FIRST FINANCIAL BANKSHARES INC

Previous wording

We deem our most critical accounting policies to be (1) our allowance for credit losses and our provision for credit losses and (2) our valuation of financial instruments. We have other significant accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on our reported results for a given period. A discussion of (1) our allowance for credit losses and our provision for credit losses and (2) our valuation of financial instruments is included in Notes 1 and 10, respectively, to our Consolidated Financial Statements.

Current wording

We deem our most critical accounting policies to be (1) our allowance for credit losses (“ACL”) and our provision for credit losses and (2) our valuation of financial instruments. We have other significant accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on our reported results for a given period. A discussion of (1) our allowance for credit losses and our provision for credit losses and (2) our valuation of financial instruments is included in Notes 1 and 10, respectively, to our Consolidated Financial Statements.

Previous wording

On July 23, 2024, the Company’s Board of Directors extended the authorization to repurchase up to 5,000,000 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 previous authorization effective through July 31, 2024, 244,559 shares were repurchased and retired (during the months of June and July 2022) at an average price of $38.61 per share. Additionally, 101,337 shares (all during September 2023) were repurchased and retired at an average price of $26.99 per share.

Current wording

On July 22, 2025, the Company’s Board of Directors extended the authorization to repurchase up to 5,000,000 common shares through July 31, 2026. 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. There have been no repurchases during 2024 or 2025.

Previous wording

ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. Public business entities (PBEs) are required to provide this incremental detail in a numerical, tabular format. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). PBEs will be required to adopt the new requirements in annual reporting periods beginning after December 15, 2024, and interim periods beginning after December 15, 2025. The adoption of ASU 2023-09 is not expected to have a significant impact on our financial statements.

Current wording

ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate. Public business entities (PBEs) are required to provide this incremental detail in a numerical, tabular format. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). ASU 2023-09 became effective for our annual financial statements in 2025 and did not have a significant effect on the financial statements.

Previous wording

Performance Summary. Net earnings for 2024 were $223.51 million compared to net earnings of $198.98 million for 2023, reflecting an increase of $24.53 million, or 12.33%. The increase in earnings for 2024 over 2023 was primarily attributable to the overall growth in net interest income from the growth in earning assets. Additionally, trust fee income increased $6.99 million when compared to 2023 and there were no losses on sales of AFS securities in 2024 when compared to $7.12 million losses in 2023. The proceeds from sales of securities during 2023 were used to fund higher-yielding organic loan growth during 2024.

Current wording

Net earnings for 2024 were $223.51 million compared to $198.98 million for 2023, reflecting an increase of $24.53 million, or 12.33%. The increase in earnings for 2024 over 2023 was primarily attributable to the overall growth in net interest income from the growth in earning assets. Additionally, trust fee income increased $6.99 million when compared to 2023 and there was no loss on sales of AFS securities in 2024 when compared to a $7.12 million loss in 2023. The proceeds from sales of securities during 2023 were used to fund higher-yielding organic loan growth during 2024.

Previous wording

On a diluted net earnings per share basis, net earnings were $1.56 for 2024, as compared to $1.39 for 2023 and $1.64 for 2022. The return on average assets was 1.68% for 2024, as compared to 1.55% for 2023 and 1.76% for 2022. The return on average equity was 14.51% for 2024, as compared to 14.99% for 2023 and to 16.72% for 2022.

Current wording

On a diluted net earnings per share basis, net earnings were $1.77 for 2025, as compared to $1.56 for 2024 and $1.39 for 2023. The return on average assets was 1.76% for 2025, as compared to 1.68% for 2024 and 1.55% for 2023. The return on average equity was 14.59% for 2025, as compared to 14.51% for 2024 and to 14.99% for 2023.

