UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-07674 First Financial Bankshares, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or o ...

PART I [Cautionary Statement Regarding Forward-Looking Statements](index=7&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements based on current information, and actual results may differ due to various factors - Forward-looking statements are subject to material differences from actual results due to factors like general economic conditions, monetary policies, government intervention, competitive environment, accounting policy changes, COVID-19 impact, and geopolitical events[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[23](index=23&type=chunk) - The company does not commit to publicly update or revise any forward-looking statements unless required by law[22](index=22&type=chunk) [ITEM 1. Business](index=9&type=section&id=ITEM%201.%20BUSINESS) The company is a Texas-based financial holding company focused on community banking, trust services, and strategic growth - First Financial Bankshares, Inc. is a financial holding company operating a full-service commercial banking business through its subsidiaries, primarily in Central, North Central, Southeast, and West Texas[24](index=24&type=chunk)[25](index=25&type=chunk) - The company maintains a community-focused approach with local advisory boards and decision-making, while consolidating non-customer-facing operations for efficiency[26](index=26&type=chunk)[30](index=30&type=chunk) - Texas population grew **17.09% from 2011-2021**, with key operating cities showing significant growth (e.g., Conroe and Montgomery County at 37.6%, Weatherford area at 32.5%)[27](index=27&type=chunk)[29](index=29&type=chunk) - The company has grown organically, by opening new branches, and through 14 bank acquisitions since 1997, increasing total assets from **$1.57 billion to $12.97 billion** as of December 31, 2022[31](index=31&type=chunk)[32](index=32&type=chunk) - Acquisition strategy targets well-managed, profitable banks with assets between **$500 million and $3.0 billion** in growing non-metropolitan Texas markets[33](index=33&type=chunk) - The company offers general commercial banking services, including checking, savings, loans, ATMs, internet/mobile banking, and full-service trust and wealth management activities[38](index=38&type=chunk)[39](index=39&type=chunk) - Commercial banking in Texas is highly competitive, with the company holding **less than 1% of the state's deposits**, competing against larger banks, thrifts, credit unions, and Fintech firms[40](index=40&type=chunk) - The Federal Reserve aggressively raised the federal funds target rate to **4.25-4.50%** by the end of 2022, positively impacting net interest income in 2022 but potentially negatively impacting loan customers in a slowing economy[44](index=44&type=chunk) - The company funded approximately 9,700 Paycheck Protection Program (PPP) loans totaling **$970.87 million** during 2020 and 2021, with an outstanding balance of **$169 thousand** at December 31, 2022[46](index=46&type=chunk) - As of December 31, 2022, the company employed **1,501 employees** (1,400 full-time, 100 part-time) in Texas, with an average employee tenure of approximately six years[52](index=52&type=chunk)[57](index=57&type=chunk) - First Financial Bankshares, Inc. is a financial holding company supervised by the Federal Reserve Board and other regulators, subject to extensive federal and state laws primarily intended to protect depositors and the deposit insurance fund[60](index=60&type=chunk)[62](index=62&type=chunk)[68](index=68&type=chunk) - As a financial holding company, the company has broad discretion to affiliate with securities and insurance firms and engage in other financial activities, provided its subsidiary bank remains well-capitalized and well-managed[63](index=63&type=chunk)[64](index=64&type=chunk) - The company's subsidiary bank is a member of the FDIC, with deposit insurance covering up to **$250,000 per depositor**, and pays risk-based assessments[69](index=69&type=chunk)[70](index=70&type=chunk) - Dividends from subsidiaries are the primary revenue source for the parent company, subject to regulatory capital guidelines and restrictions. In 2022, subsidiaries paid **$67.50 million** in dividends, with **$437.16 million** available without regulatory approval[75](index=75&type=chunk)[79](index=79&type=chunk)[143](index=143&type=chunk) - The company and its bank subsidiary must comply with Basel III capital adequacy standards, including minimum CET1, Tier 1, Total Capital, and Leverage ratios, plus a capital conservation buffer[83](index=83&type=chunk)[86](index=86&type=chunk) Regulatory Capital Ratios (as of December 31, 2022) | Ratio | Company | | :--- | :--- | | Total Risk-Based Capital Ratio | 19.29% | | Tier 1 Capital to Risk-Weighted Assets Ratio | 18.22% | | Common Equity Tier 1 Capital to Risk-Weighted Assets Ratio | 18.22% | | Tier 1 Leverage Ratio | 10.96% | - The subsidiary bank was **'well capitalized'** as of December 31, 2022, under current regulations[92](index=92&type=chunk) - The Dodd-Frank Act imposed additional requirements on banks with **$10 billion or more in assets**, including CFPB supervision and debit card interchange fee restrictions (Durbin Amendment), which became effective for the company in July 2022, reducing interchange income[112](index=112&type=chunk)[121](index=121&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk) [ITEM 1A. Risk Factors](index=27&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces risks from interest rates, credit, liquidity, operations, economic conditions, and regulatory changes - Profitability is highly dependent on net interest income, making the company sensitive to changes in monetary policy and interest rates, which can affect loan demand, deposit costs, and asset values[125](index=125&type=chunk)[127](index=127&type=chunk) - The transition from LIBOR as a reference rate poses risks, including potential disputes and litigation, though the company has transitioned to AMERIBOR and SOFR for new loans. As of December 31, 2022, **13 loans totaling $47.16 million** are still indexed to LIBOR[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) - The company is exposed to credit risk from borrower defaults and insufficient collateral, with significant loan losses potentially impacting operating results and financial condition[131](index=131&type=chunk) - The allowance for credit losses relies on management's estimates and assumptions, which if incorrect, could lead to material additions to the allowance and decreased net income[132](index=132&type=chunk)[133](index=133&type=chunk) - The company is subject to liquidity risk, as a substantial majority of its liabilities (deposits) are payable on demand, while assets (loans) are less liquid, potentially impairing access to funding[138](index=138&type=chunk) - The company's accounting estimates and risk management processes depend on analytical and forecasting models, which may be inaccurate, especially during market stress, potentially leading to increased losses or insufficient allowances[139](index=139&type=chunk) - As of December 31, 2022, the company had **$315.53 million in goodwill** and other intangible assets, which could be subject to impairment charges in the future, adversely affecting financial condition[140](index=140&type=chunk) - The company relies heavily on its management team, and the unexpected loss of key personnel or inability to recruit qualified staff could adversely impact operations[145](index=145&type=chunk) - World events like the Russia-Ukraine conflict and the COVID pandemic may adversely impact business and financial results through disruptions in the global economy, financial markets, and supply chains[147](index=147&type=chunk) - System failures or cybersecurity breaches could lead to increased operating costs, litigation, reputational damage, and potential financial losses[148](index=148&type=chunk)[149](index=149&type=chunk) - The company's business is concentrated in Texas, making it vulnerable to economic downturns in the state, particularly in local real estate, oil and gas, and other commodity prices[163](index=163&type=chunk)[164](index=164&type=chunk) - Inflationary pressures and sustained higher interest rates could increase customer costs, making loan repayment more difficult, and potentially leading to increased loan delinquencies and non-performing assets[174](index=174&type=chunk)[175](index=175&type=chunk) - The company may need to raise additional capital in the future, and the availability of such funds on reasonable terms depends on capital and financial market conditions, which are outside its control[177](index=177&type=chunk) - Climate change and related legislative/regulatory initiatives have the potential to disrupt business operations, negatively affect customer creditworthiness, and increase compliance costs[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - Competition from larger financial institutions with greater resources, larger lending limits, and broader product ranges poses a risk to market share and growth[181](index=181&type=chunk) - The company is subject to more stringent capital and liquidity requirements under Basel III, which could impact net income and future growth if higher regulatory capital levels are required[182](index=182&type=chunk)[184](index=184&type=chunk) - The market for acquisitions is highly competitive, and the company may struggle to find suitable candidates or successfully integrate acquired businesses, potentially hindering growth and diverting management attention[196](index=196&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk) - Future acquisitions or capital raises using common stock may be dilutive to existing shareholders[200](index=200&type=chunk) - The company's common stock has lower trading volume than larger financial institutions, and significant sales could cause the stock price to fall[201](index=201&type=chunk) - The company may not continue to pay dividends on its common stock in the future, as dividend payments are not guaranteed and are subject to regulatory considerations and capital adequacy[205](index=205&type=chunk) [ITEM 1B. Unresolved Staff Comments](index=43&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) This section confirms there are no unresolved comments from regulatory staff - There are no unresolved staff comments[210](index=210&type=chunk) [ITEM 2. Properties](index=43&type=section&id=ITEM%202.%20PROPERTIES) The company's subsidiaries own and lease numerous banking facilities primarily in Texas - The principal office is at 400 Pine Street, Abilene, Texas[211](index=211&type=chunk) - As of December 31, 2022, subsidiaries own **74 facilities** and lease **15 banking facilities** and **15 ATM locations**[211](index=211&type=chunk) - Two new branch locations are being constructed in Huntsville and Bryan, Texas, to replace existing facilities[211](index=211&type=chunk) [ITEM 3. Legal Proceedings](index=43&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently subject to any material legal proceedings outside the ordinary course of business - The company is a party to lawsuits in the ordinary course of business, but there are **no material pending legal proceedings**[212](index=212&type=chunk) - No proceedings are pending or contemplated by governmental authorities, other than routine examinations[212](index=212&type=chunk) [ITEM 4. Mine Safety Disclosures](index=43&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section is not applicable to the company's operations - This item is not applicable[213](index=213&type=chunk) PART II [ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=44&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades on Nasdaq, and this section includes shareholder information and a performance graph - Common stock trades on the Nasdaq Global Select Market under the symbol **"FFIN"**[4](index=4&type=chunk)[216](index=216&type=chunk) - As of February 1, 2023, there were **905 registered shareholders** of record[217](index=217&type=chunk) Cumulative Total Shareholder Returns (December 31, 2017 to December 31, 2022) | Index | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | First Financial Bankshares, Inc. | 100.00 | 129.95 | 160.46 | 168.29 | 239.36 | 164.65 | | Russell 3000 Index | 100.00 | 94.76 | 124.15 | 150.08 | 188.60 | 152.37 | | S&P U.S. BMI Banks Index | 100.00 | 83.54 | 114.74 | 100.10 | 136.10 | 112.89 | [ITEM 6. [Reserved]](index=46&type=section&id=ITEM%206.%20%5BRESERVED%5D) This item is reserved and contains no information - This item is reserved[224](index=224&type=chunk) [ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=ITEM%207.