FIRST FINANCIAL BANKSHARES INC

Previous wording

general economic conditions, including our local, state and national real estate markets and employment trends;

Current wording

general economic conditions, including the impact of the current federal government shutdown, our local, state and national real estate markets and employment trends;

Previous wording

The following discussion and analysis of operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2024 Annual Report on Form 10-K.

Current wording

The following discussion and analysis of operations and financial condition should be read in conjunction with the consolidated financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2024 Annual Report on Form 10-K.

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. There have been no repurchases during 2024 or 2025.

Current wording

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 during 2024 or 2025.

Previous wording

The return on average assets was 1.89% for the second quarter of 2025, as compared to 1.61% for the second quarter of 2024. The return on average equity was 15.82% for the second quarter of 2025, as compared to 14.43% for the second quarter of 2024.

Current wording

The return on average assets was 1.44% for the third quarter of 2025, as compared to 1.66% for the third quarter of 2024. The return on average equity was 11.85% for the third quarter of 2025, as compared to 14.00% for the third quarter of 2024.

Previous wording

Net earnings for the six-months ended June 30, 2025 were $128.00 million, an increase of 20.89% when compared to earnings of $105.88 million for the six-months ended June 30, 2024. Diluted earnings per share was $0.89 for the first six months of 2025 and $0.74 for the first six months of 2024.

Current wording

Net earnings for the nine-months ended September 30, 2025 were $180.27 million, an increase of 11.84% when compared to earnings of $161.19 million for the nine-months ended September 30, 2024. Diluted earnings per share was $1.26 for the first nine months of 2025 and $1.13 for the first nine months of 2024.

Previous wording

The return on average assets was 1.83% for the first six months of 2025, as compared to 1.62% for the first six months of 2024. The return on average equity was 15.48% for the first six months of 2025, as compared to 14.43% for the first six months of 2024.

Current wording

The return on average assets was 1.70% for the first nine months of 2025, as compared to 1.63% for the first nine months of 2024. The return on average equity was 14.22% for the first nine months of 2025, as compared to 14.28% for the first nine months of 2024.

Previous wording

Tax-equivalent net interest income was $126.66 million for the second quarter of 2025, as compared to $105.85 million for the same period last year. The increase in tax equivalent net interest income for the second quarter of 2025 compared to the same quarter in 2024 was largely attributable to the increases in average loans, interest-bearing demand deposits in non-affiliated banks and taxable securities. Average earning assets were $13.34 billion for the second quarter of 2025, as compared to $12.23 billion during the second quarter of 2024. The increase of $1.11 billion in average earning assets for the second quarter of 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $640.04 million, (ii) an increase in short-term investments of $223.89 million and (iii) an increase in taxable investment securities of $219.34 million. Average interest-bearing liabilities were $9.00 billion for the second quarter of 2025, as compared to $8.26 billion in the same period in 2024. The yield on earning assets increased 14 basis points while the rate paid on interest-bearing liabilities decreased 27 basis points for the second quarter of 2025 when compared to the second quarter of 2024.

Current wording

Tax-equivalent net interest income was $130.41 million for the third quarter of 2025, as compared to $109.74 million for the same period last year. The increase in tax equivalent net interest income for the third quarter of 2025 compared to the same quarter in 2024 was largely attributable to the increases in average loans and the rate of return on taxable and tax-exempt investment securities. Average earning assets were $13.60 billion for the third quarter of 2025, as compared to $12.48 billion during the third quarter of 2024. The increase of $1.13 billion in average earning assets for the third quarter of 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $605.88 million, (ii) an increase in taxable investment securities of $348.89 million and (iii) an increase in tax-exempt investment securities of $146.55 million. Average interest-bearing liabilities were $9.16 billion for the third quarter of 2025, as compared to $8.37 billion in the same period in 2024. The yield on earning assets increased 16 basis points while the rate paid on interest-bearing liabilities decreased 23 basis points for the third quarter of 2025 when compared to the third quarter of 2024.

