FIRST FINANCIAL BANKSHARES INC

Previous wording

As a financial holding company, we generate most of our revenue from interest on loans and investments, trust fees, gain on sale of mortgage loans and service charges and fees on deposit accounts. Our primary source of funding for our loans and investments are deposits held by our bank subsidiary, First Financial Bank. Our largest expenses are salaries and related employee benefits. We measure our performance by calculating our return on average assets, return on average equity, regulatory capital ratios, net interest margin and efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.

Current wording

As a financial holding company, we generate most of our revenue from interest on loans and investments, trust fees, gain on sale of mortgage loans and service charges and fees on deposit accounts. Our primary source of funding for our loans and investments are deposits held by our bank subsidiary, First Financial Bank. Our largest expenses are interest on deposits and salaries and related employee benefits. We measure our performance by calculating our return on average assets, return on average equity, regulatory capital ratios, net interest margin and efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.

Previous wording

On July 27, 2021, the Company's Board of Directors authorized the repurchase of up to 5 million common shares through July 31, 2023. On July 25, 2023, the Company's Board of Directors renewed the prior authorization through July 31, 2024. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. Under the current authorization, the Company has repurchased and retired 101,337 shares (all during September 2023) at an average price of $26.99 per share.

Current wording

On July 23, 2024, the Company's Board of Directors re-authorized the repurchase of up to 5 million common shares through July 31, 2025. The prior authorization had been in place since July 27, 2021. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. Under the authorization effective through July 31, 2024, the Company repurchased and retired 101,337 shares (all during September 2023) at an average price of $26.99 per share.

Previous wording

Effective April 22, 2024, First Financial Bank, N.A. and First Financial Trust and Asset Management Company, N.A. converted their charters to a Texas state banking association and a Texas chartered trust company, respectively. The Bank is now a Texas banking association chartered and regulated by the Texas Department of Banking and Trust Company is now a Texas trust company chartered and regulated by the Texas Department of Banking. The Bank will continue to be a member bank of the Federal Reserve system and maintain FDIC deposit insurance.

Current wording

Effective April 22, 2024, First Financial Bank and First Financial Trust and Asset Management Company converted their charters to a Texas state banking association and a Texas chartered trust company, respectively. The Bank is now a Texas banking association chartered and regulated by the Texas Department of Banking and Trust Company is now a Texas trust company chartered and regulated by the Texas Department of Banking. The Bank will continue to be a member bank of the Federal Reserve system and maintain FDIC deposit insurance.

Previous wording

Performance Summary. Net earnings for the first quarter of 2024 were $53.40 million compared to earnings of $52.57 million for the first quarter of 2023. Diluted earnings per share was $0.37 for both quarters ended March 31, 2024 and 2023, respectively.

Current wording

Performance Summary. Net earnings for the second quarter of 2024 were $52.49 million compared to earnings of $50.87 million for the second quarter of 2023. Diluted earnings per share was $0.37 for the second quarter of 2024 and $0.36 for the second quarter of 2023.

Previous wording

The return on average assets was 1.62% for the first quarter of 2024, as compared to 1.65% for the first quarter of 2023. The return on average equity was 14.43% for the first quarter of 2024 as compared to 16.32% for the first quarter of 2023.

Current wording

The return on average assets was 1.61% for the second quarter of 2024, as compared to 1.58% for the second quarter of 2023. The return on average equity was 14.43% for the second quarter of 2024 as compared to 14.89% for the second quarter of 2023.

Previous wording

Tax-equivalent net interest income was $102.82 million for the first quarter of 2024, as compared to $99.42 million for the same period last year. The increase in 2024 tax equivalent net interest income compared to 2023 was largely attributable to the change in the mix of interest earning assets primarily derived from an increase in average loans offset by a decrease in taxable and tax-exempt investment securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits and borrowings. Average earning assets were $12.37 billion for the first quarter of 2024, as compared to $12.07 billion during the first quarter of 2023. The increase of $295.97 million in average earning assets in 2024 when compared to 2023 was primarily a result of (i) an increase in loans of $705.09 million, offset by (ii) a decrease in tax-exempt securities of $316.03 million, and (iii) a decrease in taxable investment securities of $295.93 million, when compared to the three-months ended March 31, 2023 average balances. Average interest-bearing liabilities were $8.33 billion for the first quarter of 2024, as compared to $7.71 billion in the same period in 2023. The yield on earning assets increased 76 basis points while the rate paid on interest-bearing liabilities increased 105 basis points for the first quarter of 2024 compared to the first quarter of 2023.