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes financial condition and results of operations, covering key performance metrics and balance sheet components - The company generates most revenue from interest on loans and investments, trust fees, gain on sale of mortgage loans, and service charges on deposit accounts, with deposits as the primary funding source[226](index=226&type=chunk) - Critical accounting policies include the allowance for credit losses and valuation of financial instruments[230](index=230&type=chunk) - The company completed the acquisition of TB&T Bancshares, Inc. on January 1, 2020, issuing **6.28 million common shares** for a total purchase price of **$220.27 million**, resulting in **$141.92 million in goodwill**[231](index=231&type=chunk)[640](index=640&type=chunk)[643](index=643&type=chunk) - The Board authorized the repurchase of up to **5,000,000 common shares** through July 31, 2023. As of December 31, 2022, **244,559 shares** were repurchased and retired at an average price of **$38.61**[232](index=232&type=chunk)[414](index=414&type=chunk) - The company adopted ASC 326 (CECL methodology) effective January 1, 2020, with a transition charge to retained earnings of **$589 thousand** ($466 thousand net of taxes)[233](index=233&type=chunk)[234](index=234&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) Summary Income Statement Information (2022, 2021, 2020) | Metric (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Interest income | $432,854 | $376,405 | $364,128 | | Interest expense | $31,440 | $6,042 | $14,243 | | Net interest income | $401,414 | $370,363 | $349,885 | | Provision for credit losses | $17,427 | $(1,139) | $19,517 | | Noninterest income | $131,665 | $142,176 | $139,935 | | Noninterest expense | $234,778 | $241,708 | $227,938 | | Net earnings | $234,475 | $227,562 | $202,034 | | Diluted EPS | $1.64 | $1.59 | $1.42 | - Net earnings for 2022 increased by **3.04% to $234.48 million**, primarily due to growth in net interest income from earning assets[245](index=245&type=chunk) - The provision for credit losses increased in 2022 to **$17.43 million** (from a $1.14 million reversal in 2021) due to strong organic loan growth, increased unfunded commitments, and a slight decline in economic forecasts[245](index=245&type=chunk)[293](index=293&type=chunk) - Tax-equivalent net interest income increased to **$410.49 million** in 2022 (from $385.05 million in 2021), driven by a **$1.13 billion** increase in average earning assets[248](index=248&type=chunk) - The net interest margin decreased by **eleven basis points to 3.29%** in 2022, influenced by historically low short-term interest rates in early 2022, but loan rates on variable loans increased with Federal Reserve rate hikes[252](index=252&type=chunk)[253](index=253&type=chunk) Noninterest Income (in thousands) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Trust fees | $39,995 | $36,145 | $29,531 | | Service charges on deposit accounts | $24,540 | $21,156 | $20,572 | | Debit card fees | $30,280 | $35,905 | $30,298 | | Gain on sale and fees of mortgage loans | $19,035 | $33,245 | $43,872 | | Net gain on sale of AFS securities | $2,144 | $815 | $3,633 | - Noninterest income decreased by **7.39% to $131.67 million** in 2022, mainly due to a **$14.21 million decrease** in mortgage loan gains and a **$5.63 million decrease** in debit card fees (due to Durbin Amendment). Trust fees increased by **$3.85 million**[259](index=259&type=chunk) - Total noninterest expense decreased by **2.87% to $234.78 million** in 2022, leading to an improved efficiency ratio of **43.30%** (from 45.84% in 2021)[265](index=265&type=chunk) - Salaries and employee benefits decreased by **$7.91 million** in 2022, primarily due to lower profit sharing and mortgage compensation expenses[266](index=266&type=chunk) Summary Balance Sheet Data (Period-end, in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Securities | $5,474,359 | $6,573,179 | $4,393,029 | | Loans, held-for-investment | $6,441,868 | $5,388,972 | $5,171,033 | | Total assets | $12,974,066 | $13,102,461 | $10,904,500 | | Deposits | $11,005,507 | $10,566,488 | $8,675,817 | | Total liabilities | $11,708,329 | $11,343,237 | $9,226,310 | | Total shareholders' equity | $1,265,737 | $1,759,224 | $1,678,190 | - Total loans held-for-investment (HFI) increased by **$1.05 billion to $6.44 billion** as of December 31, 2022, with significant growth in real estate loans (**$781.48 million**) and consumer loans (**$169.14 million**)[272](index=272&type=chunk)[273](index=273&type=chunk) Composition of Loans Held-For-Investment (in thousands) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Commercial | $1,138,407 | $1,014,980 | $1,312,707 | | Agricultural | $76,947 | $98,089 | $94,864 | | Real Estate | $4,527,995 | $3,746,519 | $3,319,265 | | Consumer | $698,519 | $529,384 | $444,197 | | **Total** | **$6,441,868** | **$5,388,972** | **$5,171,033** | - Nonperforming assets decreased to **$24.33 million (0.38% of loans HFI and foreclosed assets)** at December 31, 2022, from **$34.16 million (0.63%)** in 2021, indicating improved asset quality[288](index=288&type=chunk)[289](index=289&type=chunk) - The allowance for credit losses as a percent of loans HFI remained at **1.18%** at December 31, 2022, consistent with 2021[294](index=294&type=chunk) - Securities available-for-sale decreased to **$5.47 billion** at December 31, 2022, from **$6.57 billion** in 2021, and included an unrealized loss of **$677.99 million** (net of taxes) in 2022, compared to unrealized gains in prior years[300](index=300&type=chunk)[315](index=315&type=chunk) - Total deposits increased to **$11.01 billion** at December 31, 2022, from **$10.57 billion** in 2021, serving as the primary funding source[304](index=304&type=chunk) - Borrowings decreased to **$642.51 million** at December 31, 2022, from **$671.15 million** in 2021[307](index=307&type=chunk) - The company's interest rate risk position is **asset sensitive**, meaning net interest income is estimated to increase with rising interest rates and decrease with falling rates[311](index=311&type=chunk) Estimated Impact on Net Interest Income from Interest Rate Changes (December 31, 2022) | Change in interest rates (in basis points) | Percentage change in net interest income | | :--- | :--- | | +400 | 5.13% | | +300 | 3.86% | | +200 | 3.13% | | +100 | 2.09% | | -100 | (2.66)% | | -200 | (5.47)% | | -300 | (8.54)% | | -400 | (10.31)% | - Total shareholders' equity decreased to **$1.27 billion (9.76% of total assets)** at December 31, 2022, from **$1.76 billion (13.43%)** in 2021, primarily due to unrealized losses on AFS investment securities[315](index=315&type=chunk) Regulatory Capital Ratios (as of December 31, 2022) | Ratio | Consolidated Actual | Minimum Required-Basel III Fully Phased-In | Required to be Considered Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital to Risk-Weighted Assets | 19.29% | 10.50% | 10.00% | | Tier 1 Capital to Risk-Weighted Assets | 18.22% | 8.50% | 6.00% | | Common Equity Tier 1 Capital to Risk-Weighted Assets | 18.22% | 7.00% | 6.50% | | Leverage Ratio | 10.96% | 4.00% | 5.00% | - The company's liquidity is supported by cash, marketable assets, core deposits, correspondent banks, and available lines of credit, including **$2.34 billion** with the FHLB[320](index=320&type=chunk) - Off-balance sheet commitments, including unfunded lines of credit and standby letters of credit, totaled **$2.06 billion** at December 31, 2022, with a reserve for unfunded commitments of **$12.32 million**[326](index=326&type=chunk)[590](index=590&type=chunk) - The long-term dividend policy is to pay **35% to 40%** of annual net earnings, while maintaining adequate capital. The payout ratios were **40.18%** in 2022, **36.30%** in 2021, and **35.88%** in 2020[333](index=333&type=chunk) [ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section refers to Item 7 for disclosures regarding market risk, specifically interest rate risk - Management considers **interest rate risk** to be a significant market risk for the Company[336](index=336&type=chunk) - Quantitative and qualitative disclosures about market risk are provided in "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Risk"[336](index=336&type=chunk) [ITEM 8. Financial Statements and Supplementary Data](index=72&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This item incorporates the consolidated financial statements and provides unaudited quarterly results of operations - The consolidated financial statements and the report of the independent registered public accounting firm begin on page F-1[337](index=337&type=chunk)[370](index=370&type=chunk) Quarterly Results of Operations (2022, in thousands, except per share amounts) | Metric | Q4 2022 | Q3 2022 | Q2 2022 | Q1 2022 | | :--- | :--- | :--- | :--- | :--- | | Interest income | $121,137 | $112,728 | $101,981 | $97,009 | | Interest expense | $17,100 | $9,572 | $3,199 | $1,570 | | Net interest income | $104,037 | $103,156 | $98,782 | $95,439 | | Provision for credit losses | $4,075 | $3,221 | $5,350 | $4,782 | | Noninterest income | $28,393 | $30,609 | $35,669 | $34,850 | | Noninterest expense | $57,778 | $59,442 | $58,333 | $59,225 | | Net earnings | $58,668 | $59,341 | $60,494 | $55,972 | | Diluted EPS | $0.41 | $0.41 | $0.42 | $0.39 | | Cash dividends declared | $0.17 | $0.17 | $0.17 | $0.15 | Quarterly Results of Operations (2021, in thousands, except per share amounts) | Metric | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | :--- | :--- | :--- | :--- | :--- | | Interest income | $95,995 | $97,198 | $92,602 | $90,610 | | Interest expense | $1,187 | $1,416 | $1,653 | $1,786 | | Net interest income | $94,808 | $95,782 | $90,949 | $88,824 | | Provision for credit losses | $2,064 | $0 | $(1,206) | $(1,997) | | Noninterest income | $34,902 | $37,725 | $34,668 | $34,066 | | Noninterest expense | $61,672 | $62,939 | $59,374 | $57,723 | | Net earnings | $55,337 | $58,928 | $56,379 | $56,918 | | Diluted EPS | $0.39 | $0.41 | $0.39 | $0.40 | | Cash dividends declared | $0.15 | $0.15 | $0.15 | $0.13 | [ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This section confirms no changes in or disagreements with the company's accountants - There are no changes in or disagreements with accountants on accounting and financial disclosure[342](index=342&type=chunk) [ITEM 9A. Controls and Procedures](index=75&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end - Management concluded that disclosure controls and procedures were **effective** at the reasonable assurance level as of December 31, 2022[344](index=344&type=chunk) - Internal control systems have inherent limitations, meaning misstatements due to error or fraud may occur and not be detected[344](index=344&type=chunk)[347](index=347&type=chunk) - Ernst & Young LLP issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[349](index=349&type=chunk)[352](index=352&type=chunk) - The critical audit matter identified was the **Allowance for Loan Losses**, due to the complexity of models and highly judgmental qualitative adjustments[389](index=389&type=chunk)[390](index=390&type=chunk)[391](index=391&type=chunk) [ITEM 9B. Other Information](index=77&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) This section states there is no other information to report - There is no other information to report[360](index=360&type=chunk) [ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=77&type=section&id=ITEM%209C.%20DISCLOSURE%20REGARDING%20FOREIGN%20JURISDICTIONS%20THAT%20PREVENT%20INSPECTIONS) This item is not applicable to the company - This item is not applicable[361](index=361&type=chunk) PART III [ITEM 10. Directors, Executive Officers and Corporate Governance](index=78&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Required information is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[363](index=363&type=chunk) [ITEM 11. Executive Compensation](index=78&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Required information is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[364](index=364&type=chunk) [ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This section incorporates security ownership data by reference and details equity compensation plan information - Information on security ownership is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[365](index=365&type=chunk) Aggregate Equity Compensation Plan Information (as of December 31, 2022) | Category | Number of Shares To be Issued Upon Exercise or Vesting of Outstanding Awards | Weighted Average Exercise Price of Outstanding Awards | Number of Shares Remaining Available For Future Issuance Under Equity Compensation Plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,649,047 | $29.99 | 1,877,004 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **1,649,047** | **$29.99** | **1,877,004** | [ITEM 13. Certain Relationships and Related Transactions, and Director Independence](index=78&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Required information is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[367](index=367&type=chunk) [ITEM 14. Principal Accountant Fees and Services](index=78&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Required information is incorporated by reference from the company's 2023 proxy statement - Information is incorporated by reference from the 2023 Annual Meeting of Shareholders proxy statement[368](index=368&type=chunk) PART IV [ITEM 15. Exhibit and Financial Statement Schedules](index=79&type=section&id=ITEM%2015.%20EXHIBIT%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements, schedules, and exhibits filed as part of the 10-K report - The report includes audited consolidated financial statements: Balance Sheets, Statements of Earnings, Comprehensive Earnings, Shareholders' Equity, and Cash Flows for the years ended December 31, 2022, 2021, and 2020[370](index=370&type=chunk) - The report lists various exhibits, including the Amended and Restated Certificate of Formation, Bylaws, Loan Agreements with Frost Bank, Incentive Stock Option Plans, and certifications[372](index=372&type=chunk)[375](index=375&type=chunk) [ITEM 16. Form 10-K Summary](index=81&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) The registrant has opted not to provide summary information in this item - The registrant has not selected the option to provide summary information in this item[376](index=376&type=chunk)

