Interest, earnings and company efficiency: First Financial Bank meets with shareholders
First Financial Bankshares, Inc. held their annual shareholders’ meeting on Tuesday, April 23 at the Abilene Convention Center.
Attendees heard from bank officials about 2023's financial results, current year's first quarter reports, strategic initiatives which contributed to company growth and success, reports from First Financial Trust and an overall overview of how the company handled increased interest rates throughout the past year.
First Financial Bankshares President and CEO F. Scott Dueser welcomed the audience and opened the floor to the discussion of business amongst the company's shareholders.
Shareholder meeting highlights
"After 36 years of increased earnings, we experienced the decline in our year over year net income of 2023," Dueser said, pointing out the company's continual average deposit growth of 5% prior to the pandemic.
Due to stimulus money and liquidity generated from Paycheck Protection Program loans, deposits surged to an "all time high."
"The large amounts of liquidity put into the economy created inflation, which peaked as of June 2022. Unfortunately, as inflation took off the Fed continued to say it was transitory, thinking it would come down on its own, but it didn't," Dueser said.
"How many times have you walked into a restaurant that increased their prices and then decreased them later? How many times have you given a salary increase and then decreased it when inflation went down?
"It doesn't happen. It sets a new level, and all you can do is slow inflation and try to marry the two," Dueser said.
After the Feds realized their mistake, they started raising interest rates, he said. They raised them 11 times over a 16-month period, which resulted in the fastest interest rate tightening cycle in four decades.
When this occurred, most of the banking industry was not prepared for the speed the rates would increase, Dueser said. First Financial Bank had $50 million in bonds which allowed the company to fund the growth in loans.
"Higher interest rates has also slowed the housing market, which lowered the volume and mortgage loans made and lowered our mortgage income by $7 million in 2023. It's very hard to predict what rates are going to do in 2024," he said.
Although it is difficult to forecast interest rates, Dueser said they are better structured to handle an interest increase and have an increase in earnings.
Even though 2023 was a challenging year for the banking industry, Dueser highlighted the company's accomplishments, which include:
Growing deposits when most banks' deposits rolled off
Building new relationships by growing 12,500 net new accounts
Growing loans by $707 million
Increasing the market value of trust assets to $9.8 billion, and in the first quarter of 2024 over $10 billion
Being named the seventh best bank in the country by S&P Global
First Financial Bank had to pay over $4 million in additional FDIC assessments for the banks that failed the previous year.
"[The government] have never paid for bank losses. We do that with our insurance policy and with additional money we put in to cover those losses," Dueser said.
"It's not federal government that takes those losses. It's the banking industry that pays for those banks that don't do a good job and get themselves into trouble, unfortunately," he said.
Compensation for officer incentives and profit sharing expenses declined in 2023 due to a decrease in earnings, which aligns bankers with stockholders.
Dueser said he personally decided to cut his own compensation by not taking bonuses or stock options for three reasons: he wanted to line himself with the company's stockholders; he did not want to prevent employees from getting as much profit sharing as they could; and, this exemplified leadership among other presidents and department managers to cut their budgets and overhead costs.
"Although I received some criticism from my fellow CEOs at other banks, if you do the right thing for the right reasons, it always seems to work out the best, and it did," he said.
By continuing to focus on the company's philosophy of being a community bank for smaller communities outside metropolitan areas, it has allowed for diversity in customers and economies and contributed to growth of the bank's footprint in the state, Dueser said.
2023 financial results
Chief Financial Officer Michelle Hickox presented the 2023 financial review and the company's 2024 first quarter results.
"For the first time in 37 years the company has had a decrease in net income from the prior year," Hickox said. "Earnings were impacted by the difficult interest rate environment over the past two years which significantly increased our funding costs and hampered our mortgage loan income."
Despite the difficulties the company faced in the past year, Hickox said First Financial continues to perform well above the company's peer groups.