Current wording

Tax-equivalent net interest income was $105.85 million for the second quarter of 2024, as compared to $98.82 million for the same period last year. The increase in 2024 tax equivalent net interest income compared to 2023 was largely attributable to the change in the mix of interest earning assets primarily derived from an increase in average loans offset by a decrease in taxable and tax-exempt investment securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. Average earning assets were $12.23 billion for the second quarter of 2024, as compared to $12.05 billion during the second quarter of 2023. The increase of $178.07 million in average earning assets for the second quarter of 2024 when compared to the same period in 2023 was primarily a result of (i) an increase in loans of $722.02 million, offset by (ii) a decrease in tax-exempt securities of $248.71 million, and (iii) a decrease in taxable investment securities of $338.70 million. Average interest-bearing liabilities were $8.26 billion for the second quarter of 2024, as compared to $7.75 billion in the same period in 2023. The yield on earning assets increased 75 basis points while the rate paid on interest-bearing liabilities increased 75 basis points for the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

The net interest margin, on a tax equivalent basis, was 3.34% for the first quarters of 2024 and 2023, respectively. We experienced downward pressure on our net interest margin during the past year primarily due to (i) the effects of the Federal Reserve Board's accelerated rate of raising interest rates in 2022 and 2023, which was preceded by the extended period of historically low levels of short-term interest rates, and (ii) the shift in the mix of interest-earning assets and interest-bearing deposits. The Federal Reserve began aggressively increasing interest rates in March 2022 and continuing into 2023 with increases of 25 basis points in February, March, May, and July 2023, respectively, resulting in a target rate range of 5.25% to 5.50% at March 31, 2024.

Current wording

The net interest margin, on a tax equivalent basis, was 3.48% for the second quarter of 2024, an increase of 19 basis points from the same period in 2023. The net interest margin, on a tax equivalent basis, for the first six-months of 2024 was 3.41%, an increase of 9 basis points from the same period in 2023. The net interest margin has expanded during the past year primarily due to (i) a shift in asset mix from investment securities to higher yielding loans, (ii) increased loan yields due to renewing loans and variable rate loans repricing higher. The Federal Reserve began aggressively increasing interest rates in March 2022 and continuing into 2023 with increases of 25 basis points in February, March, May, and July 2023, respectively, resulting in a target rate range of 5.25% to 5.50% at June 30, 2024. Loan rates on variable loans have increased as the majority of such loans are indexed to the applicable prime rate (currently 8.50% at June 30, 2024).

Previous wording

We have approximately $965 million of municipal and related deposits which are indexed to short-term treasury rates which have continued to increase with the changes in the applicable rate index. Average municipal and related deposits totaled $1.55 billion and $1.48 billion for the three-months ended March 31, 2024 and 2023, respectively, with an average rate paid of 3.87% and 2.39%, for the respective three-months then ended.

Current wording

There are $951.90 million of municipal and related deposits which are indexed to short-term treasury rates which have continued to increase with the changes in the applicable rate index. Average municipal and related deposits totaled $1.51 billion and $1.48 billion for the six-months ended June 30, 2024 and 2023, respectively, with an average rate paid of 3.98% and 2.62%, for the respective six-months then ended.

Previous wording

Includes tax equivalent yield adjustment of approximately $2.57 million and $3.13 million in the first quarters of 2024 and 2023, respectively, using an effective tax rate of 21% for both periods.

Current wording

Includes tax equivalent yield adjustment of approximately $2.57 million and $2.95 million in the second quarters of 2024 and 2023, respectively, using an effective tax rate of 21% for both periods.