Financial Performance - Total deposits reached $11 billion as of December 31, 2022 [24] - Total loans reached $6454 million as of December 31, 2022 [77] - Trust assets reached $8755 million as of December 31, 2022 [87] - The company achieved diluted earnings per share of $164 in 2022 [91] - The company's efficiency ratio was 4330% in 2022 [122] Market Position and Growth - The company has approximately $138 billion in public funds [66] - Texas is a large and growing market for the company [161] - The company's financial exploitation prevention program saved customers over $22 million since 2014 [2] Strategic Focus - The company aims to grow trust assets and fee income in 2023 [128] - The company intends to grow loans across all regions and products [134]

2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | |-------------------------------------------------------------------------------------------------------------------------|-------------------------- ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part encompasses the Company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of First Financial Bankshares, Inc. and its subsidiaries for the periods ended June 30, 2022 and 2021, and December 31, 2021, including balance sheets, statements of earnings, comprehensive earnings, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and financial instrument specifics [Consolidated Balance Sheets – Unaudited](index=5&type=page&id=Consolidated%20Balance%20Sheets%20%E2%80%93%20Unaudited) This section presents the Company's financial position, detailing assets, liabilities, and equity at specific reporting dates | Metric (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:----------------------|:--------------|:------------------|:--------------| | Total Assets | $13,260,212 | $13,102,461 | $12,329,083 | | Total Liabilities | $11,931,194 | $11,343,237 | $10,608,714 | | Total Shareholders' Equity | $1,329,018 | $1,759,224 | $1,720,369 | - Total Assets increased by **$157.75 million** from December 31, 2021, to June 30, 2022, primarily driven by an increase in loans held-for-investment[15](index=15&type=chunk) - Total Shareholders' Equity decreased significantly by **$430.206 million** from December 31, 2021, to June 30, 2022, largely due to accumulated other comprehensive loss[15](index=15&type=chunk) [Consolidated Statements of Earnings – Unaudited](index=6&type=page&id=Consolidated%20Statements%20of%20Earnings%20%E2%80%93%20Unaudited) This section outlines the Company's revenues, expenses, and net income over specific reporting periods | Metric (in thousands, except per share) | Three-Months Ended June 30, 2022 | Three-Months Ended June 30, 2021 | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total Interest Income | $101,981 | $92,602 | $198,990 | $183,212 | | Total Interest Expense | $3,199 | $1,653 | $4,769 | $3,439 | | Net Interest Income | $98,782 | $90,949 | $194,221 | $179,773 | | Provision for Credit Losses | $5,350 | $(1,206) | $10,132 | $(3,203) | | Total Noninterest Income | $37,317 | $34,673 | $72,198 | $69,548 | | Total Noninterest Expense | $58,333 | $59,374 | $117,558 | $117,098 | | Net Earnings | $60,494 | $56,379 | $116,466 | $113,297 | | Net Earnings Per Share, Basic | $0.42 | $0.40 | $0.82 | $0.80 | | Net Earnings Per Share, Diluted | $0.42 | $0.39 | $0.81 | $0.79 | | Dividends Per Share | $0.17 | $0.15 | $0.32 | $0.28 | - Net Earnings for Q2 2022 increased by **$4.115 million (7.3%) YoY**, while diluted EPS increased by **$0.03 (7.7%) YoY**[19](index=19&type=chunk) - Provision for Credit Losses shifted from a reversal of **$1.206 million** in Q2 2021 to a provision of **$5.350 million** in Q2 2022, indicating a less favorable credit outlook[19](index=19&type=chunk) [Consolidated Statements of Comprehensive Earnings (Loss) – Unaudited](index=7&type=page&id=Consolidated%20Statements%20of%20Comprehensive%20Earnings%20%28Loss%29%20%E2%80%93%20Unaudited) This section reports net earnings and other comprehensive income (loss) components, reflecting changes in equity from non-owner sources | Metric (in thousands) | Three-Months Ended June 30, 2022 | Three-Months Ended June 30, 2021 | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net Earnings | $60,494 | $56,379 | $116,466 | $113,297 | | Change in unrealized gain (loss) on investment securities available-for-sale, before income taxes | $(240,038) | $24,659 | $(630,937) | $(42,111) | | Total other items of comprehensive earnings (loss) | $(241,686) | $24,654 | $(632,616) | $(42,924) | | Total income tax benefit (expense) | $50,754 | $(5,177) | $132,849 | $9,015 | | Comprehensive Earnings (Loss) | $(130,438) | $75,856 | $(383,301) | $79,388 | - The company reported a significant comprehensive loss of **$(130.438) million** for Q2 2022, a sharp decline from comprehensive earnings of **$75.856 million** in Q2 2021, primarily due to a large unrealized loss on available-for-sale investment securities[21](index=21&type=chunk) [Consolidated Statements of Shareholders' Equity – Unaudited](index=8&type=page&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity%20%E2%80%93%20Unaudited) This section details changes in the Company's equity accounts, including common stock, retained earnings, and accumulated other comprehensive income | Metric (in thousands) | Balance at Dec 31, 2021 | Net Earnings (6M 2022) | Cash Dividends Declared (6M 2022) | Change in Unrealized Gain (Loss) (6M 2022) | Balance at June 30, 2022 | |:----------------------|:------------------------|:-----------------------|:----------------------------------|:-------------------------------------------|:-------------------------| | Common Stock | $1,425 | — | — | — | $1,426 | | Capital Surplus | $676,871 | — | — | — | $675,653 | | Retained Earnings | $981,675 | $116,466 | $(45,688) | — | $1,052,453 | | Treasury Stock | $(10,090) | — | — | — | $(10,656) | | Accumulated Other Comprehensive Earnings (Loss) | $99,253 | — | — | $(499,767) | $(400,514) | | Total Shareholders' Equity | $1,759,224 | $116,466 | $(45,688) | $(499,767) | $1,329,018 | - Shareholders' equity decreased by **$430.206 million** from December 31, 2021, to June 30, 2022, primarily due to a significant decline in accumulated other comprehensive earnings (loss) from **$99.253 million** gain to a **$(400.514) million** loss[27](index=27&type=chunk) - Cash dividends declared for the six months ended June 30, 2022, totaled **$45.688 million**, representing **$0.32 per share**[19](index=19&type=chunk)[27](index=27&type=chunk) [Consolidated Statements of Cash Flows – Unaudited](index=10&type=page&id=Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Unaudited) This section summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (in thousands) | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------|:-------------------------------|:-------------------------------| | Net Cash Provided by Operating Activities | $158,346 | $148,316 | | Net Cash Used in Investing Activities | $(804,964) | $(1,224,197) | | Net Cash Provided by Financing Activities | $583,594 | $1,191,389 | | Net Increase (Decrease) in Cash and Cash Equivalents | $(63,024) | $115,508 | | Cash and Cash Equivalents, End of Period | $465,564 | $844,592 | - Net cash provided by operating activities increased by **$10.03 million** YoY for the six months ended June 30, 2022[31](index=31&type=chunk) - Net cash used in investing activities decreased by **$419.233 million** YoY, primarily due to lower purchases of available-for-sale securities[31](index=31&type=chunk) - Net cash provided by financing activities decreased significantly by **$607.795 million** YoY, mainly due to lower net increases in deposits and new stock repurchases[31](index=31&type=chunk) [Notes to Consolidated Financial Statements – Unaudited](index=11&type=page&id=Notes%20to%20Consolidated%20Financial%20Statements%20%E2%80%93%20Unaudited) This section provides detailed explanations and additional information regarding the Company's financial statements and accounting policies [Note 1 – Summary of Significant Accounting Policies](index=11&type=page&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the Company's nature of operations, basis of presentation, use of estimates, consolidation principles, stock repurchase program, and recently issued accounting guidance. Key policies include classification and valuation of investment securities, accounting for credit losses on various asset types (available-for-sale, held-to-maturity, loans, and off-balance-sheet commitments), and the treatment of other real estate, bank premises, business combinations, and stock-based compensation - First Financial Bankshares, Inc. operates as a financial holding company with one bank subsidiary (First Financial Bank, N.A.) and other financial service entities, primarily generating revenue from loans and banking services in Texas[34](index=34&type=chunk) - The Company's Board authorized a stock repurchase plan on July 27, 2021, to repurchase up to **5,000,000 common shares** through July 31, 2023. As of the report date, **244,559 shares** totaling **$9.45 million** have been repurchased and retired under this plan[39](index=39&type=chunk)[219](index=219&type=chunk) - The Company's significant accounting estimates include its allowance for credit losses and the valuation of financial instruments[37](index=37&type=chunk)[218](index=218&type=chunk) - No allowance for credit losses was recorded for available-for-sale or held-to-maturity securities at June 30, 2022, June 30, 2021, or December 31, 2021[51](index=51&type=chunk)[55](index=55&type=chunk) [Note 2 - Securities](index=16&type=page&id=Note%202%20-%20Securities) This note details the Company's investment securities portfolio, primarily available-for-sale, including amortized cost, unrealized gains and losses, and fair values by security type and maturity. It highlights a significant increase in unrealized losses on available-for-sale securities at June 30, 2022, primarily due to rising interest rates, but management believes these are not credit-related | Security Type (in thousands) | Amortized Cost Basis (June 30, 2022) | Gross Unrealized Holding Gains (June 30, 2022) | Gross Unrealized Holding Losses (June 30, 2022) | Estimated Fair Value (June 30, 2022) | |:-----------------------------|:-------------------------------------|:-----------------------------------------------|:------------------------------------------------|:-------------------------------------| | U.S. Treasury securities | $501,098 | $12 | $(14,752) | $486,358 | | Obligations of states and political subdivisions | $2,419,232 | $7,737 | $(182,365) | $2,244,604 | | Residential mortgage-backed securities | $3,265,654 | $399 | $(301,149) | $2,964,904 | | Commercial mortgage-backed securities | $423,168 | $476 | $(8,819) | $414,825 | | Corporate bonds and other | $113,184 | $88 | $(8,927) | $104,345 | | Total | $6,722,336 | $8,712 | $(516,012) | $6,215,036 | - At June 30, 2022, the Company's available-for-sale securities had total gross unrealized losses of **$516.012 million**, a significant increase from **$23.711 million** at December 31, 2021, primarily due to changes in interest rates[88](index=88&type=chunk)[90](index=90&type=chunk)[94](index=94&type=chunk) - During the six months ended June 30, 2022, sales of available-for-sale securities totaled **$188.363 million**, generating gross realized gains of **$4.023 million** and losses of **$2.344 million**[97](index=97&type=chunk) [Note 3 – Loans Held-for-Investment and Allowance for Credit Losses](index=18&type=page&id=Note%203%20%E2%80%93%20Loans%20Held-for-Investment%20and%20Allowance%20for%20Credit%20Losses) This note provides a detailed breakdown of the Company's loan portfolio by segment, including loans held-for-investment, nonaccrual loans, and troubled debt restructurings. It also outlines the methodology for the allowance for credit losses (ACL), which increased due to strong organic loan growth and a slight decline in economic forecasts. The note also presents internal risk ratings and past due loan information | Loan Segment (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:----------------------------|:--------------|:------------------|:--------------| | Total Commercial | $1,040,505 | $1,014,980 | $1,162,459 | | Agricultural | $90,420 | $98,089 | $95,212 | | Total Real Estate | $4,137,128 | $3,746,519 | $3,558,353 | | Total Consumer | $610,529 | $529,384 | $488,578 | | Total Loans Held-for-Investment | $5,878,582 | $5,388,972 | $5,304,602 | | Less: Allowance for Credit Losses | $(71,932) | $(63,465) | $(62,138) | | Loans, net | $5,806,650 | $5,325,507 | $5,242,464 | | Nonperforming Asset (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:-----------------------------------|:--------------|:------------------|:--------------| | Nonaccrual loans | $25,475 | $31,652 | $29,786 | | Loans still accruing and past due 90 days or more | $22 | $8 | — | | Troubled debt restructured loans | $20 | $21 | $23 | | Total Nonperforming Loans | $25,517 | $31,681 | $29,809 | | Foreclosed assets | — | $2,477 | $305 | | Total Nonperforming Assets | $25,517 | $34,158 | $30,114 | - The allowance for credit