Previous wording

Tax-equivalent net interest income was $248.15 million for the first six months of 2025, as compared to $208.66 million for the same period last year. The increase in tax equivalent net interest income for the first six months of 2025 when compared to the same period in 2024 was largely attributable to increases in average loans and taxable securities and a decrease in repurchase agreements. Average earning assets were $13.25 billion for the first six months of 2025, as compared to $12.30 billion during the first six months of 2024. The increase of $953.98 million in average earning assets for the six-months ended June 30, 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $694.04 million and (ii) an increase in taxable investment securities of $174.43 million. Average interest-bearing liabilities were $9.01 billion for the first six months of 2025, as compared to $8.29 billion in the same period in 2024. The yield on earning assets increased 22 basis points while the rate paid on interest-bearing liabilities decreased 24 basis points for the six-months ended June 30, 2025 compared to the six-months ended June 30, 2024.

Current wording

Tax-equivalent net interest income was $378.55 million for the first nine months of 2025, as compared to $318.40 million for the same period last year. The increase in tax equivalent net interest income for the first nine months of 2025 when compared to the same period in 2024 was largely attributable to increases in average loans and average balance and rate of return on taxable securities. Average earning assets were $13.37 billion for the first nine months of 2025, as compared to $12.36 billion during the first nine months of 2024. The increase of $1.01 billion in average earning assets for the nine-months ended September 30, 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $664.83 million and (ii) an increase in taxable investment securities of $233.05 million. Average interest-bearing liabilities were $9.06 billion for the first nine months of 2025, as compared to $8.32 billion in the same period in 2024. The yield on earning assets increased 20 basis points while the rate paid on interest-bearing liabilities decreased 23 basis points for the nine-months ended September 30, 2025 compared to the nine-months ended September 30, 2024.

Previous wording

The net interest margin, on a tax equivalent basis, was 3.81% for the second quarter of 2025, an increase of 33 basis points from the same period in 2024. The net interest margin, on a tax equivalent basis, for the first six-months of 2025 was 3.78%, an increase of 37 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 lower yielding investment securities to higher yielding loans and investment securities, (ii) strong growth in deposits that has enabled the Company to deploy those funds into the higher yielding loan and securities portfolio and (iii) 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 June 30, 2025.

Current wording

The net interest margin, on a tax equivalent basis, was 3.80% for the third quarter of 2025, an increase of 30 basis points from the same period in 2024. The net interest margin, on a tax equivalent basis, for the first nine-months of 2025 was 3.79%, an increase of 35 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 lower yielding investment securities to higher yielding loans and investment securities funded by strong growth in deposits, and (ii) a lower average cost of deposits following the Federal Reserve 25 basis point cuts in November and December 2024, and again in September 2025. The Federal Reserve decreased interest rates 50 basis points in September 2024, and 25 basis points in November and December 2024, and September 2025, respectively, resulting in a target rate range of 4.00% to 4.25% at September 30, 2025. Most recently, on October 29, 2025, the Federal Reserve decreased rates another 25 basis points resulting in a current target rate of 3.75% - 4.00%.

Previous wording

There are $1.03 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 $1.57 billion and $1.51 billion for the six-months ended June 30, 2025 and 2024, respectively, with an average rate paid of 3.43% and 3.98%, for the respective six-months then ended.

Current wording

There are $1.14 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 $1.56 billion and $1.48 billion for the nine-months ended September 30, 2025 and 2024, respectively, with an average rate paid of 3.47% and 4.03%, for the respective nine-months then ended.

Previous wording

Includes tax equivalent yield adjustment of approximately $2.93 million and $2.57 million in the second quarters of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.

Current wording

Includes tax equivalent yield adjustment of approximately $3.41 million and $2.63 million in the third quarters of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.

Previous wording

Includes tax equivalent yield adjustment of approximately $5.63 million and $5.15 million in the first six months of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.

Current wording

Includes tax equivalent yield adjustment of approximately $9.03 million and $7.77 million in the first nine months of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.

Previous wording

Noninterest Income. Noninterest income for the second quarter of 2025 was $32.87 million, an increase of $1.61 million, when compared to $31.27 million in the same quarter of 2024. Trust fee income increased to $12.75 million for the second quarter of 2025 compared to $11.71 million for the second quarter of 2024, driven by the increase in market value of trust assets managed to $11.46 billion at June 30, 2025, compared to $10.24 billion at June 30, 2024. Mortgage related income increased to $4.13 million for the second quarter of 2025 compared to $3.69 million in the second quarter of 2024, as overall origination volume and margins have improved from the prior periods. Other noninterest income decreased $499 thousand to $2.93 million for the second quarter of 2025 compared to $3.43 million in the second quarter of 2024 due to the recognition of a $723 thousand one-time BOLI settlement payment recognized in the second quarter of 2024.