Previous wording

Noninterest Income. Noninterest income for the first quarter of 2024 was $29.38 million compared to $28.01 million in the same quarter of 2023. Trust fees increased to $11.38 million for the first quarter of 2024 compared to $9.85 million for the first quarter of 2023, driven by the increase in market value of trust assets managed to $10.15 billion at March 31, 2024, compared to $9.10 billion at March 31, 2023. Service charges on deposits increased to $6.25 million for the first quarter of 2024 compared with $6.04 million for the first quarter of 2023, driven by the growth of over 2,000 net new accounts opened during the first quarter of 2024. Mortgage related income increased to $3.13 million for the first quarter of 2024 compared to $2.97 million in the first quarter of 2023 due to a slight increase in mortgage loans originated.

Current wording

Noninterest Income. Noninterest income for the second quarter of 2024 was $31.27 million compared to $29.95 million in the same quarter of 2023. Trust fees increased to $11.71 million for the second quarter of 2024 compared to $9.88 million for the second quarter of 2023, driven by the increase in market value of trust assets managed to $10.24 billion at June 30, 2024, compared to $9.28 billion at June 30, 2023. Debit card fees decreased to $5.15 million for the second quarter of 2024 compared with $6.72 million for the second quarter of 2023, due to annual incentives of $1.53 million that were recognized during the second quarter of 2023. Annual incentives are being recognized throughout the year in 2024. Mortgage related income increased to $3.69 million for the second quarter of 2024 compared to $3.53 million in the second quarter of 2023 due to a slight increase in mortgage loans originated.

Previous wording

Noninterest Expense. Total noninterest expense for the first quarter of 2024 was $63.94 million, compared to $57.26 million for the same period of 2023. An important measure in determining whether a financial institution effectively manages noninterest expense is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio was 48.37% for the first quarter of 2024 compared to 44.93% for the same quarter in 2023.

Current wording

Noninterest Expense. Total noninterest expense for the second quarter of 2024 was $65.01 million, compared to $57.61 million for the same period of 2023. An important measure in determining whether a financial institution effectively manages noninterest expense is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio was 47.41% for the second quarter of 2024 compared to 44.74% for the same quarter in 2023.

Previous wording

Salaries, commissions and employee benefits for the first quarter of 2024 totaled $36.68 million, compared to $31.46 million for the same period in 2023. The net increase was primarily a result of merit-based and market driven pay increases and an increase of $1.65 million in profit sharing expense, an increase of $1.29 million in medical insurance expense and an increase of $1.18 million in officer incentive accruals.

Current wording

Salaries, commissions and employee benefits for the second quarter of 2024 totaled $37.47 million, compared to $31.77 million for the same period in 2023. The net increase was primarily a result of merit-based and market driven pay increases, performance-based incentive accruals, an increase of $1.93 million in profit sharing expense and an increase of $1.33 million in medical insurance expense.

Previous wording

All other categories of noninterest expense for the first quarter of 2024 totaled $27.26 million, compared to $25.80 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended March 31, 2024 increased largely due to increases in software amortization and FDIC insurance fees. An additional $440 thousand was accrued in the first quarter of 2024 for the FDIC special assessment over the Company's regular accrual.

Current wording

All other categories of noninterest expense for the six-months ended June 30, 2024 totaled $54.80 million, compared to $51.64 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the six-months ended June 30, 2024 increased largely due to increases in software amortization and expense, legal expenses, professional and service fees and FDIC insurance fees. An additional $440 thousand was accrued in the first quarter of 2024 for the FDIC special assessment over the Company's regular accrual.

Previous wording

Loans. Our portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of March 31, 2024, total loans held-for-investment were $7.23 billion, an increase of $80.62 million, as compared to December 31, 2023.

Current wording

Loans. The portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of June 30, 2024, total loans held-for-investment were $7.52 billion, an increase of $370.94 million, as compared to December 31, 2023.

Previous wording

As compared to year-end 2023 balances, total real estate loans increased $29.96 million, total consumer loans increased $24.80 million, total commercial loans increased $22.87 million, and agricultural loans increased $2.99 million. Loans averaged $7.21 billion for the first quarter of 2024, an increase of $705.09 million over the prior year first quarter average balances.

Current wording

As compared to year-end 2023 balances, total real estate loans increased $153.07 million, total consumer loans increased $95.13 million, total commercial loans increased $121.45 million, and agricultural loans increased $1.30 million. Loans averaged $7.41 billion for the second quarter of 2024, an increase of $722.02 million over the prior year second quarter average balances. Loans averaged $7.31 billion for the first six months of 2024, an increase of $713.05 million from the prior year six-month period average balances.