losses increased to **$71.932 million** at June 30, 2022, from **$63.465 million** at December 31, 2021, driven by strong organic loan growth and a slight decline in the projected economic forecast[100](index=100&type=chunk)[108](index=108&type=chunk)[265](index=265&type=chunk) - Total loans held-for-investment increased by **$489.61 million** from December 31, 2021, to June 30, 2022, with real estate loans showing the largest increase[248](index=248&type=chunk)[249](index=249&type=chunk) [Note 4 - Loans Held-for-Sale](index=34&type=page&id=Note%204%20-%20Loans%20Held-for-Sale) This note details the Company's loans held-for-sale, primarily secondary market mortgage loans. It specifies their valuation methods (lower of cost or fair value, or fair value option) and the inputs used for fair value determination, which are classified as Level 2 | Metric (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:----------------------|:--------------|:------------------|:--------------| | Loans held-for-sale | $26,445 | $37,810 | $61,802 | - Loans held-for-sale decreased by **$11.365 million** from December 31, 2021, to June 30, 2022[159](index=159&type=chunk) - The majority of loans held-for-sale are valued under the fair value option, with valuations classified as Level 2 in the fair value hierarchy[159](index=159&type=chunk)[160](index=160&type=chunk) [Note 5 - Derivative Financial Instruments](index=34&type=page&id=Note%205%20-%20Derivative%20Financial%20Instruments) This note describes the Company's use of derivative financial instruments, specifically interest rate lock commitments (IRLCs) and forward mortgage-backed securities contracts, to manage interest rate risk related to residential mortgage loans intended for sale. All derivatives are carried at fair value and are not designated as hedging instruments for accounting purposes | Derivative Type (in thousands) | Outstanding Notional Balance (June 30, 2022) | Asset Derivative Fair Value (June 30, 2022) | Liability Derivative Fair Value (June 30, 2022) | |:-------------------------------|:---------------------------------------------|:--------------------------------------------|:------------------------------------------------| | IRLCs | $99,429 | $1,414 | — | | Forward mortgage-backed securities trades | $101,500 | $58 | — | - IRLCs and forward mortgage-backed securities contracts are classified as Level 2 in fair value disclosures, as their valuations are based on observable market inputs[164](index=164&type=chunk)[165](index=165&type=chunk) - The fair value of IRLCs is subject to changes in interest rates and estimated loan funding probability[164](index=164&type=chunk) [Note 6 – Borrowings](index=35&type=page&id=Note%206%20%E2%80%93%20Borrowings) This note details the Company's borrowings, which include securities sold under repurchase agreements, federal funds purchased, and other borrowings. It also mentions a revolving line of credit with Frost Bank and investments in Community Development Entities (CDE) under the New Market Tax Credits (NMTC) program | Borrowing Type (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:------------------------------|:--------------|:------------------|:--------------| | Securities sold under agreements with customers to repurchase | $738,986 | $625,499 | $531,469 | | Federal funds purchased | $8,325 | $24,600 | $18,500 | | Other borrowings | $21,053 | $21,053 | — | | Total | $768,364 | $671,152 | $549,969 | - Total borrowings increased by **$97.212 million** from December 31, 2021, to June 30, 2022, primarily due to an increase in securities sold under repurchase agreements[169](index=169&type=chunk) - The Company has a **$25 million** revolving line of credit with Frost Bank, with no outstanding balance as of June 30, 2022[170](index=170&type=chunk) - Other borrowings include a **$21.053 million** leveraged loan from an investee related to New Market Tax Credit (NMTC) investments[171](index=171&type=chunk)[172](index=172&type=chunk) [Note 7 - Income Taxes](index=35&type=page&id=Note%207%20-%20Income%20Taxes) This note details the Company's income tax expense and effective tax rates, explaining the differences from the statutory federal tax rate due to tax-exempt income and tax credit investments. It also describes investments in Low Income Housing Tax Credit (LIHTC) and New Market Tax Credit (NMTC) programs | Metric (in thousands) | Three-Months Ended June 30, 2022 | Three-Months Ended June 30, 2021 | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Income Tax Expense | $11,922 | $11,075 | $22,263 | $22,129 | | Effective Tax Rate | 16.46% | 16.42% | 16.05% | 16.34% | - The effective tax rates are lower than the statutory federal rate of **21%** primarily due to tax-exempt interest income, deductibility of ESOP dividends, and benefits from deferred compensation and equity awards, as well as NMTC benefits[172](index=172&type=chunk) - The Company began investing in federal Low Income Housing Tax Credit (LIHTC) and New Market Tax Credit (NMTC) programs in 2021, which generate tax benefits[172](index=172&type=chunk) [Note 8 - Stock Based Compensation](index=36&type=page&id=Note%208%20-%20Stock%20Based%20Compensation) This note details the Company's stock-based compensation plans, including the 2021 Omnibus Stock and Incentive Plan, which grants restricted stock units and performance-based restricted stock units (PSUs) to officers and directors. It also covers stock option activity and related compensation expenses | Metric (in thousands) | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------|:-------------------------------|:-------------------------------| | Restricted Stock, RSU, PSU Expense (Employees) | $1,020 | $579 | | Restricted Stock Grants (Directors) | $331 | $300 | | Stock Option Expense | $632 | $691 | - As of June 30, 2022, there was **$2.281 million** of unrecognized compensation cost related to unvested restricted stock, RSUs, and PSUs, expected to be recognized over a weighted-average period of **1.10 years**[182](index=182&type=chunk) - As of June 30, 2022, there was **$3.709 million** of total unrecognized compensation cost related to unvested share-based compensation arrangements under stock option plans, expected to be recognized over a weighted-average period of **1.71 years**[185](index=185&type=chunk) [Note 9 - Fair Value Disclosures](index=38&type=page&id=Note%209%20-%20Fair%20Value%20Disclosures) This note outlines the Company's fair value measurement methodologies and hierarchy (Level 1, 2, and 3 inputs) for financial instruments. It provides a summary of available-for-sale securities, loans held-for-sale, and derivatives measured at fair value on a recurring basis, emphasizing the use of observable market data for most valuations | Asset Type (in thousands) | Level 1 Inputs (June 30, 2022) | Level 2 Inputs (June 30, 2022) | Level 3 Inputs (June 30, 2022) | Total Fair Value (June 30, 2022) | |:--------------------------|:-------------------------------|:-------------------------------|:-------------------------------|:-------------------------------| | Available-for-sale investment securities | $490,436 | $5,724,600 | — | $6,215,036 | | Loans held-for-sale | — | $23,848 | — | $23,848 | | IRLCs | — | $1,414 | — | $1,414 | | Forward mortgage-backed securities trades | — | $58 | — | $58 | - The majority of available-for-sale investment securities are valued using Level 2 inputs, reflecting observable market data[194](index=194&type=chunk) | Metric (in thousands) | Three-Months Ended June 30, 2022 | Three-Months Ended June 30, 2021 | Six-Months Ended June 30, 2022 | Six-Months Ended June 30, 2021 | |:----------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total gain on sale of mortgage loans | $5,728 | $8,291 | $12,061 | $18,185 | - No significant credit losses were recognized on mortgage loans held-for-sale for the three and six-months ended June 30, 2022 and 2021[197](index=197&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including forward-looking statements, critical accounting policies, and a detailed review of performance, net interest income, noninterest income and expense, balance sheet items, asset quality, interest rate risk, capital, and liquidity. It highlights the impact of rising interest rates and loan growth on financial performance [Forward-Looking Statements](index=42&type=page&id=Forward-Looking%20Statements) This section highlights inherent uncertainties and risks associated with future-oriented information presented in the report - The report contains forward-looking statements based on current management information, subject to various risks including economic conditions, COVID-19 impact, regulatory changes, interest rate fluctuations, and cybersecurity threats[210](index=210&type=chunk)[212](index=212&type=chunk) [Introduction](index=43&type=page&id=Introduction) This section provides an overview of the Company's business model, primary revenue sources, and key performance measurement metrics - The Company's primary revenue sources are interest on loans and investments, trust fees, mortgage loan sales, and service charges, funded mainly by deposits[214](index=214&type=chunk) - Performance is measured by metrics such as return on average assets, return on average equity, regulatory capital ratios, net interest margin, and efficiency ratio[214](index=214&type=chunk) [Critical Accounting Policies](index=43&type=page&id=Critical%20Accounting%20Policies) This section identifies the accounting policies requiring significant judgment and estimation, which are crucial to understanding the financial statements - The most critical accounting policies are the allowance for credit losses and the valuation of financial instruments, which involve significant estimates and assumptions[218](index=218&type=chunk) [Stock Repurchase](index=43&type=page&id=Stock%20Repurchase) This section details the Company's common stock repurchase program, including authorization and shares repurchased to date - The Board authorized a repurchase of up to **5.00 million common shares** through July 31, 2023. As of the report date, **244,559 shares** totaling **$9.45 million** have been repurchased[219](index=219&type=chunk) [Results of Operations](index=43&type=page&id=Results%20of%20Operations) This section analyzes the Company's financial performance, including net interest income, noninterest income, and noninterest expense [Performance Summary](index=43&type=page&id=Performance%20Summary) The Company reported increased net earnings and diluted EPS for both the second quarter and the first six months of 2022 compared to the prior year, despite a decrease in return on average assets | Metric | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | |:-------|:--------|:--------|:--------|:--------| | Net Earnings (in millions) | $60.49 | $56.38 | $116.47 | $113.30 | | Diluted EPS | $0.42 | $0.39 | $0.81 | $0.79 | | Return on Average Assets | 1.82% | 1.89% | 1.77% | 1.97% | | Return on Average Equity | 17.26% | 13.38% | 15.24% | 13.61% | - Net earnings for Q2 2022 increased by **$4.11 million (7.3%) YoY**, and for the first six months, increased by **$3.17 million (2.8%) YoY**[220](index=220&type=chunk)[221](index=221&type=chunk) - Return on average equity significantly improved for both periods, reaching **17.26%** in Q2 2022 and **15.24%** for 6M 2022[221](index=221&type=chunk)[222](index=222&type=chunk) [Net Interest Income](index=44&type=page&id=Net%20Interest%20Income) Net interest income increased for both the quarter and six-month periods, driven by growth in interest-earning assets, particularly loans and investment securities. However, the net interest margin experienced downward pressure due to low short-term interest rates and a shift in asset mix, partially mitigated by rising prime rates and adjustments to deposit rates | Metric (in millions) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | |:---------------------|:--------|:--------|:--------|:--------| | Tax-equivalent Net Interest Income | $102.15 | $94.58 | $201.37 | $186.95 | | Net Interest Margin (tax equivalent) | 3.28% | 3.36% | 3.25% | 3.45% | | Average Earning Assets (in billions) | $12.49 | $11.30 | $12.50 | $10.93 | | Average Interest-Bearing Liabilities (in billions) | $7.78 | $6.76 | $7.73 | $6.57 | - Tax-equivalent net interest income increased by **$7.57 million (8.0%)** in Q2 2022 YoY and **$14.42 million (7.7%)** in 6M 2022 YoY[225](index=225&type=chunk)[226](index=226&type=chunk) - The net interest margin decreased by **8 basis points** in Q2 2022 YoY and **20 basis points** in 6M 2022 YoY, primarily due to lower short-term interest rates and changes in asset mix[229](index=229&type=chunk) - Average earning assets increased by **$1.19 billion** in Q2 2022 YoY and **$1.57 billion** in 6M 2022 YoY[225](index=225&type=chunk)[226](index=226&type=chunk) [Noninterest Income](index=46&type=page&id=Noninterest%20Income) Noninterest income saw an increase for both the quarter and six-month periods, driven by higher trust fees, service charges on deposit accounts, ATM/interchange/credit card fees, and net gains on sale of available-for-sale securities. Mortgage-related income, however, declined due to lower origination volumes | Metric (in thousands) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | |:----------------------|:--------|:--------|:--------|:--------| | Total Noninterest Income | $37,317 | $34,673 | $72,198 | $69,548 | | Trust fees | $9,742 | $8,692 | $19,559 | $16,991 | | Service charges on deposit accounts | $6,038 | $4,928 | $11,744 | $9,721 | | ATM, interchange and credit card fees | $10,568 | $9,853 | $20,096 | $18,530 | | Gain on sale and fees on mortgage loans | $5,728 | $8,291 | $12,061 | $18,185 | | Net gain on sale of available-for-sale securities | $1,648 | $5 | $1,679 | $813 | - Total noninterest income increased by **$2.644 million (7.6%)** in Q2 2022 YoY and **$2.650 million (3.8%)** in 6M 2022 YoY[240](index=240&type=chunk) - Mortgage-related income decreased by **$2.563 million** in Q2 2022 YoY and **$6.124 million** in 6M 2022 YoY due to lower origination volumes[236](index=236&type=chunk)[237](index=237&type=chunk) - Effective July 1, 2022, the Company became subject to Federal Reserve rules limiting interchange fees, with an estimated annual impact of **$18 million** (pre-tax)[238](index=238&type=chunk) [Noninterest Expense](index=47&type=page&id=Noninterest%20Expense) Total noninterest expense decreased for the second quarter but slightly increased for the six-month period. The efficiency ratio improved, reflecting better expense management. Salaries and employee benefits decreased due to lower mortgage compensation and profit-sharing expenses, while other noninterest expenses saw increases in areas like FDIC insurance and interchange processing costs | Metric (in thousands) | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | |:----------------------|:--------|:--------|:--------|:--------| | Total Noninterest Expense | $58,333 | $59,374 | $117,558 | $117,098 | | Salaries, commissions and employee benefits | $33,147 | $35,046 | $67,285 | $69,977 | | Efficiency Ratio | 41.83% | 45.94% | 42.97% | 45.65% | - Total noninterest expense decreased by **$1.04 million (1.75%)** in Q2 2022 YoY but increased by **$460 thousand (0.39%)** in 6M 2022 YoY[240](index=240&type=chunk)[243](index=243&type=chunk) - The efficiency ratio improved to **41.83%** in Q2 2022 and **42.97%** in 6M 2022, indicating better operational efficiency[240](index=240&type=chunk)[243](index=243&type=chunk) - Salaries, commissions, and employee benefits decreased due to lower mortgage compensation and profit-sharing expenses, partially offset by merit-based pay increases[241](index=241&type=chunk)[244](index=244&type=chunk) [Balance Sheet Review](index=48&type=page&id=Balance%20Sheet%20Review) This section provides an overview of key balance sheet components, including loans, asset quality, deposits, and borrowings [Loans](index=48&type=page&id=Loans) The Company's loan portfolio, held-for-investment, experienced significant growth, primarily in real estate and consumer loans. The portfolio is segmented for credit risk assessment, and maturity distribution shows a substantial portion of variable-rate loans, many of which are indexed to the prime rate | Loan Segment (in thousands) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:----------------------------|:--------------|:------------------|:--------------| | Total Loans Held-for-Investment | $5,878,582 | $5,388,972 | $5,304,602 | | Real Estate Loans | $4,137,128 | $3,746,519 | $3,558,353 | | Consumer Loans | $610,529 | $529,384 | $488,578 | - Total loans held-for-investment increased by **$489.61 million (9.1%)** from December 31, 2021, to June 30, 2022[248](index=248&type=chunk) - Real estate loans increased by **$390.61 million**, and consumer loans increased by **$81.15 million** from year-end 2021[249](index=249&type=chunk) - Approximately **$3.40 billion (57.79%)** of total loans held-for-investment have variable interest rates, with **$1.34 billion** maturing or repricing within the next twelve months[257](index=257&type=chunk)[259](index=259&type=chunk) [Asset Quality](index=51&type=page&id=Asset%20Quality) The Company's asset quality improved, with a decrease in nonaccrual, past due 90 days or more, and restructured loans, as well as foreclosed assets. These nonperforming assets represent a smaller percentage of total loans and assets compared to previous periods | Metric | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:-------|:--------------|:------------------|:--------------| | Total Nonperforming Assets (in millions) | $25.52 | $34.16 | $30.11 | | As a % of loans held-for-investment and foreclosed assets | 0.43% | 0.63% | 0.57% | | As a % of total assets | 0.19% | 0.26% | 0.24% | - Total nonperforming assets decreased by **$8.64 million (25.3%)** from December 31, 2021, to June 30, 2022[260](index=260&type=chunk)[261](index=261&type=chunk) [Allowance for Credit Losses](index=51&type=page&id=Allowance%20for%20Credit%20Losses) The allowance for credit losses (ACL) increased for the three and six-month periods ended June 30, 2022, primarily due to strong organic loan growth and a slight decline in the projected economic forecast. Net loan recoveries also improved | Metric | Q2 2022 | Q2 2021 | 6M 2022 | 6M 2021 | |:-------|:--------|:--------|:--------|:--------| | Provision for Credit Losses (in millions) | $5.35 | $(1.21) | $10.13 | $(3.20) | | Net loan recoveries/average loans (annualized) | 0.06% | 0.02% | 0.02% | 0.00% | | Allowance for loan losses/period-end loans held-for-investment | 1.22% | 1.17% | 1.22% | 1.17% | - The provision for credit losses for Q2 2022 was **$5.35 million**, a significant increase from a reversal of **$1.21 million** in Q2 2021[265](index=265&type=chunk) - The allowance for credit losses as a percent of loans held-for-investment increased to **1.22%** at June 30, 2022, from **1.18%** at December 31, 2021[267](index=267&type=chunk) [Interest-Bearing Demand Deposits in Banks](index=52&type=page&id=Interest-Bearing%20Demand%20Deposits%20in%20Banks) Interest-bearing demand deposits in banks decreased significantly at June 30, 2022, compared to prior periods, with the majority maintained at the Federal Reserve Bank of Dallas | Metric (in millions) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:---------------------|:--------------|:------------------|:--------------| | Interest-Bearing Demand Deposits in Banks | $222.90 | $323.54 | $654.53 | - Interest-bearing demand deposits in banks decreased by **$100.64 million** from December 31, 2021, to June 30, 2022[268](index=268&type=chunk) [Available-for-Sale Securities](index=52&type=page&id=Available-for-Sale%20Securities) The available-for-sale securities portfolio experienced a shift in composition and a significant increase in unrealized losses due to rising interest rates. The overall tax equivalent yield and weighted average life are also provided | Metric (in billions) | June 30, 2022 | December 31, 2021 | |:---------------------|:--------------|:------------------| | Fair Value of Available-for-Sale Securities | $6.22 | $6.57 | - The portfolio saw an increase in U.S. Treasury securities and corporate bonds, offset by decreases in obligations of states and political subdivisions and mortgage-backed securities[269](index=269&type=chunk) - The investment portfolio had an overall tax equivalent yield of **2.30%**, a weighted average life of **5.94 years**, and a modified duration of **5.14 years** at June 30, 2022[273](index=273&type=chunk) [Deposits](index=53&type=page&id=Deposits) Deposits, the primary funding source, increased significantly, with a breakdown of average deposits and rates paid. A substantial portion of deposits are uninsured and uncollateralized | Metric (in billions) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:---------------------|:--------------|:------------------|:--------------| | Total Deposits | $11.12 | $10.57 | $9.78 | - Total deposits increased by **$550 million (5.2%)** from December 31, 2021, to June 30, 2022[274](index=274&type=chunk) - The estimated amount of uninsured and uncollateralized deposits was approximately **$4.11 billion** as of June 30, 2022[276](index=276&type=chunk) [Borrowings](index=53&type=page&id=Borrowings) Borrowings increased, primarily driven by securities sold under repurchase agreements. The weighted average interest rates paid on these borrowings also increased | Metric (in millions) | June 30, 2022 | December 31, 2021 | June 30, 2021 | |:---------------------|:--------------|:------------------|:--------------| | Total Borrowings | $768.36 | $671.15 | $549.97 | | Weighted Average Interest Rate (6M) | 0.12% | N/A | 0.08% | - Total borrowings increased by **$97.21 million** from December 31, 2021, to June 30, 2022[277](index=277&type=chunk) [Interest Rate Risk](index=53&type=page&id=Interest%20Rate%20Risk) The Company manages interest rate risk through its asset-liability management committee, using an earnings simulation model to assess the impact of interest rate changes on net interest income. The portfolio is asset-sensitive, meaning rising rates generally benefit net interest income, but significant unrealized losses on available-for-sale securities have occurred due to recent rate increases | Change in Interest Rates (basis points) | Percentage change in net interest income (June 30, 2022) | |:----------------------------------------|:---------------------------------------------------------| | +400 | 7.34% | | +300 | 5.80% | | +200 | 4.36% | | +100 | 2.63% | | -100 | (2.85)% | | -200 | (6.67)% | - The Company's position is asset-sensitive, with a **100 basis point** increase in interest rates projected to increase net interest income by **2.63%** at June 30, 2022[284](index=284&type=chunk) - Unrealized gains on the available-for-sale portfolio shifted to an unrealized loss of **$507.30 million** before taxes at June 30, 2022, from a **$125.67 million** gain at December 31, 2021, due to a **175 basis point** increase in the 5-year U.S. Treasury rate[286](index=286&type=chunk) [Capital and Liquidity](index=54&type=page&id=Capital%20and%20Liquidity) This section assesses the Company's capital adequacy and liquidity position, including regulatory ratios and funding sources [Capital](index=54&type=page&id=Capital) The Company's capital ratios remain strong and well above regulatory minimums, despite a decrease in total shareholders' equity primarily due to unrealized losses on available-for-sale securities. These unrealized losses are excluded from regulatory capital calculations | Capital Ratio | Consolidated (June 30, 2022) | Minimum Capital Required-Basel III | Required to be Considered Well-Capitalized | |:--------------|:-------------------------------|:-----------------------------------|:-------------------------------------------| | Total Capital to Risk-Weighted Assets | 19.54% | 10.50% | 10.00% | | Tier 1 Capital to Risk-Weighted Assets | 18.50% | 8.50% | 6.00% | | Common Equity Tier 1 Capital to Risk-Weighted Assets | 18.50% | 7.00% | N/A | | Leverage Ratio | 10.65% | 4.00% | N/A | - Total shareholders' equity decreased to **$1.33 billion** at June 30, 2022, from **$1.76 billion** at December 31, 2021, largely due to **$400.51 million** in unrealized losses on investment securities available-for-sale, net of taxes[288](index=288&type=chunk) - All regulatory capital ratios (Total, Tier 1, Common Equity Tier 1, and Leverage) for both the consolidated entity and the bank subsidiary exceed the 'well-capitalized' thresholds[292](index=292&type=chunk)[293](index=293&type=chunk) [Liquidity](index=56&type=page&id=Liquidity) The Company maintains adequate liquidity through cash, marketable assets, core deposits, and access to various funding sources, including lines of credit with the FHLB and Federal Reserve. Management continuously monitors liquidity risk and has a contingency funding plan in place, with no material adverse effects anticipated - Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks[297](index=297&type=chunk) - The subsidiary bank has an available line of credit with the FHLB totaling **$2.09 billion** and access to the Federal Reserve Bank of Dallas lending program[297](index=297&type=chunk) - The Company's current liquidity position is considered adequate to meet short-term and long-term needs, supported by a strong core deposit base and low loan-to-deposit ratios[300](index=300&type=chunk) [Off-Balance Sheet ("OBS")/Reserve for Unfunded Commitments](index=56&type=page&id=Off-Balance%20Sheet%20%28%22OBS%22%29%2FReserve%20for%20Unfunded%20Commitments) The Company engages in off-balance sheet activities, including unfunded lines of credit, commitments to extend credit, and standby letters of credit, which expose it to credit and interest rate risk. A reserve for unfunded commitments is maintained to cover potential credit losses | Commitment Type (in thousands) | Total Notional Amounts Committed (June 30, 2022) | |:-------------------------------|:-------------------------------------------------| | Unfunded lines of credit | $1,020,918 | | Unfunded commitments to extend credit | $845,774 | | Standby letters of credit | $37,986 | | Total commercial commitments | $1,904,678 | - The reserve for unfunded commitments totaled **$8.72 million** at June 30, 2022, recorded in other liabilities[301](index=301&type=chunk) [Parent Company Funding](index=57&type=page&id=Parent%20Company%20Funding) The parent company's funding for operations, dividends, and acquisitions primarily comes from its own earnings, cash reserves, and intercompany dividends and management fees from subsidiaries. A significant amount was available for intercompany dividends at June 30, 2022 - Available cash and cash equivalents at the parent company totaled **$89.10 million** at June 30, 2022[299](index=299&type=chunk) - **$375.31 million** was available for intercompany dividends from subsidiaries at June 30, 2022, without prior regulatory approval[308](index=308&type=chunk) [Dividends](index=57&type=page&id=Dividends) The Company's dividend policy aims to pay 35% to 40% of annual net earnings while maintaining adequate capital. Dividends are subject to regulatory restrictions and loan covenants - The long-term dividend policy is to pay cash dividends of approximately **35% to 40%** of annual net earnings[309](index=309&type=chunk) - Cash dividend payout ratios were **39.23%** and **35.18%** of net earnings for the first six months of 2022 and 2021, respectively[309](index=309&type=chunk) - A **$0.17 per share** cash dividend was declared for Q2 2022, a **13.33% increase** over Q2 2021[309](index=309&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=57&type=page&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section provides information on the Company's exposure to market risks, particularly interest rate risk, and its management strategies - Management considers interest rate risk to be a significant market risk for the Company, with further details provided in the 'Interest Rate Risk' section of the MD&A[312](index=312&type=chunk) [Item 4. Controls and Procedures](index=58&type=page&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting - Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[315](index=315&type=chunk) - No significant changes in internal controls over financial reporting occurred that materially affected or are reasonably likely to materially affect internal control over financial reporting[316](index=316&type=chunk) [PART II - OTHER INFORMATION](index=59&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits [Item 1. Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) This section discloses any material legal proceedings involving the Company or its subsidiaries - The Company and its subsidiaries are not currently subject to any material pending legal proceedings[319](index=319&type=chunk) [Item 1A. Risk Factors](index=59&type=page&id=Item%201A.%20Risk%20Factors) This section outlines the significant risks and uncertainties that could materially affect the Company's business, financial condition, or results of operations - There have been no material changes in the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[320](index=320&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on any unregistered sales of equity securities and the use of proceeds from such sales [Repurchase of Common Stock](index=59&type=page&id=Repurchase%20of%20Common%20Stock) The Company's Board of Directors authorized a stock repurchase plan for up to 5,000,000 common shares through July 31, 2023. During June 2022, 191,987 shares were repurchased under this plan | Period | Total number of shares purchased | Average price paid per share | |:-------|:-------------------------------|:-----------------------------| | June 1, 2022 through June 30, 2022 | 191,987 | $38.5314 | - As of June 30, 2022, **4,808,013 shares** remained available for repurchase under the plan[322](index=322&type=chunk) [Item 3. Defaults Upon Senior Securities](index=59&type=page&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section reports on any defaults on senior securities, if applicable - Not Applicable[323](index=323&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=page&id=Item%204.%20Mine%20Safety%20Disclosures) This section provides disclosures related to mine safety, if applicable - Not Applicable[323](index=323&type=chunk) [Item 5. Other Information](index=59&type=page&id=Item%205.%20Other%20Information) This section includes any other information required to be disclosed that is not covered elsewhere - Not Applicable[323](index=323&type=chunk) [Item 6. Exhibits](index=60&type=page&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the report - This section lists all exhibits filed with the Form 10-Q, including organizational documents, stock plans, loan agreements, and certifications[325](index=325&type=chunk) [Signatures](index=61&type=section&id=Signatures) This section contains the official signatures of the Company's principal executive and financial officers, certifying the report's accuracy

Table of Contents Title of each class Trading Symbol(s) Name of exchange on which registered Common Stock, par value $0.01 per share FFIN The Nasdaq Global Select Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to C ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20-%20Unaudited) This section presents the Company's unaudited consolidated financial statements, including balance sheets, statements of earnings, comprehensive earnings, shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and financial instrument disclosures [Consolidated Balance Sheets – Unaudited](index=4&type=section&id=Consolidated%20Balance%20Sheets%20%E2%80%93%20Unaudited) This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and shareholders' equity at various reporting dates | Metric | March 31, 2021 (Unaudited) ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 (Unaudited) ($ thousands) | | :-------------------------------- | :--------------------------------------- | :------------------------------ | :--------------------------------------- | | Total Assets | $12,102,887 | $10,904,500 | $9,701,091 | | Total Liabilities | $10,437,459 | $9,226,310 | $8,174,729 | | Total Shareholders' Equity | $1,665,428 | $1,678,190 | $1,526,362 | | Loans, net | $5,259,588 | $5,104,499 | $4,578,949 | | Available-for-sale securities | $5,109,631 | $4,393,029 | $4,107,069 | [Consolidated Statements of Earnings – Unaudited](index=5&type=section&id=Consolidated%20Statements%20of%20Earnings%20%E2%80%93%20Unaudited) This statement outlines the Company's financial performance over specific periods, presenting net earnings, earnings per share, and key components of interest and noninterest income and expense | Metric | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net Earnings | $56,918 | $37,232 | | Net Earnings Per Share, Basic | $0.40 | $0.26 | | Total Interest Income | $90,610 | $88,100 | | Total Interest Expense | $1,786 | $7,198 | | Net Interest Income | $88,824 | $80,902 | | Provision for Credit Losses | $(1,997) | $9,850 | | Total Noninterest Income | $34,874 | $28,732 | | Total Noninterest Expense | $57,723 | $55,318 | [Consolidated Statements of Comprehensive Earnings – Unaudited](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Earnings%20%E2%80%93%20Unaudited) This statement presents the Company's net earnings and other comprehensive income items, such as unrealized gains or losses on available-for-sale securities, to arrive at total comprehensive earnings | Metric | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :-------------------------------------------------------------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net Earnings | $56,918 | $37,232 | | Change in unrealized gain on investment securities available-for-sale, before income taxes | $(66,770) | $73,037 | | Comprehensive Earnings | $3,532 | $93,302 | [Consolidated Statements of Shareholders' Equity – Unaudited](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20%E2%80%93%20Unaudited) This statement details changes in the Company's equity components, including common stock, capital surplus, retained earnings, treasury stock, and accumulated other comprehensive earnings | Equity Component | Balance at March 31, 2021 ($ thousands) | Balance at December 31, 2020 ($ thousands) | Balance at March 31, 2020 ($ thousands) | | :-------------------------------- | :-------------------------------------- | :--------------------------------------- | :-------------------------------------- | | Common Stock | $1,423 | $1,422 | $1,423 | | Capital Surplus | $671,849 | $669,644 | $673,535 | | Retained Earnings | $875,147 | $836,729 | $727,828 | | Treasury Stock | $(9,385) | $(9,126) | $(8,437) | | Accumulated Other Comprehensive Earnings | $117,009 | $170,395 | $123,576 | | Total Shareholders' Equity | $1,665,428 | $1,678,190 | $1,526,362 | - Cash dividends declared for Q1 2021 were **$0.13 per share**, totaling **$18.50 million**[25](index=25&type=chunk) [Consolidated Statements of Cash Flows – Unaudited](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Unaudited) This statement summarizes the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :---------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Net cash provided by operating activities | $96,769 | $31,232 | | Net cash used in investing activities | $(581,844) | $(566,650) | | Net cash provided by financing activities | $839,562 | $520,678 | | Cash and cash equivalents, end of period | $1,083,571 | $267,864 | [Notes to Consolidated Financial Statements – Unaudited](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%E2%80%93%20Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering significant accounting policies, financial instruments, and other relevant financial information [Note 1 – Summary of Significant Accounting Policies](index=10&type=section&id=Note%201%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the Company's nature of operations, basis of presentation, use of estimates, consolidation principles, stock repurchase program, acquisition details, and the adoption of new accounting standards, particularly CECL - The Company operates as a financial holding company, owning First Financial Bank, N.A. (with **78 locations** in Texas) and other financial service subsidiaries, with primary revenue from loans and banking services[33](index=33&type=chunk) - The Board authorized a stock repurchase of up to **4.00 million common shares** through September 30, 2021, with **324,802 shares** repurchased and retired for **$8.01 million** (all in March and April 2020)[38](index=38&type=chunk) - The Company adopted ASC 326 (CECL methodology) effective January 1, 2020, with a transition charge to retained earnings of **$589 thousand** (**$466 thousand** net of applicable income taxes), including a **$619 thousand** decrease in allowance for credit losses and a **$1.21 million** increase in the reserve for unfunded commitments[41](index=41&type=chunk) [Note 2 - Securities](index=19&type=section&id=Note%202%20-%20Securities) This note details the Company's debt securities portfolio, including available-for-sale securities, their fair values, unrealized gains/losses, and credit loss assessment | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :--------------------------------------- | :--------------------------- | :-------------------------- | :--------------------------- | | Total Available-for-Sale Securities (Fair Value) | $5,109,631 | $4,393,029 | $4,107,069 | | Gross Unrealized Holding Gains | $166,558 | $216,048 | $159,486 | | Gross Unrealized Holding Losses | $(18,365) | $(198) | $(2,927) | - Unrealized losses on investment securities are primarily due to changes in interest rates, not credit-related events, and no allowance for credit losses was required for available-for-sale securities[104](index=104&type=chunk) | Metric | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Sales of Available-for-Sale Securities | $10,631 | $95,437 | | Gross Realized Gains from Security Sales | $808 | $2,062 | [Note 3 – Loans Held-for-Investment and Allowance for Loan Losses](index=22&type=section&id=Note%203%20%E2%80%93%20Loans%20Held-for-Investment%20and%20Allowance%20for%20Loan%20Losses) This note provides detailed information on the Company's loan portfolio, segmented by type, including nonaccrual loans, troubled debt restructurings, and the allowance for credit losses methodology | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :-------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Total Loans Held-for-Investment | $5,322,562 | $5,171,033 | $4,639,389 | | Less: Allowance for credit losses | $(62,974) | $(66,534) | $(60,440) | | Loans, net | $5,259,588 | $5,104,499 | $4,578,949 | | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :--------------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Non-accrual loans | $39,333 | $42,619 | $39,226 | | Loans still accruing and past due 90 days or more | $2 | $113 | $209 | | Troubled debt restructured loans still accruing | $23 | $24 | $26 | | Total Nonperforming Loans | $39,358 | $42,756 | $39,461 | - The provision for credit losses was a reversal of **$1.997 million** for the three-months ended March 31, 2021, which included a reversal of loan losses of **$3.429 million** net of a provision for unfunded commitments of **$1.432 million**[116](index=116&type=chunk) [Note 4 - Loans Held-for-Sale](index=37&type=section&id=Note%204%20-%20Loans%20Held-for-Sale) This note details the Company's loans held-for-sale, their valuation methods, and related income recognition | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :-------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Loans held-for-sale | $65,405 | $83,969 | $42,034 | - At March 31, 2021, **$3.894 million** of loans held-for-sale were valued at the lower of cost or fair value, with the remaining amounts valued under the fair value option[159](index=159&type=chunk) [Note 5 - Derivative Financial Instruments](index=37&type=section&id=Note%205%20-%20Derivative%20Financial%20Instruments) This note describes the Company's use of interest rate lock commitments (IRLCs) and forward mortgage-backed securities contracts to manage interest rate risk, and their fair value measurement | Derivative Type | March 31, 