FFIN 10-K Fiscal year ended Dec. 31, 2023

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, 2023

or

☐	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)

Texas		75-0944023
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
400 Pine Street , Abilene , Texas		79601
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code:		( 325 ) 627-7155

Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated file”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was $ 3.90 billion.

As of February 23, 2024, there were 142,751,867 shares of common stock outstanding.

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Documents Incorporated by Reference

Certain information required by Part III is incorporated by reference to the proxy statement f or our 2024 annual meeting of shareholders, which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2023 .

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FIRST FINANCIAL BANKSHARES, INC.

FORM 10-K

For the Year Ended December 31, 2023

INDEX

			Page
PART I
ITEM 1.		Business	3
ITEM 1A.		Risk Factors	15
ITEM 1B.		Unresolved Staff Comments	28
ITEM 1C.		Cybersecurity	29
ITEM 2.		Properties	30
ITEM 3.		Legal Proceedings	30
ITEM 4.		Mine Safety Disclosures	30
			30
PART II
ITEM 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
ITEM 6.		[Reserved]	33
ITEM 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
ITEM 7A.		Quantitative and Qualitative Disclosures About Market Risk	52
ITEM 8.		Financial Statements and Supplementary Data	52
ITEM 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	54
ITEM 9A.		Controls and Procedures	54
ITEM 9B.		Other Information	56
ITEM 9C.		Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	56
PART III
ITEM 10.		Directors, Executive Officers and Corporate Governance	57
ITEM 11.		Executive Compensation	57
ITEM 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57
ITEM 13.		Certain Relationships and Related Transactions, and Director Independence	57
ITEM 14.		Principal Accountant Fees and Services	57
PART IV
ITEM 15.		Exhibit and Financial Statement Schedules	58
ITEM 16.		Form 10-K Summary	60
SIGNATURES			61

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PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-K, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” “could,” “may,” or “would” and similar expressions, as they relate to us or our management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited, to those listed in “Item 1A-Risk Factors” and the following:

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In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, the Israel-Palestine conflict and other world events, terrorism or other geopolitical events.

Such forward-looking statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategies and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise (except as required by law).

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IT EM 1.	BUSINESS

General

First Financial Bankshares, Inc., a Texas corporation (the “Company”), is a financial holding company registered under the Bank Holding Company Act of 1956, as amended, or BHCA. As such, we are supervised by the Federal Reserve Board, as well as several other bank regulators. We were formed as a bank holding company in 1956 under the original name F & M Operating Company, but our banking operations date back to 1890, when Farmers and Merchants National Bank opened for business in Abilene, Texas. As of December 31, 2023, our wholly-owned subsidiaries, all of which are headquartered in Abilene, Texas, were:

Through our subsidiaries, we conduct a full-service commercial banking business. Our banking centers are located primarily in Central, North Central, Southeast and West Texas. As of December 31, 2023, we had 79 financial centers across Texas, with ten locations in Abilene, five locations in Bryan/College Station, three locations in Weatherford, two locations in Cleburne, Conroe, San Angelo, Stephenville, and Granbury, and one location each in Acton, Albany, Aledo, Alvarado, Beaumont, Boyd, Bridgeport, Brock, Burleson, Cisco, Clyde, Cut and Shoot, Decatur, Eastland, El Campo, Fort Worth, Franklin, Fulshear, Glen Rose, Grapevine, Hereford, Huntsville, Keller, Kingwood, Lumberton, Magnolia, Mauriceville, Merkel, Midlothian, Mineral Wells, Montgomery, Moran, New Waverly, Newton, Odessa, Orange, Palacios, Port Arthur, Ranger, Rising Star, Roby, Southlake, Spring, Sweetwater, Tomball, Trent, Trophy Club, Vidor, Waxahachie, Willis and Willow Park. Additionally, we operate mortgage loan offices in Austin and Addison, as well as Trust offices in Abilene, Beaumont, Bryan/College Station, Fort Worth, Houston, Odessa, San Angelo, Stephenville and Sweetwater.

Even though we operate in a growing number of Texas markets, we continue to believe that decisions are best made at the local level. Although we consolidated our bank charters into one charter in 2012, we continue to regionally manage our operations with local advisory boards of directors, local regional presidents and local decision-making processes. We have consolidated substantially all of the non-customer facing operations, such as investment securities, accounting, check processing, credit administration, risk management, treasury management, marketing, customer contact center, technology, training and human resources, which improved our efficiency and allows the regions to concentrate on serving the banking needs of their local communities.

We have chosen to keep our Company focused on the State of Texas, one of the nation’s largest, fastest-growing and most economically diverse states. With approximately 30.5 million residents as of December 31, 2022, Texas has more people than any other state except California. The population of Texas grew 16.94% from 2012-2022 according to the U.S. Census Bureau. Many of the communities in which we operate are also experiencing positive growth as shown below:

Population Growth 2012-2022 by City and County*

Bridgeport and Wise County			24.0	%		Fort Worth and Tarrant County			14.5	%
Bryan/College Station and Brazos County			20.8	%		Granbury and Hood County			27.3	%
Cleburne and Johnson County			27.5	%		Stephenville and Erath County			11.4	%
Conroe and Montgomery County			40.1	%		Weatherford, Willow Park, Aledo and Parker County			38.8	%
*Source: U. S. Census Bureau

These economies include dynamic centers of higher education, agriculture, wind energy and natural resources, retail, military, technology, healthcare, tourism, retirement living, manufacturing and distribution.

We believe our community approach to doing business works best for us in small and mid-size markets, where we can play a prominent role in the economic, civic and cultural life of the community. Our goal is to serve these communities well and to experience growth as these markets continue to expand. In many instances, banking competition is less intense in smaller markets, making it easier for us to operate rationally and attract and retain high-caliber employees who prefer not only our community-bank concept but the high quality of life in smaller cities.

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Over the years, we have grown in three ways: by growing organically, by opening new branch locations and by acquiring other banks. Since 1997, we have completed fourteen bank acquisitions and have increased our total assets from $1.57 billion to $13.11 billion as of December 31, 2023. Looking ahead, we intend to continue to grow organically by serving the needs of our customers and putting them first in all of our decisions. We continually look for better branch locations so we can provide more convenient service to our customers. We continue to evaluate opportunities to acquire high quality banks in the future.

When considering banks for acquisition, the subject bank generally needs to be well managed and profitable and align with our corporate culture. We have traditionally served rural and suburban communities and seek to enter growing communities consistent with our legacy markets. Generally we focus on non-metropolitan markets, either around Dallas/Fort Worth, Houston, San Antonio or Austin or along the Interstate 35, 45, 10 and 20 corridors in Texas as well as in East Texas and the Texas Hill Country area. Banks between $500 million and $3.0 billion in asset size fit our “sweet spot” for acquisition, but we would consider banks that are larger or that are in other areas of Texas if we believe they would be a cultural and financial fit for our Company.

Information on our financial condition and operating results appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 hereof.

First Financial Bankshares, Inc.

We provide management, technical resources and policy direction to our subsidiaries, which enable them to improve or expand their services while continuing their local activity and identity. Each of our subsidiaries operates under the day-to-day management of its own board of directors and officers. Our bank and subsidiaries have separate boards and the regions of the bank are guided by advisory boards of directors who are selected by the Company's board of directors.

In particular, we assist our subsidiaries with, among other things, decisions concerning major capital expenditures, insurance, finance and accounting, strategic planning, employee benefits, including retirement plans and group medical coverage, dividend policies, and appointment of officers and directors, including advisory directors, and their compensation. We also perform, through corporate staff groups or by outsourcing to third-parties, oversight of our subsidiaries. We provide advice and specialized services for our bank regions related to lending, investing, purchasing, advertising, public relations, and technology services.

We evaluate various potential financial institution acquisition opportunities and recommend approval to the board for potential locations for new branch offices by the bank. We anticipate that funding for any acquisitions or expansions would be provided from our existing cash balances, available dividends from our subsidiaries, utilization of available lines of credit, issuance of common stock to the acquired company’s shareholders and future debt or equity offerings.

Services Offered by Our Subsidiaries

Our subsidiary bank, First Financial Bank, N.A., is a separate legal entity that operates under the day-to-day management and oversight of its board of directors and officers. Our 12 banking regions, which operate under our subsidiary bank, each have separate regional advisory boards that make recommendations and provide assistance to regional management of the bank regions regarding the operations of their respective region. Each of our bank regions provides general commercial banking services, which include accepting and holding checking, savings and time deposits, making loans, offering automated teller machines (“ATMs”), drive-in and night deposit services, safe deposit facilities, remote deposit capture, internet banking, mobile banking, payroll cards, funds transfer, and performing other customary commercial banking services. In addition, we provide securities brokerage services through an arrangement with an unrelated third-party in our Abilene and San Angelo regions.

