First Financial Bankshares (FFIN)

Texas-based regional bank First Financial Bankshares (NASDAQ:FFIN) fell short of the market’s revenue expectations in Q3 CY2025, with sales falling 3.7% year on year to $136.8 million. Its non-GAAP profit of $0.36 per share was 23.4% below analysts’ consensus estimates.

Company Overview

With roots dating back to 1890 and a network spanning over 70 locations across the Lone Star State, First Financial Bankshares (NASDAQ:FFIN) is a Texas-focused regional bank providing commercial banking, trust services, and wealth management across numerous communities throughout the state.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

First Financial Bankshares competes with other Texas-based regional banks like Prosperity Bancshares (NYSE:PB), Cullen/Frost Bankers (NYSE:CFR), and Texas Capital Bancshares (NASDAQ:TCBI), as well as larger national banks with Texas operations such as JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC).

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Regrettably, First Financial Bankshares’s revenue grew at a mediocre 4.5% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the banking sector, but there are still things to like about First Financial Bankshares.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. First Financial Bankshares’s annualized revenue growth of 8.1% over the last two years is above its five-year trend, suggesting its demand recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, First Financial Bankshares missed Wall Street’s estimates and reported a rather uninspiring 3.7% year-on-year revenue decline, generating $136.8 million of revenue.

Net interest income made up 76.3% of the company’s total revenue during the last five years, meaning lending operations are First Financial Bankshares’s largest source of revenue.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, First Financial Bankshares’s efficiency ratio couldn’t build momentum, hanging around 45.4%.

In Q3, First Financial Bankshares’s efficiency ratio was 44.7%, close to analysts’ expectations. This result was 1.7 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects First Financial Bankshares to maintain its trailing one-year ratio with a projection of 45.1%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

First Financial Bankshares’s decent 5.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For First Financial Bankshares, its two-year annual EPS growth of 6.5% was higher than its five-year trend. This acceleration made it one of the faster-growing banking companies in recent history.

In Q3, First Financial Bankshares reported adjusted EPS of $0.36, down from $0.39 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects First Financial Bankshares’s full-year EPS of $1.69 to grow 14.4%.

Banks are balance sheet-driven businesses because they generate earnings primarily through borrowing and lending. They’re also valued based on their balance sheet strength and ability to compound book value (another name for shareholders’ equity) over time.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

First Financial Bankshares’s TBVPS grew at a sluggish 2.8% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 27.4% annually over the last two years from $6.53 to $10.60 per share.

Over the next 12 months, Consensus estimates call for First Financial Bankshares’s TBVPS to grow by 11.6% to $11.83, top-notch growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, First Financial Bankshares has averaged a Tier 1 capital ratio of 18.8%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, First Financial Bankshares has averaged an ROE of 14.8%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows First Financial Bankshares has a strong competitive moat.

We enjoyed seeing First Financial Bankshares beat analysts’ tangible book value per share expectations this quarter. On the other hand, its revenue missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock remained flat at $31.12 immediately after reporting.

Updated: December 3, 2025 at 11:51 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in First Financial Bankshares.

There are some bright spots in First Financial Bankshares’s fundamentals, but its business quality ultimately falls short. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while First Financial Bankshares’s weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders, its expanding net interest margin shows its loan book is becoming more profitable.

First Financial Bankshares’s P/B ratio based on the next 12 months is 2.4x. This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $36 on the company (compared to the current share price of $31.65).