Previous wording

Tax-equivalent net interest income was $437.19 million in 2024, as compared to $395.36 million in 2023, and $416.84 million in 2022. Average earning assets were $12.48 billion in 2024, as compared to $12.00 billion in 2023 and $12.46 billion in 2022. The increase in tax-equivalent net interest income in 2024 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 securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. The increase of $483.34 million in average earning assets in 2024 when compared to 2023 was primarily a result of an increase in loans of $732.00 million, offset by a decrease in taxable securities of $211.16 million, and a decrease in tax-exempt securities of $176.36 million. The decrease in tax-equivalent net interest income in 2023 compared to 2022 was largely attributable to the increases in the rates paid on deposits and borrowings and a change in the mix of interest earning assets. The decrease of $461.72 million in average earning assets in 2023 when compared to 2022 was primarily a result of a decrease in taxable securities of $531.39 million and tax-exempt securities of $689.37 million offset by an increase in loans of $860.76 million when compared to 2022. Average interest-bearing liabilities were $8.39 billion in 2024, as compared to $7.84 billion in 2023 and $7.76 billion in 2022. The yield on earning assets increased 62 basis points in 2024 when compared to 2023 while the rate paid on interest-bearing liabilities increased 57 basis points. The yield on earning assets increased 90 basis points in 2023 when compared to 2022 while the rate paid on interest-bearing liabilities increased 143 basis points.

Current wording

Tax-equivalent net interest income was $513.63 million in 2025, as compared to $437.19 million in 2024, and $395.36 million in 2023. Average earning assets were $13.55 billion in 2025, as compared to $12.48 billion in 2024 and $12.00 billion in 2023. The increase in tax-equivalent net interest income in 2025 compared to 2024 was largely attributable to the change in the mix of interest earning assets primarily derived from continued loan growth combined with increase in volume and yield on the Company's taxable and tax-exempt securities. The increase of $1.06 billion in average earning assets in 2025 when compared to 2024 was primarily a result of an increase in loans of $607.02 million, an increase in taxable securities of $265.67 million, and an increase in tax-exempt securities of $109.59 million. The increase in tax-equivalent net interest income in 2024 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 securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. The increase of $483.34 million in average earning assets in 2024 when compared to 2023 was primarily a result of an increase in loans of $732.00 million, offset by a decrease in taxable securities of $211.16 million and a decrease in tax-exempt securities of $176.36 million. Average interest-bearing liabilities were $9.18 billion in 2025, as compared to $8.39 billion in 2024 and $7.84 billion in 2023. The yield on earning assets increased 16 basis points in 2025 when compared to 2024 while the rate paid on interest-bearing liabilities decreased 21 basis points. The yield on earning assets increased 62 basis points in 2024 when compared to 2023 while the rate paid on interest-bearing liabilities increased 57 basis points.

Previous wording

The net interest margin for 2024 was 3.50% which was a increase of 21 basis points from 2023. The net interest margin in 2023 was 3.29%, a decrease of five basis points from 2022. 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 range of 4.25% to 4.50% at December 31, 2024.

Current wording

The net interest margin for 2025 was 3.79% which was an increase of 29 basis points from 2024. The net interest margin in 2024 was 3.50%, an increase of 21 basis points from 2023. 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 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 increasing interest rates in March 2022 and continuing into 2023 to a peak of 5.25% to 5.50%. Most recently, the Federal Reserve decreased interest rates 100 basis points in 2024, and 25 basis points in September, October, and December 2025, respectively, resulting in a target range of 3.50% to 3.75% at December 31, 2025.

Previous wording

There are $1.09 billion 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 $1.46 billion for both years ended December 31, 2024 and 2023, respectively, with an average rate paid of 3.94% and 3.13%, for the respective years then ended.

Current wording

There are $1.52 billion of municipal and related deposits which are indexed to short-term treasury rates which have continued to fluctuate with the changes in the applicable rate index. Average municipal and related deposits totaled $1.58 billion and $1.46 billion for the years ended December 31, 2025 and 2024, respectively, with an average rate paid of 3.42% and 3.94%, for the respective years then ended.

Previous wording

Includes tax-equivalent yield adjustment of approximately $10.45 million, $11.55 million and $15.42 million for the years ended December 31, 2024, 2023 and 2022, respectively, using an effective tax rate of 21%.

Current wording

Includes tax-equivalent yield adjustment of approximately $12.74 million, $10.45 million and $11.55 million for the years ended December 31, 2025, 2024 and 2023, respectively, using an effective tax rate of 21%.

Previous wording

est income for 2024 was $123.99 million compared to $108.00 million in 2023. Changes in certain categories of noninterest income included (i) no losses on sales of AFS securities in 2024 when compared to $7.12 million losses in 2023, (ii) an increase in Trust fee income of $6.99 million and (iii) an increase in gain on sale and fees of mortgage loans of $1.29 million when compared to 2023. AFS securities totaling $411.13 million were sold during 2023 resulting in a loss on sales of securities of $7.12 million. There were no securities sales in 2024. Trust revenue has increased primarily due to growth in assets under management to $10.83 billion at December 31, 2024 compared to $9.78 billion at December 31, 2023, as well as increases in oil and gas related fees. Mortgage income increased to $13.18 million in 2024 compared to $11.89 million in 2023 due to increased loan volume.

