First Financial Bankshares Q3 2026 Earnings: Lower Credit Costs and Margin Expansion Lift Profit

First Financial Bankshares (NASDAQ: FFIN) reported Q3 2026 net interest income of $138.51 million, up from $127.00 million a year earlier, while diluted EPS increased to $0.52 from $0.36. Net income reached a quarterly record of $74.31 million as the tax-equivalent net interest margin expanded and the provision for credit losses fell sharply against a prior-year period affected by a fraud-related loan charge-off. Loans also grew during the quarter, although higher long-term rates pressured mortgage income and the value of the securities portfolio.

Core Earnings Data

The increase in earnings reflected both underlying operating improvement and a favorable credit-cost comparison. Net interest income rose by about 9.1%, supported by a larger average earning-asset base and a wider margin, while the credit-loss provision declined by about 91.7%.

Expenses remained a counterweight. Noninterest expense increased by about 10.0%, faster than the 4.0% growth in noninterest income, partly because of higher compensation, legal and professional fees, software costs, and advertising expenses.

The prior-year provision included the effect of a large loan charged off because of borrower fraud. Net charge-offs consequently fell to $935,000 from $22.34 million, making the year-over-year earnings comparison unusually favorable.

Fee Income and Lending Activity

Wealth Management was the largest positive contributor within noninterest income. Fees increased to $14.49 million from $12.95 million, supported by new accounts and higher mineral fee income related to oil and gas prices. Assets under management reached $12.35 billion, compared with $12.05 billion a year earlier.

Deposit service charges rose to $6.69 million from $6.45 million as net new accounts increased. Mortgage income moved in the opposite direction, declining to $4.18 million from $4.38 million as a spike in long-term rates affected both mortgage volume and margins.

Loans held for investment ended the quarter at $8.54 billion, up from $8.24 billion a year earlier and $8.35 billion at June 30. The company added $191.86 million of loans during Q3, equivalent to a disclosed annualized growth rate of 9.12%. Commercial loans, non-owner-occupied commercial real estate, residential loans, and consumer auto loans all increased sequentially, while construction and development loans declined.

Profitability, Credit Quality, and Capital

Return on average assets increased to 1.93% from 1.44%, while return on average equity rose to 15.02% from 11.85%. However, the efficiency ratio deteriorated by 85 basis points year over year because expense growth exceeded fee-income growth.

Salary, commission, and employee benefit costs excluding the SERP market adjustment were $47.79 million, up from $42.32 million. The company attributed the increase primarily to annual merit-based and market-driven pay increases effective March 1. Other expense growth came from legal and professional fees, software amortization and expense, and advertising and public relations costs.

Credit indicators were mixed but did not show the stress seen in the prior-year charge-off. Nonperforming assets represented 0.71% of loans and foreclosed assets, unchanged from a year earlier and down from 0.80% in the preceding quarter. At the same time, classified loans increased to $294.49 million from $252.96 million a year earlier and $283.10 million at June 30.

The allowance for credit losses was $113.89 million, equal to 1.33% of loans, compared with 1.29% a year earlier and 1.35% in the linked quarter. The common equity Tier 1 capital ratio was 20.45%, up from 19.10% a year earlier.

Funding Costs Supported Margin, While Long-Term Rates Hit Book Equity

Interest rates affected different parts of the business in opposing ways. The tax-equivalent yield on earning assets edged down to 5.30% from 5.34%, but the cost of interest-bearing liabilities fell more substantially to 2.06% from 2.28%. Together with approximately 6.1% growth in average interest-earning assets, that helped lift the net interest margin by 11 basis points and increased net interest income.

Long-term rate movements created pressure elsewhere. In addition to reducing mortgage income, they increased the after-tax unrealized loss on the securities portfolio to $489.55 million from $279.67 million at June 30. The $209.89 million sequential increase in the unrealized loss was the primary reason shareholders’ equity declined to $1.83 billion from $2.00 billion during the quarter. Tangible book value per share fell to $10.59 from $11.75, and the tangible common equity ratio declined to 10.23% from 11.23%.

Management View

President and CEO David Bailey attributed the record quarterly net income largely to continued net interest margin expansion. Management said its near-term priorities remain disciplined balance-sheet growth and prudent risk management.

The company also planned to open a Bee Cave location later in October 2026. It would be First Financial Bankshares’ first full-service branch in the Austin market and part of its broader expansion across Texas.

Recent Insider Transactions

Separate insider data showed 80,110 shares purchased across 31 transactions during the prior six months, compared with 15,000 shares sold in one transaction. Net purchases totaled 65,110 shares, while total insider holdings were reported at approximately 5.16 million shares.

The most recent clearly identified purchase and sale were as follows:

Other recent disclosures included stock gifts, equity awards, and derivative-security exercises. Those transactions should not be interpreted in the same way as open-market purchases or sales.

Risks Investors Need to Watch

• Expense growth: Noninterest expense increased by about 10.0%, and the efficiency ratio was worse than a year earlier. Continued compensation, professional-service, and software cost growth could limit the benefit of higher net interest income.
• Classified loan growth: Classified loans increased both year over year and sequentially despite the lower nonperforming-asset ratio. Further deterioration could lead to higher provisions or charge-offs.
• Interest-rate effects on book equity: The larger unrealized securities loss reduced shareholders’ equity and tangible book value during Q3. Additional long-term rate movements could continue to affect these measures.
• Unusually favorable credit comparison: Much of the earnings increase reflects the absence of the prior-year fraud-related charge-off. Investors should distinguish that base effect from the recurring contribution of margin expansion and balance-sheet growth.
• Mortgage sensitivity: Higher long-term rates reduced mortgage volume and margins during the quarter, demonstrating the fee business’s sensitivity to rate changes.

Summary

First Financial Bankshares’ Q3 2026 earnings improved as a wider net interest margin, growth in earning assets, and sharply lower credit costs outweighed higher operating expenses. Loan growth and Wealth Management fees provided additional support, but classified loans increased and rate-driven securities losses reduced book equity. The main issues to monitor are whether margin gains can continue to offset expense pressure, how classified loans develop, and whether long-term rates create further pressure on mortgage income and tangible equity.