We also provide full-service trust and wealth management activities through our trust company, First Financial Trust & Asset Management Company, N.A. Our trust company has nine locations, which are all located in Texas in Abilene, Beaumont, Bryan/College Station, Fort Worth, Houston, Odessa, San Angelo, Stephenville and Sweetwater. Through our trust company, we offer personal trust services, which include wealth management, the administration of estates, oil and gas management, testamentary trusts, revocable and irrevocable trusts and agency accounts. We also administer all types of retirement and employee benefit accounts, which include 401(k) profit sharing plans and IRAs. The Company has been providing trust services since 1927.

Competition

Commercial banking in Texas is highly competitive, and because we hold less than 1% of the state’s deposits, we represent a smaller segment of the market share in Texas. To succeed in this industry, we believe that we must have the capability to compete effectively in the areas of interest rates paid or charged, scope of services offered, prices charged for such services, and personalized customer service delivered at the local level. Our bank regions compete in their respective service areas against highly competitive banks, thrifts, savings and loan associations,

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small loan companies, credit unions, mortgage companies, insurance companies, Fintech, and brokerage firms, all of which are engaged in providing financial products and services and some of which are larger than us in terms of capital, resources and personnel.

Our business does not depend on any single customer or any few customers, and the loss of any one would not have a materially adverse effect upon our business. Although we have a broad base of customers that are not related to us, our customers also occasionally include our officers and directors, as well as other entities with which we are affiliated. Through our bank regions we may make loans to our officers and directors, and entities with which we are affiliated, in the ordinary course of business. We make these loans on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. Loans to our directors, officers and their affiliates are also subject to numerous restrictions under federal banking laws, which we describe in greater detail below, under the heading “Supervision and Regulation – Loans to Directors, Executive Officers and Principal Shareholders.”

Human Capital

We operate as a community bank offering a wide range of commercial banking and related services to consumers, small businesses, corporations, non-profits, governmental entities, and others. A cornerstone of our operating model is based on personal relationships with our customers. Therefore, our model is heavily dependent on our personnel to execute our strategy within each region supported by our lines of business and operational support areas within the Company. Our executive leadership is critical to the success of our Company as each executive participates in developing our corporate strategy, policy setting, and oversight of each of their respective operating areas. The executive officers have significant banking experience and/or tenure with the Company, including our Chairman, CEO and President who has over forty-seven years with the Company. Our regional operating philosophy is heavily dependent on our Regional CEOs/Presidents who drive the daily execution of our strategy, customer service, and local decision-making, across our twelve regions. On average, our fourteen Regional or Divisional CEOs and Presidents have approximately twenty-seven years of banking experience and twelve years of service with the Company.

On December 31, 2023, the Company employed approximately 1,500 employees. Approximately 1,400 were full-time and 100 were part-time. All employees are located in the State of Texas. Our management believes that our employee relations have been and will continue to be good. None of our employees are represented by collective bargaining agreements.

We seek to attract the best bankers in the markets we serve as well as key managers and associates to serve and build relationships with our customers. On a day-to-day basis, these associates execute on our “Excellence in Customer Service” culture, including our 21 Non-Negotiables of Customer Service, which were developed by management with the assistance of Horst Schulze, the founder of The Ritz Carlton Hotel Company and an independent consultant to the Company for the last five years. Initially, each new associate attends New Employee Orientation to gain an understanding of our culture, including our customer service approach, our organization, and our operating and other policies. From there, associates also receive specific training for their applicable area of service.

We then provide a number of internally developed training programs and encourage associates to attend selected external programs. We require certain areas (lending, trust, risk, operations) to obtain certifications for their current and future roles in the organization (for example, most lenders are required to obtain the Credit Risk Certification from the Risk Management Association). For potential future management we require this group to attend a graduate school of banking, TBA Leadership course and FFIN University, which is our year long internal course which teaches how to manage a high performing bank. The Company also provides educational assistance for employees to further their professional development. In fact, six of our current Regional CEO/Presidents started their careers with the Company and progressed to their current levels over time.

We embrace and promote a culture of diversity, equity, and inclusion to attract, recruit, retain, develop, and promote employees who represent the diverse communities we serve. Our employees bring their own unique backgrounds, beliefs, cultures, and experiences to our organization. By promoting and fostering a workforce that we believe is reflective of our customers and communities, we seek to better understand the financial needs of our prospects and customers and provide them with relevant financial service products.

We celebrate our diverse and inclusive workplace as it brings new ideas, perspectives, and ways to enhance our overall customer and employee experience. Of our Regional and Divisional CEO/Presidents, four are women. Additionally, 1,058, or 71%, of our employees are female and 651, or 44%, of our employees are minorities, veterans and/or self-identify as disabled.

The Company provides, in addition to competitive salaries, either at the Company’s expense or through employee deductions, benefits to its associates to help protect their health and well-being, including athletic club membership, medical, dental, vision, employee assistance, short and long-term disability, life insurance, and paid time off (vacation, holidays and sick time). Additionally, through our 401(k) retirement benefits, and profit-sharing contributions (which also contains an employee stock ownership plan, or ESOP feature), the Company facilitates its associate’s future financial well-being. These benefits when combined with incentive compensation programs, both cash and equity based, serve as rewards for performance but also as a retention vehicle for our employee base. The Company has strong relationships with its employee base leading to an average tenure of approximately six years with the Company (including its predecessor banks). During 2023 and 2022, the Company incurred expenses totaling approximately $19.19 million and $22.42 million, respectively, for these benefits.

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Understanding and supporting our communities has been a critical part of our Company’s success. We strive every day to improve the quality of life in every community that we serve. We support schools, cities, counties and churches with the latest in financial services, as well as our time and money. We provide leadership to our local nonprofits and churches by being on their boards, volunteering to raise money, as well as helping them provide services. In many cases, our employees chair their boards and give of their time freely. In addition to our continuous involvement, we perform an annual Company-wide day of service to help improve the communities in which we live and serve. In 2023, this amounted to approximately 7,400 hours of community service across our footprint.

Overall, the attraction, development and retention of our executives, regional presidents and associates are integral to the performance of our Company, which ultimately drives value to our shareholders in the form of dividends and price appreciation of our common stock. Accordingly, our Board of Directors participates in the oversight of our employment practices and policies, through the Compensation Committee. Our board sets the overall “tone at the top” and holds executive management accountable for embodying, maintaining, and communicating our culture to employees. Currently, our board is comprised of eleven members, including two females one of which is Hispanic, and one of which is an African-American male.

Supervision and Regulation

Both federal and state laws extensively regulate bank holding companies, financial holding companies and banks. These laws (and the regulations promulgated thereunder) are primarily intended to protect depositors and the deposit insurance fund (the “DIF”) of the Federal Deposit Insurance Corporation, (the "FDIC"). The following information describes particular laws and regulatory provisions relating to financial holding companies and banks. This discussion is qualified in its entirety by reference to the particular laws and regulatory provisions. A change in any of these laws or regulations may have a material effect on our business and the business of our subsidiaries. Political developments, including the change in administration of the United States federal government, have added additional uncertainty in the implementation, scope and timing of regulatory reforms.

Bank Holding Companies and Financial Holding Companies

Historically, the activities of bank holding companies were limited to the business of banking and activities closely related or incidental to banking. Bank holding companies were generally prohibited from acquiring control of any company that was not a bank and from engaging in any business other than the business of banking or managing and controlling banks. The Gramm-Leach-Bliley Act, which took effect on March 12, 2000, dismantled many Depression-era restrictions against affiliations between banking, securities and insurance firms by permitting bank holding companies to engage in a broader range of financial activities, so long as certain safeguards are observed. Specifically, bank holding companies may elect to become “financial holding companies” that may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental to a financial activity. Thus, with the enactment of the Gramm-Leach-Bliley Act, banks, security firms and insurance companies find it easier to acquire or affiliate with each other and cross-sell financial products. The Gramm-Leach-Bliley Act permits a single financial services organization to offer a more complete array of financial products and services than historically was permitted.

A financial holding company is essentially a bank holding company with significantly expanded powers. Under the Gramm-Leach-Bliley Act, in addition to traditional lending activities, the following activities are among those that are deemed “financial in nature” for financial holding companies: securities underwriting, dealing in or making a market in securities, sponsoring mutual funds and investment companies, insurance underwriting and agency activities, activities which the Federal Reserve Board determines to be closely related to banking, and certain merchant banking activities.

We elected to become a financial holding company in September 2001. As a financial holding company, we have very broad discretion to affiliate with securities firms and insurance companies, provide merchant banking services, and engage in other activities that the Federal Reserve Board has deemed financial in nature. In order to continue as a financial holding company, our subsidiary bank must continue to be well-capitalized, well-managed and provide fair access to financial products and services. Depending on the types of financial activities that we may elect to engage in, under the Gramm-Leach-Bliley Act’s functional regulation principles, we may become subject to supervision by additional government agencies. The election to be treated as a financial holding company increases our ability to offer financial products and services that historically we were either unable to provide or were only able to provide on a limited basis. As a result, we will face increased competition in the markets for any new financial products and services that we may offer. Likewise, an increased amount of consolidation among banks and securities firms or banks and insurance firms could result in a growing number of large financial institutions that could compete aggressively with us.

