FIRST FINANCIAL BANKSHARES INC

Previous wording

government intervention in the U.S. financial system including the effects of recent legislative, tax, accounting and regulatory actions and reforms, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau (“CFPB”), the Inflation Reduction Act of 2022, the capital ratios of Basel III as adopted by the federal banking authorities and the Tax Cuts and Jobs Act;

Current wording

government intervention in the U.S. financial system including the effects of recent legislative, tax, accounting, tariffs, and regulatory actions and reforms, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau (“CFPB”), the Inflation Reduction Act of 2022, the capital ratios of Basel III as adopted by the federal banking authorities and the Tax Cuts and Jobs Act;

Previous wording

effect of a pandemic, epidemic, or highly contagious disease, including the coronavirus (“COVID”), on our Company, the communities where we have our branches, the state of Texas and the United States, related to the economy and overall financial stability, including disruptions to supply channels and labor availability;

Current wording

effect of a pandemic, epidemic, or highly contagious disease, on our Company, the communities where we have our branches, the state of Texas and the United States, related to the economy and overall financial stability, including disruptions to supply channels and labor availability;

Previous wording

government and regulatory responses to a pandemic, epidemic, or highly contagious disease, including COVID;

Current wording

government and regulatory responses to a pandemic, epidemic, or highly contagious disease;

Previous 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.

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. There have been no repurchases under the current authorization extension.

Previous wording

Performance Summary. Net earnings for the third quarter of 2024 were $55.31 million, an increase of 11.61% when compared to earnings of $49.56 million for the third quarter of 2023. Diluted earnings per share was $0.39 for the third quarter of 2024 and $0.35 for the third quarter of 2023.

Current wording

Performance Summary. Net earnings for the first quarter of 2025 were $61.35 million, an increase of 14.89% when compared to earnings of $53.40 million for the first quarter of 2024. Diluted earnings per share was $0.43 for the first quarter of 2025 and $0.37 for the first quarter of 2024.

Previous wording

The return on average assets was 1.66% for the third quarter of 2024, as compared to 1.53% for the third quarter of 2023. The return on average equity was 14.00% for the third quarter of 2024 as compared to 14.51% for the third quarter of 2023.

Current wording

The return on average assets was 1.78% for the first quarter of 2025, as compared to 1.62% for the first quarter of 2024. The return on average equity was 15.12% for the first quarter of 2025, as compared to 14.43% for the first quarter of 2024.

Previous wording

Tax-equivalent net interest income was $109.74 million for the third quarter of 2024, as compared to $96.97 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 $12.48 billion for the third quarter of 2024, as compared to $11.96 billion during the third quarter of 2023. The increase of $516.97 million in average earning assets for the third quarter of 2024 when compared to the same period in 2023 was primarily a result of (i) an increase in loans of $749.17 million, offset by (ii) a decrease in tax-exempt securities of $160.45 million, and (iii) a decrease in taxable investment securities of $217.80 million. Average interest-bearing liabilities were $8.37 billion for the third quarter of 2024, as compared to $7.88 billion in the same period in 2023. The yield on earning assets increased 60 basis points while the rate paid on interest-bearing liabilities increased 44 basis points for the third quarter of 2024 compared to the third quarter of 2023.

Current wording

Tax-equivalent net interest income was $121.49 million for the first quarter of 2025, as compared to $102.82 million for the same period last year. The increase in 2025 tax equivalent net interest income compared to 2024 was largely attributable to the increase in average loans and taxable securities offset by an increase in interest-bearing deposits. Additionally, the rates received on taxable securities and loans increased while the rates paid on interest bearing deposits decreased. Average earning assets were $13.16 billion for the first quarter of 2025, as compared to $12.37 billion during the first quarter of 2024. The increase of $794.91 million in average earning assets for the first quarter of 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $747.52 million, and (ii) an increase in taxable investment securities of $129.71 million, offset by (iii) the decrease in short-term investments of $55.26 million. Average interest-bearing liabilities were $9.01 billion for the first quarter of 2025, as compared to $8.33 billion in the same period in 2024. The yield on earning assets increased 28 basis points while the rate paid on interest-bearing liabilities decreased 21 basis points for the first quarter of 2025 compared to the first quarter of 2024.