In 2023, First Financial's operating expenses were significantly lower compared to peers with an efficiency ratio of 47.26% compared to the competitors' 62.76%.
"Capital ratios have increased in 2023, and are significantly higher than required to be considered well capitalized and are well above the average of our peer group. This high level of capital provides for safety and soundness as well as a base for our continued growth," she said.
Although the company experienced a decline in net interest income, mortgage fees and debit card income, a restructuring of the company balance sheet allowed for reinvestment into loans and higher rate investments which overall helped with performance, Hickox said.
"We did do some restructuring of our bond portfolio and recognized losses of $7.1 million to improve our balance sheet and earning assets. We reinvested $411 million of proceeds into loans and higher rate investments," she said.
Company performance metrics—return on average assets and return on average equity—measured above peer group.
First Financial Banks' net interest margin saw a slight decline in 2023 to 3.33% due to the continued challenges in increased federal fund rates, however the company fared favorably above the peer group average at 2.85%, Hickox said.
All in all, the company's total assets grew to $13.1 billion in 2023, slightly higher than 2022 at $12.9 billion.
First quarter results for 2024
Hickox briefly shared the company's first quarter results for 2024, which were previously announced last Thursday:
Net earnings of $53.4 million compared favorably to $52.6 million for the first quarter of 2023.
Net interest income increased $4 million with stable net interest margins at 3.34%.
Provision for loan loss decreased $2 million due to improved economic forecasts.
Trust revenue was up $1.5 million from the first quarter of 2023.
"We ended the first quarter with assets at $13.2 billion, which is slightly up from December 2023," she said.
First Financials' 2024 strategic initiatives
Chief Banking Officer David Bailey presented the company's strategic initiatives that have driven deposit and loan growth over the past years and outlined the efforts to be continued throughout 2024.
"After the company's most recent acquisition of Bryan-College Station, First Financial Bank reported total deposits of $7.15 billion by the end of 2021," Bailey said.
He attributed the bank's execution of the Paycheck Protection Program loans and open availability to serving customers as the reason for the total deposit base increase to $10.57 billion, an increase of 48%, in 2021.
Since that time, Bailey said deposits have grown to $11.14 billion as of Dec. 31, 2023, which have been largely driven by gaining new customers. The company's net new accounts were reported over 12,000 for 2023.
Over the past three years, the company has experienced strong loan growth due to the efforts of its consumer and commercial teams across the state implementing First Financial's strategic plan.
"As we look forward to the remainder of 2024 and beyond, our team is committed to maintaining the momentum that has driven our success over these past few years," he said.
First Financial Trust 2023 review
President and CEO of First Financial Trust Kirk Thaxton presented reports on 2023's trust assets and positive earnings growth.
Total assets increased $623 million finishing 2023 with a book value of 7.55 billion, an increase of 9%. Market value of assets under management were up 11.7%. finishing the year at $9.78 billion, Thaxton said.
Thaxton said even though the trust company experienced positive earnings growth in 2023 as trust fee revenues increased to $40.5 million, oil and gas revenue continues to affect earnings.
"Although we experienced the second best year in our history, our oil and gas revenue decreased $1.15 million or 15.6% from 2022 to 2023," he said.
The 2023 decrease was due to a decline in production and lower oil and gas prices. Oil and gas revenue represents 15.4% of total revenue, he said.
The first quarter of 2024 produced "outstanding results," Thaxton said.
Book value of assets under management reached $7.65 billion at the end of 2023. The first quarter net income saw an increase of 14.6% when compared to the first quarter of 2023.
Dueser praises shareholder involvement
At the beginning of the meeting, Dueser recognized the 87.2% of shareholders eligible to vote for company business.
"I want to commend you because I don't think there is another publicly traded company that has that many people who vote, so many of their stockholders don't care. We have the complete opposite. We have so many stockholders that do care. Thank you," he said.
This article originally appeared on Abilene Reporter-News: First Financial Bank meets with shareholders to discuss 2023 finances
