$23.64
$50.38
bear $23.64
base $38.40
bull $50.38
margin of safety $24.00
market price* $30.47
First Financial Bankshares is the Abilene-based holding company for First Financial Bank, a community bank with 79 financial centers in Central, North Central, Southeast and West Texas, plus a trust company. It takes deposits, lends them out (loans of $8.16 billion at the end of 2025, about 24% commercial real estate and under 4% oil and gas) and holds a large securities portfolio. It holds less than 1% of Texas deposits, so there is room to keep adding customers in a state whose population grew 17.6% from 2014 to 2024, according to the company's annual report. How we measured earnings. We start from cash generated by operations, remove swings in loans held for sale and other working balances, and deduct stock compensation and the maintenance share of spending on buildings and equipment. For a bank we made one further judgement. The cash-flow statement adds back two non-cash items, the yearly write-down of premiums paid on bonds ($38 million in 2025) and the provision for loan losses ($29 million in 2025). Both recur every year and represent real money lost on the bond and loan books, so we deduct them. The result stays between 91% and 102% of reported net income in each of the last ten years, which is what we would expect. Owner earnings per share, adjusted for the 2019 two-for-one split, were $0.72 in 2016, $1.32 in 2020, $1.55 in 2021, $1.56 in 2022, $1.41 in 2023, $1.56 in 2024 and $1.79 in 2025. Where the company later re-presented its cash flow statements, we used the latest figures. Starting point. We use the median of 2021 to 2025, $1.56 per share. Those five years include the 2022-2023 rate shock, when deposit costs rose faster than loan yields and earnings dipped to $1.41. Earnings grew 14.6% in 2025 ($1.56 to $1.79), and the base case assumes the same 14.6% for 2026, not more, because that only returns to the level the bank has already earned. Company net income for the first half of 2026 was $143.4 million, up 12% from $128.0 million a year earlier, which is consistent with that level holding. Nothing above the 2025 level is credited for 2026 in the base case. Base case, $38.40 per share. Earnings of $1.79 in 2026, then 6% a year for 2027 to 2030, 5% for 2031 and 2032, 4% for 2033 and 2034 and 3% in 2035 (about $2.78 per share). Growth then fades from 2.5% to zero over the following decade and earnings stay flat after that. We credit this growth because the bank has compounded it internally for many years, including through the 2020 pandemic and the 2022-2023 rate shock: owner earnings per share grew about 10.6% a year from 2016 to 2025 and about 6.6% a year from 2019 to 2025, and the base rate is below both. It is paid for from the bank's own retained profits, so we deduct the capital that growth needs, assuming a 13% return on new capital. Growing 6% takes about 46% of earnings; the bank kept about 58% in 2025 (dividends of $106 million against net income of $253.6 million). We left out acquisitions, growth in fee income and further margin gains, because none is contracted or already under way. Bear case, $23.64. Earnings stay at the 2023 low of $1.41 for two years, as when deposit costs jumped in 2023. A credit downturn follows: loan-loss provisions of about 1% of loans (roughly $82 million, against $28.6 million in 2025; the provision rose from $3.0 million in 2019 to $19.5 million in 2020 during the pandemic) cut about $0.29 per share for two years, to $1.12. Earnings recover to $1.30 and then $1.41 by the sixth year, grow 2% a year to about $1.53 in 2035, and stay flat after that. Bull case, $50.38. Earnings of $2.00 in 2026, which is the first-half 2026 result of $1.00 per share annualised. Growth is 9% a year for four years and 7% for the next five, reaching about $3.96 in 2035, then fades from 4% to zero. This is still below the 10.6% record, and the same capital deduction applies. Debt. For a bank, deposits and borrowings are the raw material of the business and interest is a cost already deducted from earnings, so no separate debt is subtracted. The business is therefore worth the same as the shares in each case: $23.64 in the bear case, $38.40 in the base case and $50.38 in the bull case. Leverage and credit risk are charged in the bear case through the loan-loss stress. How we tested it. The base case rests on 2025 earnings being a real step up. The net interest margin widened to 3.79% in 2025 from 3.50% in 2024 and about 3.29% in 2023, driven by money moving from low-yield securities into higher-yield loans and securities and by loans repricing; $1.52 billion of municipal deposits are tied to short-term interest rates and reprice down as the Federal Reserve cuts. The provision for loan losses roughly doubled in 2025, to $28.6 million from $13.8 million, and is already deducted in the 2025 figure we rely on. We would be wrong if margins fall back to 2023 levels, if credit losses in Texas real estate or oil and gas exceed the bear case, or if the bank cannot find enough good loans to use its retained profits. Change since our August 2026 view ($20.10 bear, $36.18 base, $56.88 bull). The base is slightly higher, the bear is higher and the bull is lower. We now discount every company at a flat 6% instead of varying the rate by case, we deduct bond premium amortisation and loan-loss provisions from earnings, and we charge growth for the capital it needs. The bear and bull cases are now built from named events in the filings rather than from different growth and discount rates, so the range is narrower. Margin-of-safety price. $24 is close to the bear value and 38% below the base value. The margin is wide because the bank operates only in Texas, its earnings depend on interest rates (they fell about 9% in 2023) and loan losses are cyclical.