My Market Wizard

FIRST FINANCIAL BANKSHARES INC 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

First Financial Bankshares, Inc

Filing date:

02/21/2025

TLDR:

First Financial Bankshares Inc. (FFIN) demonstrates solid financial performance with increased net earnings driven by loan growth and improved net interest margin. Potential risks include interest rate sensitivity, economic concentration in Texas, and cybersecurity threats.

ELI5:

First Financial Bankshares, a Texas bank, made more money this year because they loaned out more money and charged higher interest rates. However, they face risks like changing interest rates, the Texas economy, and computer security.

Accession #:

0000950170-25-024666

Published on

Analyst Summary

  • Net Earnings increased by 12.33% from $198.98 million in 2023 to $223.51 million in 2024.
  • Net Interest Income increased from $383.81 million in 2023 to $426.74 million in 2024, driven by loan growth and higher yields.
  • Total Assets increased from $13.11 billion in 2023 to $13.98 billion in 2024.
  • Return on Average Assets (ROA): 1.68% in 2024 vs. 1.55% in 2023.
  • Return on Average Equity (ROE): 14.51% in 2024 vs. 14.99% in 2023.
  • Efficiency Ratio: 47.23% in 2024 vs. 47.26% in 2023.
  • Nonperforming Assets / (Loans + Foreclosed Assets): 0.80% in 2024 vs. 0.49% in 2023.
  • Leverage Ratio: 12.49% in 2024 vs. 12.06% in 2023.
  • Tier 1 Risk-Based Capital Ratio: 18.83% in 2024 vs. 18.50% in 2023.
  • Operating Profit Margin = 36.18%
  • Net Profit Margin = 29.73%
  • Basic EPS = $1.56, Diluted EPS = $1.56
  • Price-to-Earnings Ratio (P/E) = 23.61
  • Price-to-Book Ratio (P/B) = 3.28
  • Price-to-Sales Ratio (P/S) = 6.99
  • Enterprise Value to EBITDA (EV/EBITDA) = 9.63
  • Revenue Growth = 19.67%
  • Net Income Growth = 12.33%
  • EPS Growth = 12.23%

Opportunities and Risks

  • Interest Rate Risk: The company is sensitive to changes in interest rates, which could impact net interest income and asset values.
  • Credit Risk: Borrowers may default on loans, and collateral may be insufficient.
  • Liquidity Risk: Access to funding sources could be impaired by economic downturns or adverse regulatory actions.
  • Operational Risk: Reliance on analytical models, internal controls, and external vendors poses potential risks.
  • Economic Concentration: The company’s business is concentrated in Texas, making it vulnerable to regional economic downturns.
  • Cybersecurity Risk: The company faces ongoing threats to its information technology systems.
  • Regulatory Risk: The company is subject to extensive government regulation, which could increase compliance costs and limit business opportunities.
  • Organic Growth: The company can continue to expand its customer base and loan portfolio through organic growth initiatives.
  • Strategic Acquisitions: The company can pursue acquisitions of high-quality banks in attractive markets.
  • Community Banking Model: The company’s focus on local decision-making and customer service can differentiate it from larger competitors.
  • Trust and Wealth Management: The company can expand its trust and wealth management services to generate additional fee income.
  • Texas Economic Growth: The company can benefit from the continued economic growth and diversification of the Texas economy.

Potential Implications

Company Performance

  • The company’s solid financial performance and community banking model support a “Hold” recommendation.
  • Investors should monitor the company’s ability to manage interest rate risk, maintain asset quality, and navigate the evolving regulatory landscape.

Stock Price

  • FFIN’s P/E ratio is higher than the industry average, suggesting it may be overvalued or that investors expect higher growth.
  • FFIN’s P/B ratio is significantly higher than the industry average, suggesting it may be overvalued.

SEC Filing Report: First Financial Bankshares Inc. (FFIN) 10-K for FY2024

Executive Summary

This report analyzes First Financial Bankshares Inc.’s (FFIN) 10-K filing for the fiscal year ended December 31, 2024. FFIN demonstrates solid financial performance with increased net earnings driven by loan growth and improved net interest margin. Asset quality remains strong, although nonperforming assets have increased. The company maintains robust capital ratios, exceeding regulatory requirements. However, potential risks include interest rate sensitivity, economic concentration in Texas, and cybersecurity threats. Overall, a “Hold” recommendation is appropriate, reflecting the company’s stable performance and inherent industry risks.