Current wording

Noninterest Income. Noninterest income for the third quarter of 2025 was $34.26 million, an increase of $1.90 million, when compared to $32.36 million in the same quarter of 2024. Trust fee income increased to $12.95 million for the third quarter of 2025 compared to $11.69 million for the third quarter of 2024, driven by the increase in market value of trust assets managed to $12.05 billion at September 30, 2025, compared to $10.86 billion at September 30, 2024. Mortgage related income increased to $4.38 million for the third quarter of 2025 compared to $3.36 million in the third quarter of 2024, due to improved origination volume related to lower interest rates and the strategic restructuring of the mortgage lending team.

Previous wording

Noninterest income for the first six months of 2025 was $63.10 million, an increase of $2.45 million, when compared to $60.65 million in the same period in 2024. Trust fee income increased to $25.40 million for the first six months of 2025 compared to $23.09 million for the first six months of 2024 driven by the increase in market value of trust assets managed. Other noninterest income decreased $566 thousand to $5.42 million for the first half of 2025 compared to $5.99 million in the first half of 2024 due to the recognition of a $723 thousand one-time BOLI settlement payment recognized in the second quarter of 2024.

Current wording

Noninterest income for the first nine months of 2025 was $97.37 million, an increase of $4.35 million, when compared to $93.01 million in the same period in 2024. Trust fee income increased to $38.35 million for the first nine months of 2025 compared to $34.79 million for the first nine months of 2024 driven by the increase in market value of trust assets managed.

Previous wording

Noninterest Expense. Total noninterest expense for the second quarter of 2025 was $71.74 million, compared to $65.01 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 44.97% for the second quarter of 2025 compared to 47.41% for the same quarter in 2024.

Current wording

Noninterest Expense. Total noninterest expense for the third quarter of 2025 was $73.67 million, compared to $66.01 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 44.74% for the third quarter of 2025 compared to 46.45% for the same quarter in 2024.

Previous wording

All other categories of noninterest expense for the second quarter of 2025 totaled $29.16 million, compared to $27.54 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended June 30, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and expense.

Current wording

All other categories of noninterest expense for the third quarter of 2025 totaled $31.06 million, compared to $28.52 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended September 30, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and other operational losses.

Previous wording

Total noninterest expense for the first six months of 2025 was $142.07 million, compared to $128.95 million for the same period of 2024. Our efficiency ratio was 45.65% for the first six months of 2025 compared to 47.88% during the same period in 2024.

Current wording

Total noninterest expense for the first nine months of 2025 was $215.74 million, compared to $194.97 million for the same period of 2024. Our efficiency ratio was 45.33% for the first nine months of 2025 compared to 47.39% during the same period in 2024.

Previous wording

Salaries, commissions and employee benefits for the first six months of 2025 totaled $84.72 million, compared to $74.16 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 $2.14 million in profit sharing accruals, an increase of $1.17 million in officer incentive accruals and a $1.23 million increase in stock-based compensation. The increase in profit sharing and incentive accruals are directly related to the increase in net income over prior year.

Current wording

Salaries, commissions and employee benefits for the first nine months of 2025 totaled $127.32 million, compared to $111.65 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 $1.83 million in profit sharing accruals, and a $1.55 million increase in stock-based compensation. 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 first six months of 2025 totaled $57.35 million, compared to $54.80 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the six-months ended June 30, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and expense and debit card expenses partially offset by a decrease in operational other losses.

Current wording

All other categories of noninterest expense for the first nine months of 2025 totaled $88.41 million, compared to $83.31 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the nine-months ended September 30, 2025 increased when compared to the same period in 2024 largely due to an increase in software amortization and expense partially offset by a decrease in legal fees and other related costs.

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 June 30, 2025, total loans held-for-investment were $8.07 billion, an increase of $161.85 million, as compared to December 31, 2024.

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 September 30, 2025, total loans held-for-investment were $8.24 billion, an increase of $330.53 million, as compared to December 31, 2024.

Previous wording

As compared to year-end 2024 balances, total real estate loans increased $153.27 million, total consumer loans increased $55.93 million, total commercial loans decreased $37.95 million, and agricultural loans decreased $9.41 million. Loans averaged $8.05 billion for the second quarter of 2025, an increase of $640.04 million over the prior year second quarter average balances. Loans averaged $8.00 billion for the first six months of 2025, an increase of $694.04 million from the prior year six-month period average balances.