Previous wording

The net interest margin, on a tax equivalent basis, was 3.50% for the third quarter of 2024, an increase of 28 basis points from the same period in 2023. The net interest margin, on a tax equivalent basis, for the first nine-months of 2024 was 3.44%, an increase of 16 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, and (ii) increased loan yields due to new and 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. Most recently, the Federal Reserve decreased interest rates 50 basis points in September 2024, resulting in a target rate range of 4.75% to 5.00% at September 30, 2024.

Current wording

The net interest margin, on a tax equivalent basis, was 3.74% for the first quarter of 2025, an increase of 40 basis points from the same period in 2024. 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, and (ii) increased loan yields due to new and 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. Most recently, the Federal Reserve decreased interest rates 50 basis points in September 2024, and 25 basis points in November and December 2024, respectively, resulting in a target rate range of 4.25% to 4.50% at March 31, 2025.

Previous wording

There are $938.59 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 $1.48 billion for both of the nine-months ended September 30, 2024 and 2023, respectively, with an average rate paid of 4.03% and 2.95%, for the respective nine-months then ended.

Current wording

There are $1.06 billion of municipal and related deposits which are indexed to short-term treasury rates which have fluctuated with the changes in the applicable rate index. Average municipal and related deposits totaled $1.60 billion and $1.55 billion for the three-months ended March 31, 2025 and 2024, respectively, with an average rate paid of 3.39% and 3.87%, for the respective three-months then ended.

Previous wording

Includes tax equivalent yield adjustment of approximately $2.63 million and $2.82 million in the third 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 $2.70 million and $2.57 million in the first quarters of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.

Previous wording

Noninterest Expense. Total noninterest expense for the third quarter of 2024 was $66.01 million, compared to $59.54 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 46.45% for the third quarter of 2024 compared to 47.62% for the same quarter in 2023.

Current wording

Noninterest Expense. Total noninterest expense for the first quarter of 2025 was $70.34 million, compared to $63.94 million for the same period of 2024. 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 46.36% for the first quarter of 2025 compared to 48.37% for the same quarter in 2024.

Previous wording

Salaries, commissions and employee benefits for the first nine months of 2024 totaled $111.65 million, compared to $96.16 million for the same period in 2023. The net increase was primarily a result of merit-based and market driven pay increases, additions to the middle market lending team and the audit and risk departments, performance based incentive accruals, an increase of $5.64 million in profit sharing expense and an increase of $2.20 million in medical insurance expense.

Current wording

Salaries, commissions and employee benefits for the first quarter of 2025 totaled $42.14 million, compared to $36.68 million for the same period in 2024. The increase from prior year is primarily a result of merit-based and market driven pay increases, an increase of $1.31 million in profit sharing accruals, a $780 thousand increase in stock-based compensation and an increase of $646 thousand in officer incentive accruals. The increase in profit sharing and incentive accruals are directly related to the increase in net income over prior year.

Previous wording

All other categories of noninterest expense for the third quarter of 2024 totaled $28.52 million, compared to $26.60 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended September 30, 2024 increased largely due to increases in software amortization and expense, legal expenses and professional and service fees when compared to the same period in 2023.

Current wording

All other categories of noninterest expense for the first quarter of 2025 totaled $28.19 million, compared to $27.26 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended March 31, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and debit card expenses partially offset by decreases in FDIC insurance expenses and operational other losses.

Previous 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 September 30, 2024, total loans held-for-investment were $7.72 billion, an increase of $574.40 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 March 31, 2025, total loans held-for-investment were $7.95 billion, an increase of $32.51 million, as compared to December 31, 2024.