Company Overview

First Financial Bankshares, Inc. is a Texas-based financial holding company with a strong community banking presence across Central, North Central, Southeast, and West Texas. The company operates 79 financial centers and offers a full range of commercial banking, trust, and insurance services. FFIN has a history of growth through organic expansion and strategic acquisitions. The company focuses on serving small to mid-sized markets within Texas.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management expresses optimism about the company’s performance and future prospects. The narrative emphasizes organic growth, customer service, and community involvement. Forward-looking statements are qualified by a comprehensive list of risk factors. A key observation is the focus on local decision-making and regional management, which aligns with the company’s community banking model. The MD&A highlights the positive impact of consolidated non-customer facing operations on efficiency.

Financial Statement Analysis

Income Statement

* **Net Earnings:** Increased by 12.33% from $198.98 million in 2023 to $223.51 million in 2024.
* **Net Interest Income:** Increased from $383.81 million in 2023 to $426.74 million in 2024, driven by loan growth and higher yields.
* **Noninterest Income:** Increased from $108.00 million in 2023 to $123.99 million in 2024, primarily due to increased trust fee income and no losses on sales of AFS securities.
* **Noninterest Expense:** Increased from $237.88 million in 2023 to $265.06 million in 2024, driven by increased salaries and employee benefits.
* **Key Ratios:**
* Return on Average Assets (ROA): 1.68% in 2024 vs. 1.55% in 2023.
* Return on Average Equity (ROE): 14.51% in 2024 vs. 14.99% in 2023.
* Efficiency Ratio: 47.23% in 2024 vs. 47.26% in 2023.

Balance Sheet

* **Total Assets:** Increased from $13.11 billion in 2023 to $13.98 billion in 2024.
* **Loans Held-for-Investment:** Increased from $7.15 billion in 2023 to $7.91 billion in 2024.
* **Securities:** Decreased from $4.73 billion in 2023 to $4.62 billion in 2024.
* **Deposits:** Increased from $11.14 billion in 2023 to $12.10 billion in 2024.
* **Key Ratios:**
* Allowance for Credit Losses / Loans: 1.24% in both 2024 and 2023.
* Nonperforming Assets / (Loans + Foreclosed Assets): 0.80% in 2024 vs. 0.49% in 2023.
* Leverage Ratio: 12.49% in 2024 vs. 12.06% in 2023.
* Tier 1 Risk-Based Capital Ratio: 18.83% in 2024 vs. 18.50% in 2023.

Cash Flow Statement

* Net cash provided by operating activities increased from $284.82 million in 2023 to $309.64 million in 2024.
* The company used cash for investing activities in 2024, primarily due to net decrease in loans held-for-investment.
* The company provided cash from financing activities in 2024, primarily due to net increase in interest-bearing deposits.

Comparative and Trend Analysis

* FFIN’s performance is benchmarked against the Russell 3000 Index and the S&P U.S. BMI Banks Index. While FFIN outperformed both indices in the last year, its cumulative return over the past five years lags behind both.
* The increase in nonperforming assets, while still at a manageable level, warrants close monitoring.
* The company’s net interest margin has increased, reflecting a favorable shift in asset mix and higher yields on loans.

Risk and Opportunity Assessment

Risks

* **Interest Rate Risk:** The company is sensitive to changes in interest rates, which could impact net interest income and asset values.
* **Credit Risk:** Borrowers may default on loans, and collateral may be insufficient.
* **Liquidity Risk:** Access to funding sources could be impaired by economic downturns or adverse regulatory actions.
* **Operational Risk:** Reliance on analytical models, internal controls, and external vendors poses potential risks.
* **Economic Concentration:** The company’s business is concentrated in Texas, making it vulnerable to regional economic downturns.
* **Cybersecurity Risk:** The company faces ongoing threats to its information technology systems.
* **Regulatory Risk:** The company is subject to extensive government regulation, which could increase compliance costs and limit business opportunities.

Opportunities

* **Organic Growth:** The company can continue to expand its customer base and loan portfolio through organic growth initiatives.
* **Strategic Acquisitions:** The company can pursue acquisitions of high-quality banks in attractive markets.
* **Community Banking Model:** The company’s focus on local decision-making and customer service can differentiate it from larger competitors.
* **Trust and Wealth Management:** The company can expand its trust and wealth management services to generate additional fee income.
* **Texas Economic Growth:** The company can benefit from the continued economic growth and diversification of the Texas economy.

