First Financial: Leading, Top Performing Texas Franchise

Feb. 23, 2022 11:37 AM ETFirst Financial Bankshares, Inc. (FFIN)SVB2 Likes
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  • Extremely well-run franchise exposed to high growth markets in TX.
  • Multiple growth levers via acquisitions and organic growth.
  • Strong deposit franchise with 4% from CD funding.

Texas flag with a dollar

Luis M/iStock via Getty Images


First Financial Bankshares, Inc. (NASDAQ:FFIN) is a $13 billion TX-based commercial bank. It accepts checking, savings and money market accounts, and time deposits; and offers real estate, commercial, agricultural, and consumer loans to businesses, professionals, individuals, and farm and ranch operations. As of December 31, 2020, it had 78 financial centers across Texas.

From a loan book perspective, the bank is a commercial lender with real estate representing ~70% of the loan book. Commercial real estate accounts for more than half of the real estate loan book. C&I represents 20% of the portfolio. Consumer and auto loans are ~10% and 8%, respectively. The bank’s credit quality is industry-leading, showing less than 1% NPLs throughout the years. COVID 19 brought up higher NPLs, but it is not material and has been well-managed. 2021 provisioning reversal suggests that 2020’s credit losses were not as severe as initially estimated.

Regarding the funding mix, CD accounts for a tiny fraction of the total funding mix, approximately 4%. The cost of funding is considerably lower than its peers, given the strong deposit franchise.

The bank is relatively well managed from a cost discipline perspective. A mid 40% efficiency ratio is industry-leading. The management team mentioned the intention to pursue acquisitions in key growth markets with assets between $1 billion - $3billion. Investors should expect both cost reduction/system integration and new growth coming from the acquisitions.

Historically, the bank has utilized acquisitions to drive entrance into core markets. In the past three deals that were struck, two transactions are paid via expensive stock, trading at ~30x P/E. The acquisition of Commercial Bancshares was financed by a combination of cash and shares that was selling at ~54x P/E. The management team showed their creativity in utilizing an attractive currency to drive expansion into core markets historically.

  • Sep-19-2019 TB&T Bancshares, Inc.
  • Oct-12-2017 Commercial Bancshares, Inc.
  • Apr-01-2015 FBC Bancshares, Inc.

M&A History

Company Filings

The last thing that would deserve a specific highlight is the bank’s trust and wealth management franchise. The wealth management business has been growing consistently over the past few years, and as such, fee contribution to total revenues has been increasing, reducing the bank’s reliance on balance sheet-driven earnings over time.

Review of Operations

First Financial Bankshares, Inc. (FFIN) reported a net income of $227.6 million for the fiscal year 2021 as compared to $202.0 million for the prior year. Earnings per share were $1.59 versus $1.42 for the prior year. Revenues for the year increased to $513.7 million from $470.3 million for the fiscal year 2020. During Q4, First Financial Bankshares, Inc. reported ROA and ROE of 1.7% and 12.7%, respectively. The efficiency ratio is 46.2%, and the net interest income/Revenue is 74.3%.

From a profitability perspective, the bank’s consistently delivered 1%+ ROA during the past five years, especially in FY20, with credit losses that are only on par with historical averages. The improvement in efficiency ratio manifests the management’s cost discipline. The ability to generate 2%+ ROA from 2018-2020 is impressive and results from cost discipline, fee growth, high-quality deposit franchise, and strong credit quality.

The historical growth of the balance sheet has been impressive as well. As regular readers of commercial bank analysis will be aware, the commercial bank generates earnings via balance sheets. Asset growth, typically used as a proxy for loan growth, drives overall NIM-driven profitability. Non-interest income growth shows how the bank has improved to diversify revenues. Net income in relation to asset growth and non-interest income growth will tell investors how efficient that bank is being operated, and lastly, EPS growth vs. net income growth shows how effective the management team has been on capital deployment (i.e. share buybacks). Over the past six years, total assets, non-interest income, net income, and EPS grew 14%, 11%, 15%, and 15%, respectively. Given the bank’s core location in fast-growing markets in TX, we continue to see population migration as the tailwind supporting a strong growth expectation going forward.

Operating Matrix

Company Filings, 10K


Stock is priced at 29.6x P/E and 4.6x P/TBV.


Company FIlings, CapIQ


From a risk perspective, the only negative item is the high valuation, both from P/E and P/TBV perspectives. The bank has delivered strong operating results and a reduction of loan growth will hurt valuation.

From a reward perspective, the bank’s fundamentals are very strong. Credit quality is industry-leading, deposit sourcing is top-notch, geographical exposure will continue to drive growth, the bank has multiple different levers to drive growth from both organic growth and acquisitions.


In our opinion, First Financial is a top-notch bank from a quality perspective. While we do like the fundamentals, however, on a relative return basis, we like SVB Financial (SIVB) much more. As described in our prior article, SIVB has a strong franchise that will benefit from a secular growth trajectory. Our opinion is that the growth trajectory of technology and life science can potentially outlast the attractiveness of the TX market. Moreover, SIVB is selling at much more attractive multiples when compared with First Financials. On a standalone basis, we like First Financial. On a relative basis, we found SIVB more attractive.

This article was written by

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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