What changed in FIRST FINANCIAL BANKSHARES INC's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of FIRST FINANCIAL BANKSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+76 added−304 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-23)
Top changes in FIRST FINANCIAL BANKSHARES INC's 2023 10-K
76 paragraphs added · 304 removed · 44 edited across 1 sections
- Item 1A. Risk Factors+76 / −304 · 44 edited
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
44 edited+32 added−260 removed166 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
44 edited+32 added−260 removed166 unchanged
2022 filing
2023 filing
Biggest changeIn addition, the scope and content of U.S. banking regulators policies on incentive compensation, could adversely affect our ability to hire, retain and motivate our key employees. 19 Table of Contents World events such as the Russia-Ukraine conflict and the COVID pandemic may adversely impact our business and our financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.
Biggest changeWorld events such as the Russia-Ukraine conflict, the Israel-Palestine conflict and other world events, including health related events, may adversely impact our business and our financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.
A debit card issuer that adopts certain fraud prevention procedures may charge an additional $0.01 per transaction. In July 2022, the Company became subject to the Durbin Amendment which has reduced our interchange income in 2022 and going forward. Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
A debit card issuer that adopts certain fraud prevention procedures may charge an additional $0.01 per transaction. In July 2022, the Company became subject to the Durbin Amendment which reduced our interchange income per transaction in 2022 and going forward. Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
Debit card interchange fee restrictions set forth in the Dodd-Frank Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve, cap the maximum debit interchange fee that a debit card issuer with $10 billion or more in total assets may receive per transaction at the sum of $0.21 plus five basis points of the transaction.
Debit card interchange fee restrictions set forth in the Dodd-Frank Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve Board, cap the maximum debit interchange fee that a debit card issuer with $10 billion or more in total assets may receive per transaction at the sum of $0.21 plus five basis points of the transaction.
The Federal Reserve increased rates 200 basis points through mid-2019 and as a response to the ongoing COVID pandemic decreased rates 75 basis points during the third and fourth quarters of 2019 and then an additional 150 basis points in the first quarter of 2020, resulting in a target rate range of zero to 25 basis points throughout the remainder of 2020 and 2021.
The Federal Reserve Board increased rates 200 basis points through mid-2019 and as a response to the ongoing COVID pandemic decreased rates 75 basis points during the third and fourth quarters of 2019 and then an additional 150 basis points in the first quarter of 2020, resulting in a target rate range of zero to 25 basis points throughout the remainder of 2020 and 2021.
While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could depress asset prices and weaken economic activity.
While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. Sustained higher interest rates by the Federal Reserve Board may be needed to tame persistent inflationary price pressures, which could depress asset prices and weaken economic activity.
Any substantial deterioration in any of the foregoing conditions could have a material adverse effect on our financial condition, results of operations and liquidity, which would likely adversely affect the market price of our common stock. Our business is concentrated in Texas and a downturn in the economy of Texas may adversely affect our business.
Any substantial deterioration in any of the foregoing conditions could have a material adverse effect on our financial condition, results of operations and liquidity, which would likely have an adverse affect on the market price of our common stock. Our business is concentrated in Texas and a downturn in the economy of Texas may adversely affect our business.
In addition, banks with $10 billion or more in total assets (including our bank) are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations, with the Federal Reserve maintaining supervision over some consumer related regulations.
In addition, banks with $10 billion or more in total assets (including our bank) are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations, with the Federal Reserve Board maintaining supervision over some consumer related regulations.
Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, other financial institution borrowings and borrowings from the discount window of the Federal Reserve.
Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, other financial institution borrowings and borrowings from the discount window of the Federal Reserve Board.
Hurricanes, extended drought conditions, severe weather and natural disasters could significantly impact the Company's business. Hurricanes, extended drought conditions, severe weather and natural disasters and other adverse external events could have a significant impact on the Company's ability to conduct business.
Hurricanes, extended drought conditions, severe weather and natural disasters and other adverse external events could have a significant impact on the Company's ability to conduct business.
Compliance and Regulatory Risks We may be subject to more stringent capital and liquidity requirements which would adversely affect our net income and future growth.
Compliance and Regulatory Risks We may be subject to more stringent capital requirements which would adversely affect our net income and future growth.
If 17 Table of Contents hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.
