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First Financial Earnings in Line

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First Financial Bankshares Inc.’s (FFIN - Free Report) second-quarter 2013 earnings of 61 cents per share were in line with the Zacks Consensus Estimate. Moreover, results compared favorably with 58 cents earned in the year-ago quarter.

First Financial’s performance came on the back of higher revenues, aided by an increase in net interest and non-interest income. This was partly offset by a rise in expenses and higher provision for credit losses.

Net income in the quarter came in at $19.5 million, up 6% year over year.

Performance in Detail

First Financial’s total revenue in the reported quarter came in at $57.6 million, up 8% from $53.4 million in the prior-year quarter. However, revenues marginally missed the Zacks Consensus Estimate of $58.0 million.

Net interest income surged 8% year over year to $41.5 million. However, on a taxable equivalent basis, net interest margin dipped 15 basis points (bps) from the prior-year quarter to 4.18%.

Non-interest income augmented 13% year over year to $15.2 million. The increase was primarily due to a rise in trust fees, ATM, interchange and credit card fees as well as real estate mortgage income.

Non-interest expense came in at $29.9 million, up 12% from the prior-year quarter. The amount included $0.23 million related to the acquisition of Orange Savings Bank and $0.22 million associated with database consolidation technology costs.

The efficiency ratio increased to 49.25% from 48.02% in the prior-year quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Jun 30, 2013, total loans were $2.6 billion, rising 34% from $1.9 billion as of Jun 30, 2012. Total deposits increased 15% year over year to $3.9 billion.

Asset Quality

Asset quality was mixed in the quarter. The allowance for loan losses was $34.1 million, down 2% year over year. The ratio of allowance for loan losses to total loans dipped to 1.32% from 1.62% in the prior quarter and 1.81% in the prior-year quarter.

Net charge-offs were 0.24% of average loans on an annualized basis, up from 0.11% in the prior quarter and 0.12% in the prior-year quarter. Moreover, total nonperforming assets were $31.1 million, up 21% from the prior quarter but down 8% from the year-ago period. Nonperforming assets were 0.62% of total assets, up from 0.58% in the prior quarter but down from 0.79% in the prior-year quarter.

Likewise, provision for credit losses increased to $0.83 million from $0.40 million in the prior quarter and $0.75 million in the year-ago quarter.

Profitability and Capital Ratios

First Financial’s capital and profitability ratios depicted the company’s cautious approach in 2013. As of Jun 30, 2013, Tier-1 risk-based capital ratio was 15.20%, compared with 17.54% as of Mar 31, 2013 and 17.23% as of Jun 30, 2012. Moreover, total risk-based capital ratio came in at 16.31% against 18.80% in the prior quarter-end and 18.48% at the year-ago quarter-end.

Tier 1 leverage ratio was 10.32% in the quarter, compared with 10.69% in the prior quarter and 10.36 in the year-ago quarter.


On May 31, 2013, First Financial completed the acquisition of Orange Savings Bank, SSB in Orange, Texas, thereby expanding its footprint in the state. The cash and stock deal was worth $39.2 million and 420,000 shares of First Financial common shares.  

Our Viewpoint

First Financial’s strategic acquisitions and organic growth is quite impressive. Moreover, the company’s strong balance sheet is expected to bode well for its overall expansion going forward.

However, the prevailing low interest-rate environment, sluggish economic growth, non-diverse footprint and a stringent regulatory landscape are expected to adversely affect the company’s financials in the subsequent quarters.

First Financial carries a Zacks Rank #3 (Hold). Among other Southwest banks, Prosperity Bancshares Inc. (PB - Free Report) is scheduled to announce earnings on Jul 24, Texas Capital BancShares Inc. (TCBI - Free Report) on Jul 25 and BOK Financial Corporation (BOKF - Free Report) on Jul 31.

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