $2.028 billion as compared to $1.993 billion at December 31, 2002, and $1.911 billion at June 30, 2002. Since December 31, 2002, loans decreased $43.1 million primarily as a result of the student loan sales discussed above. Deposits increased $32.3 million at June 30, 2003 compared to December 31, 2002, most of which were in non interest bearing deposits ($18.2 million) which has lowered the Company's costs of funds. Loans at June 30, 2003, totaled $921 million as compared to $964 million at year-end 2002 and $935 million at June 30, 2002. As compared to June 30, 2002 amounts, loans at June 30, 2003 reflects (i) a $10.8 million increase in commercial, financial and agricultural loans; (ii) a $33.9 million increase in real estate loans; and (iii) a $58.7 million decrease in consumer and student loans. Investment securities at June 30, 2003, totaled $879 million as compared to $772 million at year-end 2002 and $759 million at June 30, 2002. The net unrealized gain in the investment portfolio at June 30, 2003, amounted to $25.4 million and had an overall tax equivalent yield of 4.93% At June 30, 2003, the Company did not hold any 14 structured notes and management does not believe that their collateralized mortgage obligations have an interest, credit or other risk greater than their other investments. Total deposits at June 30, 2003, amounted to $1.744 billion as compared to $1.712 billion at year-end 2002 and $1.648 billion at June 30, 2002. The increase in deposits at June 30, 2003 when compared to year end 2002 represents the continued movement of funds away from the equity markets to what consumers believe to be a safer banking environment. Non performing assets at June 30, 2003, totaled $2.8 million as compared to $4.3 million at December 31, 2002. The decrease resulted primarily from the collection of two loans previously included in nonperforming loans and the charge-off of a previously nonperforming loan. At 0.31% of loans plus foreclosed assets, management considers nonperforming assets to be at a manageable level and is unaware of any material classified credit non properly disclosed as nonperforming. Liquidity and Capital --------------------- Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets, which are readily marketable or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which includes core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary banks. Other sources of funds include our ability to sell securities under agreement to repurchase, and an unfunded $20.0 million line of credit established with a nonaffiliated bank which matures on June 30, 2004. We believe the line of credit will be renewed upon maturity. Given the strong core deposit base and relatively low loan to deposit ratios maintained at the subsidiary banks, management considers the current liquidity position to be adequate to meet short- and long-term liquidity needs. In addition, we anticipate that any future acquisition of financial institutions and expansion of branch locations could also place a demand on our cash resources, Available cash at our parent company, available dividends from subsidiary banks, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions. The Company's consolidated statements of cash flows are presented on page 8 of this report. Total equity capital amounted to $251.2 million at June 30, 2003, which was up from $238.8 million at year-end 2002 and $227.7 million at June 30, 2002. The Company's risk-based capital and leverage ratios at June 30, 2003 were 20.22% and 10.46%, respectively. The second quarter 2003 cash dividend of $0.31 per share totaled $4.8 million and represented 52.3% of second quarter earnings. Interest Rate Risk ------------------ Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest bearing liabilities are different. The Company's exposure to interest rate risk is managed primarily through the Company's strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities which generate favorable earnings, while limiting the potential negative effects of changes in market interest rates. The Company uses no off-balance-sheet financial instruments to manage interest rate risk. The Company and each subsidiary bank has an asset/liability committee which monitors interest rate risk and compliance with investment policies. Interest-sensitivity gap and simulation analysis are among the ways that the subsidiary banks track interest rate risk. As of June 30, 2003, management 15 estimates that, over the next twelve months, an upward shift of interest rates by 150 basis points would result in an increase in projected net interest income of 4.3% and a downward shift of interest rates by 100 basis points would result in a reduction in projected net interest income of 3.8%. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at June 30, 2003, will remain constant over the relevant twelve month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics of specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. In management's belief, these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice at different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, our future results could in management's belief, be different from the foregoing estimates, and such results could be material. Item 3. Quantitative and Qualitative Disclosures About Market Risk Management considers interest rate risk to be a significant market risk for the Company. See "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations" for disclosure regarding this market risk. Item 4. Controls and Procedures As of June 30, 2003, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities Exchange Act Rule 15d-15. Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal financial officer have concluded, based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures under Rule 13a-14 (c) and Rule 15d - 14 (c) of the Securities Exchange Act of 1934 are effective. 