Mergers and Acquisitions

We must obtain approval from the banking regulators before we can acquire other financial institutions. We may not engage in certain acquisitions if we are undercapitalized. Furthermore, the BHCA provides that the Federal Reserve Board cannot approve any acquisition, merger

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or consolidation that may substantially lessen competition in the banking industry, create a monopoly in any section of the country, or be a restraint of trade. However, the Federal Reserve Board may approve such a transaction if the convenience and needs of the community clearly outweigh any anti-competitive effects. Specifically, the Federal Reserve Board would consider, among other factors, the expected benefits to the public (greater convenience, increased competition, greater efficiency, etc.) against the risks of possible adverse effects (undue concentration of resources, decreased or unfair competition, conflicts of interest, unsound banking practices, etc.).

Under the BHCA, the Company must obtain the prior approval of the Federal Reserve Board, or acting under delegated authority, the Federal Reserve Bank of Dallas before (1) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the Company would directly or indirectly own or control 5% or more of the class, (2) acquiring all or substantially all of the assets of another bank or bank holding company, or (3) merging or consolidating with another bank holding company.

The Change in Bank Control Act of 1978, as amended, or the CIBCA, and the related regulations of the Federal Reserve Board require any person or groups of persons acting in concert (except for companies required to make application under the BHCA), to file a written notice with the Federal Reserve Board before the person or group acquires control of the Company. The CIBCA defines “control” as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. A rebuttable presumption of control arises under the CIBCA where a person or group controls 10% or more, but less than 25%, of a class of the voting stock of a company or insured bank which is a reporting company under the Securities Exchange Act of 1934, as amended, such as the Company, or such ownership interest is greater than the ownership interest held by any other person or group.

Banks

Federal and state laws and regulations that govern banks have the effect of, among other things, regulating the scope of business, investments, cash reserves, the purpose and nature of loans, the maximum interest rate chargeable on loans, the amount of dividends declared, and required capitalization ratios.

Banks organized as national banking associations under the National Bank Act are subject to regulation and examination by the Office of the Comptroller of the Currency, or OCC. As a result, the OCC now supervises, regulates and regularly examines the following subsidiaries:

The OCC’s supervision and regulation of banks is primarily intended to protect the interests of depositors. The National Bank Act:

Deposit Insurance Coverage and Assessments

Our subsidiary bank is a member of the FDIC. Through the DIF, the FDIC provides deposit insurance protection that covers all deposit accounts in FDIC-insured depository institutions up to applicable limits (currently, $250 thousand per depositor).

Our subsidiary bank must pay deposit insurance assessments (or premiums) to the FDIC under a risk-based assessment system for this federal deposit insurance protection. FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. Institutions assigned to higher risk classifications (i.e., institutions that pose a greater risk of loss to the DIF) pay assessments at higher rates than institutions assigned to lower risk classifications. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to bank regulators. In addition, the FDIC can impose special assessments to cover shortages in the DIF and has imposed special assessments in the past. In the fourth quarter of 2023, the FDIC imposed a $1.75 million special assessment on the Bank in response to the FDIC-insured financial institutions that failed in March 2023.

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The Dodd-Frank Act required the FDIC to offset the effect of increasing the reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion. As a result of our subsidiary bank exceeding $10 billion in assets as of December 31, 2020, our subsidiary bank is no longer eligible to utilize future credits, if any, to offset its FDIC assessment.

Under the Dodd-Frank Act, for institutions with $10 billion or more in assets, the FDIC uses a performance score and a loss severity score that are used to calculate an initial assessment rate. In calculating these scores, the FDIC uses a bank's capital level and regulatory supervisory ratings and certain financial measures to assess an institution's ability to withstand asset-related stress and funding-related stress. The FDIC also has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations.

Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or FIRREA, an FDIC-insured depository institution can be held liable for any losses incurred by the FDIC in connection with (1) the “default” of one of its FDIC-insured subsidiaries or (2) any assistance provided by the FDIC to one of its FDIC-receivers, and “in danger of default” is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.

The FDIC is also empowered to regulate interest rates paid by insured banks. Approval by the FDIC is also required before an insured bank retires any part of its common or preferred stock, or any capital notes or debentures.

Payment of Dividends

We are a legal entity separate and distinct from our banking and other subsidiaries. We receive most of our revenue from dividends paid to us by our bank and trust company subsidiaries. Described below are some of the laws and regulations that apply when either we or our subsidiaries pay or paid dividends.

The Federal Reserve Board, the OCC and the FDIC have issued policy statements that recommend that bank holding companies and insured banks should generally only pay dividends to the extent net income is sufficient to cover both cash dividends and a rate of earnings retention consistent with capital needs, asset quality and overall financial condition. Further, the Federal Reserve Board’s policy provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries. In addition, the Federal Reserve Board has indicated that each bank holding company should carefully review its dividend policy, and has discouraged payment ratios that are at maximum allowable levels, which is the maximum dividend amount that may be issued and allow the company to still maintain its target Tier 1 capital ratio, unless both asset quality and capital are very strong.

To pay dividends, our subsidiaries must maintain adequate capital above regulatory guidelines. Under federal law, our subsidiary bank cannot pay a dividend if, after paying the dividend, the bank would be “undercapitalized.” Additionally, the maximum payout amount paid by our Company and subsidiary bank is restricted if regulatory capital ratios fall below capital conservation buffers. In addition, if the FDIC believes that a bank under its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), the FDIC may require, after notice and hearing, that such bank cease and desist from the unsafe practice. The FDIC and the OCC have each indicated paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice.

National banks are required by federal law to obtain the prior approval of the OCC in order to declare and pay dividends if the total of all dividends declared in any calendar year would exceed the total of (1) such bank’s net profits (as defined and interpreted by regulation) for that year plus (2) its retained net profits (as defined and interpreted by regulation) for the preceding two calendar years, less any required transfers to surplus, or (3) its regulatory capital ratios fall below capital conservation buffers. In addition, these banks may only pay dividends to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined by regulation).

Our subsidiaries paid aggregate dividends to us of $133.50 million in 2023 and $67.50 million in 2022. Under the dividend restrictions discussed above, as of December 31, 2023, our subsidiaries could have declared in the aggregate additional dividends of $387.33 million from retained net profits, without obtaining regulatory approvals.

Affiliate Transactions

The Federal Reserve Act, the Federal Deposit Insurance Act (“FDIA”) and the rules adopted under these statutes restrict the extent to which we can borrow or otherwise obtain credit from, or engage in certain other transactions with, our subsidiaries. These laws regulate “covered transactions” between insured depository institutions and their subsidiaries, on the one hand, and their non-depository affiliates, on the other hand. The Dodd-Frank Act expanded the definition of affiliate to make any investment fund, including a mutual fund, for which a depository institution or its affiliates serve as an investment advisor an affiliate of the depository institution. “Covered transactions” include a loan or

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extension of credit to a non-depository affiliate, a purchase of securities issued by such an affiliate, a purchase of assets from such an affiliate (unless otherwise exempted by the Federal Reserve Board), an acceptance of securities issued by such an affiliate as collateral for a loan, and an issuance of a guarantee, acceptance, or letter of credit for the benefit of such an affiliate. The Dodd-Frank Act extended the limitations to derivative transactions, repurchase agreements and securities lending and borrowing transactions that create credit exposure to an affiliate or an insider. The “covered transactions” that an insured depository institution and its subsidiaries are permitted to engage in with their non-depository affiliates are limited to the following amounts: (1) in the case of any one such affiliate, the aggregate amount of “covered transactions” cannot exceed ten percent of the capital stock and the surplus of the insured depository institution; and (2) in the case of all affiliates, the aggregate amount of “covered transactions” cannot exceed twenty percent of the capital stock and surplus of the insured depository institution. In addition, extensions of credit that constitute “covered transactions” must be collateralized in prescribed amounts. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. Finally, when we and our subsidiaries conduct transactions internally among us, we are required to do so at arm’s length.

Loans to Directors, Executive Officers and Principal Shareholders

The authority of our subsidiary bank to extend credit to our directors, executive officers and principal shareholders, including their immediate family members, corporations and other entities that they control, is subject to substantial restrictions and requirements under Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder, as well as the Sarbanes-Oxley Act of 2002. These statutes and regulations impose specific limits on the amount of loans our subsidiary bank may make to directors and other insiders, and specified approval procedures must be followed in making loans that exceed certain amounts. In addition, all loans our subsidiary bank makes to directors and other insiders must satisfy the following requirements:

Furthermore, our subsidiary bank must periodically report all loans made to directors and other insiders to the bank regulators, and these loans are closely scrutinized by the regulators for compliance with Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O. Each loan to directors or other insiders must be pre-approved by the bank’s board of directors with the interested director abstaining from voting.

Capital

We and our bank subsidiary are each required to comply with applicable capital adequacy standards established by the Federal Reserve Board and the OCC, respectively. The current risk-based capital standards applicable to us and our bank subsidiary are based on the December 2010 final capital framework for strengthening international capital standards of the Basel Committee on Banking Supervision (the “Basel III Rules”).