If 16 Table of Contents hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property.
In addition, the federal banking agencies may address climate-related issues in their agendas in various ways, including by increasing supervisory expectations with respect to banks' risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
In addition, the federal banking agencies may address climate-related issues in their agendas in various ways, including by increasing supervisory expectations with respect to banks' risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment by banks in 24 Table of Contents climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
In addition, if we do not appropriately comply with current or future legislation and regulations, especially those that apply to our consumer 25 Table of Contents operations, which has been an area of heightened focus, we may be subject to fines, penalties or judgments, or material regulatory restrictions on our businesses, which could adversely affect operations and, in turn, financial results.
In addition, if we do not appropriately comply with current or future legislation and regulations, especially those that apply to our consumer operations, which has been an area of heightened focus, we may be subject to fines, penalties or judgments, or material regulatory restrictions on our businesses, which could adversely affect operations and, in turn, financial results.
If financial market volatility worsens, or there are disruptions in these financial markets, including disruptions to the United States banking systems, there 23 Table of Contents can be no assurance that we will not experience an adverse effect on our ability to access capital and our business, financial condition and result of operations could be adversely impacted.
If financial market volatility worsens, or there are disruptions in these financial markets, including disruptions to the United States banking systems, there can be no assurance that we will not experience an adverse effect on our ability to access capital and our business, financial condition and result of operations could be adversely impacted.
In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, terrorism or other geopolitical events.
In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, the Israel-Palestine conflict, terrorism or other geopolitical events.
If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our financial condition and results of operations. 18 Table of Contents Breakdowns in our internal controls and procedures could have an adverse effect on us.
If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our financial condition and results of operations. Breakdowns in our internal controls and procedures could have an adverse effect on us.
Both the scope of the laws and regulations and the intensity of the supervision to which we are subject may increase in connection with legislative and regulatory developments to address perceived unfairness and abuses under current regulations. Regulatory enforcement and fines have also increased across the banking and financial services sector.
Both the scope of the laws and regulations and the intensity of the supervision to which we are subject may increase in connection with legislative and regulatory developments to address perceived unfairness and abuses under current regulations. Regulatory enforcement and fines 25 Table of Contents have also increased across the banking and financial services sector.
These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock. 27 Table of Contents We may not continue to pay dividends on our common stock in the future.
These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock. We may not continue to pay dividends on our common stock in the future.
Additionally, the Company's trust revenues may be impacted by oil and gas prices which represented approximately 18% and 12% of total trust revenues in 2022 and 2021, respectively. Our Company lends primarily to small to medium-sized businesses that may have fewer resources to weather a downturn in the economy, which could adversely impact the Company’s operating results.
Additionally, the Company's trust revenues may be impacted by oil and gas prices which represented approximately 15% and 18% of total trust revenues in 2023 and 2022, respectively. Our Company lends primarily to small to medium-sized businesses that may have fewer resources to weather a downturn in the economy, which could adversely impact the Company’s operating results.
While we consider our exposure to credits related to the oil and gas industry to not be significant, at approximately 2.91%, net of PPP loans, of total loans HFI as of December 31, 2022, should the price of oil and gas decline and/or remain at low prices for an extended period, the general economic conditions in our Texas markets could be 22 Table of Contents negatively affected, which could have a material adverse effect on our business, financial condition and results of operations.
While we consider our exposure to credits related to the oil and gas industry to not be significant, at approximately 2.79%, of total loans HFI as of December 31, 2023, should the price of oil and gas decline and/or remain at low prices for an extended period, the general economic conditions in our Texas markets could be negatively affected, 22 Table of Contents which could have a material adverse effect on our business, financial condition and results of operations.
The Federal Reserve Board began increasing interest rates by raising rate 25 basis points in March 2022, 50 basis points in May 2022, 75 points in June, July, September and November 2022, respectively, and 50 basis points in December 2022, resulting in a target range of 4.25% to 4.50% at December 31, 2022.
The Federal Reserve Board began increasing interest rates by raising rates 25 basis points in March 2022, 50 basis points in May 2022, and 75 basis points in June, July, September and November 2022, respectively, 50 basis points in December 2022, and 25 basis points in February, March, May, and July 2023, respectively, resulting in a target rate range of 5.25% to 5.50% at December 31, 2023.
