Business Context and Reporting Period
Company: First Financial Bankshares, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2002
Reporting Status: Unaudited. The Audit Committee decided not to appoint Arthur Andersen, LLP as auditors for the year ended December 31, 2002. The company is in the process of engaging new independent public accountants. The new auditors will review this 10-Q as part of their review of the June 30, 2002 filing; if changes are required, the company will amend this report.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Net Earnings | $8,178,656 | $7,003,750 |
| Earnings Per Share (Basic) | $0.66 | $0.57 |
| Net Interest Income | $19,400,222 | $16,919,895 |
| Net Interest Margin | 4.79% | 4.51% |
| Total Assets | $1,885,084,359 | $1,784,079,992 |
| Total Loans | $940,581,045 | $868,839,197 |
| Total Deposits | $1,629,914,492 | $1,541,047,883 |
| Shareholders' Equity | $217,217,521 | $201,875,762 |
| Cash and Cash Equivalents | $139,297,896 | $214,558,944 |
| Return on Average Assets | 1.76% | 1.63% |
| Return on Average Equity | 15.50% | 14.50% |
Debt and Liquidity: The parent company had no debt outstanding under its $25 million line of credit. Risk-based capital ratio was 18.64% and leverage ratio was 10.22%.
Material Changes vs. Prior Period
- Profitability: Net earnings increased 16.8% year-over-year, driven primarily by a $2.48 million increase in net interest income.
- Interest Rates: The net interest margin improved to 4.79% from 4.51% due to the repricing of interest-bearing liabilities following interest rate declines in early 2001.
- Asset Growth: Total assets increased by approximately $101 million compared to Q1 2001. Loans grew by $71.7 million, aided by a cash purchase acquisition completed in July 2001.
- Asset Quality: Net charge-offs decreased significantly to $143,000 (0.06% annualized) from $679,000 (0.32% annualized) in Q1 2001. Nonperforming assets rose to $5.6 million (0.60% of loans) from $4.8 million at year-end 2001.
- Expense Management: Noninterest expense increased to $14.2 million from $13.2 million, largely due to higher salaries and benefits. However, the efficiency ratio improved to 52.31% from 54.18%.
- Accounting Change: The company adopted SFAS No. 142 on January 1, 2002, discontinuing the amortization of goodwill ($23.8 million previously amortized).
Guidance, Outlook, and Risks
- Dividends: A cash dividend of $0.30 per share was paid in Q1 2002. On April 23, 2002, the company declared a $0.35 per share dividend payable July 1, 2002.
- Interest Rate Risk: Management estimates that a 150 basis point increase in rates over the next 12 months would increase projected net interest income by 2.35%. Conversely, a 150 basis point decrease would reduce projected net interest income by 5.22%.
- Contingencies: The financial statements are unaudited and subject to potential amendment upon review by the newly engaged independent public accountants.
- Outlook: Management notes that Q1 2002 results are not necessarily indicative of full-year results. The company continues to manage interest rate risk through asset/liability committees and does not use off-balance-sheet instruments for this purpose.
Investor Verification Checklist
- Audit Status: Verify the appointment of new independent public accountants and whether any amendments to the Q1 2002 financials are issued following their review.
- Goodwill Impairment: Monitor the initial impairment test for goodwill scheduled for the quarter ending June 30, 2002, following the adoption of SFAS 142.
- Deposit Trends: Review the cause of the $55 million decrease in total deposits from year-end 2001 to Q1 2002, attributed to seasonal declines and a strategy not to match higher market rates.
- Nonperforming Assets: Track the $1.0 million increase in nonaccrual loans contributing to the rise in nonperforming assets.
- Interest Rate Sensitivity: Assess the company's exposure to downward rate shifts, which management estimates could reduce net interest income by over 5%.