The Basel III Rules established three components of regulatory capital: (1) common equity tier 1 capital (“CET1”), (2) additional tier 1 capital, and (3) total capital. Tier 1 capital is the sum of CET1 and additional tier 1 capital instruments meeting certain revised requirements. Total capital is the sum of tier 1 capital and tier 2 capital elements. Under the Basel III Rules, for most banking organizations, the most common form of additional tier 1 capital is non-cumulative perpetual preferred stock, and the most common form of tier 2 capital is subordinated notes and a portion of the allocation for credit losses, in each case, subject to the Basel III Rules’ specific requirements. As of December 31, 2023, we do not have any non-cumulative perpetual preferred stock or subordinated notes. CET1, tier 1 capital, and total capital serve as the numerators for three prescribed regulatory capital ratios. Risk-weighted assets, calculated using the standardized approach in the Basel III Rules for us and our subsidiary bank, provide the denominator for such ratios. There is also a leverage capital ratio that compares tier 1 capital to average total assets.

Pursuant to the Basel III Rules, the effects of certain accumulated other comprehensive income or loss (“AOCI”) items are not excluded; however, “non-advanced approaches banking organizations,” including us and our subsidiary bank, were permitted to make a one-time permanent election to continue to exclude these items. The Company made its one-time, permanent election to continue to exclude AOCI from capital in its filing with the Federal Reserve Board and OCC for the quarter ended March 31, 2015. If the Company would not have made this election, unrealized gains and losses would have been included in the calculation of its regulatory capital. The Basel III Rules also preclude certain hybrid securities, such as trust preferred securities issued prior to May 19, 2010, from inclusion in our tier 1 capital, subject to grandfathering in the case of companies, such as us, that had less than $15 billion in total consolidated assets as of December 31, 2009.

Under the Basel III Rules, the minimum capital ratios are:

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An institution that fails to meet the effective minimum ratios after taking into account the capital conservation buffer, as detailed above, will be subject to limitations on certain activities including payment of dividends, share repurchases and discretionary bonuses to executive officers if its capital level is below the buffer amount.

The Basel III Rules prescribed a standardized approach for risk weightings that expanded the risk-weighting categories from the general risk-based capital rules to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories.

With respect to our bank subsidiary, the Basel III Rules also revised the “prompt corrective action” regulations pursuant to Section 38 of the FDIA, as discussed below under “Prompt Corrective Action.”

As of December 31, 2023, we had a total risk-based capital ratio of 19.62%, a tier 1 capital to risk-weighted asset ratio of 18.50%, a CET1 to risk-weighted assets ratio of 18.50% and a leverage ratio of 12.06%. These regulatory capital ratios were calculated under the Basel III Rules.

Prompt Corrective Action.

A banking organization’s capital plays an important role in connection with regulatory enforcement as well. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

Under current regulations, our subsidiary bank was “well capitalized” as of December 31, 2023.

Our Support of Our Subsidiaries

Under Federal Reserve Board policy, we are expected to commit resources to act as a source of strength to support each of our subsidiaries. The Dodd-Frank Act codified this policy as a statutory requirement. This support may be required at times when, absent such requirement, we would not otherwise be required to provide it. In addition, any loans we make to our subsidiaries would be subordinate in right of payment to deposits and to other indebtedness of our subsidiaries. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and be subject to a priority of payment.

Under the FDIA, in the event of a loss suffered or anticipated by the FDIC (either as a result of the default of a banking subsidiary or related to FDIC assistance provided to a subsidiary in danger of default) our other subsidiaries may be assessed for the FDIC’s loss.

Safe and Sound Banking Practices.

Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve Board’s Regulation Y, for example, generally requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year,

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is equal to 10% or more of the bank holding company’s consolidated net worth. The Federal Reserve Board may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. Depending upon the circumstances, the Federal Reserve Board could take the position that paying a dividend would constitute an unsafe or unsound banking practice.

The Federal Reserve Board has broad authority to prohibit activities of bank holding companies and their nonbanking subsidiaries which represent unsafe and unsound banking practices or which constitute violations of laws or regulations, and can assess civil money penalties for certain activities conducted on a knowing and reckless basis, if those activities caused a substantial loss to a depository institution. The penalties can be as high as $1.0 million for each day the activity continues.

Interstate Banking and Branching

Effective June 1, 1997, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 amended the Federal Deposit Insurance Act and certain other statutes to permit state and national banks with different home states to merge across state lines, with approval of the appropriate federal banking agency, unless the home state of a participating bank had passed legislation prior to May 31, 1997 expressly prohibiting interstate mergers. Under the Riegle-Neal Act amendments, once a state or national bank has established branches in a state, that bank may establish and acquire additional branches at any location in the state at which any bank involved in the interstate merger transaction could have established or acquired branches under applicable federal or state law. If a state opted out of interstate branching within the specified time period, no bank in any other state may establish a branch in the state which has opted out, whether through an acquisition or de novo.

However, under the Dodd-Frank Act, the national branching requirements have been relaxed and national banks and state banks are able to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state.

The Federal Deposit Insurance Act, or FDIA, requires that the FDIC review (1) any merger or consolidation by or with an insured bank, or (2) any establishment of branches by an insured bank. Additionally, the Texas Department of Banking accepts applications for interstate merger and branching transactions, subject to certain limitations on ages of the banks to be acquired and the total amount of deposits within the state a bank or financial holding company may control. Since our primary service area is Texas, we do not expect that the ability to operate in other states will have any material impact on our growth strategy. We may, however, face increased competition from out-of-state banks that branch or make acquisitions in our primary markets in Texas.

Community Reinvestment Act of 1977

The Community Reinvestment Act of 1977, or CRA, subjects a bank to regulatory assessment to determine if the institution meets the credit needs of its entire community, including low-and moderate-income neighborhoods served by the bank, and to take that determination into account in its evaluation of any application made by such bank for, among other things, approval of the acquisition or establishment of a branch or other depository facility, an office relocation, a merger, or the acquisition of shares of capital stock of another financial institution. The regulatory authority prepares a written evaluation of an institution’s record of meeting the credit needs of its entire community and assigns a rating. These ratings are “Outstanding,” “Satisfactory,” “Needs Improvement” and “Substantial Noncompliance.” Institutions with ratings lower than “Satisfactory” may be restricted from engaging in the aforementioned activities. We believe our subsidiary bank meets the credit needs of the communities in which it operates. Our subsidiary bank received a “Satisfactory” rating in its most recent assessment of its performance under the CRA by the OCC.

Monitoring and Reporting Suspicious Activity

Under the Bank Secrecy Act, or BSA, we are required to monitor and report unusual or suspicious account activity that might signify money laundering, tax evasion or other criminal activities, as well as transactions involving the transfer or withdrawal of amounts in excess of prescribed limits. The BSA is sometimes referred to as an “anti-money laundering” law (“AML”). Several AML acts, including provisions in Title III of the USA PATRIOT Act of 2001, have been enacted up to the present to amend the BSA. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures and controls generally require financial institutions to take reasonable steps:

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Under the USA PATRIOT Act, financial institutions are also required to establish anti-money laundering programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:

In addition, under the USA PATRIOT Act, the Secretary of the U.S. Department of the Treasury, or Treasury, has adopted rules addressing a number of related issues, including increasing the cooperation and information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to violate the privacy provisions of the Gramm-Leach-Bliley Act that are discussed below. Finally, under the regulations of the Office of Foreign Asset Control, or OFAC, we are required to monitor and block transactions with certain “specially designated nationals” who OFAC has determined pose a risk to U.S. national security.

Incentive Compensation

In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, Section 956 of the Dodd-Frank Act required certain regulators (including the FDIC, Securities and Exchanges Commission (“SEC”) and Federal Reserve Board) to adopt requirements or guidelines prohibiting excessive compensation. In June 2016, the Federal Reserve Board, jointly with five other federal regulators, published a proposed rule in response to Section 956 of the Dodd-Frank Act, which requires implementation of regulations or guidelines to: (1) prohibit incentive-based payment arrangements that encourage inappropriate risks by certain financial institutions by providing excessive compensation or that could lead to material financial loss, and (2) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.

The proposed rule identifies three categories of institutions that would be covered by these regulations based on average total consolidated assets, applying less prescriptive incentive-based compensation program requirements to the smallest covered institutions (Level 3) and progressively more rigorous requirements to the larger covered institutions (Level 1). Under the proposed rule, we would fall into the smallest category (Level 3), which applies to financial institutions with average total consolidated assets greater than $1.0 billion and less than $50 billion. The proposed rules would establish general qualitative requirements applicable to all covered entities, which would include (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating appropriate recordkeeping. Under the proposed rule, larger financial institutions with total consolidated assets of at least $50 billion would also be subject to additional requirements applicable to such institutions’ “senior executive officers” and “significant risk-takers.” These additional requirements would not

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be applicable to us because we currently have less than $50 billion in total consolidated assets. Comments on the proposed rule were due by July 22, 2016. As of the date of this document, the final rule has not yet been published by these regulators.

