First Financial Bankshares, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports fourth-quarter results. First Financial is a Texas-focused community banking and financial holding company operating 79 financial centers, with commercial banking, mortgage, trust and wealth-management businesses.
Key financial results
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Net interest income | $383.8 million | $401.4 million | Down 4.4% |
| Net interest margin | 3.29% | 3.34% | Down 5 basis points |
| Noninterest income | $108.0 million | $131.7 million | Down 18.0% |
| Provision for credit losses | $10.6 million | $17.4 million | Down $6.8 million |
| Noninterest expense | $237.9 million | $234.8 million | Up 1.3% |
| Net earnings | $199.0 million | $234.5 million | Down 15.1% |
| Diluted earnings per share | $1.39 | $1.64 | Down 15.2% |
| Return on average assets / equity | 1.55% / 14.99% | 1.76% / 16.72% | Both lower |
| Efficiency ratio | 47.26% | 42.80% | Higher, indicating reduced efficiency |
Tax-equivalent net interest income was $395.4 million versus $416.8 million in 2022. Interest income increased, but funding costs rose faster: the average rate paid on interest-bearing liabilities increased 143 basis points, while earning-asset yield rose 90 basis points. Operating cash flow was $284.8 million, compared with $324.3 million in 2022.
Balance sheet, credit and liquidity
- Total assets were $13.11 billion, up from $12.97 billion. Loans held for investment rose 11.0% to $7.15 billion; deposits increased 1.2% to $11.14 billion.
- Cash and cash equivalents were $536.6 million. Period-end borrowings, including repurchase agreements, totaled $404.1 million, down from $642.5 million. No amount was drawn on the $25 million parent-company revolving line; the bank also had $130 million of federal funds lines and a $1.86 billion FHLB line. The FHLB line had $813 million used for undisbursed commitments securing public funds.
- Estimated uninsured and uncollateralized deposits were approximately $5.38 billion. Time deposits of $250,000 or more totaled $370.5 million and had scheduled maturities primarily within 12 months.
- Available-for-sale securities were $4.73 billion, with a pre-tax unrealized loss of $510.9 million and an after-tax accumulated other comprehensive loss of $403.3 million. Management said it did not expect to need to sell impaired securities before recovery, but a forced sale could crystallize losses.
- Nonperforming assets increased to $35.1 million, or 0.49% of loans and foreclosed assets, from $24.3 million and 0.38%. The allowance for credit losses was $88.7 million, or 1.24% of loans, versus $75.8 million and 1.18% a year earlier. Net charge-offs were 0.03% of average loans.
- Capital remained above regulatory thresholds: consolidated CET1 and Tier 1 risk-based ratios were 18.50%, total risk-based capital was 19.62%, and leverage was 12.06%. The bank was reported well-capitalized.
Material changes and fourth-quarter results
- FY 2023 net earnings fell $35.5 million. Management cited lower net interest income, debit-card revenue, mortgage revenue and securities-sale gains, plus higher FDIC assessments. Lower credit-loss provision and incentive/profit-sharing expense partly offset these pressures.
- Debit-card fees declined $8.6 million, reflecting the interchange-fee cap applicable to the company since July 2022. Mortgage gain and fee income fell $7.1 million amid lower originations and margins. Net securities-sale results moved to a $7.1 million loss from a $2.1 million gain.
- Fourth-quarter net earnings were $46.0 million, versus $58.7 million in Q4 2022. Q4 net interest income was $97.5 million versus $104.0 million; provision was zero versus $4.1 million. Noninterest income was $22.0 million versus $28.4 million, while noninterest expense was $63.5 million versus $57.8 million.
- The company sold $411.1 million of securities during 2023 at an average book yield of 2.91%, stating that proceeds were being redeployed to organic loan growth yielding approximately 8%, with an anticipated earn-back period of less than 18 months.
- Cash dividends declared increased to $0.71 per share from $0.66; the payout ratio rose to 50.96%. The stated long-term policy is to distribute approximately 35%–40% of annual earnings, subject to capital and regulatory limits. The board renewed a share-repurchase authorization through July 31, 2024; 101,337 shares were repurchased in 2023.
Outlook, risks and unusual items
The filing provides no quantified earnings or revenue guidance. Management intends to pursue organic growth, branch expansion and selective Texas bank acquisitions. It describes the securities-funded loan-growth strategy above but cautions that results depend on interest rates, deposit pricing, loan demand and credit conditions.
- Key exposures include deposit competition and funding costs, uninsured-deposit stability, interest-rate and securities valuation risk, commercial real estate and other credit risk, and concentration in Texas markets.
- Real estate represented 70.1% of loans held for investment. Approximately 58.3% of the loan portfolio had variable rates; $1.66 billion of variable-rate loans mature or reprice within 12 months, including $1.37 billion that reprice immediately with the underlying index.
- The $1.75 million FDIC special assessment imposed in Q4 2023 contributed to higher annual FDIC expense. The company also recognized a $7.1 million net loss on AFS securities sales for the year.
- Other disclosed risks include inflation and economic weakness, severe weather and climate impacts, cybersecurity and third-party service-provider risks, regulatory changes, and possible impairment of goodwill and other intangibles. The company reported no cybersecurity risks that materially affected it during the year, and no material pending legal proceedings.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The allowance for credit losses was identified as a critical audit matter because it depends on complex models and judgmental qualitative adjustments.
Investor facts to verify
- Whether deposit balances and funding costs remain stable, particularly given approximately $5.38 billion of estimated uninsured and uncollateralized deposits.
- Whether loan growth and the expected securities-redeployment earn-back occur as management anticipates, and how interest expense affects margins.
- Whether higher nonperforming assets and real-estate exposure lead to additional credit provisions or charge-offs.
- How the AFS portfolio’s unrealized losses, liquidity needs and potential asset sales evolve as interest rates change.
- Whether dividend distributions and repurchases remain consistent with capital needs, regulatory limits and the credit-line covenant.