We may incur compliance, operating, maintenance and remediation costs. 24 Table of Contents Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
We may incur compliance, operating, maintenance and remediation costs. Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
In addition, as approximately 18% of trust fees came from management of oil and gas properties in 2022, a decline in the prices of oil and gas could lead to a loss of material amounts of our trust income. Our reputation and business could be damaged by negative publicity.
In addition, as approximately 15% of trust fees came from management of oil and gas properties in 2023, a decline in the prices of oil and gas could lead to a loss of material amounts of our trust income. Our reputation and business could be damaged by negative publicity.
As of December 31, 2022, we met all of these new requirements, including the full capital conservation buffer.
As of December 31, 2023, we met all of these new requirements, including the full capital conservation buffer.
RISK FACTORS Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results and other forward-looking statements that we make from time to time in our news releases, annual reports and other written communications, as well as oral forward-looking statements, and other statements made from time to time by our representatives.
RISK FACTORS Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results and other forward-looking statements that we make from time to time in our news releases, annual reports and other written communications, as well as oral forward-looking statements, and other statements made from time to time by our representatives. 15 Table of Contents Risks Related to Our Business Interest Rate Risk We are subject to interest rate risk.
Such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations. The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2022, we had $315.53 million of goodwill and other intangible assets.
Such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations. The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2023, we had $314.62 million of goodwill and other intangible assets.
Although we have implemented strategies that we believe reduce the potential effects of adverse changes in interest rates on our results of operations, these strategies may not always be successful. Any of these events could adversely affect our results of operations, financial condition and liquidity.
Although we have implemented strategies that we believe reduce the potential effects of adverse changes in interest rates on our results of operations, these strategies may not always be successful. Any of these events could adversely affect our results of operations, financial condition and liquidity. Credit Risk In our business, we must effectively manage our credit risk.
The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. We are subject to heightened regulatory requirements as our total assets exceed $10 billion. Our total assets were approximately $12.97 billion as of December 31, 2022.
The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law. We are subject to heightened regulatory requirements as our total assets exceed $10 billion. Our total assets were approximately $13.11 billion as of December 31, 2023.
Increases in interest rates can have negative impacts on our business, including reducing our 16 Table of Contents customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt obligations through the periodic reset of adjustable interest rate loans.
Today, there continues to be uncertainty regarding future interest rates. Increases in interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt obligations through the periodic reset of adjustable interest rate loans.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for conveniences, as well as to create additional efficiencies in our operations. Many of our larger competitors have substantially greater resources to invest in technological improvements.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for conveniences, as well as to create additional efficiencies in our operations.
Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third-party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
Certain banking laws may have an anti-takeover effect. 27 Table of Contents Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third-party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
These institutional shareholders could decide to sell their holdings in our common stock and as such could result in lower market prices of our stock. Certain banking laws may have an anti-takeover effect.
These institutional shareholders could decide to sell their holdings in our common stock and as such could result in lower market prices of our stock.
The Russia-Ukraine conflict and COVID pandemic are creating extensive disruptions in the global economy and to the lives of individuals throughout the world.
The Russia-Ukraine conflict, the Israel-Palestine conflict and other world events, including health-related events, are creating extensive disruptions in the global economy and to the lives of individuals throughout the world.
The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.
The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. In addition, the scope and content of U.S. banking regulators policies on incentive compensation, could adversely affect our ability to hire, retain and motivate our key employees.
Furthermore, our customers could incorrectly blame the Company and terminate their accounts with the Company for a cyber-incident which occurred on their own system or to an unrelated third-party. In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability.
Furthermore, our customers could incorrectly blame the Company and terminate their accounts with the Company for a cyber-incident which occurred on their own system or to an unrelated third-party.
These increased premiums would have an adverse effect on our net income and results of operations. 26 Table of Contents Risks Related to Acquisition Activities To continue our growth, we are affected by our ability to identify and acquire other financial institutions. We intend to continue our current growth strategy, including opening new branches and acquiring other banks.
Risks Related to Acquisition Activities To continue our growth, we are affected by our ability to identify and acquire other financial institutions. We intend to continue our current growth strategy, including opening new branches and acquiring other banks.