In addition, the Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The legislation also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. The Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

Consumer Laws and Regulations

We are also subject to certain federal and state consumer laws and regulations that are designed to protect consumers in transactions with banks. While the following list is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, The Fair and Accurate Credit Transactions Act, the Real Estate Settlement Procedures Act and the Fair Housing Act, among others. These laws and regulations, among other things, prohibit discrimination on the basis of race, gender or other designated characteristics and mandate various disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. These and other laws also limit finance charges or other fees or charges earned in our activities. We must comply with the applicable provisions of these consumer protection laws and regulations. Violations of consumer protection laws and regulations can result in significant potential liability, including actual damages, restitution and injunctive relief from litigation brought by customers, state attorney generals, the Department of Justice and other plaintiffs, as well as enforcement actions by banking regulators and reputational harm.

Consumer Financial Protection Bureau

The Dodd-Frank Act created a new, independent federal agency called the Consumer Financial Protection Bureau (“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Given our subsidiary bank has exceeded $10 billion in assets, it is subject to regulation by the CFPB. The CFPB has authority to prevent unfair, deceptive or abusive acts or practices in connection with the offering of consumer financial products. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits the state attorney general to enforce compliance with both the state and federal laws and regulations.

Technology Risk Management and Consumer Privacy

State and federal banking regulators have issued various policy statements emphasizing the importance of technology risk management and supervision in evaluating the safety and soundness of depository institutions with respect to banks that contract with outside vendors to provide data processing and core banking functions. The use of technology-related products, services, delivery channels and processes exposes a bank to various risks, particularly operational, privacy, security, strategic, reputation and compliance risk. Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.

Under Section 501 of the Gramm-Leach-Bliley Act, the federal banking agencies have established standards for financial institutions regarding the implementation of safeguards to ensure the security and confidentiality of consumer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a consumer. Among other matters, the rules require each bank to implement a comprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information.

Under the Gramm-Leach-Bliley Act, a financial institution must also provide its customers with a notice of privacy policies and practices. Section 502 prohibits a financial institution from disclosing nonpublic personal information about a customer to nonaffiliated third parties unless the institution satisfies various notice and opt-out requirements and the customer has not elected to opt out of the disclosure. Under Section 504, the agencies are authorized to issue regulations as necessary to implement notice requirements and restrictions on a financial institution’s ability

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to disclose nonpublic personal information about customers to nonaffiliated third parties. Under the final rule the regulators adopted, all banks must develop initial and annual privacy notices which describe in general terms the bank’s information sharing practices. Banks that share nonpublic personal information about customers with nonaffiliated third parties must also provide customers with an opt-out notice and a reasonable period of time for the customer to opt out of any such disclosure (with certain exceptions). Limitations are placed on the extent to which a bank can disclose an account number or access code for credit card, deposit or transaction accounts to any nonaffiliated third party for use in marketing.

Concentrated Commercial Real Estate Lending Regulations

The federal banking agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development, and other land represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months. Owner occupied loans are excluded from this second category. If a concentration is present, management must employ heightened risk management practices that address the following key elements: including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending.

UDAP and UDAAP

Banking regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act, referred to as the FTC Act, which is the primary federal law that prohibits unfair or deceptive acts or practices, referred to as UDAP, and unfair methods of competition in or affecting commerce. “Unjustified consumer injury” is the principal focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with UDAP laws and regulations. However, UDAP laws and regulations have been expanded under the Dodd-Frank Act to apply to “unfair, deceptive or abusive acts or practices,” referred to as UDAAP, which have been delegated to the CFPB for supervision. The CFPB has published its first Supervision and Examination Manual that addresses compliance with and the examination of UDAAP.

Monetary Policy

Banks are affected by the credit policies of monetary authorities, including the Federal Reserve Board, that affect the national supply of credit. The Federal Reserve Board regulates the supply of credit in order to influence general economic conditions, primarily through open market operations in United States government obligations, varying the discount rate on financial institution borrowings, varying reserve requirements against financial institution deposits, and restricting certain borrowings by financial institutions and their subsidiaries. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of banks in the past and are expected to continue to do so in the future.

Enforcement Powers of Federal Banking Agencies

The Federal Reserve Board and other federal banking agencies and regulators have broad enforcement powers, including the power to terminate deposit insurance, issue cease-and-desist orders, impose substantial fines and other civil and criminal penalties and appoint a conservator or receiver. Our failure to comply with applicable laws, regulations and other regulatory pronouncements could subject us, as well as our officers and directors, to administrative sanctions and potentially substantial civil penalties.

Regulatory Reform and Legislation

From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or

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regulatory policies applicable to the Company or our subsidiaries could have a material effect on the Company’s business, financial condition and results of operations.

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Act, which was enacted in July 2010, effected a fundamental restructuring of federal banking regulation. In addition to those provisions discussed above, among the Dodd-Frank Act provisions that have affected us are the following:

Several of the Dodd-Frank Act’s provisions are still subject to the final rulemaking by federal banking agencies, and the implication of the Dodd-Frank Act for the Company’s business will depend to a large extent on how such rules are adopted and implemented. The Company’s management continues to review actively the provisions of the Dodd–Frank Act and assess its probable impact on its business, financial condition, and results of operations.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov . You may obtain copies of our filings on the SEC website. Our website is https://www.ffin.com . You may also obtain copies of our annual, quarterly and special reports, proxy statements and certain other information filed with the SEC, as well as amendments thereto, free of charge from our website. These documents are posted to our web site after we have filed them with the SEC. Our corporate governance guidelines, including our code of conduct applicable to all our employees, officers and directors, as well as the charters of our audit, compensation, executive and nominating committees, are available at www.ffin.com . The foregoing information is also available in print to any shareholder who requests it. Except as explicitly provided, information on any web site is not incorporated into this Form 10-K or our other securities filings and is not a part of them.

ITEM 1A.	RISK FACTORS

Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth below, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results and other forward-looking statements that we make from time to time in our news releases, annual reports and other written communications, as well as oral forward-looking statements, and other statements made from time to time by our representatives.

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Risks Related to Our Business

Interest Rate Risk

We are subject to interest rate risk.

Our profitability is dependent to a large extent on our net interest income, which is the difference between interest income we earn as a result of interest paid to us on loans and investments and interest we pay to third-parties such as our depositors and those from which we borrow funds. Like most financial institutions, we are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, (iii) the average duration of our securities portfolio, and (iv) the slope of the overall yield curve and its impact on the value of the investment portfolio and reinvestment income. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and investments, our net interest income, and earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and investments fall more quickly than the interest rates paid on deposits and other borrowings.

The Federal Reserve Board increased rates 200 basis points through mid-2019 and as a response to the ongoing COVID pandemic decreased rates 75 basis points during the third and fourth quarters of 2019 and then an additional 150 basis points in the first quarter of 2020, resulting in a target rate range of zero to 25 basis points throughout the remainder of 2020 and 2021. The Federal Reserve Board began increasing interest rates by raising rates 25 basis points in March 2022, 50 basis points in May 2022, and 75 basis points in June, July, September and November 2022, respectively, 50 basis points in December 2022, and 25 basis points in February, March, May, and July 2023, respectively, resulting in a target rate range of 5.25% to 5.50% at December 31, 2023. Today, there continues to be uncertainty regarding future interest rates. Increases in interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt obligations through the periodic reset of adjustable interest rate loans. If our borrowers’ ability to pay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results. Asset values, especially commercial real estate as collateral, securities or other fixed rate earning assets, can decline significantly with relatively minor changes in interest rates. Conversely, decreases in interest rates can affect the amount of interest we earn on our loans and investment securities, which could have a material adverse effect on the Company’s financial condition and results of operations. Although we have implemented strategies that we believe reduce the potential effects of adverse changes in interest rates on our results of operations, these strategies may not always be successful. Any of these events could adversely affect our results of operations, financial condition and liquidity.

Credit Risk

In our business, we must effectively manage our credit risk.

As a lender, we are exposed to the risk that our borrowers may not repay their loans according to the terms of these loans and the collateral securing the payment of these loans may be inadequately documented or may be insufficient to fully compensate us for the outstanding balance of the loan plus the costs to dispose of the collateral. We may experience significant loan losses, which could have a material adverse effect on our operating results and financial condition. Management makes various assumptions and judgments about the collectability of our loan portfolio, including the diversification by industry of our commercial loan portfolio, the amount of nonperforming loans and related collateral, the volume, growth and composition of our loan portfolio, the effects on the loan portfolio of current economic indicators and their probable impact on borrowers and the evaluation of our loan portfolio through our internal loan review process and other relevant factors.

We maintain an allowance for credit losses, which is an allowance established through a provision for credit losses charged to expense that represents management’s best estimate of probable losses inherent in our loan portfolio. Additional credit losses will occur in the future and may occur at a rate greater than we have experienced to date. In determining the amount of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan portfolio. Material additions to the allowance could materially decrease our net income.

In addition, banking regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further charge-offs, based on judgments different than those of our management. Any increase in our allowance for credit losses or charge-offs as required by these regulatory agencies could have a material negative effect on our operating results and financial condition.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If

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hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. To remediate these risks, often we will obtain a phase 1 and if deemed necessary, a phase 2 inspection report to evaluate potential environmental risks before making loans secured by real property and before considering foreclosing on these assets. Environmental reviews of real property before initiating foreclosure actions may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition and results of operations.