2021 Outstanding Notional Balance ($ thousands) | December 31, 2020 Outstanding Notional Balance ($ thousands) | March 31, 2020 Outstanding Notional Balance ($ thousands) | | :-------------------------------------- | :-------------------------------------------------------- | :--------------------------------------------------------- | :-------------------------------------------------------- | | IRLCs | $180,596 | $202,906 | $187,747 | | Forward mortgage-backed securities trades | $317,500 | $198,000 | $198,000 | - All derivatives are carried at fair value in either other assets or other liabilities, through earnings in the statement of earnings, and are classified as **Level 2** in the fair value disclosures[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) [Note 6 - Borrowings](index=38&type=section&id=Note%206%20-%20Borrowings) This note provides details on the Company's borrowings, including securities sold under repurchase agreements, federal funds purchased, and FHLB advances | Borrowing Type | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :---------------------------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Securities sold under agreements with customers to repurchase | $523,254 | $412,743 | $410,146 | | Federal funds purchased | $25,350 | $17,350 | $1,725 | | Advances from Federal Home Loan Bank of Dallas | $0 | $0 | $446,000 | | Total Borrowings | $548,604 | $430,093 | $857,871 | [Note 7 – Income Taxes](index=38&type=section&id=Note%207%20%E2%80%93%20Income%20Taxes) This note presents the Company's income tax expense and effective tax rates, explaining the differences from the statutory federal tax rate | Metric | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :--------------- | :---------------------------------------------- | :---------------------------------------------- | | Income tax expense | $11,054 | $7,234 | | Effective tax rate | 16.26% | 16.27% | - The effective tax rates differ from the statutory federal tax rate of **21%** primarily due to tax-exempt interest income, deductibility of dividends paid to the ESOP, and excess tax benefits from the directors' deferred compensation plan[169](index=169&type=chunk) [Note 8 - Stock Option Plan and Restricted Stock Plan](index=39&type=section&id=Note%208%20-%20Stock%20Option%20Plan%20and%20Restricted%20Stock%20Plan) This note details the Company's stock option and restricted stock plans, including activity, expense, and unrecognized compensation costs | Metric | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Stock option expense | $319 | $340 | | Restricted stock expense (employees) | $290 | $275 | | Restricted stock expense (directors) | $150 | $175 | - As of March 31, 2021, total unrecognized compensation cost related to unvested stock options was **$3.753 million**, expected to be recognized over a weighted-average period of **1.77 years**[174](index=174&type=chunk) - As of March 31, 2021, total unrecognized compensation cost related to unvested restricted stock was **$1.701 million**, expected to be recognized over a weighted-average period of **1.44 years**[179](index=179&type=chunk) [Note 9 - Fair Value Disclosures](index=40&type=section&id=Note%209%20-%20Fair%20Value%20Disclosures) This note explains the Company's fair value measurement methodologies and hierarchy (Level 1, 2, 3) for various financial instruments, including available-for-sale securities, loans held-for-sale, and derivatives - The fair value hierarchy categorizes inputs into **Level 1** (unadjusted quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (significant unobservable inputs)[183](index=183&type=chunk) | Financial Instrument | March 31, 2021 Fair Value ($ thousands) | Fair Value Hierarchy | | :---------------------------------------------------- | :-------------------------------------- | :------------------- | | Available-for-sale securities | $5,109,631 | Levels 1 and 2 | | Loans held-for-investment, net of allowance for credit losses | $5,273,235 | Level 3 | | Loans held-for-sale | $65,273 | Level 2 | | IRLCs | $1,645 | Level 2 | | Forward mortgage-backed securities trades asset (liability) | $2,806 | Level 2 | | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :---------------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Net unrealized gains on loans held-for-sale | $784 | $2,983 | $1,096 | [Note 10 – Acquisition](index=46&type=section&id=Note%2010%20%E2%80%93%20Acquisition) This note provides details on the acquisition of TB&T Bancshares, Inc. on January 1, 2020, including the consideration paid, assets acquired, liabilities assumed, and resulting goodwill - The Company acquired **100%** of TB&T Bancshares, Inc. on January 1, 2020, by issuing **6,275,574 shares** of common stock valued at **$220.273 million**[205](index=205&type=chunk)[207](index=207&type=chunk) - The acquisition resulted in **$141.923 million** in goodwill, which is not amortized but tested annually for impairment and is not deductible for federal income tax purposes[207](index=207&type=chunk) - The primary purpose of the acquisition was to expand the Company's market share near the Houston market[206](index=206&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the quarter ended March 31, 2021, including an overview of performance, impact of COVID-19, critical accounting policies, and detailed analysis of income, expenses, balance sheet items, capital, interest rate risk, and liquidity [Forward-Looking Statements](index=46&type=section&id=Forward-Looking%20Statements) This section highlights that the report contains forward-looking statements subject to various risks, including economic conditions, COVID-19, regulatory changes, market volatility, and cyber attacks - This section contains forward-looking statements based on current management information, subject to various risks including general economic conditions, the impact of COVID-19, government and regulatory responses, market volatility, and cyber attacks[210](index=210&type=chunk)[211](index=211&type=chunk) - The Company does not undertake any obligation to publicly update or revise any forward-looking statements, except as required by law[212](index=212&type=chunk) [Introduction](index=49&type=section&id=Introduction) This introduction outlines the Company's primary revenue sources, such as interest on loans and investments, and key performance metrics used to evaluate its financial health - The Company's primary revenue sources are interest on loans and investments, trust fees, gain on sale of mortgage loans, and service charges, with deposits from its subsidiary bank being the main funding source[215](index=215&type=chunk) - Performance is measured by return on average assets, return on average equity, regulatory capital ratios, net interest margin, and efficiency ratio[215](index=215&type=chunk) [Recent Coronavirus Developments](index=49&type=section&id=Recent%20Coronavirus%20Developments) This section details the Company's involvement in the PPP loan program and the broader impact of government stimulus measures related to the COVID-19 pandemic - The Company assisted borrowers in the PPP loan program, funding approximately **8,500 loans** totaling **$920.13 million** through March 31, 2021, with **$531.81 million** outstanding[217](index=217&type=chunk) - Government stimulus measures include extensions of moratoriums on evictions/foreclosures, student loan deferrals, mortgage forbearance programs, and the American Rescue Plan Act of 2021, which provided additional PPP funding and direct cash payments[218](index=218&type=chunk)[220](index=220&type=chunk) - The PPP Extension Act of 2021 extended the Paycheck Protection Program to **June 30, 2021**[220](index=220&type=chunk) [Critical Accounting Policies](index=50&type=section&id=Critical%20Accounting%20Policies) This section identifies the allowance for credit losses and the valuation of financial instruments as the Company's most critical accounting policies, requiring significant estimates - The Company identifies its allowance for credit losses and the valuation of financial instruments as its most critical accounting policies, requiring significant estimates and assumptions that could materially impact financial statements[224](index=224&type=chunk) [Stock Repurchase](index=51&type=section&id=Stock%20Repurchase) This section details the Board's authorization for common share repurchases and the number of shares repurchased and retired to date - The Board of Directors authorized the repurchase of up to **4.00 million common shares** through September 30, 2021, with **324,802 shares** repurchased and retired for **$8.01 million** (all during March and April 2020)[226](index=226&type=chunk) [Acquisition](index=51&type=section&id=Acquisition) This section summarizes the acquisition of TB&T Bancshares, Inc., including the consideration paid and the resulting goodwill - The acquisition of TB&T Bancshares, Inc. was completed on January 1, 2020, for **$220.27 million** in common shares, resulting in **$141.92 million** in goodwill[227](index=227&type=chunk) [Participation in PPP Loan Program](index=51&type=section&id=Participation%20in%20PPP%20Loan%20Program) This section provides a breakdown of the Company's participation in the PPP loan program, including loans originated, outstanding amounts, and recognized interest income | PPP Round | Number of Loans Originated | Dollars of Loans Originated ($ thousands) | Number of Loans Outstanding at March 31, 2021 | Dollars of Loans Outstanding at March 31, 2021 ($ thousands) | | :---------- | :------------------------- | :---------------------------------------- | :-------------------------------------------- | :----------------------------------------------------------- | | PPP Round 1 | 6,530 | $703,450 | 2,759 | $315,879 | | PPP Round 2 | 2,016 | $216,683 | 1,990 | $215,931 | | PPP Totals | 8,546 | $920,133 | 4,749 | $531,810 | - The Company recognized **$6.25 million** in interest income related to PPP loan fees during Q1 2021, with remaining deferred fees totaling approximately **$16 million** at March 31, 2021, including **$11 million** for 2021 originations[228](index=228&type=chunk) [Implementation of New Accounting Standard for Allowance for Credit Losses](index=52&type=section&id=Implementation%20of%20New%20Accounting%20Standard%20for%20Allowance%20for%20Credit%20Losses) This section discusses the Company's adoption of ASC 326 (CECL methodology) and the resulting transition adjustment to retained earnings - The Company adopted ASC 326 (CECL methodology) effective January 1, 2020, after electing to delay implementation under the CARES Act[232](index=232&type=chunk) - The transition adjustment to retained earnings was a charge of **$589 thousand** (**$466 thousand** net of applicable income taxes), comprising a **$619 thousand** decrease in allowance for credit losses and a **$1.21 million** increase in the reserve for unfunded commitments[232](index=232&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, including net earnings, net interest income, noninterest income, and noninterest expense, for the reporting period [Performance Summary](index=53&type=section&id=Performance%20Summary) This summary highlights key financial performance metrics, including net earnings, diluted EPS, return on average assets, and return on average equity | Metric | Three-Months Ended March 31, 2021 | Three-Months Ended March 31, 2020 | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net Earnings | $56.92 million | $37.23 million | 52.87% | | Diluted EPS | $0.40 | $0.26 | 53.85% | | Return on Average Assets | 2.05% | 1.63% | 0.42 pp | | Return on Average Equity | 13.83% | 10.11% | 3.72 pp | [Net Interest Income](index=53&type=section&id=Net%20Interest%20Income) This section analyzes the Company's net interest income, average earning assets, and net interest margin, explaining the factors influencing their changes | Metric | Three-Months Ended March 31, 2021 ($ millions) | Three-Months Ended March 31, 2020 ($ millions) | Change ($ millions) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------ | | Tax-equivalent Net Interest Income | $92.37 | $82.74 | $9.63 | | Average Earning Assets | $10.56 billion | $8.50 billion | $2.06 billion | | Net Interest Margin (tax equivalent) | 3.55% | 4.25% | (0.70 pp) | - The increase in net interest income was largely due to growth in investment securities and the impact of the PPP loan program, though net interest margin decreased due to historically low short-term interest rates, a flat/inverted yield curve, and **$1.08 billion** in excess liquidity[238](index=238&type=chunk)[242](index=242&type=chunk) [Noninterest Income](index=55&type=section&id=Noninterest%20Income) This section details the components of the Company's noninterest income, including trust fees, service charges, ATM/interchange fees, and gains on mortgage loan sales | Noninterest Income Category | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | Increase (Decrease) ($ thousands) | | :------------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------- | | Trust fees | $8,299 | $7,437 | $862 | | Service charges on deposit accounts | $4,793 | $5,915 | $(1,122) | | ATM, interchange and credit card fees | $8,677 | $7,400 | $1,277 | | Gain on sale and fees on mortgage loans | $9,894 | $3,852 | $6,042 | | Net gain on sale of available-for-sale securities | $808 | $2,062 | $(1,254) | | Total Noninterest Income | $34,874 | $28,732 | $6,142 | - The fair value of trust