In the event our subsidiaries are unable to pay dividends to First Financial Bankshares, Inc., the Company may not be able to service debt, if any, or pay dividends on the Company’s common stock. The inability to receive dividends from our subsidiaries could have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.
In the event our subsidiaries are unable to pay dividends to First Financial Bankshares, Inc., the Company may not be able to service debt, if any, 18 Table of Contents or pay dividends on the Company’s common stock.
In some cases, the financial markets have produced downward pressure on stock prices and credit availability for certain companies without regard to those companies’ underlying financial strength.
Difficult or changes in market conditions could adversely affect the financial services industry. 23 Table of Contents The financial markets have experienced volatility over the past several years. In some cases, the financial markets have produced downward pressure on stock prices and credit availability for certain companies without regard to those companies’ underlying financial strength.
Inflationary pressures and rising prices may affect our results of operations and financial conditions. Inflation rose in 2022 at levels not seen for over 40 years, and such inflationary pressures are currently expected to continue into 2023.
Inflationary pressures and rising prices may affect our results of operations and financial conditions. Inflation rose in 2022 at levels not seen for over 40 years, and such inflationary pressures continued into 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
The Company may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could have a material adverse effect on the Company’s business, financial condition and result of operations.
The Company may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason. On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations.
If we are not able to continue our historical levels of growth, we may not be able to maintain our historical earnings trends. 28 Table of Contents IT EM 1B. UNRESOLVED STAFF COMMENTS None. IT EM 2. PROPERTIES Our principal office is located in the First Financial Bank Building at 400 Pine Street in downtown Abilene, Texas.
If we are not able to continue our historical levels of growth, we may not be able to maintain our historical earnings trends. ITE M 1B. UNRESOLVED STAFF COMMENTS None. 28 Table of Contents
Our FDIC deposit insurance assessments could increase substantially resulting in higher operating costs. We have historically paid the lowest premium rate available due to our sound financial position. In 2019 and 2020, we received certain credits that further reduced the Company's FDIC insurance premium expense.
Our FDIC deposit insurance assessments could increase substantially resulting in higher operating costs. We have historically paid the lowest premium rate available due to our sound financial position. Should the number of bank failures increase or the FDIC insurance fund become depleted in others ways, FDIC premiums could increase or additional special assessments could be 26 Table of Contents imposed.
We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Difficult or changes in market conditions could adversely affect the financial services industry. The financial markets have experienced volatility over the past several years.
Many of our larger competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.
In the event of a data breach at one or more retailers of considerable magnitude, the Company’s business, financial condition and results of operations may be adversely affected. We are subject to claims and litigation pertaining to intellectual property. We rely on technology companies to provide information technology products and services necessary to support our day-to-day operations.
Although we maintain insurance coverage for various cybersecurity risks, there can be no guarantee that all costs or losses incurred will be fully insured. We are subject to claims and litigation pertaining to intellectual property. We rely on technology companies to provide information technology products and services necessary to support our day-to-day operations.
Removed
Risks Related to Our Business Interest Rate Risk We are subject to interest rate risk.
Added
On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation (the “DFPI”), on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the DFPI, and in each case the FDIC was appointed receiver for the failed institution.
Removed
Most recently, on February 1, 2023, the Federal Reserve Board increased rates another 25 basis points resulting in a current target rate of 4.50% to 4.75%. Today, there continues to be uncertainty regarding future interest rates.
Added
These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.
Removed
We may be adversely impacted by the transition from London interbank offered rate (“LIBOR”) as a reference rate. The United Kingdom's Financial Conduct Authority and the administrator of LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023.
Added
These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of their deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.
Removed
The publication of all other LIBOR settings ceased to be published as of December 31, 2021. Given consumer protection, litigation, and reputational risks, the bank regulatory agencies indicated that entering new contracts that use LIBOR as a reference rate after December 31, 2021, could create safety and soundness risks and that they would examine bank practices accordingly.
Added
If we are unable to adequately manage our liquidity, we may experience a material adverse effect on our financial condition and results of operations. We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities.
Removed
The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate ("SOFR") for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the Federal Reserve Board adopted related implementing rules.
Added
We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff.
Removed
Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates or the value of LIBOR-based securities will not be adversely affected.