The value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio.

The market value of real estate, particularly real estate held-for-investment (“HFI”), can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for our loan portfolio were to decline materially, a significant part of our loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then, in the event of foreclosure, we may not be able to realize the amount of collateral that we anticipated at the time of originating the loan. This could have a material adverse effect on our provision for credit losses and our operating results and financial condition.

Liquidity Risk

We are subject to liquidity risk.

The Company requires liquidity to meet our deposit and other obligations as they come due. The Company’s access to funding sources in amounts adequate to finance its activities or on reasonable terms could be impaired by factors that affect it specifically or the financial services industry or the general economy. Factors that could reduce its access to liquidity sources include a downturn in the Texas market, difficult credit markets, depreciation in investment security values, or adverse regulatory actions against the Company. The Company’s access to deposits may also be affected by the liquidity needs of its depositors. In particular, a substantial majority of the Company’s liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of its assets are loans, which cannot be called or sold in the same time frame. The Company may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of its depositors sought to withdraw their accounts, regardless of the reason.

On March 9, 2023, Silvergate Bank, La Jolla, California, announced its decision to voluntarily liquidate its assets and wind down operations. On March 10, 2023, Silicon Valley Bank, Santa Clara, California, was closed by the California Department of Financial Protection and Innovation (the “DFPI”), on March 12, 2023, Signature Bank, New York, New York, was closed by the New York State Department of Financial Services and on May 1, 2023, First Republic Bank, San Francisco, California, was closed by the DFPI, and in each case the FDIC was appointed receiver for the failed institution. These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.

These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of their deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.

If we are unable to adequately manage our liquidity, we may experience a material adverse effect on our financial condition and results of operations. We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also receive funds from loan repayments, investment maturities and income on other interest-earning assets. While we emphasize the generation of low-cost core deposits as a source of funding, there is strong competition for such deposits in our market area. Additionally, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. Accordingly, as a part of our liquidity management, we must use a number of funding sources in addition to deposits and repayments and maturities of loans and investments, which may include Federal Home Loan Bank of Dallas advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, pay our expenses, or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

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Our financial flexibility would be severely constrained if we were unable to maintain our access to funding or if adequate financing were not available at acceptable interest rates. Further, if we were required to rely more heavily on more expensive funding sources to support liquidity, our revenues may not increase proportionately to cover our increased costs. In this case, our operating margins and profitability would be adversely affected. If alternative funding sources were no longer available to us, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets. As of December 31, 2023, we had a net unrealized loss of $403.30 million on our available for-sale investment securities portfolio as a result of the rising interest rate environment. Our investment securities totaled $4.73 billion, or 36.11% of total assets, at December 31, 2023. The details of this portfolio are included in Note 2 to the consolidated financial statements.

Operational Risk

Our accounting estimates and risk management processes rely on analytical and forecasting models.

The processes we use to estimate our allowance for credit losses and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates depends upon the use of analytical and forecasting models, including various inputs and assumptions (collectively, the "models"). In addition, these models are used to calculate the fair value of our assets and liabilities when we acquire other financial institutions. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for determining our current expected credit losses are inadequate, the allowance for credit losses may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments is inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.

The value of our goodwill and other intangible assets may decline in the future.

As of December 31, 2023, we had $314.62 million of goodwill and other intangible assets. A significant decline in our financial condition, a significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of our common stock may necessitate taking charges in the future related to the impairment of our goodwill and other intangible assets. If we were to conclude that a future write-down of goodwill and other intangible assets is necessary, we would record the appropriate charge, which could have a material adverse effect on our financial condition and results of operations.

Breakdowns in our internal controls and procedures could have an adverse effect on us.

We believe our internal control system as currently documented and functioning is adequate to provide reasonable assurance over our internal controls. Nevertheless, because of the inherent limitation in administering a cost effective control system, misstatements due to error or fraud may occur and not be detected. Breakdowns in our internal controls and procedures could occur in the future, and any such breakdowns could have an adverse effect on us. See “Item 9A – Controls and Procedures” for additional information.

New lines of business or new products and services may subject the Company to additional risks.

From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or products and services, the Company may invest significant time and resources. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. If we are unable to successfully manage these risks in the development and implementation of new lines of business or new products or services, it could have a material adverse effect on the Company’s business, financial condition and result of operations.

First Financial Bankshares, Inc. relies on dividends from its subsidiaries for most of its revenue.

First Financial Bankshares , Inc. is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends paid by its subsidiaries. These dividends are the principal source of funds to pay dividends on the Company’s common stock to shareholders and interest and principal on First Financial Bankshares, Inc. debt (to the extent we have balances outstanding). Various federal and/or state laws and regulations limit the amount of dividends that our bank and trust subsidiaries may pay to First Financial Bankshares, Inc. In the event our subsidiaries are unable to pay dividends to First Financial Bankshares, Inc., the Company may not be able to service debt, if any,

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or pay dividends on the Company’s common stock. The inability to receive dividends from our subsidiaries could have a material adverse effect on the Company’s business, financial condition, results of operations and liquidity.

Hurricanes, extended drought conditions, severe weather and natural disasters could significantly impact the Company's business.

Hurricanes, extended drought conditions, severe weather and natural disasters and other adverse external events could have a significant impact on the Company's ability to conduct business. Such events affect the stability of the Company's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of the collateral securing our loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses. The occurrence of any such events in the future could have a material adverse effect on the Company's business, which in turn, could have a material adverse effect on the Company's business, financial condition and result of operations.

We rely heavily on our management team, and the unexpected loss of key management or inability to recruit qualified personnel in the future may adversely impact our operations.

Our success to date has been strongly influenced by our ability to attract and retain senior management experienced in banking in the markets we serve. Our ability to retain executive officers and the current management teams will continue to be important to the successful implementation of our strategies. We do not have employment agreements with these key employees other than executive agreements in the event of a change of control and a confidential information, non-solicitation and non-competition agreement related to our stock options and restricted stock award, restricted stock unit and performance stock unit grants. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. In addition, the scope and content of U.S. banking regulators policies on incentive compensation, could adversely affect our ability to hire, retain and motivate our key employees.

World events such as the Russia-Ukraine conflict, the Israel-Palestine conflict and other world events, including health related events, may adversely impact our business and our financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

The Russia-Ukraine conflict, the Israel-Palestine conflict and other world events, including health-related events, are creating extensive disruptions in the global economy and to the lives of individuals throughout the world. While the effects of COVID have reduced, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, employment and labor markets and disrupted trade and supply chains. In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, the Israel-Palestine conflict, terrorism or other geopolitical events. If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, human capital, and self-insurance, as previously described.

System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well as litigation and other potential losses.

The computer systems and network infrastructure we use could be vulnerable to unforeseen hardware and cybersecurity issues, including “hacking” and “identity theft.” Our operations are dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure utilized by us, including our Internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by the Internet or other users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us, damage our reputation and inhibit current and potential customers from our Internet banking services. Each year, we add additional security measures to our computer systems and network infrastructure to mitigate the possibility of cybersecurity breaches including firewalls and penetration testing. We continue to investigate cost effective measures as well as insurance protection.

Furthermore, our customers could incorrectly blame the Company and terminate their accounts with the Company for a cyber-incident which occurred on their own system or to an unrelated third-party. In addition, a security breach could also subject us to additional regulatory scrutiny and expose us to civil litigation and possible financial liability.

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Disruptions in our information technology systems or a compromise of security with respect to our systems could adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, or support our customer transactions.

We rely on our information technology systems to be able to monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and support our online banking system. Any disruptions in these systems or the failure of these systems to operate as expected have in the past adversely affected, and could in the future adversely affect, our ability to access and use certain applications and could, depending on the nature and magnitude of the problem, adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, implement strategic initiatives, and service customers. Although such disruptions and failures have not been material to date, we cannot guarantee that they will not be material in the future. In addition, the security measures we employ to protect our systems have in the past not detected or prevented, and may in the future not detect or prevent, all attempts to hack our systems, denial-of-service attacks, viruses, malicious software (malware), employee error or malfeasance, phishing attacks, security breaches, disruptions during the process of upgrading or replacing computer software or hardware or integrating systems of acquired businesses or assets or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by the sites, networks, and systems that we otherwise maintain, which include cloud-based networks and data center storage.