assets managed increased by **22.55%** to **$7.54 billion** at March 31, 2021, compared to **$6.15 billion** at March 31, 2020[246](index=246&type=chunk) - Federal Reserve rules on interchange fees for institutions exceeding **$10 billion** in assets could result in an estimated **$14.00 million** annual (pre-tax) reduction in ATM and interchange fees, though temporary relief extends compliance until **2022**[248](index=248&type=chunk) [Noninterest Expense](index=56&type=section&id=Noninterest%20Expense) This section analyzes the Company's noninterest expenses, including salaries, occupancy, equipment, and FDIC assessment fees, and their impact on the efficiency ratio | Noninterest Expense Category | Three-Months Ended March 31, 2021 ($ thousands) | Three-Months Ended March 31, 2020 ($ thousands) | Increase (Decrease) ($ thousands) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------- | | Total Salaries and Employee Benefits | $34,931 | $29,642 | $5,289 | | Net occupancy expense | $3,147 | $3,027 | $120 | | Equipment expense | $2,164 | $2,075 | $89 | | FDIC assessment fees | $701 | $45 | $656 | | Total Noninterest Expense | $57,723 | $55,318 | $2,405 | | Efficiency Ratio | 45.36% | 49.63% | (4.27 pp) | - The increase in salaries, commissions, and employee benefits was driven by annual merit-based pay increases, higher mortgage-related commission expenses, and increases in incentive compensation and profit-sharing expenses[253](index=253&type=chunk) - Other noninterest expense in Q1 2020 included **$3.81 million** in technology contract termination and conversion costs related to the TB&T Bancshares, Inc. acquisition[253](index=253&type=chunk) [Balance Sheet Review](index=58&type=section&id=Balance%20Sheet%20Review) This section provides a detailed review of key balance sheet components, including loans, asset quality, deposits, and borrowings, and their changes over time [Loans](index=58&type=section&id=Loans) This section details the Company's loan portfolio, including total loans held-for-investment and outstanding PPP loans, and changes in segmentation for credit risk assessment | Loan Category | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :-------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Total Loans Held-for-Investment | $5,322,562 | $5,171,033 | $4,639,389 | | PPP loans outstanding | $531,810 | N/A | N/A | - The Company expanded its loan portfolio segmentation from four to ten segments (C&I, Municipal, Agricultural, Construction & Development, Farm, Non-Owner Occupied CRE, Owner Occupied CRE, Residential, Consumer Auto, and Consumer Non-Auto) to improve credit risk assessment under ASC 326[257](index=257&type=chunk) [Asset Quality](index=59&type=section&id=Asset%20Quality) This section assesses the Company's asset quality, including nonperforming assets, provision for credit losses, and allowance for credit losses, along with industry exposure | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :---------------------------------------------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Total Nonperforming Assets | $39,658 | $42,898 | $40,444 | | Nonperforming Assets as % of Loans Held-for-Investment and Foreclosed Assets | 0.75% | 0.83% | 0.87% | | Provision for Credit Losses (Reversal) | $(2,000) | N/A | $9,850 | | Allowance for Credit Losses as % of Loans Held-for-Investment | 1.18% | 1.29% | 1.30% | | Allowance for Credit Losses as % of Loans Held-for-Investment (excluding PPP loans) | 1.31% | 1.42% | 1.30% | - The net reversal of provision for credit losses in Q1 2021 reflects continued improvement in the economic outlook for Texas markets and overall improvements in asset quality[267](index=267&type=chunk) | Industry Exposure (excluding PPP loans) | March 31, 2021 ($ thousands) | % of Total Loans Held-for-Investment (excluding PPP) | Classified Loans ($ thousands) | Nonaccrual Loans ($ thousands) | | :-------------------------------------- | :--------------------------- | :--------------------------------------------------- | :----------------------------- | :----------------------------- | | Oil and Gas | $105,261 | 2.20% | $10,079 | $4,759 | | Retail/Restaurant/Hospitality | $430,195 | 8.98% | $45,214 | $6,575 | [Interest-Bearing Demand Deposits in Banks](index=62&type=section&id=Interest-Bearing%20Demand%20Deposits%20in%20Banks) This section reports the Company's interest-bearing deposits in banks, primarily held at the Federal Reserve Bank of Dallas | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :------------------------------------ | :--------------------------- | :------------------------------ | :--------------------------- | | Interest-bearing deposits in banks | $893,221 | $517,971 | $76,378 | - At March 31, 2021, **$892.82 million** of these deposits were maintained at the Federal Reserve Bank of Dallas[268](index=268&type=chunk) [Available-for-Sale Securities](index=62&type=section&id=Available-for-Sale%20Securities) This section provides details on the Company's available-for-sale securities portfolio, including fair value, yield, weighted average life, and modified duration | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | | :-------------------------------- | :--------------------------- | :------------------------------ | | Available-for-Sale Securities (Fair Value) | $5,109,631 | $4,393,029 | | Overall Tax Equivalent Yield | 2.53% | N/A | | Weighted Average Life | 5.13 years | N/A | | Modified Duration | 4.55 years | N/A | [Deposits](index=63&type=section&id=Deposits) This section presents the Company's total deposits and the overall cost of deposits for the reporting period | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :----------- | :--------------------------- | :------------------------------ | :--------------------------- | | Total Deposits | $9,413,447 | $8,675,817 | $7,210,466 | | Total Cost of Deposits (Q1) | 0.08% | N/A | 0.37% | [Borrowings](index=64&type=section&id=Borrowings) This section details the Company's total borrowings and the weighted average interest rate paid on these borrowings | Metric | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | March 31, 2020 ($ thousands) | | :--------------- | :--------------------------- | :------------------------------ | :--------------------------- | | Total Borrowings | $548,604 | $430,093 | $857,871 | | Weighted Average Interest Rate Paid (Q1) | 0.08% | N/A | 0.45% | [Capital Resources](index=64&type=section&id=Capital%20Resources) This section reviews the Company's capital resources, including shareholders' equity and various regulatory capital ratios, ensuring compliance with Basel III requirements | Metric | March 31, 2021 | December 31, 2020 | March 31, 2020 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total Shareholders' Equity | $1.67 billion | $1.68 billion | $1.53 billion | | Total Capital to Risk-Weighted Assets | 21.47% | 22.03% | 20.65% | | Tier 1 Capital to Risk-Weighted Assets | 20.32% | 20.79% | 19.55% | | Common Equity Tier 1 to Risk-Weighted Assets | 20.32% | 20.79% | 19.55% | | Leverage Ratio | 11.55% | 11.86% | 12.49% | - All regulatory capital ratios for the Company and its subsidiary bank exceeded the minimum required levels under the Basel III regulatory capital framework, including the fully phased-in capital conservation buffer[282](index=282&type=chunk)[284](index=284&type=chunk) [Interest Rate Risk](index=66&type=section&id=Interest%20Rate%20Risk) This section describes the Company's approach to managing interest rate risk through asset-liability management and earnings simulation, assessing the impact of rate changes on net interest income - The Company manages interest rate risk through its asset-liability management strategy and uses an earnings simulation model to quantify the effects of various interest rate scenarios on projected net interest income[287](index=287&type=chunk)[288](index=288&type=chunk) - The balance sheet was in an asset-sensitive position as of March 31, 2021, and December 31, 2020, indicating that net interest income would generally benefit from rising interest rates[291](index=291&type=chunk) | Change in Interest Rates (basis points) | Percentage change in net interest income (March 31, 2021) | | :-------------------------------------- | :-------------------------------------------------------- | | +400 | 17.54% | | +300 | 13.39% | | +200 | 9.05% | | +100 | 4.51% | | -100 | (4.72)% | | -200 | (7.21)% | [Liquidity](index=67&type=section&id=Liquidity) This section outlines the Company's liquidity position, including cash, marketable assets, core deposits, and access to various funding sources and credit lines - The Company maintains strong liquidity through cash, marketable assets, core deposits, and access to funding sources including FHLB lines of credit (**$1.53 billion** available at March 31, 2021) and a **$25.00 million** revolving line of credit with Frost Bank[293](index=293&type=chunk)[294](index=294&type=chunk) - Parent company cash and cash equivalents totaled **$121.79 million** at March 31, 2021, with subsidiaries having **$260.95 million** available for intercompany dividends without prior regulatory approval[297](index=297&type=chunk)[305](index=305&type=chunk) | Commitment Type | Total Notional Amounts Committed (March 31, 2021, $ thousands) | | :-------------------------------- | :----------------------------------------------------------- | | Unfunded lines of credit | $886,274 | | Unfunded commitments to extend credit | $788,842 | | Standby letters of credit | $41,202 | | Total commercial commitments | $1,716,318 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the discussion on interest rate risk within Item 2, identifying it as a significant market risk for the Company - Management considers interest rate risk to be a significant market risk for the Company, with further disclosure provided in the 'Interest Rate Risk' section of Item 2[309](index=309&type=chunk) [Item 4. Controls and Procedures](index=70&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2021, concluding they were effective at a reasonable assurance level. No significant changes in internal controls were reported - The Company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of March 31, 2021[311](index=311&type=chunk) - There were no significant changes in internal controls over financial reporting or other factors that materially affected these controls subsequent to the evaluation[312](index=312&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=70&type=section&id=Item%201.%20Legal%20Proceedings) The Company and its subsidiaries are involved in routine lawsuits in the ordinary course of business, but there are no material pending legal proceedings or contemplated governmental actions - There are no material pending legal proceedings to which the Company or its subsidiaries are currently subject[314](index=314&type=chunk) - No proceedings are pending or known to be contemplated by any governmental authorities, other than regular, routine examinations[314](index=314&type=chunk) [Item 1A. Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 - There has been no material change in the risk factors previously disclosed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020[315](index=315&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable to the Company for the reporting period - Not Applicable[316](index=316&type=chunk) [Item 3. Defaults Upon Senior Securities](index=71&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period - Not Applicable[316](index=316&type=chunk) [Item 4. Mine Safety Disclosures](index=71&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period - Not Applicable[316](index=316&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the Company for the reporting period - Not Applicable[316](index=316&type=chunk) [Item 6. Exhibits](index=71&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including various agreements, corporate documents, stock plans, and certifications - The exhibits include agreements (e.g., acquisition, loan), corporate documents (e.g., Certificate of Formation, Bylaws), stock and incentive plans (e.g., 2021 Omnibus Stock and Incentive Plan), and certifications (CEO, CFO)[317](index=317&type=chunk) [Signatures](index=73&type=section&id=Signatures) The report is duly signed on behalf of First Financial Bankshares, Inc. by F. Scott Dueser (Chairman of the Board, President and CEO) and James R. Gordon (Executive Vice President and CFO, Secretary and Treasurer) on May 5, 2021 - The report was signed by F. Scott Dueser, Chairman of the Board, President and Chief Executive Officer, and James R. Gordon, Executive Vice President and Chief Financial Officer, Secretary and Treasurer[322](index=322&type=chunk) - The signing date for the report was **May 5, 2021**[323](index=323&type=chunk)

Table of Contents Title of each classTrading Symbol(s)Name of exchange on which registered Common Stock, par value $0.01 per share FFIN The Nasdaq Global Select Market UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Com ...

Table of Contents Title of each classTrading Symbol(s)Name of each exchange on which registered Common Stock, $0.01 par value FFIN The Nasdaq Stock Market LLC Emerging growth company ☐ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transi ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | |----------------------------------------------------------------------------------------------------------------------------------- ...