Previous wording

As compared to year-end 2023 balances, total real estate loans increased $346.45 million, total commercial loans increased $129.85 million, total consumer loans increased $99.73 million, and agricultural loans decreased $1.62 million. Loans averaged $7.64 billion for the third quarter of 2024, an increase of $749.17 million over the prior year third quarter average balances. Loans averaged $7.42 billion for the first nine months of 2024, an increase of $724.81 million from the prior year nine-month period average balances.

Current wording

As compared to year-end 2024 balances, total real estate loans increased $64.09 million, total consumer loans increased $37.29 million, total commercial loans decreased $63.51 million, and agricultural loans decreased $5.36 million. Loans averaged $7.95 billion for the first quarter of 2025, an increase of $747.52 million over the prior year first quarter average balances.

Previous wording

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $20.11 million, $12.23 million, and $14.25 million at September 30, 2024 and 2023, and December 31, 2023, respectively. At September 30, 2024 and 2023, and December 31, 2023, $3.60 million, $321 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 $14.35 million, $16.11 million, and $8.24 million at March 31, 2025 and 2024, and December 31, 2024, respectively. At March 31, 2025 and 2024, and December 31, 2024, $351 thousand, $1.03 million and $442 thousand, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

Previous wording

Commercial real estate loans (owner and non-owner occupied CRE) represent 24.77% of the Company's total loan portfolio as of September 30, 2024. Non-owner occupied CRE represents $825.93 million, or 10.69%, of the Company's total loan portfolio as of September 30, 2024. The properties securing this portfolio are diverse as to geographic location in Texas as well as industry type. Collateral for CRE loans is located throughout the Company’s markets in central west Texas, the Dallas-Fort Worth metroplex and southeast Texas with less than 1% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/warehouse at approximately 13.44% and multifamily at approximately 7.78% as of September 30, 2024. All additional property type categories are 6% or less of the CRE portfolio. Credit underwriting standards are periodically reviewed and adjusted based upon observations from our ongoing monitoring of economic conditions in our lending areas. In response to the current interest rate environment and increases in benchmark rates, the Company has enhanced stress testing and loan review activities to mitigate interest rate reset risk with a specific emphasis on borrowers’ abilities to absorb the impact of higher interest rates on loans.

Current wording

Commercial real estate loans (owner and non-owner occupied CRE) represent 23.87% of the Company's total loan portfolio as of March 31, 2025. Non-owner occupied CRE represents $753.90 million, or 9.49%, of the Company's total loan portfolio as of March 31, 2025. The properties securing this portfolio are diverse as to geographic location in Texas as well as industry type. Collateral for CRE loans is located throughout the Company’s markets in central west Texas, the Dallas-Fort Worth metroplex and southeast Texas with less than 1% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/warehouse at approximately 15.10% and multifamily at approximately 8.12% as of March 31, 2025. All additional property type categories are 7% or less of the CRE portfolio. Credit underwriting standards are periodically reviewed and adjusted based upon observations from our ongoing monitoring of economic conditions in our lending areas. In response to the current interest rate environment and increases in benchmark rates, the Company has enhanced stress testing and loan review activities to mitigate interest rate reset risk with a specific emphasis on borrowers’ abilities to absorb the impact of higher interest rates on loans.

Previous wording

Of the $4.52 billion of variable interest rate loans shown above, loans totaling $1.92 billion mature or reprice over the next twelve months. Of this amount, approximately $1.51 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $410.16 million being subject to floors above or ceilings below the current index.