Current wording

As compared to year-end 2024 balances, total real estate loans increased $288.47 million, total consumer loans increased $72.69 million, total commercial loans decreased $23.91 million, and agricultural loans decreased $6.72 million. Loans averaged $8.25 billion for the third quarter of 2025, an increase of $605.88 million over the prior year third quarter average balances. Loans averaged $8.08 billion for the first nine months of 2025, an increase of $664.83 million from the prior year nine-month period average balances.

Previous wording

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $33.23 million, $19.67 million, and $8.24 million at June 30, 2025 and 2024, and December 31, 2024, respectively. At June 30, 2025 and 2024, and December 31, 2024, $1.62 million, $275 thousand 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.

Current wording

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $26.02 million, $20.11 million, and $8.24 million at September 30, 2025 and 2024, and December 31, 2024, respectively. At September 30, 2025 and 2024, and December 31, 2024, $835 thousand, $3.60 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 23.17% of the Company's total loan portfolio as of June 30, 2025. Non-owner occupied CRE represents $746.34 million, or 9.24%, of the Company's total loan portfolio as of June 30, 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 3% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/manufacturing at approximately 17.40% and multifamily at approximately 7.62% as of June 30, 2025. All additional property CRE portfolio type categories are below the identified concentration levels. 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 23.32% of the Company's total loan portfolio as of September 30, 2025. Non-owner occupied CRE represents $802.68 million, or 9.74%, of the Company's total loan portfolio as of September 30, 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 3% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/manufacturing at approximately 18.90% and multifamily at approximately 7.88% as of September 30, 2025. All additional property CRE portfolio type categories are below the identified concentration levels. 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 $4.77 billion of variable interest rate loans shown above, loans totaling $2.25 billion mature or reprice over the next twelve months. Of this amount, approximately $1.99 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $254.12 million being subject to floors above or ceilings below the current index.

Current wording

Of the $4.80 billion of variable interest rate loans shown above, loans totaling $2.37 billion mature or reprice over the next twelve months. Of this amount, approximately $2.07 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $303.72 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, engaged third-parties, 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 $63.71 million at June 30, 2025, as compared to $61.19 million at June 30, 2024 and $63.10 million at December 31, 2024. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.79% at June 30, 2025, 0.81% at June 30, 2024, and 0.80% at December 31, 2024. As a percent of total assets, these assets were 0.44% at June 30, 2025, as compared to 0.46% at June 30, 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 June 30, 2025.

Current wording

Asset Quality. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group, engaged third-parties, 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 $58.54 million at September 30, 2025, as compared to $64.42 million at September 30, 2024 and $63.10 million at December 31, 2024. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.71% at September 30, 2025, 0.83% at September 30, 2024, and 0.80% at December 31, 2024. As a percent of total assets, these assets were 0.39% at September 30, 2025, as compared to 0.47% at September 30, 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 September 30, 2025.

Previous wording

The provision for loan losses of $2.43 million for the three-months ended June 30, 2025 is combined with the provision for unfunded commitments of $700 thousand and reported in the net aggregate of $3.13 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2025. The provision for loan losses of $5.42 million for the six-months ended June 30, 2025 is combined with the provision for unfunded commitments of $1.24 million and reported in the net aggregate of $6.66 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2025.

Current wording

The provision for loan losses of $25.51 million for the three-months ended September 30, 2025 is combined with the reversal of provision for unfunded commitments of $1.07 million and reported in the net aggregate of $24.44 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended September 30, 2025. The provision for loan losses of $30.93 million for the nine-months ended September 30, 2025 is combined with the provision for unfunded commitments of $165 thousand and reported in the net aggregate of $31.10 million under the provision for credit losses in the consolidated statements of earnings for the nine-months ended September 30, 2025.

Previous 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 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 aggregate of $6.70 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2024.

Current 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 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 aggregate of $12.82 million under the provision for credit losses in the consolidated statements of earnings for the nine-months ended September 30, 2024.

Previous wording

As a percent of average loans, net loan charge-offs were 0.04% for the second quarter of 2025, as compared to net loan charge-offs of 0.02% for the second quarter of 2024. As a percent of average loans, net loan charge-offs were 0.02% for the first six months of 2025 and 2024, respectively. The allowance for credit losses as a percent of loans held-for-investment was 1.27% as of June 30, 2025, as compared to 1.27% for June 30, 2024 and 1.24% for December 31, 2024, respectively.