We have, from time to time, experienced threats to and breaches of our data and systems, including malware and computer virus attacks. We are continuously developing and enhancing our controls, processes and practices designed to protect our systems, computers, software, data and networks from attack, damage, or unauthorized access. This continued development and enhancement requires us to expend significant resources. However, we may not anticipate or combat all types of future attacks until after they have been launched. If any of these breaches of security occur or are anticipated in the future, we could be required to expend additional capital and other resources, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. Our response to attacks, and our investments in our technology and our controls, processes, and practices, may not be sufficient to shield us from significant losses or liability. Further, given the increasing sophistication of bad actors and complexity of the techniques used to obtain unauthorized access or disable systems, a breach or attack could potentially persist for an extended period of time before being detected. As a result, we may not be able to anticipate the attack or respond adequately or timely, and the extent of a particular incident, and the steps that we may need to take to investigate the incident, may not be immediately clear. It could take a significant amount of time before an investigation can be completed and full, reliable information about the incident becomes known. During an investigation, it is possible we may not necessarily know the extent of the harm or how to remediate it, which could further adversely impact us, and new regulations could result in us being required to disclose information about a material cybersecurity incident before it has been mitigated or resolved, or even fully investigated. We also face cybersecurity risks due to our reliance on internet technology and hybrid work arrangements, which could strain our technology resources or create additional opportunities for cybercriminals to exploit vulnerabilities.

In addition, because our systems contain information about individuals and businesses, our failure to appropriately maintain the security of the data we hold, whether as a result of our own error or the malfeasance or errors could lead to unauthorized release of confidential or otherwise protected information or corruption of data. Our failure to appropriately maintain the security of the data we hold could also violate applicable privacy, data security and other laws and subject us to lawsuits, fines, and other means of regulatory enforcement.

Any compromise or breach of our systems could result in adverse publicity, harm our reputation, lead to claims against us and affect our relationships with our customers and employees, any of which could have a material adverse effect on our business. Although we maintain insurance coverage for various cybersecurity risks, there can be no guarantee that all costs or losses incurred will be fully insured.

We are subject to claims and litigation pertaining to intellectual property.

We rely on technology companies to provide information technology products and services necessary to support our day-to-day operations. Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained. Competitors of our vendors, or other individuals or companies, have from time to time claimed to hold intellectual property sold to us by its vendors. Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors. The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in litigation that could be expensive, time-consuming, disruptive to our operations, and distracting to management. If we are found to infringe on one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party. In certain cases, we may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. These licenses may also significantly increase our operating expenses. If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have a material adverse effect on our business, financial condition and results of operations.

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We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, we must rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We also rely on representations of those customers, counterparties or other third-parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.

We do business with other financial institutions that could experience financial difficulty.

We do business through the purchase and sale of federal funds, check clearing and through the purchase and sale of loan participations with other financial institutions. Because these financial institutions have many risks, as do we, we could be adversely affected should one of these financial institutions experience significant financial difficulties or fail to comply with our agreements with them.

We are subject to possible claims and litigation pertaining to fiduciary responsibility.

From time to time, customers could make claims and take legal actions pertaining to our performance of our fiduciary responsibilities. Whether customer claims and legal actions related to our performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect our market perception of our products and services as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Our operations rely on certain external vendors.

We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with the contracted agreements under service level agreements. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products or services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Security breaches at certain external vendors may expose our Company's or customers' data, which poses operational, compliance and reputation risks.

Certain of our investment advisory and wealth management contracts are subject to termination on short notice, and termination of a significant number of investment advisory contracts could have a material adverse impact on our revenue.

Certain of our investment advisory and wealth management clients can terminate, with little or no notice, their relationships with us, reduce their aggregate assets under management, or shift their funds to other types of accounts with different rate structures for any number of reasons, including investment performance, changes in prevailing interest rates, inflation, changes in investment preferences of clients, changes in our reputation in the marketplace, change in management or control of clients, loss of key investment management personnel and financial market performance. We cannot be certain that our trust company subsidiary will be able to retain all of its clients. If its clients terminate their investment advisory and wealth management contracts, our trust company subsidiary, and consequently we, could lose a substantial portion of our revenues.

The trust wealth management fees we receive may decrease as a result of poor investment performance, in either relative or absolute terms, which could decrease our revenues and net earnings.

Our trust company subsidiary derives its revenues primarily from investment management fees based on assets under management. Our ability to maintain or increase assets under management is subject to a number of factors, including investors’ perception of our past performance, in either relative or absolute terms, market and economic conditions, including changes in oil and gas prices, and competition from investment management companies. Financial markets are affected by many factors, all of which are beyond our control, including general economic conditions, changes in oil and gas prices; securities market conditions; the level and volatility of interest rates and equity prices; competitive conditions; liquidity of global markets; international and regional political conditions; regulatory and legislative developments; monetary and fiscal policy; investor sentiment; availability and cost of capital; technological changes and events; outcome of legal proceedings; changes in currency values; inflation; credit ratings; and the size, volume and timing of transactions. A decline in the fair value of the assets under management, caused by a decline in general economic conditions, would decrease our wealth management fee income.

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Investment performance is one of the most important factors in retaining existing clients and competing for new wealth management clients. Poor investment performance could reduce our revenues and impair our growth in the following ways:

Even when market conditions are generally favorable, our investment performance may be adversely affected by the investment style of our wealth management and investment advisors and the particular investments that they make. To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our wealth management business will likely be reduced and our ability to attract new clients will likely be impaired. As such, fluctuations in the equity and debt markets can have a direct impact upon our net earnings. In addition, as approximately 15% of trust fees came from management of oil and gas properties in 2023, a decline in the prices of oil and gas could lead to a loss of material amounts of our trust income.

Our reputation and business could be damaged by negative publicity.

Reputation risk, or the risk to our earnings and capital by negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to additional liquidity risk as well as adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, perception of our environmental, social and governance practices and disclosures, regulatory compliance or investigations, mergers and acquisitions, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct. Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry. In addition, adverse publicity or negative information posted on social media, whether or not factually correct, may adversely impact our business prospects or financial results.

External and Market Related Risks

Our business faces unpredictable economic conditions, which could have an adverse effect on us.

General economic conditions impact the banking industry. The credit quality of our loan portfolio necessarily reflects, among other things, the general economic conditions in the areas in which we conduct our business. Our continued financial success depends somewhat on factors beyond our control, including:

Any substantial deterioration in any of the foregoing conditions could have a material adverse effect on our financial condition, results of operations and liquidity, which would likely have an adverse affect on the market price of our common stock.

Our business is concentrated in Texas and a downturn in the economy of Texas may adversely affect our business.

Our network of bank regions is concentrated in Texas, primarily in the Central, North Central, Southeast and Western regions of the state. Most of our customers and revenue are derived from these areas. These economies include dynamic centers of higher education, agriculture, energy and natural resources, retail, military, healthcare, tourism, retirement living, manufacturing and distribution. Because we generally do not derive revenue or customers from other parts of the state or nation, our business and operations are dependent on economic conditions in our Texas markets. Any significant decline in one or more segments of the local economies could adversely affect our business, revenue, operations and properties.

The volatility in oil and gas prices results in uncertainty about the Texas economy. While we consider our exposure to credits related to the oil and gas industry to not be significant, at approximately 2.79%, of total loans HFI as of December 31, 2023, should the price of oil and gas decline and/or remain at low prices for an extended period, the general economic conditions in our Texas markets could be negatively affected,

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which could have a material adverse effect on our business, financial condition and results of operations. Additionally, the Company's trust revenues may be impacted by oil and gas prices which represented approximately 15% and 18% of total trust revenues in 2023 and 2022, respectively.

Our Company lends primarily to small to medium-sized businesses that may have fewer resources to weather a downturn in the economy, which could adversely impact the Company’s operating results.

The Company makes loans to privately-owned businesses, many of which are considered to be small to medium-sized businesses. Small to medium-sized businesses frequently have smaller market share than their competition, may be more vulnerable to economic downturns, often need additional capital to expand or compete and may experience more volatility in operating results. Any one or more of these factors may impair the borrower’s ability to repay a loan. In addition, the success of small to medium-sized businesses often depends on the management talents and efforts of a small group of persons, and the death, disability or resignation of one or more of these persons could have adverse impact on the business and its ability to repay our loans. Economic downturns, a sustained decline in commodity prices and other events that could negatively impact the businesses could cause the Company to incur credit losses that could negatively affect the Company’s results of operations and financial condition.

If we are unable to continue to originate residential real estate loans and sell them into the secondary market for a profit, our earnings could decrease.

We derive a portion of our noninterest income from the origination of residential real estate loans and the subsequent sale of such loans into the secondary market. If we are unable to continue to originate and sell residential real estate loans at historical or greater levels, our residential real estate loan volume would decrease, which could decrease our earnings. A rising interest rate environment, general economic conditions or other factors beyond our control could adversely affect our ability to originate residential real estate loans. We also are experiencing an increase in regulations and compliance requirements related to mortgage loan originations necessitating technology upgrades and other changes. If new regulations continue to increase and we are unable to make technology upgrades, our ability to originate mortgage loans will be reduced or eliminated. Additionally, we sell a large portion of our residential real estate loans to third-party investors, and rising interest rates could negatively affect our ability to generate suitable profits on the sale of such loans. If interest rates increase after we originate the loans, our ability to market those loans is impaired as the profitability on the loans decreases. These fluctuations can have an adverse effect on the revenue we generate from residential real estate loans and in certain instances, could result in a loss on the sale of the loans.