Previous wording

Our loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. This segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.

Current wording

Loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. This segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.

Previous wording

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $16.11 million, $12.00 million, and $14.25 million at March 31, 2024 and 2023, and December 31, 2023, respectively. At March 31, 2024 and 2023, and December 31, 2023, $1.03 million, $230 thousand and $3.18 million, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

Current wording

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $19.67 million, $19.22 million, and $14.25 million at June 30, 2024 and 2023, and December 31, 2023, respectively. At June 30, 2024 and 2023, and December 31, 2023, $275 thousand, $1.13 million and $3.18 million, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

Previous wording

Of the $4.19 billion of variable interest rate loans shown above, loans totaling $1.64 billion mature or reprice over the next twelve months. Of this amount, approximately $1.31 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $334 million being subject to floors above or ceilings below the current index.

Current wording

Of the $4.39 billion of variable interest rate loans shown above, loans totaling $1.82 billion mature or reprice over the next twelve months. Of this amount, approximately $1.49 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $329.70 million being subject to floors above or ceilings below the current index.

Previous wording

Asset Quality. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectability of principal or interest under the original terms becomes doubtful. Nonaccrual, past due 90 days or more and still accruing, and foreclosed assets were $37.20 million at March 31, 2024, as compared to $24.39 million at March 31, 2023 and $35.10 million at December 31, 2023. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.51% at March 31, 2024, 0.37% at March 31, 2023, and 0.49% at December 31, 2023. As a percent of total assets, these assets were 0.28% at March 31, 2024, as compared to 0.19% at March 31, 2023 and 0.27% at December 31, 2023, respectively. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at March 31, 2024.

Current wording

Asset Quality. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectability of principal or interest under the original terms becomes doubtful. Nonaccrual, past due 90 days or more and still accruing, and foreclosed assets were $61.19 million at June 30, 2024, as compared to $29.25 million at June 30, 2023 and $35.10 million at December 31, 2023. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.81% at June 30, 2024, 0.43% at June 30, 2023, and 0.49% at December 31, 2023. As a percent of total assets, these assets were 0.46% at June 30, 2024, as compared to 0.23% at June 30, 2023 and 0.27% at December 31, 2023, respectively. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at June 30, 2024.

Previous wording

The provision for loan losses of $1.26 million for the three-months ended March 31, 2024 is combined with the reversal of provision for unfunded commitments of $448 thousand and reported in the net aggregate of $808 thousand under the provision for credit losses in the consolidated statements of earnings for the three-months ended March 31, 2024.

Current wording

The provision for loan losses of $5.91 million for the three-months ended June 30, 2024 is combined with the reversal of provision for unfunded commitments of $22 thousand and reported in the net aggregate of $5.89 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2024. The provision for loan losses of $7.17 million for the six-months ended June 30, 2024 is combined with the reversal of provision for unfunded commitments of $470 thousand and reported in the net aggregate of $6.70 million under the provision for credit losses on the consolidated statements of earnings for the six-months ended June 30, 2024.

Previous wording

The provision for loan losses of $4.71 million for the three-months ended March 31, 2023 is combined with the reversal of provision for unfunded commitments of $1.93 million and reported in the aggregate of $2.78 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended March 31, 2023.

Current wording

The provision for loan losses of $6.52 million for the three-months ended June 30, 2023 is combined with the reversal of provision for unfunded commitments of $949 thousand and reported in the aggregate of $5.57 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2023. The provision for loan losses of $11.23 million for the six-months ended June 30, 2023 is combined with the reversal of provision for unfunded commitments of $2.88 million and reported in the net aggregate of $8.35 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2023.

Previous wording

As a percent of average loans, net loan charge-offs were 0.02% for the first quarter of 2024, as compared to net loan recoveries of 0.02% for the first quarter of 2023. The allowance for credit losses as a percent of loans held-for-investment was 1.24% as of March 31, 2024, as compared to 1.23% as of March 31, 2023 and 1.24% as of December 31, 2023, respectively.

