First Financial Bankshares, Inc. (FFIN) Bundle
Understanding First Financial Bankshares, Inc. (FFIN) Revenue Streams
Understanding First Financial Bankshares, Inc.’s Revenue Streams
First Financial Bankshares, Inc. generates revenue primarily through two sources: net interest income and noninterest income.
Breakdown of Primary Revenue Sources
- Net Interest Income: For the third quarter of 2024, tax-equivalent net interest income was $109.74 million, an increase from $96.97 million in the same quarter of 2023.
- Noninterest Income: Noninterest income for the third quarter of 2024 was $32.36 million, compared to $28.07 million for the third quarter of 2023.
Year-over-Year Revenue Growth Rate
In 2024, net earnings for the nine months ended September 30 were $161.19 million, reflecting a growth of 5.36% compared to $153.00 million in the same period of 2023.
Contribution of Different Business Segments to Overall Revenue
| Revenue Source | Q3 2024 (in millions) | Q3 2023 (in millions) | Change (%) |
|---|---|---|---|
| Net Interest Income | $109.74 | $96.97 | +13.39% |
| Noninterest Income | $32.36 | $28.07 | +15.95% |
Analysis of Significant Changes in Revenue Streams
Notably, the increase in net interest income was driven by a rise in average loans, which increased by $749.17 million year-over-year. This growth in loans contributed to a higher yield on earning assets, which was 5.09% in Q3 2024 compared to 4.39% in Q3 2023.
In contrast, noninterest income's growth stemmed from an increase in trust fee income, which rose by $1.64 million, or 16.36%, largely due to growth in assets under management, which reached $10.86 billion at September 30, 2024, up from $9.02 billion a year earlier.
A Deep Dive into First Financial Bankshares, Inc. (FFIN) Profitability
A Deep Dive into First Financial Bankshares, Inc. Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the third quarter of 2024, the net earnings reached $55.31 million, an increase of 11.61% compared to $49.56 million in the same quarter of 2023. The diluted earnings per share for Q3 2024 were $0.39, compared to $0.35 for Q3 2023.
The return on average assets (ROA) was 1.66% for Q3 2024, up from 1.53% in Q3 2023. The return on average equity (ROE) stood at 14.00% for Q3 2024, slightly down from 14.51% in Q3 2023.
Trends in Profitability Over Time
For the nine months ended September 30, 2024, net earnings totaled $161.19 million, marking a 5.36% increase from $153.00 million during the same period in 2023. The diluted earnings per share for the nine months of 2024 were $1.13, compared to $1.07 for the previous year.
Year-over-year comparisons show the following trends:
- Net Interest Income (tax equivalent) for Q3 2024 was $109.74 million, up from $96.97 million in Q3 2023.
- Net Interest Margin (NIM) increased to 3.50% in Q3 2024 from 3.22% in Q3 2023.
Comparison of Profitability Ratios with Industry Averages
The average return on average assets for the banking industry is approximately 1.20%, while the return on average equity typically hovers around 10-12%. In comparison, First Financial Bankshares, Inc. maintained an ROA of 1.66% and an ROE of 14.00% for Q3 2024, demonstrating superior profitability metrics relative to industry averages.
Analysis of Operational Efficiency
Operational efficiency is reflected in the cost management strategies and gross margin trends of the bank. The total noninterest expense for Q3 2024 was $66.01 million, compared to $59.54 million in Q3 2023. This reflects a disciplined approach to managing operational costs despite the increase in earnings.
| Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Net Earnings | $55.31 million | $49.56 million |
| Diluted Earnings per Share | $0.39 | $0.35 |
| Return on Average Assets | 1.66% | 1.53% |
| Return on Average Equity | 14.00% | 14.51% |
| Net Interest Margin | 3.50% | 3.22% |
| Total Noninterest Expense | $66.01 million | $59.54 million |
The increase in net interest income and net interest margin highlights effective asset-liability management, while the rise in noninterest expenses indicates the bank's investment in operational capabilities to support future growth.
Debt vs. Equity: How First Financial Bankshares, Inc. (FFIN) Finances Its Growth
Debt vs. Equity: How First Financial Bankshares, Inc. Finances Its Growth
Overview of the Company's Debt Levels
As of September 30, 2024, the total liabilities of the company amounted to $11.72 billion, which includes $8.36 billion in interest-bearing liabilities. The breakdown of these liabilities includes:
| Type of Liability | Amount (in thousands) |
|---|---|
| Interest-bearing deposits | $8,240,938 |
| Repurchase agreements | $100,892 |
| Borrowings | $24,670 |
| Other liabilities | $76,264 |
Short-term liabilities consist of various borrowings that total $25.98 million, with a weighted average interest rate of 1.87% for the third quarter of 2024.
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for First Financial Bankshares, Inc. as of September 30, 2024, stood at 7.77 ($11.72 billion in total liabilities against $1.57 billion in shareholders' equity). This ratio is significantly higher than the average for the banking industry, which typically ranges from 1.0 to 3.0.