Conclusion and Actionable Insights

First Financial Bankshares Inc. demonstrates a stable financial performance with strong capital ratios and improving profitability. However, investors should be aware of the inherent risks associated with the banking industry, including interest rate sensitivity, credit risk, and regulatory compliance. The increase in nonperforming assets, while still manageable, requires close monitoring.

**Recommendation:** Hold. The company’s solid financial performance and community banking model support a “Hold” recommendation. Investors should monitor the company’s ability to manage interest rate risk, maintain asset quality, and navigate the evolving regulatory landscape.

Financial Ratio and Metric Analysis

Note: All calculations are based on the provided data. Industry comparisons are based on my general knowledge as a financial analyst and data that is publicly available. A specific source will be listed if used.

Profitability

  • Gross Profit Margin: Not applicable for a financial institution as it doesn’t have “cost of goods sold” in the traditional sense.
  • Operating Profit Margin:

    • Ratio/Metric: Earnings Before Income Taxes / Total Revenue = $271,846 / ($628,918 + $123,989) = 36.18%
    • Trend: Previous year Operating Profit Margin = $243,299 / ($528,070 + $108,003) = 37.94%. Percentage change = (36.18 – 37.94) / 37.94 = -4.64%
    • Industry: The industry average operating profit margin for banks is around 35%. FFIN is slightly above the industry average.
  • Net Profit Margin:

    • Ratio/Metric: Net Earnings / Total Revenue = $223,511 / ($628,918 + $123,989) = 29.73%
    • Trend: Previous year Net Profit Margin = $198,977 / ($528,070 + $108,003) = 31.12%. Percentage change = (29.73 – 31.12) / 31.12 = -4.47%
    • Industry: The industry average net profit margin for banks is around 25%. FFIN is above the industry average.
  • Return on Assets (ROA):

    • Ratio/Metric: Net Earnings / Average Total Assets = $223,511 / $13,324,412 = 1.68%
    • Trend: Previous year ROA = 1.55%. Percentage change = (1.68 – 1.55) / 1.55 = 8.39%
    • Industry: The industry average ROA for banks is around 1%. FFIN is above the industry average.
  • Return on Equity (ROE):

    • Ratio/Metric: Net Earnings / Average Shareholders’ Equity = $223,511 / $1,539,947 = 14.51%
    • Trend: Previous year ROE = 14.99%. Percentage change = (14.51 – 14.99) / 14.99 = -3.20%
    • Industry: The industry average ROE for banks is around 10%. FFIN is above the industry average.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Ratio/Metric: Basic EPS = $1.56, Diluted EPS = $1.56
    • Trend: Previous year Basic EPS = $1.39, Diluted EPS = $1.39. Percentage change = (1.56 – 1.39) / 1.39 = 12.23%
    • Industry: EPS varies widely based on the size and type of bank. It’s best to compare FFIN to its direct competitors.

Liquidity

  • Current Ratio:

    • Ratio/Metric: Current Assets / Current Liabilities. Assuming securities and loans held for sale are current assets and using total liabilities as a proxy for current liabilities (since detailed breakdown isn’t available): ($763,413 + $4,617,759 + $8,235) / $12,372,858 = 0.44
    • Trend: Previous year Current Ratio = ($536,591 + $4,732,762 + $14,253) / $11,606,694 = 0.45. Percentage change = (0.44 – 0.45) / 0.45 = -2.22%
    • Industry: A current ratio of less than 1 indicates potential liquidity issues. Banks typically have lower current ratios than other industries.
  • Quick Ratio (Acid-Test Ratio):

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since banks don’t have inventory, this is the same as the current ratio: 0.44
    • Trend: Same as current ratio: -2.22%
    • Industry: Same as current ratio.
  • Cash Ratio:

    • Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = $763,413 / $12,372,858 = 0.06
    • Trend: Previous year Cash Ratio = $536,591 / $11,606,694 = 0.05. Percentage change = (0.06 – 0.05) / 0.05 = 20%
    • Industry: Banks operate with low cash ratios, relying on their ability to access funds quickly.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Ratio/Metric: Total Liabilities / Total Shareholders’ Equity = $12,372,858 / $1,606,560 = 7.70
    • Trend: Previous year Debt-to-Equity Ratio = $11,606,694 / $1,498,900 = 7.74. Percentage change = (7.70 – 7.74) / 7.74 = -0.52%
    • Industry: A high debt-to-equity ratio indicates higher financial risk. Banks typically have higher ratios than other industries.
  • Debt-to-Assets Ratio:

    • Ratio/Metric: Total Liabilities / Total Assets = $12,372,858 / $13,979,418 = 0.88
    • Trend: Previous year Debt-to-Assets Ratio = $11,606,694 / $13,105,594 = 0.89. Percentage change = (0.88 – 0.89) / 0.89 = -1.12%
    • Industry: Similar to debt-to-equity, a high ratio indicates higher leverage.
  • Interest Coverage Ratio (Times Interest Earned):

    • Ratio/Metric: Earnings Before Interest and Taxes / Interest Expense = ($223,511 + $48,335 + $202,177) / $202,177 = 2.34
    • Trend: Previous year Interest Coverage Ratio = ($198,977 + $44,322 + $144,261) / $144,261 = 2.75. Percentage change = (2.34 – 2.75) / 2.75 = -14.91%
    • Industry: A lower interest coverage ratio indicates a higher risk of not being able to meet interest obligations.

Activity/Efficiency

  • Inventory Turnover: Not applicable for a financial institution.
  • Days Sales Outstanding (DSO): Not directly applicable, as revenue isn’t from traditional sales.
  • Days Payable Outstanding (DPO): Not directly applicable, as expenses aren’t tied to inventory purchases.
  • Asset Turnover:

    • Ratio/Metric: Total Revenue / Average Total Assets = ($628,918 + $123,989) / $13,324,412 = 0.056
    • Trend: Previous year Asset Turnover = ($528,070 + $108,003) / $12,861,262 = 0.049. Percentage change = (0.056 – 0.049) / 0.049 = 14.29%
    • Industry: Banks typically have low asset turnover ratios.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Ratio/Metric: Stock Price / EPS = $36.83 / $1.56 = 23.61
    • Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/E ratio for banks is around 10-15. FFIN’s P/E ratio is higher than the industry average, suggesting it may be overvalued or that investors expect higher growth.
  • Price-to-Book Ratio (P/B):

    • Ratio/Metric: Stock Price / Book Value Per Share = $36.83 / $11.24 = 3.28
    • Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/B ratio for banks is around 1. FFIN’s P/B ratio is significantly higher than the industry average, suggesting it may be overvalued.
  • Price-to-Sales Ratio (P/S):

    • Ratio/Metric: Market Cap / Total Revenue. Market Cap = Shares Outstanding * Stock Price. Shares Outstanding = 142,944,704. Market Cap = 142,944,704 * $36.83 = $5,265,191,000 (approx.). P/S = $5,265,191,000 / ($628,918,000 + $123,989,000) = 6.99
    • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/S ratio for banks is around 2-3. FFIN’s P/S ratio is higher than the industry average.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization = $223,511 + $48,335 + $202,177 + $13,427 + $618 = $488,068 (in thousands). Total Debt = $135,603 + $61,416 = $197,019 (in thousands). Cash = $763,413 (in thousands). EV = $5,265,191 + $197,019 – $763,413 = $4,698,897 (in thousands). EV/EBITDA = $4,698,897 / $488,068 = 9.63
    • Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The average EV/EBITDA ratio for banks is around 8-10. FFIN’s EV/EBITDA ratio is within the industry average.

Growth Rates

  • Revenue Growth:

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = (($628,918 + $123,989) – ($528,070 + $108,003)) / ($528,070 + $108,003) = 19.67%
  • Net Income Growth:

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($223,511 – $198,977) / $198,977 = 12.33%
  • EPS Growth:

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($1.56 – $1.39) / $1.39 = 12.23%

Other Relevant Metrics

  • Allowance for Credit Losses (ACL): The company calculates ACL in accordance with ASC 326, using a forward-looking expected loss model (CECL). This involves significant management judgment in estimating expected credit losses over the contractual life of the loan portfolio. The ACL was $98.3 million as of December 31, 2024, compared to $88.7 million the previous year. The increase reflects changes in the loan portfolio and economic outlook.

Commentary

First Financial Bankshares (FFIN) demonstrates solid financial performance with profitability metrics exceeding industry averages. While the operating and net profit margins experienced a slight decrease, ROA, ROE, and EPS all show positive growth. The company maintains a high debt-to-equity ratio, typical for banks, but its interest coverage ratio has decreased, indicating a potential increase in financial risk. Valuation ratios suggest that FFIN may be overvalued compared to its peers, but revenue, net income, and EPS growth rates are strong. Overall, FFIN exhibits a healthy financial position with strong growth, but investors should be mindful of its valuation and interest coverage ratio.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️