Current wording

As a percent of average loans, net loan charge-offs were 0.02% for the second quarter of 2024, as compared to net loan charge-offs of 0.05% for the second quarter of 2023. As a percent of average loans, net loan charge-offs were 0.02% for the first six months of 2024, as compared to net loan charge-offs of 0.02% for the first six months of 2023. The allowance for credit losses as a percent of loans held-for-investment was 1.27% as of June 30, 2024, as compared to 1.28% as of June 30, 2023 and 1.24% as of December 31, 2023, respectively.

Previous wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $365.40 million at March 31, 2024 compared to $221.34 million at March 31, 2023 and $255.24 million at December 31, 2023, respectively. At March 31, 2024, interest-bearing deposits in banks included $361.98 million maintained at the Federal Reserve Bank of Dallas and $3.42 million on deposit with the FHLB.

Current wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $103.32 million at June 30, 2024 compared to $23.84 million at June 30, 2023 and $255.24 million at December 31, 2023, respectively. At June 30, 2024, interest-bearing deposits in banks included $87.79 million maintained at the Federal Reserve Bank of Dallas and $15.52 million on deposit with the FHLB.

Previous wording

Available-for-Sale Securities. At March 31, 2024, securities with a fair value of $4.66 billion were classified as securities available-for-sale. As compared to December 31, 2023, the available-for-sale portfolio at March 31, 2024 reflected (i) a decrease of $50.07 million in U.S. Treasury securities, (ii) a decrease of $43.12 million in obligations of states and political subdivisions, (iv) an increase of $19.77 million in mortgage-backed securities, and (iv) a decrease of $815 thousand in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by calls and maturities, and changes in unrealized losses during the first three months of 2024. Our mortgage related securities are backed by GNMA, FNMA or FHLMC or are collateralized by securities backed by these agencies.

Current wording

Available-for-Sale Securities. At June 30, 2024, securities with a fair value of $4.57 billion were classified as securities available-for-sale. As compared to December 31, 2023, the available-for-sale portfolio at June 30, 2024 reflected (i) a decrease of $140.26 million in U.S. Treasury securities, (ii) a decrease of $51.78 million in obligations of states and political subdivisions, (iii) an increase of $17.69 million in mortgage-backed securities, and (iv) an increase of $14.61 million in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by calls and maturities, and changes in unrealized losses during the first six months of 2024. Our mortgage related securities are backed by GNMA, FNMA or FHLMC, or are collateralized by securities backed by these agencies.

Previous wording

As of March 31, 2024, the investment portfolio had an overall tax equivalent yield of 2.33%, a weighted average life of 7.09 years and modified duration of 5.93 years.

Current wording

As of June 30, 2024, the investment portfolio had an overall tax equivalent yield of 2.37%, a weighted average life of 7.22 and modified duration of 5.95 years.

Previous wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.29 billion as of March 31, 2024, as compared to $10.94 billion as of March 31, 2023 and $11.14 billion as of December 31, 2023.

Current wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.41 billion as of June 30, 2024, as compared to $10.81 billion as of June 30, 2023 and $11.14 billion as of December 31, 2023.

Previous wording

Table 9 provides a breakdown of average deposits and rates paid over the three month periods ended March 31, 2024 and 2023, respectively.

Current wording

Table 9 provides a breakdown of average deposits and rates paid over the three and six month periods ended June 30, 2024 and 2023, respectively.

Previous wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $5.28 billion as of March 31, 2024.

Current wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $5.26 billion as of June 30, 2024.

Previous wording

Borrowings. Included in borrowings were federal funds purchased, securities sold under repurchase agreements, advances from the FHLB and other borrowings of $334.10 million, $632.93 million and $404.08 million at March 31, 2024 and 2023, and December 31, 2023, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowings. The average balances of securities sold under repurchase agreements were $317.44 million and $577.31 million for the first quarters of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.25% and 2.14% for the first quarters of 2024 and 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $132.96 million and $47.82 million in the first quarters of 2024 and 2023, respectively. The weighted average interest rates paid on these borrowings were 4.36% and 3.10% for the first quarters of 2024 and 2023, respectively.

Current wording

Repurchase Agreements. Securities sold under repurchase agreements of $138.95 million, $559.48 million and $381.93 million at June 30, 2024 and 2023, and December 31, 2023, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowings. The average balances of securities sold under repurchase agreements were $212.59 million and $570.07 million for the second quarters of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.59% and 2.78% for the second quarters of 2024 and 2023, respectively. The average balances of securities sold under repurchase agreements were $265.01 million and $573.67 million for the first six months of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.38% and 2.46% for the first six months of 2024 and 2023, respectively. The average balances of securities sold under repurchase agreements has decreased from the prior year as customers have moved funds to IntraFi deposit accounts.