16 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are filed as part of this report: 3.1 Articles of Incorporation, and all amendments thereto, of the Registrant (incorporated by reference from Exhibit 1 of the Registrant's Amendment No. 2 to Form 8-A filed on Form 8-A/A No. 2 on November 21, 1995). 3.2 Amended and Restated Bylaws, and all amendments thereto, of the Registrant (incorporated by reference from Exhibit 2 of the Registrant's Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994). 4.1 Specimen certificate of First Financial Common Stock (incorporated by reference from Exhibit 3 of the Registrant's Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994). 10.1 Deferred Compensation Agreement, dated October 28, 1992, between the Registrant and Kenneth T. Murphy (incorporated by reference from Exhibit 10.1 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 10.2 Revised Deferred Compensation Agreement, dated December 28, 1995, between the Registrant and Kenneth T. Murphy (incorporated by reference from Exhibit 10.2 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 10.3 Executive Recognition Plan (incorporated by reference from Exhibit 10.3 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 10.4 Form of Executive Recognition Agreement (incorporated by reference from Exhibit 10.4 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 10.5 1992 Incentive Stock Option Plan (incorporated by reference from Exhibit 10.5 of the Registrant's Form 10-K Annual Report for the fiscal year ended December 31, 1998). 10.6 2002 Incentive Stock Option Plan (incorporated by reference from Appendix A of the Registrant's Schedule 14a Definitive Proxy Statement for the 2002 Annual Meeting of Shareholders). 10.7 Consulting Agreement dated January 1, 2003 between the Registrant and Kenneth T. Murphy (incorporated by reference from Exhibit 10.7 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 16.1 Letter regarding Change in Certifying Accountant (incorporated by reference from Exhibit 16.1 of the Registrant's Form 8-K filed on March 25, 2002). 21.1 Subsidiaries of the Registrant (incorporated by reference from Exhibit 21.1 of the Registrant's Form 10-K Annual Report for the year ended December 31, 2002). 31.1 Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer of First Fincial Bankshares, Inc. 31.2 Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer of First Financial Bankshares, Inc. 32.1 Section 1350 Certification of Chief Executive Officer of First Financial Bankshares, Inc. 32.2 Section 1350 Certification of Chief Financial Officer of First Financial Bankshares, Inc. (b) On July 16, 2003, we furnished a report on Form 8-K relating to our earnings release for the quarter ended June 30, 2003. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST FINANCIAL BANKSHARES, INC. Date: August 6, 2003 By:/S/ F. Scott Dueser ------------------------- ------------------------------------- F. Scott Dueser President and Chief Executive Officer Date: August 6, 2003 By:/S/ J. Bruce Hildebrand ------------------------- ------------------------------------- J. Bruce Hildebrand Executive Vice President and Chief Financial Officer 18 Exhibit 31.1 ------------ Certification of Chief Executive Officer of First Financial Bankshares, Inc. I, F. Scott Deuser, President and Chief Executive Officer of First Financial Bankshares, Inc., certify that: 1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Intentionally Omitted]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 6, 2003 /S/ F. Scott Dueser ------------------- F. Scott Dueser President and Chief Executive Officer 19 Exhibit 31.2 ------------ Certification of Chief Financial Officer of First Financial Bankshares, Inc. I, J. Bruce Hildebrand, Executive Vice President and Chief Financial Officer of First Financial Bankshares, Inc., certify that: 1. I have reviewed this Form 10-Q of First Financial Bankshares, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Intentionally Omitted]; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 6, 2003 S/J. Bruce Hildebrand --------------------- J. Bruce Hildebrand Executive Vice President and Chief Financial Officer 20 Exhibit 32.1 ------------ Certification of Chief Executive Officer of First Financial Bankshares, Inc. This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United States code) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended June 30, 2003 of First Financial Bankshares, Inc. I, F. Scott Dueser, the President and Chief Executive Officer of the Issuer certify that: 1. the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d); and 2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 6, 2003 /S/ F. Scott Dueser ------------------- F. Scott Dueser Chief Executive Officer Subscribed and sworn to before me this 6th day of August 2003. /S/ Gaila N. Kilpatrick ----------------------- Gaila N. Kilpatrick Notary Public My commission expires: April 15, 2005 21 Exhibit 32.2 ------------ Certification of Chief Financial Officer of First Financial Bankshares, Inc. This certification is provided pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of title 18, United States code) and accompanies the quarterly report on Form 10-Q (the "Form 10-Q") for the quarter ended June 30, 2003 of First Financial Bankshares, Inc. I, J. Bruce Hildrebrand, the Executive Vice President and Chief Financial Officer of the Issuer certify that: 1. the Form 10-Q fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d); and 2. the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 6, 2003 /S/ J. Bruce Hildebrand ----------------------- J. Bruce Hildebrand Chief Financial Officer Subscribed and sworn to before me this 6th day of August 2003. /S/ Gaila N. Kilpatrick ----------------------- Gaila N. Kilpatrick Notary Public My commission expires: April 15, 2005 22