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Back in late 2008 when the financial industry was collapsing and over-leveraged banks were begging for a bailout, First Financial Bankshares, Inc. (FFIN - Free Report) kept doing business as usual.

The bank held its dividend steady throughout the financial crisis and never took TARP funds. Of course, operating in the relatively benign Texas real estate market certainly didn't hurt.

Recently, the bank posted its fifth consecutive positive earnings surprise due in part to an improving net interest margin. Analysts have been raising their estimates off the strong quarter and are forecasting solid growth over the next two years. It is a Zacks #2 Rank (Buy) stock.

First Quarter Results

First Financial Bankshares reported its results for the first quarter of 2011 on April 21. EPS came in at 78 cents, beating the Zacks Consensus Estimate of 74 cents. It was an 18% increase over the same quarter in 2010.

Net interest income jumped 14.3% year-over-year due in part to the acquisition of The First State Bank in Huntsville. The net interest margin (which is essentially the spread between the interest it takes in on loans and what it pays out on deposits) increased 3 basis points to a very strong 4.72%.

The company set aside $2.13 million for loan losses compared to $2.01 million in the same quarter last year.

Overall, credit quality was solid. Nonperforming loans accounted for just 1.44% of total loans, a 6 basis point decline from the first quarter of 2010. Meanwhile, noninterest income rose 16% due to an increase in ATM and credit card fees, trust fees, and mortgage fees.

The company was also able to leverage its fixed expenses as the efficiency ratio improved from 50.4% to 49.1%.


Analysts virtually unanimously raised their estimates following Q1 results. The 2011 Zacks Consensus Estimate rose from $2.97 to $3.10, which represents 11% growth over 2010 EPS. The 2012 consensus also rose and currently sits at $3.28.

It is a Zacks #2 Rank (Buy) stock.

The earnings momentum for First Financial looks very bullish. As you can see in the company's Price & Consensus chart, consensus estimates have been steadily climbing higher over the last several months:

FFIN: First Financial Bankshares, Inc.

Moreover, banks like First Financial stand to benefit from rising long-term rates (which mortgage rates are tied to), assuming the Fed keeps short-term rates at historic lows (which your savings account is tied to). This wider spread will improve banks' net interest margins and, thus, profitability.


First Financial managed to hold its dividend steady throughout the financial crisis while larger banks were slashing theirs. FFIN hasn't raised its dividend since June of 2008, however. It currently yields 2.5%.

The bank's payout ratio currently stands at 47%, which is relatively high given its growth plans, so don't expect any big increases in the near future.

Shares of FFIN currently trade at 16.9x 12-month forward earnings, in-line with its 10-year historical median.

First Financial Bankshares, Inc. is headquartered in Abilene, Texas and operates 52 locations throughout the Lone Star state. It has a market cap of $1.1 billion.

Todd Bunton is the Growth & Income Stock Strategist for

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