Current wording

Noninterest income for 2024 was $123.99 million compared to $108.00 million in 2023. Changes in certain categories of noninterest income included (i) no losses on sales of AFS securities in 2024 when compared to $7.12 million losses in 2023, (ii) an increase in Trust fee income of $6.99 million and (iii) an increase in gain on sale and fees of mortgage loans of $1.29 million when compared to 2023. AFS securities totaling $411.13 million were sold during 2023 resulting in a loss on sales of securities of $7.12 million. There were no securities sales in 2024. Trust revenue increased primarily due to growth in assets under management to $10.83 billion at December 31, 2024 compared to $9.78 billion at December 31, 2023, as well as increases in oil and gas related fees. Mortgage income increased to $13.18 million in 2024 compared to $11.89 million in 2023 due to increased loan origination volume.

Previous wording

Noninterest Expense. Total noninterest expense for 2024 amounted to $265.06 million, an increase of $27.18 million, or 11.43%, as compared to 2023. Total noninterest expense for 2023 was $237.88 million, an increase of $3.10 million, or 1.32%, as compared to 2022. An important measure in determining whether a financial institution effectively manages noninterest expenses 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 for 2024 was 47.23%, as compared to 47.26% for 2023 and 42.80% for 2022.

Current wording

Noninterest Expense. Total noninterest expense for 2025 amounted to $293.39 million, an increase of $28.33 million, or 10.69%, as compared to 2024. Total noninterest expense for 2024 was $265.06 million, an increase of $27.18 million, or 11.43%, as compared to 2023. An important measure in determining whether a financial institution effectively manages noninterest expenses 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 for 2025 was 45.53%, as compared to 47.23% for 2024 and 47.26% for 2023.

Previous wording

All other categories of noninterest expense for 2023 totaled $105.97 million, an increase of $5.32 million, or 5.29%, as compared to 2022. Included in noninterest expense during 2023, excluding salary and employee benefit related costs, were increases in FDIC insurance premiums of $4.04 million primarily due to the recognition of $1.75 million related to the special assessment in the fourth quarter of 2023.

Current wording

All other categories of noninterest expense for 2025 totaled $118.84 million, an increase of $7.07 million, or 6.33%, as compared to 2024. Included in noninterest expense during 2025, excluding salary and employee benefit related costs, were increases in software amortization and expense and operational and other losses offset by a decrease in legal fees and other related costs of $2.08 million.

Previous wording

Salaries and employee benefits for 2024 totaled $153.30 million, an increase of $21.38 million, or 16.21%, as compared to 2023. The net increase reflected an increase of $12.90 million in profit sharing and officer bonus and incentive accruals related to growth in earnings over the prior year. Additionally, officer and employee salaries increased for additions to the middle market lending team and the audit and risk departments due to growth, as well as merit-based pay increases since the prior year.

Current wording

Salaries and employee benefits for 2024 totaled $153.30 million, an increase of $21.38 million, or 16.21%, as compared to 2023. The net increase reflected an increase of $8.09 million in profit sharing expense and $4.81 million in officer bonus and incentive accruals related to growth in earnings over the prior year. Additionally, officer and employee salaries increased for additions to the middle market lending team and the audit and risk departments due to growth, as well as merit-based pay increases since the prior year.

Previous wording

All other categories of noninterest expense for 2024 totaled $111.77 million, an increase of $5.80 million, or 5.47%, as compared to 2023. Included in noninterest expense during 2024, excluding salary and employee benefit related costs, were increases in software amortization and expense, occupancy expense, and legal and professional fees offset by a decrease in FDIC insurance premiums of $1.25 million due to the special assessment in the prior year.

Current wording

All other categories of noninterest expense for 2024 totaled $111.77 million, an increase of $5.80 million, or 5.47%, as compared to 2023. Included in noninterest expense during 2024, excluding salary and employee benefit related costs, were increases in software amortization and expense, occupancy expense, and legal and professional fees offset by a decrease in FDIC insurance premiums of $1.25 million due to the special assessment accrued and expensed in the prior year.