Current wording

As a percent of average loans, annualized net loan charge-offs were 1.07% for the third quarter of 2025, as compared to 0.04% for the third quarter of 2024. As a percent of average loans, annualized net loan charge-offs were 0.39% for the first nine months of 2025 and 0.03% for the first nine months of 2024, respectively. The allowance for credit losses as a percent of loans held-for-investment was 1.29% as of September 30, 2025, as compared to 1.29% for September 30, 2024 and 1.24% for December 31, 2024, respectively. This quarter was impacted by a $21.55 million credit loss believed to be due to fraudulent activity associated with a commercial borrower. We have reviewed our portfolio to look for systematic issues and believe this to be isolated. We have initiated legal action and are continuing to work with law enforcement. Despite this setback, our core earnings trends remain positive, with year-to-date earnings growth of nearly 12% compared to 2024.

Previous wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $435.61 million at June 30, 2025 compared to $103.32 million at June 30, 2024 and $503.42 million at December 31, 2024, respectively. At June 30, 2025, interest-bearing deposits in banks included $410.75 million maintained at the Federal Reserve Bank of Dallas and $24.86 million on deposit with the FHLB.

Current wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $401.58 million at September 30, 2025 compared to $287.48 million at September 30, 2024 and $503.42 million at December 31, 2024, respectively. At September 30, 2025, interest-bearing deposits in banks included $369.57 million maintained at the Federal Reserve Bank of Dallas and $32.01 million on deposit with the FHLB.

Previous wording

Available-for-Sale Securities. At June 30, 2025, securities with a fair value of $4.89 billion were classified as securities available-for-sale. As compared to December 31, 2024, the available-for-sale portfolio at June 30, 2025 reflected (i) an increase of $320.61 million in mortgage-backed securities, (ii) an increase of $81.12 million in obligations of states and political subdivisions, (iii) a decrease of $119.73 million in U.S. Treasury securities, and (iv) a decrease of $13.21 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 six months of 2025. 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 September 30, 2025, securities with a fair value of $5.26 billion were classified as securities available-for-sale. As compared to December 31, 2024, the available-for-sale portfolio at September 30, 2025 reflected (i) an increase of $526.70 million in mortgage-backed securities, (ii) an increase of $293.67 million in obligations of states and political subdivisions, (iii) a decrease of $171.59 million in U.S. Treasury securities, and (iv) a decrease of $5.72 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 nine 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 June 30, 2025, the investment portfolio had an overall tax equivalent yield of 2.82%, a weighted average life of 7.28 and modified duration of 5.94 years.

Current wording

As of September 30, 2025, the investment portfolio had an overall tax equivalent yield of 3.00%, a weighted average life of 6.68 and modified duration of 5.53 years.

Previous wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $12.45 billion as of June 30, 2025, as compared to $11.41 billion as of June 30, 2024 and $12.10 billion as of December 31, 2024.

Current wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $12.85 billion as of September 30, 2025, as compared to $11.76 billion as of September 30, 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 six month periods ended June 30, 2025 and 2024, respectively.

Current wording

Table 9 provides a breakdown of average deposits and rates paid over the three and nine month periods ended September 30, 2025 and 2024, respectively.

Previous wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $4.03 billion as of June 30, 2025.

Current wording

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $3.96 billion as of September 30, 2025.

Previous wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $22.15 million, $23.70 million and $135.60 million at June 30, 2025 and 2024, and December 31, 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $26.56 million and $22.93 million in the second quarters of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 1.93% and 1.60% for the second quarters of 2025 and 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $50.43 million and $77.95 million in the first half of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 2.76% and 3.95% for the first half of 2025 and 2024, respectively.

Current wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $21.96 million, $25.98 million and $135.60 million at September 30, 2025 and 2024, and December 31, 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $56.20 million and $24.67 million in the third quarters of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 3.33% and 1.87% for the third quarters of 2025 and 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $52.38 million and $60.06 million in the first nine months of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 2.96% and 3.66% for the first nine months of 2025 and 2024, respectively.

Previous wording

Repurchase Agreements. Securities sold under repurchase agreements of $48.03 million, $138.95 million and $61.42 million at June 30, 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 $54.48 million and $212.59 million for the second quarters of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.63% and 3.59% for the second quarters of 2025 and 2024, respectively. The average balances of securities sold under repurchase agreements were $54.20 million and $265.01 million for the first six months of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.60% and 3.38% for the first six months 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.