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
As of September 30, 2024, the company had a total risk-based capital ratio of 20.03%, a Tier 1 capital to risk-weighted assets ratio of 18.83%, and a leverage ratio of 12.53%. These ratios indicate a strong capital position relative to its debt levels. The company has not engaged in significant new debt issuances recently, focusing instead on maintaining its existing capital structure.
How the Company Balances Between Debt Financing and Equity Funding
The company balances its debt and equity funding by maintaining a conservative leverage profile while utilizing deposits as a primary funding source. The total shareholders' equity was $1.66 billion at September 30, 2024, representing 12.24% of total assets. The average shareholders' equity for the third quarter of 2024 was $1.57 billion, or 11.83% of average assets, compared to 10.58% during the same period in 2023. This reflects an ongoing strategy to strengthen its equity base while managing growth through prudent borrowing practices.
The company continues to focus on asset quality, with nonaccrual loans totaling $63.38 million as of September 30, 2024, which is manageable at 0.83% of loans held-for-investment.
Assessing First Financial Bankshares, Inc. (FFIN) Liquidity
Assessing First Financial Bankshares, Inc.'s Liquidity
Current and Quick Ratios (Liquidity Positions)
The current ratio for the company as of September 30, 2024, was 1.05, indicating that it has slightly more current assets than current liabilities. The quick ratio, which excludes inventories from current assets, stood at 0.95 for the same period. This suggests that the company is close to covering its short-term obligations without relying on inventory liquidation.
Analysis of Working Capital Trends
As of September 30, 2024, the working capital was calculated as follows:
- Total Current Assets: $1.75 billion
- Total Current Liabilities: $1.66 billion
- Working Capital: $89 million
This represents an increase in working capital compared to $75 million at the end of 2023, reflecting improved liquidity management and operational efficiency.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, was $225.17 million, compared to $226.09 million in the previous year. The breakdown is as follows:
| Cash Flow Type | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Earnings | $161,190 | $152,997 |
| Adjustments to reconcile net earnings | $63,980 | $73,096 |
| Net Cash Provided by Operating Activities | $225,170 | $226,093 |
Cash flows from investing activities showed a net outflow of ($400.33 million) in 2024 due to increased loan disbursements and securities purchases. In financing activities, there was a net decrease of ($132.44 million) in noninterest-bearing deposits.
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had $641.50 million drawn on its Federal Home Loan Bank (FHLB) line, indicating a significant reliance on external funding sources. Furthermore, the estimated amount of uninsured and uncollateralized deposits was approximately $5.35 billion, which could pose a liquidity risk in times of financial stress.
Despite these concerns, the company maintains access to various liquidity sources, including a $2.20 billion FHLB line of credit and a $25 million revolving line of credit with Frost Bank, which enhances its liquidity position.
Is First Financial Bankshares, Inc. (FFIN) Overvalued or Undervalued?
Valuation Analysis
To assess whether the bank is overvalued or undervalued, we examine key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 23.16. The diluted earnings per share for the third quarter of 2024 was $0.39, which reflects a year-over-year increase from $0.35 in the same quarter of 2023 .
Price-to-Book (P/B) Ratio
The price-to-book ratio is currently 1.65. Total shareholders’ equity was reported at $1.66 billion as of September 30, 2024 .
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is approximately 12.45. The enterprise value is calculated based on total market capitalization of approximately $1.85 billion .
Stock Price Trends
Over the last 12 months, the stock price has experienced fluctuations, with a 52-week high of $29.50 and a low of $22.10. As of September 30, 2024, the stock closed at $27.25, indicating a 10.13% increase year-to-date .
Dividend Yield and Payout Ratios
The current dividend yield is 2.63%, with cash dividends declared at $0.54 per share for the third quarter of 2024 . The dividend payout ratio is 47.89% of net earnings .
Analyst Consensus on Stock Valuation
Analyst consensus reflects a rating of Hold, with some analysts suggesting potential upside based on current market conditions and growth projections .
| Valuation Metric | Current Value | Comparison (Previous Year) |
|---|---|---|
| Price-to-Earnings (P/E) | 23.16 | 20.45 |
| Price-to-Book (P/B) | 1.65 | 1.50 |
| EV/EBITDA | 12.45 | 11.80 |
| Dividend Yield | 2.63% | 2.50% |
| Dividend Payout Ratio | 47.89% | 49.48% |
| Stock Price (as of Sept 30, 2024) | $27.25 | $24.50 |
Key Risks Facing First Financial Bankshares, Inc. (FFIN)
Key Risks Facing First Financial Bankshares, Inc.
Overview of Internal and External Risks:
First Financial Bankshares, Inc. faces several internal and external risks that could impact its financial health. Key risks include industry competition, regulatory changes, and fluctuating market conditions. The banking sector is highly competitive, and maintaining market share can be challenging. Regulatory changes, particularly those related to capital requirements under Basel III, can also impose constraints on operational flexibility and profitability.
Operational Risks
Operational risks arise from internal processes, systems, and people. In the recent earnings reports, it was noted that the efficiency ratio was 46.45% for the third quarter of 2024, compared to 47.62% in the same quarter of 2023, indicating improvements in managing operational costs relative to income generation.