Previous wording

Income Taxes. Income tax expense was $48.34 million for 2024, as compared to $44.32 million for 2023 and $46.40 million for 2022. Our effective tax rates on pretax income were 17.78%, 18.22% and 16.52%, respectively, for the years 2024, 2023 and 2022. The effective tax rates differ from the statutory federal tax rate of 21.0% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distribution under our deferred compensation plan and vesting of equity awards, and New Market Tax Credit ("NMTC") benefits.

Current wording

Income Taxes. Income tax expense was $56.02 million for 2025, as compared to $48.34 million for 2024 and $44.32 million for 2023. Our effective tax rates on pretax income were 18.10%, 17.78% and 18.22%, respectively, for the years 2025, 2024 and 2023. The effective tax rates differ from the statutory federal tax rate of 21.0% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distribution under our deferred compensation plan and vesting of equity awards, New Market Tax Credit ("NMTC") benefits, and Low Income Housing Tax Credits ("LIHTC").

Previous wording

Loans. Our portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of December 31, 2024, total loans HFI were $7.91 billion, an increase of $764.31 million as compared to December 31, 2023.

Current wording

Loans. Our portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of December 31, 2025, total loans HFI were $8.16 billion, an increase of $245.18 million as compared to December 31, 2024.

Previous wording

As compared to year-end 2023 balances, total commercial loans increased $166.58 million, agricultural loans increased $10.65 million, total real estate loans increased $471.75 million, and total consumer loans increased $115.33 million. Loans averaged $7.52 billion during 2024, an increase of $732.00 million over 2023 average balances.

Current wording

As compared to year-end 2024 balances, total commercial loans decreased by $87.28 million, agricultural loans increased $233 thousand, total real estate loans increased $245.04 million, and total consumer loans increased $87.18 million. Loans averaged $8.12 billion during 2025, an increase of $607.02 million over 2024 average balances.

Previous wording

(“CRE”), Residential, Consumer Auto, and Consumer Non-Auto. This additional segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.

Current wording

For modeling purposes, our loan portfolio segments include Commercial and Industrial (“C&I”), Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied Commercial Real Estate (“CRE”), Residential, Consumer Auto, and Consumer Non-Auto. This additional segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.

Previous wording

Loans HFS, consisting of secondary market mortgage loans, totaled $8.24 million and $14.25 million at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, $442 thousand and $3.18 million are valued at the lower of cost or fair value, and the remaining amount is valued under the fair value option.

Current wording

Loans HFS, consisting of secondary market mortgage loans, totaled $29.99 million and $8.24 million at December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, $4.56 million and $442 thousand are valued at the lower of cost or fair value, and the remaining amount is valued under the fair value option.

Previous wording

The Company has certain lending policies and procedures in place that are designed to maximize loan growth with an acceptable level of risk. Management reviews and approves these policies and procedures on an annual basis and makes changes as appropriate with input from our Board of Directors. Management receives and reviews monthly reports related to loan originations, quality, concentrations, delinquencies, nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geographic location.

Current wording

The Company has certain lending policies and procedures in place that are designed to maximize loan growth with an acceptable level of risk. Management reviews and approves these policies and procedures on an annual basis and makes changes as appropriate with input from our Board of Directors. Management and the board receives and reviews monthly reports related to loan originations, quality, concentrations, delinquencies, nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geographic location.

Previous wording

Commercial real estate loans (owner and non-owner occupied CRE) represent 23.87% of the Company's total loan portfolio as of December 31, 2024. Non-owner occupied CRE represents $805.57 million, or 10.18%, of the Company's total loan portfolio as of December 31, 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-Forth 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 13.91% and multifamily at approximately 7.64% as of December 31, 2024. 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.

Current wording

Commercial real estate loans (owner and non-owner occupied CRE) represent 23.94% of the Company's total loan portfolio as of December 31, 2025. Non-owner occupied CRE represents $832.82 million, or 10.21%, of the Company's total loan portfolio as of December 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-Forth 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/manufacturing at approximately 18.60% and multifamily at approximately 7.75% as of December 31, 2025. All additional CRE portfolio property 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 as loans that were made in a much lower rate environment renew.