Current wording

Of the $4.71 billion of variable interest rate loans shown above, loans totaling $2.16 billion mature or reprice over the next twelve months. Of this amount, approximately $1.88 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $278.39 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 $64.42 million at September 30, 2024, as compared to $39.70 million at September 30, 2023 and $35.10 million at December 31, 2023. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.83% at September 30, 2024, 0.57% at September 30, 2023, and 0.49% at December 31, 2023. As a percent of total assets, these assets were 0.47% at September 30, 2024, as compared to 0.31% at September 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 September 30, 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 $61.69 million at March 31, 2025, as compared to $37.20 million at March 31, 2024 and $63.10 million at December 31, 2024. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.78% at March 31, 2025, 0.51% at March 31, 2024, and 0.80% at December 31, 2024. As a percent of total assets, these assets were 0.43% at March 31, 2025, as compared to 0.28% at March 31, 2024 and 0.45% at December 31, 2024, 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, 2025.

Previous wording

We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans of approximately $913 thousand for the year ended December 31, 2023. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2023, such income would have been approximately $3.22 million. Such amounts for the 2024 and 2023 interim periods were not significant.

Current wording

We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans of approximately $1.11 million for the year ended December 31, 2024. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2024, such income would have been approximately $5.35 million. Such amounts for the 2025 and 2024 interim periods were not significant.

Previous wording

The provision for loan losses of $5.55 million for the three-months ended September 30, 2024 is combined with the provision for unfunded commitments of $571 thousand and reported in the net aggregate of $6.12 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended September 30, 2024. The provision for loan losses of $12.72 million for the nine-months ended September 30, 2024 is combined with the provision for unfunded commitments of $101 thousand and reported in the net aggregate of $12.82 million under the provision for credit losses on the consolidated statements of earnings for the nine-months ended September 30, 2024.

Current wording

The provision for loan losses of $2.99 million for the three-months ended March 31, 2025 is combined with the provision for unfunded commitments of $537 thousand and reported in the net aggregate of $3.53 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended March 31, 2025.

Previous wording

The provision for loan losses of $3.82 million for the three-months ended September 30, 2023 is combined with the reversal of provision for unfunded commitments of $1.55 million and reported in the aggregate of $2.28 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended September 30, 2023. The provision for loan losses of $15.05 million for the nine-months ended September 30, 2023 is combined with the reversal of provision for unfunded commitments of $4.42 million and reported in the net aggregate of $10.63 million under the provision for credit losses in the consolidated statements of earnings for the nine-months ended September 30, 2023.

Current 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 aggregate of $808 thousand under the provision for credit losses in the consolidated statements of earnings for the three-months ended March 31, 2024.

Previous wording

As a percent of average loans, net loan charge-offs were 0.04% for the third quarter of 2024, as compared to net loan charge-offs of 0.04% for the third quarter of 2023. As a percent of average loans, net loan charge-offs were 0.03% for the first nine months of 2024, as compared to net loan charge-offs of 0.02% for the first nine months of 2023. The allowance for credit losses as a percent of loans held-for-investment was 1.29% as of September 30, 2024, as compared to 1.28% as of September 30, 2023 and 1.24% as of December 31, 2023, respectively.

Current wording

As a percent of average loans, net loan charge-offs were 0.01% for the first quarter of 2025, as compared to net loan charge-offs of 0.02% for the first quarter of 2024. The allowance for credit losses as a percent of loans held-for-investment was 1.27% as of March 31, 2025, as compared to 1.24% for March 31, 2024 and December 31, 2024, respectively.

Previous wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $287.48 million at September 30, 2024 compared to $180.01 million at September 30, 2023 and $255.24 million at December 31, 2023, respectively. At September 30, 2024, interest-bearing deposits in banks included $273.63 million maintained at the Federal Reserve Bank of Dallas and $13.85 million on deposit with the FHLB.

Current wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $682.36 million at March 31, 2025 compared to $365.40 million at March 31, 2024 and $503.42 million at December 31, 2024, respectively. At March 31, 2025, interest-bearing deposits in banks included $665.57 million maintained at the Federal Reserve Bank of Dallas and $16.80 million on deposit with the FHLB.