Current wording

Repurchase Agreements. Securities sold under repurchase agreements of $50.65 million, $57.56 million and $61.42 million at September 30, 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 $50.05 million and $100.89 million for the third quarters of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.66% and 2.92% for the third quarters of 2025 and 2024, respectively. The average balances of securities sold under repurchase agreements were $52.80 million and $209.91 million for the first nine months of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.62% and 3.31% for the first nine months 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 $4.89 billion at June 30, 2025. During the six months ended June 30, 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 $473.12 million at June 30, 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 June 30, 2025, the 5-year U.S. Treasury rate was 3.80% compared to 4.39% at December 31, 2024, representing a 59 basis point decrease during the first six months of 2025. As of June 30, 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 $249.72 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $221.37 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 $5.26 billion at September 30, 2025. During the nine months ended September 30, 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 $390.96 million at September 30, 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 September 30, 2025, the 5-year U.S. Treasury rate was 3.73% compared to 4.39% at December 31, 2024, representing a 66 basis point decrease during the first nine months of 2025. As of September 30, 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 $224.41 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $258.66 million before taxes. We believe that we have the ability to hold these securities to maturity based on our overall liquidity and intent to hold the portfolio.

Previous wording

Total shareholders’ equity was $1.74 billion, or 12.08% of total assets at June 30, 2025, as compared to $1.52 billion, or 11.54% of total assets at June 30, 2024, and $1.61 billion, or 11.49% of total assets at December 31, 2024. Included in shareholders' equity at June 30, 2025, and 2024, and December 31, 2024 were $373.46 million, $441.56 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 second quarter of 2025, total shareholders' equity averaged $1.69 billion, or 11.93% of average assets, as compared to $1.46 billion, or 11.18% of average assets, during the same period in 2024. For the first six months of 2025, total shareholders’ equity averaged $1.67 billion, or 11.85% of average assets, as compared to $1.48 billion or 11.22% of average assets, during the same period in 2024.

Current wording

Total shareholders’ equity was $1.83 billion, or 12.33% of total assets at September 30, 2025, as compared to $1.66 billion, or 12.24% of total assets at September 30, 2024, and $1.61 billion, or 11.49% of total assets at December 31, 2024. Included in shareholders' equity at September 30, 2025, and 2024, and December 31, 2024 were $308.58 million, $329.82 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 third quarter of 2025, total shareholders' equity averaged $1.75 billion, or 12.13% of average assets, as compared to $1.57 billion, or 11.83% of average assets, during the same period in 2024. For the first nine months of 2025, total shareholders’ equity averaged $1.69 billion, or 11.94% of average assets, as compared to $1.51 billion or 11.42% of average assets, during the same period in 2024.

Previous wording

As of June 30, 2025 and 2024, and December 31, 2024, we had a total risk-based capital ratio of 20.35%, 19.55% and 20.00%, a Tier 1 capital to risk-weighted assets ratio of 19.16%, 18.42% and 18.83%, a common equity Tier 1 to risk-weighted assets ratio of 19.16%, 18.42% and 18.83% and a Tier 1 leverage ratio of 12.61%, 12.40% and 12.49%, respectively. The regulatory capital ratios as of June 30, 2025 and 2024, and December 31, 2024 were calculated under Basel III rules.

Current wording

As of September 30, 2025 and 2024, and December 31, 2024, we had a total risk-based capital ratio of 20.21%, 20.03% and 20.00%, a Tier 1 capital to risk-weighted assets ratio of 19.02%, 18.83% and 18.83%, a common equity Tier 1 to risk-weighted assets ratio of 19.02%, 18.83% and 18.83% and a Tier 1 leverage ratio of 12.68%, 12.53% and 12.49%, respectively. The regulatory capital ratios as of September 30, 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 $50.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2027 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $175.00 million. At June 30, 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 $2.19 billion at June 30, 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 June 30, 2025, there was $795.00 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 $50.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2027 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $175.00 million. At September 30, 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 $2.07 billion at September 30, 2025, secured by portions of our loan portfolio and certain investment securities, and (ii) access to approximately $1.97 billion at the Federal Reserve Bank of Dallas discount window lending program secured by portions of certain investment securities and portions of our loan portfolio. At September 30, 2025, there was $817.00 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.