Previous wording

Of the $4.67 billion of the variable interest rate loans shown above, loans totaling $2.07 billion mature or reprice over the next twelve months. Of this amount, approximately $1.90 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $173.43 million being subject to floors above or ceilings below the current index.

Current wording

Of the $4.71 billion of the variable interest rate loans shown above, loans totaling $2.17 billion mature or reprice over the next twelve months. Of this amount, approximately $1.81 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $354.40 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 restructured loans plus foreclosed assets were $63.10 million at December 31, 2024, as compared to $35.10 million at December 31, 2023 and $24.33 million at December 31, 2022. As a percent of loans HFI and foreclosed assets, these assets were 0.80% at December 31, 2024, as compared to 0.49% at December 31, 2023 and 0.38% at December 31, 2022. As a percent of total assets, these assets were 0.45% at December 31, 2024, as compared to 0.27% at December 31, 2023 and 0.19% at December 31, 2022. 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 December 31, 2024.

Current wording

Asset Quality. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Nonaccrual, past due 90 days or more and still accruing, and restructured loans plus foreclosed assets were $56.49 million at December 31, 2025, as compared to $63.10 million at December 31, 2024 and $35.10 million at December 31, 2023. As a percent of loans HFI and foreclosed assets, these assets were 0.69% at December 31, 2025, as compared to 0.80% at December 31, 2024 and 0.49% at December 31, 2023. As a percent of total assets, these assets were 0.37% at December 31, 2025, as compared to 0.45% at December 31, 2024 and 0.27% at December 31, 2023. 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 December 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 as of December 31, 2024 of approximately $1.11 million during 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 approximated $5.35 million.

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 as of December 31, 2025 of approximately $795 thousand during the year ended December 31, 2025. If interest on all nonaccrual loans at December 31, 2025 had been recognized on a full accrual basis during the year ended December 31, 2025, such income would have approximated $5.69 million.

Previous wording

Included in our loan portfolio are certain other loans not included in the table above that are deemed to be potential problem loans. Potential problem loans are those loans that are currently performing, but for which known information about trends, uncertainties or possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present repayment terms, possibly resulting in the transfer of such loans to nonperforming status. These potential problem loans totaled $11.25 million as of December 31, 2024.

Current wording

Included in our loan portfolio are certain other loans not included in the table above that are deemed to be potential problem loans. Potential problem loans are those loans that are currently performing, but for which known information about trends, uncertainties or possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present repayment terms, possibly resulting in the transfer of such loans to nonperforming status. These potential problem loans totaled $3.67 million as of December 31, 2025.

Previous wording

Allowance for Credit Losses. The allowance for credit losses is the amount we determine as of a specific date to be appropriate to absorb current expected credit losses on existing loans. For a discussion of our methodology, see our accounting policies in Note 1 to the Consolidated Financial Statements. The provision for credit losses was $13.82 million in 2024, $10.63 million in 2023, and $17.43 million in 2022. The Company's provision for credit losses during 2024 was driven by strong organic loan growth and an increase in classified loans. The increase in the Company's provision for credit losses during 2023 was driven by strong organic loan growth offset by a decrease in construction and development unfunded commitments.

Current wording

Allowance for Credit Losses. The allowance for credit losses is the amount we determine as of a specific date to be appropriate to absorb current expected credit losses on existing loans. For a discussion of our methodology, see our accounting policies in Note 1 to the Consolidated Financial Statements. The provision for credit losses was $28.61 million in 2025, $13.82 million in 2024, and $10.63 million in 2023. The Company's provision for credit losses during 2025 was impacted by a $21.55 million credit loss believed to be due to fraudulent activity associated with a commercial borrower. The Company's provision for credit losses during 2024 was driven by strong organic loan growth and an increase in classified loans.

Previous wording

As a percent of average loans, net loan charge-offs were 0.05% during 2024 and 0.03% during 2023, and net loan recoveries of 0.01% during 2022. The allowance for credit losses as a percent of loans HFI was 1.24% as of December 31, 2024, as compared to 1.24% as of December 31, 2023, and 1.18% as of December 31, 2022. Included in the following tables are further analysis of our allowance for credit losses.

Current wording

As a percent of average loans, net loan charge-offs were 0.29%, 0.05%, and 0.03% during 2025, 2024, and 2023, respectively. The allowance for credit losses as a percent of loans HFI was 1.29% as of December 31, 2025, as compared to 1.24% as of December 31, 2024, and 2023, respectively. Included in the following tables are further analysis of our allowance for credit losses.