Previous wording

Available-for-Sale Securities. At September 30, 2024, securities with a fair value of $4.61 billion were classified as securities available-for-sale. As compared to December 31, 2023, the available-for-sale portfolio at September 30, 2024 reflected (i) a decrease of $189.22 million in U.S. Treasury securities, (ii) a decrease of $25.67 million in obligations of states and political subdivisions, (iii) an increase of $92.35 million in mortgage-backed securities, and (iv) an increase of $2.08 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 nine 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 March 31, 2025, securities with a fair value of $4.76 billion were classified as securities available-for-sale. As compared to December 31, 2024, the available-for-sale portfolio at March 31, 2025 reflected (i) a decrease of $59.89 million in U.S. Treasury securities, (ii) a decrease of $30.76 million in obligations of states and political subdivisions, (iii) an increase of $232.26 million in mortgage-backed securities, and (iv) an increase of $1.06 million in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by purchases and calls or maturities, and changes in unrealized losses during the first three months of 2025. Our mortgage related securities are backed by GNMA, FNMA or FHLMC, or are collateralized by securities backed by these agencies.

Previous wording

As of September 30, 2024, the investment portfolio had an overall tax equivalent yield of 2.43%, a weighted average life of 6.28 and modified duration of 5.36 years.

Current wording

As of March 31, 2025, the investment portfolio had an overall tax equivalent yield of 2.70%, a weighted average life of 7.52 and modified duration of 6.13 years.

Previous wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.76 billion as of September 30, 2024, as compared to $10.72 billion as of September 30, 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 $12.47 billion as of March 31, 2025, as compared to $11.29 billion as of March 31, 2024 and $12.10 billion as of December 31, 2024.

Previous wording

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

Current wording

Table 9 provides a breakdown of average deposits and rates paid over the three month periods ended March 31, 2025 and 2024, respectively.

Previous wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $5.35 billion as of September 30, 2024.

Current wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $4.10 billion as of March 31, 2025.

Previous wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $25.98 million, $129.75 million and $22.15 million at September 30, 2024 and 2023, and December 31, 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $24.67 million and $54.12 million in the third quarters of 2024 and 2023, respectively. The weighted average interest rates paid on these borrowings were 1.87% and 3.80% for the third quarters of 2024 and 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $60.06 million and $82.34 million in the first nine months of 2024 and 2023, respectively. The weighted average interest rates paid on these borrowings were 3.66% and 3.97% for the first nine months of 2024 and 2023, respectively.

Current wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $26.98 million, $26.80 million and $135.60 million at March 31, 2025 and 2024, and December 31, 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $74.56 million and $132.96 million in the first quarters of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 3.06% and 4.36% for the first quarters of 2025 and 2024, respectively.

Previous wording

Repurchase Agreements. Securities sold under repurchase agreements of $57.56 million, $621.79 million and $381.93 million at September 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 $100.89 million and $567.06 million for the third quarters of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 2.92% and 3.16% for the third quarters of 2024 and 2023, respectively. The average balances of securities sold under repurchase agreements were $209.91 million and $571.45 million for the first nine months of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.31% and 2.69% for the first nine 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.

Current wording

Repurchase Agreements. Securities sold under repurchase agreements of $56.61 million, $307.30 million and $61.42 million at March 31, 2025 and 2024, and December 31, 2024, 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 $53.92 million and $317.44 million for the first quarters of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.57% and 3.25% for the first quarters of 2025 and 2024, 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 $4.61 billion at September 30, 2024. During the nine months ended September 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 $417.83 million at September 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 September 30, 2024, the 5-year U.S. Treasury rate was 3.57% compared to 3.84% at December 31, 2023, representing a 27 basis point decrease during the first nine months of 2024. As of September 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 $218 thousand before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $183 thousand 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 $4.76 billion at March 31, 2025. During the three months ended March 31, 2025, the corresponding unrealized loss before taxes on the portfolio of $537.55 million at December 31, 2024, changed to an unrealized loss before taxes of $492.67 million at March 31, 2025, 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, 2025, the 5-year U.S. Treasury rate was 3.98% compared to 4.39% at December 31, 2024, representing a 41 basis point decrease during the first three months of 2025. As of March 31, 2025, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $237.96 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $209.12 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 $1.66 billion, or 12.24% of total assets at September 30, 2024, as compared to $1.24 billion, or 9.71% of total assets at September 30, 2023, and $1.50 billion, or 11.44% of total assets at December 31, 2023. Included in shareholders' equity at September 30, 2024, and 2023, and December 31, 2023 were $329.82 million, $639.93 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 third quarter of 2024, total shareholders’ equity averaged $1.57 billion, or 11.83% of average assets, as compared to $1.36 billion, or 10.58% of average assets, during the same period in 2023. For the first nine months of 2024, total shareholders' equity averaged $1.51 billion, or 11.42% of average assets, as compared to $1.34 billion, or 10.44% of average assets, during the same period in 2023.