Added
Accordingly, as a part of our liquidity management, we must use a number of funding sources in addition to deposits and repayments and maturities of loans and investments, which may include Federal Home Loan Bank of Dallas advances, federal funds purchased and brokered certificates of deposit.
Removed
As a result, and despite the enactment of the LIBOR Act, for the most commonly used LIBOR settings, the use or selection of a successor rate could expose us to risks associated with disputes and litigation with our customers and counterparties and other market participants in connection with implementing LIBOR fallback provisions.
Added
Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.
Removed
We discontinued originating LIBOR-based loans effective December 31, 2021 and are now negotiating loans using our preferred replacement indexes, AMERIBOR, a benchmark developed by the American Financial Exchange, as well as SOFR, a benchmark that is based on transactions from the Treasury repurchase market and Wall Street Journal Prime.
Added
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Removed
At December 31, 2022, we have 13 loans totaling $47.16 million that have adjustable rates indexed to LIBOR. We continue to work with those customers, the Main Street lending program sponsored by the Federal Reserve and/or the originating bank for loan participations purchased to revise those documents to address the applicable index.
Added
A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators.
Removed
Credit Risk In our business, we must effectively manage our credit risk.
Added
Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits. 17 Table of Contents Our financial flexibility would be severely constrained if we were unable to maintain our access to funding or if adequate financing were not available at acceptable interest rates.
Removed
Our business may be adversely affected by security breaches at third-parties. Our customers interact with their own and other third-party systems, which pose operational risks to us.
Added
Further, if we were required to rely more heavily on more expensive funding sources to support liquidity, our revenues may not increase proportionately to cover our increased costs. In this case, our operating margins and profitability would be adversely affected.
Removed
We may be adversely affected by data breaches at retailers and other third-parties who maintain data relating to our customers that involve the theft of customers data, including the theft of customers’ debit card, merchant credit card, wire transfer and other identifying and/or access information used to make purchases or payments at retailers and other third-parties.
Added
If alternative funding sources were no longer available to us, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets.
Removed
Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
Added
As of December 31, 2023, we had a net unrealized loss of $403.30 million on our available for-sale investment securities portfolio as a result of the rising interest rate environment. Our investment securities totaled $4.73 billion, or 36.11% of total assets, at December 31, 2023. The details of this portfolio are included in Note 2 to the consolidated financial statements.
Removed
Should the number of bank failures increase or the FDIC insurance fund become depleted in others ways, FDIC premiums could increase or additional special assessments could be imposed. In addition, we are no longer eligible to utilize credits to reduce our FDIC insurance premiums as a result of our exceeding $10 billion in assets.
Added
The inability to receive dividends from our subsidiaries could have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity. Hurricanes, extended drought conditions, severe weather and natural disasters could significantly impact the Company's business.
Removed
We lease two spaces in buildings owned by First Financial Bank, N.A. totaling approximately 10,155 square feet. As of December 31, 2022, our subsidiaries collectively own 74 banking, trust and mortgage facilities, some of which are detached drive-ins, and also lease 15 banking facilities and 15 ATM locations.
Added
In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability. 19 Table of Contents Disruptions in our information technology systems or a compromise of security with respect to our systems could adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, or support our customer transactions.
Removed
Our management considers all our existing locations to be well-suited for conducting the business of banking. We are in the process of constructing two new branch locations in our existing markets to replace existing facilities in Huntsville and Bryan, Texas. IT EM 3.
Added
We rely on our information technology systems to be able to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and support our online banking system.
Removed
LEGAL PROCEEDINGS From time to time, we and our subsidiaries are parties to lawsuits arising in the ordinary course of our banking business. However, there are no material pending legal proceedings to which we, our subsidiaries or our other direct and indirect subsidiaries, or any of their properties, are currently subject.
Added
Any disruptions in these systems or the failure of these systems to operate as expected have in the past adversely affected, and could in the future adversely affect, our ability to access and use certain applications and could, depending on the nature and magnitude of the problem, adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and service customers.
Removed
Other than regular, routine examinations by state and federal banking authorities, there are no proceedings pending or known to be contemplated by any governmental authorities. IT EM 4. MINE SAFETY DISCLOSURES Not applicable. 29 Table of Contents PART II IT EM 5.
Added
Although such disruptions and failures have not been material to date, we cannot guarantee that they will not be material in the future.
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