First Financial: Leading and Successful TX Franchise (NASDAQ: FFIN)

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First Financial Bankshares, Inc. (FFIN) is a Texas-based $13 billion commercial bank. It accepts checking, savings and money market accounts, as well as term deposits; and offers home, commercial, agricultural, and consumer loans to businesses, professionals, individuals, and farms and ranches. As of December 31, 2020, it had 78 financial centers across Texas.

From a loan portfolio perspective, the bank is a commercial lender with real estate accounting for approximately 70% of the loan portfolio. Commercial property accounts for more than half of the property loan portfolio. C&I represents 20% of the portfolio. Consumer and auto loans are around 10% and 8% respectively. The bank’s credit quality is at the forefront of the industry, posting less than 1% NPL over the years. COVID 19 has caused NPLs to increase, but it is not significant and has been well managed. The 2021 provisioning reversal suggests that 2020 credit losses were not as severe as initially estimated.

In terms of funding mix, DC is only a tiny fraction of the total funding mix, around 4%. The cost of financing is considerably lower than its peers, given the strong deposit franchise.

The bank is relatively well managed from a cost discipline perspective. An average efficiency rate of 40% is industry leading. The management team mentioned plans to pursue acquisitions in key growth markets with assets between $1 billion and $3 billion. Investors should expect both cost reduction/system integration and further growth from acquisitions.

Historically, the bank has used acquisitions to penetrate major markets. In the last three trades that closed, two trades are paid for via expensive stocks, trading at around 30x P/E. The acquisition of Commercial Bancshares was financed with a combination of cash and equity which sold at ~54x P/E. The management team has been creative in using an attractive currency to historically drive expansion in key markets.

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

History of mergers and acquisitions

Company deposits

The last thing that deserves special attention is the bank’s trust and wealth management franchise. The wealth management business has grown steadily over the past few years and as such the contribution of fees to total revenue has increased, reducing the bank’s dependence on earnings from the balance sheet to over time.

Transaction Review

First Financial Bankshares, Inc. (FFIN) reported net income of $227.6 million for fiscal 2021, compared to $202.0 million for the prior year. Earnings per share were $1.59 versus $1.42 a year earlier. Revenue for the year increased to $513.7 million from $470.3 million in fiscal 2020. During the fourth quarter, First Financial Bankshares, Inc. reported an ROA and ROE of 1 .7% and 12.7%, respectively. The efficiency ratio is 46.2% and the net interest income/income is 74.3%.

From a profitability perspective, the bank has consistently generated a return on investment above 1% over the past five years, particularly in FY20, with credit losses that are only comparable to historical averages. The improvement in the efficiency ratio reflects the discipline of cost management. The ability to generate more than 2% return on investment from 2018 to 2020 is impressive and is the result of cost discipline, fee growth, high quality deposit franchise and credit quality.

Historical balance sheet growth has also been impressive. As regular readers of commercial banking analysis know, commercial banking generates profits through the balance sheets. Asset growth, typically used as a proxy for loan growth, drives overall NIM-driven profitability. Growth in non-interest income shows how the bank has improved to diversify its income. Net income vs. asset growth and non-interest income growth will tell investors how efficiently this bank is operating, and finally, EPS growth vs. net income growth shows the effectiveness of the management team in deploying capital (i.e. share buybacks) . Over the past six years, total assets, non-interest income, net income and EPS have increased by 14%, 11%, 15% and 15% respectively. Given the bank’s central location in the fast-growing Texas markets, we continue to view population migration as the tailwind supporting strong growth expected in the future.

Operation matrix

Corporate documents, 10K


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


Business Deposits, CapIQ


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

From a compensation perspective, the bank’s fundamentals are very strong. Credit quality is industry leading, deposit supply is top notch, geographic exposure will continue to drive growth, the bank has several different levers to drive growth through both organic and acquisitions.


In our opinion, First Financial is a top quality bank. Although we like the fundamentals, however, on a relative return basis, we like SVB Financial (SIVB) much more. As described in our previous article, SIVB has a strong franchise that will benefit from a secular growth trajectory. Our view is that the growth trajectory for technology and life sciences can potentially outlast the attractiveness of the TX market. Additionally, SIVB sells at much more attractive multiples compared to First Financials. On a stand-alone basis, we like First Financial. In relative terms, we found SIVB more attractive.

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