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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

10 Bank Stocks Bringing Home the Bacon (Mmm... Bacon)

3. First Financial Bankshares

First Financial Bankshares (FFIN) of Abilene, Texas, has seen its stock pull back 4% this year, closing last Friday at $31.94. Based on a quarterly payout of 24 cents, the shares have a dividend yield of 3.01%.

The company's year-to-date ROA was 1.79% as of Sept. 30, and its five-year average ROA was 1.74%.

The company had $3.9 billion in total assets as of Sept. 30. With its acquisition of Sam Houston Corp. on Nov 1, First Financial now has 11 separately chartered bank subsidiaries throughout Texas, with 52 branches.

Third-quarter earnings were $18.1 million, or 58 cents a share, increasing from $16.5 million, or 53 cents a share, during the second quarter, and $16.2 million, or 52 cents a share, during the third quarter of 2010. The third-quarter net interest margin was a very strong 4.62%, although it declined from 4.69% the previous quarter and 4.68% a year earlier

The third-quarter ROA was 1.88% according to SNL, which was the best earnings performance among this group of 10 bank and thrift holding companies. The ROA has been over 1.60% over the past 10 quarters, making First Financial a very steady and strong earnings performer.

First Financial's tangible common equity ratio was 11.05% as of Sept. 30, according to SNL, which was by far the strongest among this group of 10 bank and thrift holding companies.

The company announced on Oct. 26 that it would "activate its existing stock repurchase plan to repurchase up to 750,000 shares of its common stock, which represents approximately 2.4 percent of the Company's outstanding shares, through September 30, 2014."

Sterne Agee analyst Brett Rabatin has a neutral rating on the shares, saying on Oct. 25 that the company "continues to benefit from the relative strength of the Texas economy vis-à-vis the greater U.S. macro-economy, evidenced by higher profitability and better expense management than most of the industry." In support of his neutral rating, the analyst said he saw "limited upside to current premium valuation and view the probability of multiple expansion as too low to be more bullish despite another strong quarter," while adding that he viewed First Financial as "an ideal multi-year holding."

The shares are relatively expenses to forward earnings and tangible book value, especially in the current depressed environment for most bank stocks, but the valuations reflect the steady earnings, payout and buybacks. First Financial trades for 14.3 times the consensus 2012 EPS estimate of $2.19, among analysts polled by FactSet, which is the highest forward P/E among this group of 10 bank and thrift holding company stocks.

The shares trade for 2.3 times tangible book value, according to SNL.

All eight analysts covering First Financial Bankshares have neutral ratings on the stock, again reflecting the premium priced-in because of First Financial's strong and steady performance.

First Financial Bankshares trades at significant premiums over peers, to forward earnings and book value, however, quality must be paid for, and for a long-term investor content to be paid a healthy dividend while waiting, First Financial looks like an excellent play for a commitment of several years.

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