Previous wording

The fair value of our investment securities classified as available-for-sale totaled $4.66 billion at March 31, 2024. During the three months ended March 31, 2024, the corresponding unrealized loss before taxes on the portfolio of $510.92 million at December 31, 2023, changed to an unrealized loss before taxes of $558.99 million at March 31, 2024, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At March 31, 2024, the 5-year U.S. Treasury rate was 4.22% compared to 3.84% at December 31, 2023, representing a 38 basis point increase during the first three months of 2024. As of March 31, 2024, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $232 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $196 million before taxes. We believe that we have the ability to hold these securities based on our overall liquidity and intent to hold the portfolio.

Current wording

The fair value of our investment securities classified as available-for-sale totaled $4.57 billion at June 30, 2024. During the six months ended June 30, 2024, the corresponding unrealized loss before taxes on the portfolio of $510.92 million at December 31, 2023, changed to an unrealized loss before taxes of $559.43 million at June 30, 2024, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At June 30, 2024, the 5-year U.S. Treasury rate was 4.33% compared to 3.84% at December 31, 2023, representing a 49 basis point increase during the first six months of 2024. As of June 30, 2024, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $228 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $189 million before taxes. We believe that we have the ability to hold these securities based on our overall liquidity and intent to hold the portfolio.

Previous wording

Total shareholders’ equity was $1.49 billion, or 11.31% of total assets at March 31, 2024, as compared to $1.37 billion, or 10.55% of total assets at March 31, 2023, and $1.50 billion, or 11.44% of total assets at December 31, 2023. Included in shareholders' equity at March 31, 2024, and 2023, and December 31, 2023 were $441.23 million, $458.25 million and $403.30 million, respectively, in unrealized losses on investment securities available-for-sale, net of related income taxes, although such amount is excluded from and does not impact regulatory capital. For the first quarter of 2024, total shareholders’ equity averaged $1.49 billion, or 11.25% of average assets, as compared to $1.31 billion, or 10.10% of average assets, during the same period in 2023.

Current wording

Total shareholders’ equity was $1.52 billion, or 11.54% of total assets at June 30, 2024, as compared to $1.37 billion, or 10.66% of total assets at June 30, 2023, and $1.50 billion, or 11.44% of total assets at December 31, 2023. Included in shareholders' equity at June 30, 2024, and 2023, and December 31, 2023 were $441.56 million, $490.28 million and $403.30 million, respectively, in unrealized losses on investment securities available-for-sale, net of related income taxes, although such amount is excluded from and does not impact regulatory capital. For the second quarter of 2024, total shareholders’ equity averaged $1.46 billion, or 11.18% of average assets, as compared to $1.37 billion, or 10.63% of average assets, during the same period in 2023. For the first six months of 2024, total shareholders' equity averaged $1.48 billion, or 11.22% of average assets, as compared to $1.34 billion, or 10.37% of average assets, during the same period in 2023.

Previous wording

As of March 31, 2024 and 2023, and December 31, 2023, we had a total risk-based capital ratio of 19.70%, 19.79% and 19.62%, a Tier 1 capital to risk-weighted assets ratio of 18.60%, 18.68% and 18.50%, a common equity Tier 1 to risk-weighted assets ratio of 18.60%, 18.68% and 18.50% and a Tier 1 leverage ratio of 12.12%, 11.53% and 12.06%, respectively. The regulatory capital ratios as of March 31, 2024 and 2023, and December 31, 2023 were calculated under Basel III rules.

Current wording

As of June 30, 2024 and 2023, and December 31, 2023, we had a total risk-based capital ratio of 19.55%, 19.62% and 19.62%, a Tier 1 capital to risk-weighted assets ratio of 18.42%, 18.48% and 18.50%, a common equity Tier 1 to risk-weighted assets ratio of 18.42%, 18.48% and 18.50% and a Tier 1 leverage ratio of 12.40%, 11.81% and 12.06%, respectively. The regulatory capital ratios as of June 30, 2024 and 2023, and December 31, 2023 were calculated under Basel III rules.