Previous wording

Although we believe we use the best information available to make credit loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A downturn in the economy or lower employment could result in increased levels of nonaccrual, past due 90 days or more and still accruing, foreclosed assets, charge-offs, increased provision for credit losses and reductions in income. Additionally, as an integral part of their examination process, bank regulatory agencies periodically review the adequacy of our allowance for credit losses. The banking agencies could require additions to our allowance for credit losses based on their judgment of information available to them at the time of their examinations of our bank subsidiary.

Current wording

Although we believe we use the best information available to make credit loss allowance determinations, future adjustments could be necessary if circumstances or economic conditions differ substantially from the assumptions used in making our initial determinations. A downturn in the economy or lower employment could result in increased levels of nonaccrual, past due 90 days or more and still accruing, foreclosed assets, charge-offs, increased provision for credit losses and reductions in income. Additionally, as an integral part of their examination process, bank regulatory agencies regularly review the adequacy of our allowance for credit losses. The banking agencies could require additions to our allowance for credit losses based on their judgment of information available to them at the time of their examinations of our bank subsidiary.

Previous wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing demand deposits in banks of $503.42 million at December 31, 2024 and $255.24 million at December 31, 2023, respectively. At December 31, 2024, our interest-bearing deposits in banks included $483.70 million maintained at the Federal Reserve Bank of Dallas and $19.72 million on deposit with the Federal Home Loan Bank of Dallas (FHLB). The average balance of interest-bearing deposits in banks was $253.39 million, $115.79 million and $217.53 million in 2024, 2023 and 2022, respectively. The average yield on interest-bearing deposits in banks was 5.23%, 5.09% and 1.67% in 2024, 2023 and 2022, respectively.

Current wording

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing demand deposits in banks of $826.95 million at December 31, 2025 and $503.42 million at December 31, 2024, respectively. At December 31, 2025, our interest-bearing deposits in banks included $820.75 million maintained at the Federal Reserve Bank of Dallas and $6.20 million on deposit with the Federal Home Loan Bank of Dallas (FHLB). The average balance of interest-bearing deposits in banks was $329.39 million, $253.39 million and $115.79 million in 2025, 2024 and 2023, respectively. The average yield on interest-bearing deposits in banks was 4.26%, 5.23% and 5.09% in 2025, 2024 and 2023, respectively.

Previous wording

Available-for-Sale Securities. At December 31, 2024, securities with a fair value of $4.62 billion were classified as securities AFS. There were no securities classified as held-to-maturity at December 31, 2024 and 2023. As compared to December 31, 2023, the AFS portfolio at December 31, 2024, reflected (i) a decrease of $208.67 million in U.S. Treasury securities; (ii) a decrease of $56.91 million in obligations of states and political subdivisions; (iii) an increase of $149.87 million in mortgage-backed securities, and (iv) an increase of $711 thousand in corporate bonds and other securities. As compared to December 31, 2022, the AFS portfolio at December 31, 2023, reflected (i) a decrease of $401.45 million in obligations of states and political subdivisions; (ii) a decrease of $343.02 million in mortgage-backed securities; (iii) a decrease of $315 thousand in U.S. Treasury securities; and (iv) an increase of $3.19 million in corporate bonds and other securities. Securities AFS included an unrealized loss fair value adjustment of $537.55 million, $510.92 million and $677.99 million at December 31, 2024, 2023, and 2022, respectively. 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 December 31, 2025, securities with a fair value of $5.51 billion were classified as securities AFS. There were no securities classified as held-to-maturity at December 31, 2025 and 2024. As compared to December 31, 2024, the AFS portfolio at December 31, 2025, reflected (i) an increase of $802.36 million in mortgage-backed securities; (ii) an increase of $311.13 million in obligations of states and political subdivisions; (iii) a decrease of $212.75 million in U.S. Treasury securities; and (iv) a decrease of $4.39 million in corporate bonds and other securities. As compared to December 31, 2023, the AFS portfolio at December 31, 2024, reflected (i) a decrease of $208.67 million in U.S. Treasury securities (ii) a decrease of $56.91 million in obligations of states and political subdivisions; (iii) an increase of $149.87 million in mortgage-backed securities; and (iv) an increase of $711 thousand in corporate bonds and other securities. Securities AFS included an unrealized loss fair value adjustment of $342.03 million, $537.55 million and $510.92 million at December 31, 2025, 2024, and 2023, respectively. Our mortgage related securities are backed by GNMA, FNMA or FHLMC or are collateralized by securities backed by these agencies.