Current wording

Total shareholders’ equity was $1.68 billion, or 11.74% of total assets at March 31, 2025, as compared to $1.49 billion, or 11.31% of total assets at March 31, 2024, and $1.61 billion, or 11.49% of total assets at December 31, 2024. Included in shareholders' equity at March 31, 2025, and 2024, and December 31, 2024 were $388.89 million, $441.23 million and $424.29 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 2025, total shareholders’ equity averaged $1.65 billion, or 11.76% of average assets, as compared to $1.49 billion, or 11.25% of average assets, during the same period in 2024.

Previous wording

As of September 30, 2024 and 2023, and December 31, 2023, we had a total risk-based capital ratio of 20.03%, 19.49% and 19.62%, a Tier 1 capital to risk-weighted assets ratio of 18.83%, 18.35% and 18.50%, a common equity Tier 1 to risk-weighted assets ratio of 18.83%, 18.35% and 18.50% and a Tier 1 leverage ratio of 12.53%, 12.00% and 12.06%, respectively. The regulatory capital ratios as of September 30, 2024 and 2023, and December 31, 2023 were calculated under Basel III rules.

Current wording

As of March 31, 2025 and 2024, and December 31, 2024, we had a total risk-based capital ratio of 20.31%, 19.70% and 20.00%, a Tier 1 capital to risk-weighted assets ratio of 19.12%, 18.60% and 18.83%, a common equity Tier 1 to risk-weighted assets ratio of 19.12%, 18.60% and 18.83% and a Tier 1 leverage ratio of 12.46%, 12.12% and 12.49%, respectively. The regulatory capital ratios as of March 31, 2025 and 2024, and December 31, 2024 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 September 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 $2.20 billion at September 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 September 30, 2024, there was $641.50 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 March 31, 2025, 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 $2.12 billion at March 31, 2025, 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, 2025, there was $810.00 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 $107.32 million at September 30, 2024, investment securities which totaled $2.16 million at September 30, 2024 and mature over 5 to 6 years, available dividends from our subsidiaries which totaled $375.30 million at September 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.

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 $82.01 million at March 31, 2025, investment securities which totaled $2.12 million at March 31, 2025 and mature over 5 to 6 years, available dividends from our subsidiaries which totaled $297.02 million at March 31, 2025, 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 September 30, 2024, the Company’s reserve for unfunded commitments totaled $8.00 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 March 31, 2025, the Company’s reserve for unfunded commitments totaled $9.21 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 $2.09 billion at September 30, 2024, compared to $1.98 billion at September 30, 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 $2.30 billion at March 31, 2025, compared to $2.10 billion at March 31, 2024, and $2.17 billion at December 31, 2024.

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 September 30, 2024, $375.30 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 $40.50 million and $97.50 million for the nine-months ended September 30, 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 March 31, 2025, $297.02 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 $17.00 million and $12.00 million for the three-months ended March 31, 2025 and 2024, 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 47.89% and 49.48% of net earnings for the first nine 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 42.02% and 48.23% of net earnings for the first three months of 2025 and 2024, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.