Previous wording

Liquidity. Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable, or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings (see below) and an unfunded $25.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2025 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00 million. At March 31, 2024, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $1.98 billion at March 31, 2024, secured by portions of our loan portfolio and certain investment securities, and (ii) access to the Federal Reserve Bank of Dallas lending program secured by portions of certain investment securities. At March 31, 2024, there was $781.5 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

Current wording

Liquidity. Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable, or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings (see below) and an unfunded $25.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2025 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00 million. At June 30, 2024, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $2.03 billion at June 30, 2024, secured by portions of our loan portfolio and certain investment securities, and (ii) access to the Federal Reserve Bank of Dallas lending program secured by portions of certain investment securities. At June 30, 2024, there was $786.50 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

Previous wording

In addition, we anticipate that future acquisitions of financial institutions, expansion of branch locations or offerings of new products could also place a demand on our cash resources. Available cash and cash equivalents at our parent company which totaled $129.57 million at March 31, 2024, investment securities which totaled $2.17 million at March 31, 2024 and mature over 6 to 7 years, available dividends from our subsidiaries which totaled $290.26 million at March 31, 2024, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions.

Current wording

In addition, we anticipate that future acquisitions of financial institutions, expansion of branch locations or offerings of new products could also place a demand on our cash resources. Available cash and cash equivalents at our parent company which totaled $119.16 million at June 30, 2024, investment securities which totaled $2.14 million at June 30, 2024 and mature over 6 to 7 years, available dividends from our subsidiaries which totaled $331.64 million at June 30, 2024, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions.

Previous wording

Off-Balance Sheet (“OBS”)/Reserve for Unfunded Commitments. We are a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. At March 31, 2024, the Company’s reserve for unfunded commitments totaled $7.46 million which is recorded in other liabilities.

Current wording

Off-Balance Sheet (“OBS”)/Reserve for Unfunded Commitments. We are a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. At June 30, 2024, the Company’s reserve for unfunded commitments totaled $7.43 million which is recorded in other liabilities.

Previous wording

We believe we have no other OBS arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements. The above table does not include balances related to the Company’s IRLC and forward mortgage-backed security trades. Total commercial commitments were $2.10 billion at March 31, 2024, compared to $1.93 billion at March 31, 2023, and $1.92 billion at December 31, 2023.

Current wording

We believe we have no other OBS arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements. The above table does not include balances related to the Company’s IRLC and forward mortgage-backed security trades. Total commercial commitments were $2.20 billion at June 30, 2024, compared to $2.02 billion at June 30, 2023, and $1.92 billion at December 31, 2023.

Previous wording

Parent Company Funding. Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiaries. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiaries. At March 31, 2024, $290.26 million was available for the payment of intercompany dividends by our subsidiaries without the prior approval of regulatory agencies. Our subsidiaries paid aggregate dividends of $12.00 million and $2.50 million for the three-months ended March 31, 2024 and 2023, respectively.

Current wording

Parent Company Funding. Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiaries. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiaries. At June 30, 2024, $331.64 million was available for the payment of intercompany dividends by our subsidiaries without the prior approval of regulatory agencies. Our subsidiaries paid aggregate dividends of $25.50 million and $64.00 million for the six-months ended June 30, 2024 and 2023, respectively.

Previous wording

Dividends. Our long-term dividend policy is to pay cash dividends to our shareholders of approximately 35% to 40% of annual net earnings while maintaining adequate capital to support growth. We are also restricted by a loan covenant within our line of credit agreement with Frost Bank to dividend no greater than 55% of net income, as defined in such loan agreement. The cash dividend payout ratios have amounted to 48.23% and 46.16% of net earnings for the first three months of 2024 and 2023, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.

Current wording

Dividends. Our long-term dividend policy is to pay cash dividends to our shareholders of approximately 35% to 40% of annual net earnings while maintaining adequate capital to support growth. We are also restricted by a loan covenant within our line of credit agreement with Frost Bank to dividend no greater than 55% of net income, as defined in such loan agreement. The cash dividend payout ratios have amounted to 48.60% and 48.31% of net earnings for the first six months of 2024 and 2023, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.