Previous wording

As of December 31, 2024, the investment portfolio had an overall tax equivalent yield of 2.55%, a weighted average life of 7.03 years and modified duration of 5.82 years. At December 31, 2023, the investment portfolio had an overall tax equivalent yield of 2.23%, a weighted average life of 6.07 years and modified duration of 5.30 years.

Current wording

As of December 31, 2025, the investment portfolio had an overall tax equivalent yield of 3.10%, a weighted average life of 6.54 years and modified duration of 5.43 years. At December 31, 2024, the investment portfolio had an overall tax equivalent yield of 2.55%, a weighted average life of 7.03 years and modified duration of 5.82 years.

Previous wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $12.10 billion as of December 31, 2024, as compared to $11.14 billion as of December 31, 2023 and $11.01 billion as of December 31, 2022. The table below provides a breakdown of average deposits and rates paid over the past three years and the remaining maturity of time deposits of $250,000 or more:

Current wording

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $13.35 billion as of December 31, 2025, as compared to $12.10 billion as of December 31, 2024 and $11.14 billion as of December 31, 2023. The table below provides a breakdown of average deposits and rates paid over the past three years and the remaining maturity of time deposits of $250,000 or more:

Previous wording

The estimated amount of uninsured and uncollateralized deposits including related interest accrued and unpaid is approximately $4.01 billion as of December 31, 2024.

Current wording

The estimated amount of uninsured and uncollateralized deposits including related interest accrued and unpaid is approximately $4.03 billion, or 30.23% of total deposits, as of December 31, 2025.

Previous wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $135.60 million, $22.15 million and $23.68 million at December 31, 2024, 2023 and 2022, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $54.94 million, $81.26 million and $127.87 million during 2024, 2023 and 2022, respectively. The average rates paid on these borrowings were 3.47%, 4.05% and 2.45% during the years ended December 31, 2024, 2023 and 2022, respectively.

Current wording

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $21.68 million, $135.60 million and $22.15 million at December 31, 2025, 2024 and 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $44.75 million, $54.94 million and $81.26 million during 2025, 2024 and 2023, respectively. The average rates paid on these borrowings were 2.76%, 3.47% and 4.05% during the years ended December 31, 2025, 2024 and 2023, respectively.

Previous wording

Repurchase Agreements. 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 borrowing. The average balances of securities sold under repurchase agreements were $173.07 million, $568.21 million and $674.23 million in 2024, 2023 and 2022, 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. The average rates paid on securities sold under repurchase agreements were 3.16%, 2.84% and 0.31% for the years ended December 31, 2024, 2023 and 2022, respectively. The weighted average interest rate on federal funds purchased, securities sold under repurchase agreements and advances from the FHLB was 2.01%, 3.27% and 1.96% at December 31, 2024, 2023 and 2022, respectively. The highest amount of federal funds purchased, securities sold under repurchase agreements and advances from the FHLB at any month-end during 2024, 2023 and 2022 was $563.28 million, $822.98 million and $1.04 billion, respectively.

Current wording

Repurchase Agreements. Securities sold under repurchase agreements were $62.96 million, $61.42 million and $381.93 million at December 31, 2025, 2024 and 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 borrowing. The average balances of securities sold under repurchase agreements were $53.75 million, $173.07 million and $568.21 million in 2025, 2024 and 2023, respectively. The average balances of securities sold under repurchase agreements has decreased from the prior year related to the timing of customers moving funds to IntraFi deposit accounts throughout 2024. The average rates paid on securities sold under repurchase agreements were 1.60%, 3.16% and 2.84% for the years ended December 31, 2025, 2024 and 2023, respectively. The weighted average interest rate on federal funds purchased, securities sold under repurchase agreements and advances from the FHLB was 1.46%, 2.01% and 3.27% at December 31, 2025, 2024 and 2023, respectively. The highest amount of federal funds purchased, securities sold under repurchase agreements and advances from the FHLB at any month-end during 2025, 2024 and 2023 was $197.51 million, $563.28 million and $822.98 million, respectively.

