First Financial’s Margin Expansion Slows

The Tip Desk · October 18, 2026 · 3 min read

Third-quarter net interest income totaled $138.51 million, with the latest margin gain narrowing to 1 bp.

First Financial Bankshares (FFIN), the Abilene-based Texas banking group, extended its margin expansion in the third quarter, though the pace slowed. Its tax-equivalent net interest margin widened 1 bp to 3.91% from 3.90% in the second quarter, after advancing from 3.86% in the first. The bank continued earning a wider margin, but the latest step was smaller.

Net interest income totaled $138.51 million. Interest-bearing deposit costs rose to 2.07% from 2.02% sequentially, while taxable securities yielded 3.41%. Average interest-earning assets were $14.43 billion. The funding figures added a qualification to the earlier margin story: in the second quarter, lower deposit costs and improved securities yields over the preceding year helped net interest income and margin.

Loan balances supplied another operating signal. Period-end loans rose 2.3% QoQ to $8.54 billion from $8.35 billion. The portfolio spanned residential mortgages, commercial real estate, commercial and industrial lending, and consumer credit. Total deposits stood at $13.15 billion, including $3.55 billion of noninterest-bearing balances. Those balances formed part of a funding base that also included interest-bearing deposits and a much smaller repurchase-agreement balance.

The earnings comparison also ran against an unusually costly credit quarter. Provision expense fell to $2.03 million from $24.44 million a year earlier, when a large loan charge-off resulted from borrower fraud. Third-quarter net income totaled $74.31 million, or $0.52 a share. Chief executive David Bailey described the result as another record quarter and attributed it largely to continued margin expansion.

Nonperforming assets reversed part of their second-quarter deterioration. They represented 0.71% of loans and foreclosed assets at September’s close, down 9 bps from 0.80% at June’s close. Classified loans totaled $294.49 million, encompassing special-mention and substandard credits. The allowance for credit losses stood at $113.89 million. The lower nonperforming-asset ratio therefore sat alongside a broader classified-credit pool that remained material in dollar terms.

Fee businesses supplied a separate source of revenue. Noninterest income totaled $35.64 million, including $14.49 million of wealth-management fees. New accounts and higher mineral fees associated with oil and gas prices drove wealth-fee growth. Assets under management stood at $12.35 billion. Deposit service charges contributed another $6.69 million, placing account-related fees alongside wealth management among the bank’s noninterest revenue sources.

Mortgage banking moved in the opposite direction. Income declined to $4.18 million from $4.68 million sequentially. A spike in long-term interest rates affected both mortgage volume and margins, interrupting a business that had contributed to the second quarter’s fee-income improvement.

Operating expenses totaled $81.05 million, including $47.79 million of salary, commission and employee-benefit costs excluding the supplemental retirement-plan market adjustment. The efficiency ratio was 45.59%. Annual salary-cost increases stemmed primarily from merit-based and market-driven pay adjustments, while legal and professional fees, software costs and advertising also featured among its expense drivers.

Long-term rates also left a substantial mark on the balance sheet. The after-tax unrealized securities loss widened to $489.55 million from $279.67 million at June’s close, reflecting changes in long-term market interest rates. Shareholders’ equity stood at $1.83 billion and the tangible common equity ratio at 10.23%. The common equity Tier 1 capital ratio was 20.45%, providing a separate regulatory-capital reading alongside the securities valuation loss.

For the final quarter, Bailey said the company remains focused on disciplined balance-sheet growth and prudent risk management. He also said First Financial plans to open its Bee Cave location later in October, establishing its first full-service branch in the Austin market.

*Source: First Financial Bankshares quarterly earnings releases.*