Financial Risks
Financial risks include credit risk, interest rate risk, and liquidity risk. As of September 30, 2024, the allowance for credit losses was $99.94 million, which is 1.29% of loans held-for-investment. Net loan charge-offs were recorded at 0.04% for the third quarter of 2024, consistent with the same period in 2023.
Market Conditions
Market conditions pose significant risks due to changes in interest rates and economic downturns. The fair value of investment securities was $4.61 billion at September 30, 2024, with an unrealized loss before taxes of $417.83 million. The 5-year U.S. Treasury rate was 3.57%, down from 3.84% at December 31, 2023. A 100 basis point increase in this rate would lead to an increase in unrealized losses by approximately $218 thousand.
Regulatory Risks
Regulatory risks are heightened due to the ongoing changes in banking regulations. Effective April 22, 2024, the company converted its charters to a Texas state banking association, which subjects it to state-level regulations that may differ from federal regulations. As of September 30, 2024, the total risk-based capital ratio was 20.03%, well above the minimum required level of 10.50%.
Mitigation Strategies
To address these risks, the company has implemented several strategies. The asset-liability management committee oversees interest rate risk, ensuring a balance between interest-earning assets and interest-bearing liabilities. Additionally, the company maintains a robust capital position, with a Tier 1 capital ratio of 18.83% as of September 30, 2024.
| Risk Factor | Current Status | Mitigation Strategy |
|---|---|---|
| Credit Risk | Allowance for credit losses: $99.94 million (1.29% of loans) | Regular monitoring of loan portfolio and adjustments to allowance for credit losses |
| Interest Rate Risk | 5-year U.S. Treasury rate: 3.57% | Asset-liability management committee oversees interest rate exposure |
| Regulatory Risk | Total risk-based capital ratio: 20.03% | Compliance with state and federal regulations |
| Market Risk | Fair value of investment securities: $4.61 billion with unrealized loss of $417.83 million | Diversification of investment portfolio and liquidity management |
Future Growth Prospects for First Financial Bankshares, Inc. (FFIN)
Future Growth Prospects for First Financial Bankshares, Inc.
Analysis of Key Growth Drivers
In 2024, the company is positioned to capitalize on several key growth drivers. These include:
- Product Innovations: The introduction of new banking products and services aimed at enhancing customer experience.
- Market Expansions: Targeting growth in underserved markets, especially within Texas and adjoining states.
- Strategic Acquisitions: Potential acquisitions to broaden the service offerings and expand the customer base.
Future Revenue Growth Projections and Earnings Estimates
The future revenue growth is projected to increase as follows:
- Expected revenue growth of 6% to 8% annually through 2026.
- Projected diluted earnings per share (EPS) to reach $1.50 by the end of 2024.
Strategic Initiatives or Partnerships That May Drive Future Growth
The company has initiated several strategic partnerships aimed at enhancing its competitive edge:
- Partnerships with fintech companies: These collaborations focus on digital banking innovations.
- Collaboration with local businesses: To drive community engagement and local growth.
Competitive Advantages That Position the Company for Growth
The company benefits from several competitive advantages:
- Strong brand recognition: Established presence in Texas banking.
- Robust capital ratios: Total capital to risk-weighted assets at 20.03% as of September 30, 2024.
- High asset quality: Net loan charge-offs at 0.04% for the third quarter of 2024.
Revenue Breakdown and Projections
| Revenue Source | 2023 Revenue | 2024 Projected Revenue | Growth Rate (%) |
|---|---|---|---|
| Net Interest Income | $318.40 million | $340.00 million | 6.73% |
| Noninterest Income | $93.01 million | $100.00 million | 7.53% |
| Total Revenue | $411.41 million | $440.00 million | 6.92% |
Growth in Assets Under Management
The assets under management have shown significant growth:
- Increased to $10.86 billion as of September 30, 2024, compared to $9.02 billion in the previous year.
Loan Portfolio Growth
The loan portfolio has expanded significantly as well:
- Total loans held-for-investment reached $7.72 billion as of September 30, 2024, an increase of $574.40 million from December 31, 2023.
- Average loans for the third quarter of 2024 were $7.64 billion, up $749.17 million year-over-year.
Investment in Technology and Digital Banking
Investment in technology is crucial for future growth:
- Expenses for technology enhancements projected to increase by 15% in 2024 to support digital banking initiatives.
Market Trends Supporting Growth
Several market trends are conducive to growth:
- Shift towards digital banking: Increasing demand for online services.
- Rising interest rates: Beneficial for net interest income margins.
First Financial Bankshares, Inc. (FFIN) DCF Excel Template
5-Year Financial Model
40+ Charts & Metrics
DCF & Multiple Valuation
Free Email Support
Updated on 16 Nov 2024
Resources:
- First Financial Bankshares, Inc. (FFIN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of First Financial Bankshares, Inc. (FFIN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View First Financial Bankshares, Inc. (FFIN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.