Previous wording

The fair value of our investment securities classified as available-for-sale totaled $4.62 billion at December 31, 2024. During the year ended December 31, 2024, the corresponding unrealized loss before taxes on the portfolio of $510.92 million at December 31, 2023, changed to an unrealized loss before taxes of $537.55 million at December 31, 2024, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At December 31, 2024, the 5-year U.S. Treasury rate was 4.39% compared to 3.84% at December 31, 2023, representing a 55 basis point increase during the year. As of December 31, 2024, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $231.38 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $193.96 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 $5.51 billion at December 31, 2025. During the year ended December 31, 2025, the corresponding unrealized loss before taxes on the portfolio of $537.55 million at December 31, 2024, declined to an unrealized loss before taxes of $342.03 million at December 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 improvement in the fair value was 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 December 31, 2025, the 5-year U.S. Treasury rate was 3.72% compared to 4.39% at December 31, 2024, representing a 66 basis point decrease during the year. As of December 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 $259.83 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $228.37 million before taxes. The Company does not intend to sell any impaired available for sale securities before fair value recovers to the current amortized cost, and it is more-likely-than-not that the Company will not be required to sell impaired securities before fair value recovers, which may be maturity.

Previous wording

Total shareholders’ equity was $1.61 billion, or 11.49% of total assets at December 31, 2024, as compared to $1.50 billion, or 11.44% of total assets at December 31, 2023. Included in shareholders’ equity were $424.29 million and $403.30 million at December 31, 2024 and 2023, respectively, in unrealized losses on investment securities AFS, net of related income taxes. Unrealized gains and losses on investment securities AFS are excluded from and do not impact regulatory capital. During 2024, total shareholders’ equity averaged $1.54 billion, or 11.56% of average assets, as compared to $1.33 billion, or 10.32% of average assets during 2023.

Current wording

Total shareholders’ equity was $1.92 billion, or 12.41% of total assets at December 31, 2025, as compared to $1.61 billion, or 11.49% of total assets at December 31, 2024. Included in shareholders’ equity were $269.94 million and $424.29 million at December 31, 2025 and 2024, respectively, in unrealized losses on investment securities AFS, net of related income taxes. Unrealized gains and losses on investment securities AFS are excluded from and do not impact regulatory capital. During 2025, total shareholders’ equity averaged $1.74 billion, or 12.08% of average assets, as compared to $1.54 billion, or 11.56% of average assets during 2024.

Previous wording

As of December 31, 2024 and 2023, we had a total risk-based capital ratio of 20.00% and 19.62%, a Tier 1 capital to risk-weighted assets ratio of 18.83% and 18.50%, a common equity Tier 1 capital to risk-weighted ratio of 18.83% and 18.50% and a Tier 1 leverage ratio of 12.49% and 12.06%, respectively. The regulatory capital ratios as of December 31, 2024 and 2023 were calculated under Basel III Rules.

Current wording

As of December 31, 2025 and 2024, we had a total risk-based capital ratio of 21.17% and 20.00%, a Tier 1 capital to risk-weighted assets ratio of 19.99% and 18.83%, a common equity Tier 1 capital to risk-weighted ratio of 19.99% and 18.83% and a Tier 1 leverage ratio of 12.55% and 12.49%, respectively. The regulatory capital ratios as of December 31, 2025 and 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, which amounted to $197.02 at December 31, 2024, 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 December 31, 2024, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $1.86 billion at December 31, 2024, secured by portions of our loan portfolio and certain investment securities; and (ii) access to the Federal Reserve Bank of Dallas lending program, including the Bank Term Funding Program, secured by portions of certain investment securities. At December 31, 2024, there was $1.05 billion 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, which amounted to $84.64 million at December 31, 2025, 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 December 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 $2.31 billion at December 31, 2025, secured by portions of our loan portfolio and certain investment securities; and (ii) access to approximately $1.85 billion at the Federal Reserve Bank of Dallas discount window lending program secured by portions of certain

Previous wording

The Company renewed its loan agreement, effective June 30, 2023, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25.00 million on a revolving line of credit. See Note 8 - Line of Credit in the accompanying notes to consolidated financial statements regarding further information on this line of credit.

Current wording

The Company renewed and amended its loan agreement, effective June 30, 2025, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $50.00 million on a revolving line of credit. See Note 8 - Line of Credit in the accompanying notes to consolidated financial statements regarding further information on this line of credit.