Shares of First Financial Bankshares Inc. (FFIN) declined marginally after it reported fourth-quarter 2013 earnings per share of 66 cents, missing the Zacks Consensus Estimate by 4 cents. However, it compared favorably with the year-ago earnings of 58 cents.
For full-year 2013, First Financial’s earnings per share of $2.47 missed the Zacks Consensus Estimate by 2.5% while it surpassed the prior-year figure by 4.7%.
Results were adversely affected by an increase in operating expenses and higher provision for credit losses. However, increase in net interest and non-interest income, along with rise in loans and deposits were the positives for the quarter.
The company’s net income of $21.2 million in the reported quarter reflects an increase of 16.0% from the year-ago quarter. Also, for 2013, it climbed 6.3% year over year to $78.9 million.
Performance in Detail
The company’s total revenue came in at $63.5 million, up 16.1% from the prior-year quarter figure. However, revenues lagged the Zacks Consensus Estimate of $66.0 million.
For 2013, total revenue stood at $238.4 million, up 9.9% year over year, while it missed the Zacks Consensus Estimate by 1.5%.
Net interest income rose 20.5% year over year to $46.7 million. Further, on a taxable equivalent basis, net interest margin rose 10 basis points (bps) year over year to 4.27%.
Non-interest income came in at $15.8 million, up 5.7% year over year. The increase was primarily attributable to a rise in trust fees and ATM, interchange and credit card fees.
Non-interest expense increased 15.6% from the prior-year quarter to $33.1 million. The rise was primarily driven by higher personnel expenses, profit sharing expenses and costs related to advertising and public relations.
The efficiency ratio declined to 49.42% from 49.86% in the prior-year quarter. A fall in efficiency ratio indicates improved profitability.
As of Dec 31, 2013, total loans were $2.7 billion, up 29.3% year over year, while total deposits increased 13.8% to $5.2 billion.
Asset Quality
Asset quality was a mixed bag in the quarter. The allowance for loan losses declined 2.7% year over year to $33.9 million. The ratio of allowance for loan losses to period end loans dipped 41 bps to 1.26%.
Net charge-offs were 0.15% of average loans on an annualized basis, up 1 bps from the prior-year quarter. Total nonperforming assets increased 22.3% to $31.1 million. Further, provision for credit losses surged 82.4% year over year to $1.2 million.
Profitability and Capital Ratios
First Financial’s capital ratios remained strong while profitability ratios improved partially in the quarter. As of Dec 31, 2013, Tier-1 risk-based capital ratio was 15.82%, compared with 17.43% as of Dec 31, 2012. Moreover, total risk-based capital ratio came in at 16.92% against 18.68% at the end of the year-ago quarter.
Return on average assets declined 3 bps year over year to 1.65%, while return on average equity increased 138 bps to 14.47%.
Our Viewpoint
Though First Financial’s results do not reflect an impressive year, we remain optimistic on the company’s performance going forward owing to its strategic acquisitions, organic growth and a strong balance sheet.
However, the prevailing low interest-rate environment, sluggish economic growth, non-diverse footprint and a stringent regulatory landscape may continue to pressurize the company’s financials in the near term.
First Financial carries a Zacks Rank #3 (Hold).
Performance of Other Regional Banks
Prosperity Bancshares Inc. (PB) beat the Zacks Consensus Estimate in its latest release. While PrivateBancorp, Inc. (PVTB) surpassed the Zacks Consensus Estimate driven by growth in top line and lower provision, KeyCorp (KEY) outpaced the Zacks Consensus Estimate due to prudent expense management.
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