First Financial Bankshares, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. The Texas-based community banking company operated through First Financial Bank, with 79 Texas locations. Unless noted, dollar amounts below are in millions.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Interest income | $149.5 | $121.5 |
| Interest expense | $49.3 | $25.2 |
| Net interest income | $100.2 | $96.3 |
| Net interest income, tax-equivalent | $102.8 | $99.4 |
| Provision for credit losses | $0.8 | $2.8 |
| Noninterest income | $29.4 | $28.0 |
| Noninterest expense | $63.9 | $57.3 |
| Net earnings | $53.4 | $52.6 |
| Diluted EPS | $0.37 | $0.37 |
| Net interest margin, tax-equivalent | 3.34% | 3.34% |
| Efficiency ratio | 48.37% | 44.93% |
| Return on average assets / equity | 1.62% / 14.43% | 1.65% / 16.32% |
- Net interest income rose about 4%; net earnings rose about 2%, while diluted EPS was unchanged. Higher loan income was partly offset by substantially higher deposit and borrowing costs.
- Trust fees were $11.4 million, up from $9.8 million; management attributed the increase partly to trust assets under management rising to $10.15 billion from $9.10 billion. Salary and benefits expense increased $5.2 million, primarily reflecting pay, profit-sharing, medical insurance and incentive costs.
- Cash from operating activities was $75.6 million, down from $95.9 million. Cash and cash equivalents ended the quarter at $600.2 million, up $63.6 million during the quarter.
Financial position, asset quality and liquidity
- Total assets were $13.19 billion at March 31, 2024, versus $13.01 billion a year earlier. Loans held for investment were $7.23 billion, up from $6.58 billion year over year; notable growth included residential loans and commercial and industrial loans.
- Total deposits were $11.29 billion, versus $10.94 billion a year earlier. Average noninterest-bearing deposits declined year over year, while average interest-bearing deposits and their average rate increased. The estimated amount of uninsured and uncollateralized deposits was $5.28 billion.
- Shareholders’ equity was $1.49 billion, or 11.31% of assets. Consolidated total risk-based capital was 19.70%, and the Tier 1 leverage ratio was 12.12%; the company and bank exceeded the stated well-capitalized thresholds.
- Total borrowings, including repurchase agreements, were $334.1 million, compared with $632.9 million a year earlier. Repurchase agreements were $307.3 million. The company reported no balance drawn on its $25 million Frost Bank revolver; it had $130 million in federal funds purchased lines and a $1.98 billion available FHLB line, with $781.5 million used to support undisbursed commitments for public funds.
- The allowance for credit losses was $89.6 million, or 1.24% of loans. Nonperforming assets were $37.2 million, or 0.51% of loans and foreclosed assets, versus $24.4 million and 0.37% a year earlier. Nonaccrual loans increased to $36.2 million from $24.2 million; management described asset quality levels as manageable.
- Available-for-sale securities had a fair value of $4.66 billion and gross unrealized losses of $559.7 million. The company attributed the losses to interest rates rather than credit events, recorded no securities credit-loss allowance, and stated it had the ability and intent to hold the portfolio.
Material changes, outlook and risks
- Average earning assets increased year over year, mainly from higher average loans; average investment securities declined. The yield on earning assets rose 76 basis points, while the rate on interest-bearing liabilities rose 105 basis points. Deposit interest expense increased to $45.3 million from $21.8 million.
- Management reported an asset-sensitive interest-rate position: its model estimated that an immediate 100-basis-point increase would raise next-12-month net interest income by 2.43%, while a 100-basis-point decrease would reduce it by 3.35%. These are estimates based on assumptions, not forecasts; management cautioned actual results may differ materially.
- Management said liquidity was adequate and that it knew of no event reasonably likely to materially adversely affect liquidity, capital resources or operations. The filing gives no numerical earnings or growth guidance. Management did not anticipate a significant change in dividend policy; the quarterly dividend was $0.18 per share, versus $0.17.
- The securities portfolio remains sensitive to interest rates: a 100-basis-point increase in the five-year Treasury rate was estimated to increase pretax unrealized losses by approximately $232 million; a 100-basis-point decrease was estimated to reduce them by approximately $196 million. Unrealized AFS losses, net of tax, were $441.2 million in accumulated other comprehensive loss.
- Notable cost item: the company accrued an additional $440,000 for the FDIC special assessment in Q1. The filing also identifies risks including economic and Texas real estate conditions, interest-rate and market changes, credit losses and collateral values, deposit competition and liquidity, cyber and technology risks, regulatory changes, severe weather and geopolitical events.
- Effective April 22, 2024, the bank and trust company converted from national charters to Texas state charters; the bank remains a Federal Reserve member and retains FDIC deposit insurance. The company reported no material pending legal proceedings, no material change in previously disclosed risk factors, and effective disclosure controls as of March 31, 2024.
Important facts for investors to verify
- Whether the rise in nonaccrual loans and nonperforming assets persists, particularly within commercial real estate, farm and other affected portfolios, and whether the allowance remains adequate.
- How deposit mix, deposit pricing and competition affect funding costs and net interest margin as rates change; review assumptions behind management’s interest-rate simulations.
- The size, duration and liquidity implications of unrealized AFS securities losses, and the company’s capacity to hold the portfolio without needing to realize losses.
- Whether higher operating expenses, including employee costs and FDIC assessments, continue to pressure the efficiency ratio.
- Uninsured and uncollateralized deposits, off-balance-sheet commitments of $2.10 billion, and available borrowing capacity, including collateral and line-use conditions.
- Future results against the filing’s qualitative outlook: no specific earnings guidance was provided.