We originate the majority of our secondary market loans by issuing interest rate lock commitments ("IRLCs") to the customer based on prevailing rates in the market. We are exposed to changes in interest rates between the date of the IRLC and the closing of the loans. We hedge the price risk of the IRLCs based on various models and other factors using financial instruments which typically, but not always, correlate to the change in value to offset the risk. These hedges may not be equally correlated or effective and expose the Company to risk and loss of earnings.

Further, for the mortgage loans we sell in the secondary market, the mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first sixty to ninety days, or if documentation is determined not to be in compliance with regulations. While the Company’s historic losses as a result of these indemnities have been insignificant, we could be required to repurchase the mortgage loans or reimburse the purchaser of our loans for losses incurred. Both of these situations could have an adverse effect on the profitability of our mortgage loan activities and negatively impact our net income.

We compete in an industry that continually experiences technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.

The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services and new Fintech companies. In addition to improving the ability to serve customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for conveniences, as well as to create additional efficiencies in our operations. We may experience operational challenges in connection with the adoption of, or failure to adopt, new technology, such as artificial intelligence, which could result in unintended consequences or expenses as a result of the technology's limitations, our failure to use new technology effectively or at all, not fully realizing the anticipated benefits from such new technology, or the cost to implement or remedy any challenges associated with the adoption of new technology in a timely manner. Many of our larger competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers.

Difficult or changes in market conditions could adversely affect the financial services industry.

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The financial markets have experienced volatility over the past several years. In some cases, the financial markets have produced downward pressure on stock prices and credit availability for certain companies without regard to those companies’ underlying financial strength. If financial market volatility worsens, or there are disruptions in these financial markets, including disruptions to the United States banking systems, there can be no assurance that we will not experience an adverse effect on our ability to access capital and our business, financial condition and result of operations could be adversely impacted.

Inflationary pressures and rising prices may affect our results of operations and financial conditions.

Inflation rose in 2022 at levels not seen for over 40 years, and such inflationary pressures continued into 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. In general, the impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment. Assets and liabilities of financial institutions are primarily all monetary in nature, and therefore are principally impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

Sustained higher interest rates by the Federal Reserve Board may be needed to tame persistent inflationary price pressures, which could depress asset prices and weaken economic activity. A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.

Our financial instruments expose us to certain market risks and may increase the volatility of earnings and AOCI.

We hold certain financial instruments measured at fair value. For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in earnings or accumulated other comprehensive income ("AOCI") each quarter. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings or AOCI. Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, capital markets volatility, and other economic factors. Accordingly, we are subject to mark-to-market risk and the application of fair value accounting may cause our earnings and AOCI to be more volatile than would be suggested by our underlying performance.

We may need to raise additional capital and such funds may not be available when needed .

We may need to raise additional capital in the future to provide us with sufficient capital resources to meet our commitments and business needs, particularly if our asset quality or earnings were to deteriorate significantly. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital and financial markets at that time, which are outside of our control, and our financial performance. Economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital, other financial institution borrowings and borrowings from the discount window of the Federal Reserve Board. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of other financial institutions, or counterparties participating in the capital markets, may adversely affect our costs and our ability to raise capital. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our financial condition and results of operations.

Climate change, and related legislative and regulatory initiatives, have the potential to disrupt our business and adversely impact the operations and creditworthiness of our customers.

Climate change may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, hurricanes, wildfires and extreme seasonal weather, which could disrupt operations at one or more of our locations and our ability to provide financial products and services to our customers. Such events could also have a negative effect on the financial status and creditworthiness of our customers, which may decrease revenues and business activities from those customers and increase the credit risk associated with loans and other credit exposures to such customers. In addition, weather disasters, shifts in local climates and other disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish the value of our loan portfolio. Such events may also cause reductions in regional and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise and invest capital in these areas and communities, each of which could have a material effect on our financial conditions and results of operations.

Political and social attention to the issue of climate change has increased. The federal and state legislatures and regulatory agencies have proposed legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes. In addition, the federal banking agencies may address climate-related issues in their agendas in various ways, including by increasing supervisory expectations with respect to banks' risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors, and encouraging investment by banks in

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climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change. We may incur compliance, operating, maintenance and remediation costs.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance ("ESG") practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environmental, health and safety, diversity, labor conditions and human risks. Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

We compete with many larger financial institutions which have substantially greater financial resources than we have .

Competition among financial institutions in Texas is intense. We compete with other bank holding companies, state and national commercial banks, savings and loan associations, consumer financial companies, credit unions, securities brokers, insurance companies, mortgage banking companies, money market mutual funds, asset-based non-bank lenders and other non-bank financial institutions. Many of these competitors have substantially greater financial resources, larger lending limits, larger branch networks, enhanced technology and less regulatory oversight than we do, and are able to offer a broader range of products and services than we can. Failure to compete effectively for deposit, loan and other banking customers in our markets could cause us to lose market share, slow our growth rate and may have an adverse effect on our financial condition, results of operations and liquidity.

Compliance and Regulatory Risks

We may be subject to more stringent capital requirements which would adversely affect our net income and future growth.

The Federal Reserve Board adopted a final rule that implemented the Basel III Rule changes to the international regulatory capital framework and revised the U.S. risk-based and leverage capital requirements for U.S. banking organizations to strengthen identified areas of weakness in capital rules and to address relevant provisions of the Dodd-Frank Act.

The final rule established a stricter regulatory capital framework that requires banking organizations to hold more and higher-quality capital to act as a financial cushion to absorb losses and help banking organizations better withstand periods of financial stress. The final rule increased capital ratios for all banking organizations and introduced a “capital conservation buffer” which is in addition to each capital ratio. If a banking organization dips into its capital conservation buffer, it may be restricted in its ability to pay dividends and discretionary bonus payments to its executive officers. The final rule assigned a higher risk weight to loans that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also required unrealized gains and losses on certain available-for-sale ("AFS") securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. We exercised this opt-out right in our March 31, 2015 quarterly financial filing. The final rule also included changes in what constitutes regulatory capital. In addition, Tier 2 capital is no longer limited to the amount of Tier 1 capital included in total capital. Mortgage servicing rights, certain deferred tax assets and investments in unconsolidated subsidiaries over designated percentages of common stock are required to be deducted from capital. The final rule became effective for us on January 1, 2015. As of December 31, 2023, we met all of these new requirements, including the full capital conservation buffer.

Although we currently cannot predict the specific impact and long-term effects that Basel III will have on our Company and the banking industry more generally, the Company may be required to maintain higher regulatory capital levels through the capital conservation buffer which could impact our operations, net income and ability to grow. Furthermore, the Company’s failure to comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us which could restrict our future growth or operations. For example, climate change advocates might not be able to force a regulatory ban on lending to certain industries, but the regulators could increase risk weighting on oil and gas loans.

Legislative and regulatory actions taken now or in the future that impact the financial industry may materially adversely affect us by increasing our costs, adding complexity in doing business, impeding the efficiency of our internal business processes, negatively impacting the recoverability of certain of our recorded assets, requiring us to increase our regulatory capital, limiting our ability to pursue business opportunities, and otherwise resulting in a material adverse impact on our financial condition, results of operation, liquidity, or stock price.

Both the scope of the laws and regulations and the intensity of the supervision to which we are subject may increase in connection with legislative and regulatory developments to address perceived unfairness and abuses under current regulations. Regulatory enforcement and fines

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have also increased across the banking and financial services sector. Compliance with these laws and regulations have resulted in and will continue to result in additional costs, which could be significant, and may have a material and adverse effect on our results of operations. In addition, if we do not appropriately comply with current or future legislation and regulations, especially those that apply to our consumer operations, which has been an area of heightened focus, we may be subject to fines, penalties or judgments, or material regulatory restrictions on our businesses, which could adversely affect operations and, in turn, financial results.

The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The CFPB, OCC, the Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A successful challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of direct and indirect negative consequence sanctions, including the required payment of damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity and restrictions on expansion activity. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions, or even the threat of such actions, could have a material adverse effect on the Company's business, financial condition or results of operations.

OFAC, the BSA and related FinCEN and FFIEC Guidelines and regulations could result in material implications.

Regulatory authorities routinely examine financial institutions for compliance with the USA PATRIOT ACT, OFAC, the BSA and related FinCEN and FFIEC Guidelines. Certain products we offer may expose us to enhanced risk in the event of noncompliance, including and not limited to providing our treasury management services to certain money transmitter and money services businesses. Failure to maintain and implement adequate programs as required by these obligations to combat terrorist financing, elder abuse, human trafficking, anti-money laundering and other suspicious activity and to fully comply with all of the relevant laws or regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and significant civil money penalties against institutions found to be violating these regulations.

Our business is subject to significant government regulation.

We operate in a highly-regulated environment and are subject to supervision or regulation by a number of governmental regulatory agencies, including the Federal Reserve Board, the OCC, the FDIC and the CFPB. Regulations adopted by these agencies, which are generally intended to provide protection for depositors and customers rather than for the benefit of shareholders, govern a comprehensive range of matters relating to ownership and control of our shares, our acquisition of other companies and businesses, permissible activities for us to engage in, maintenance of adequate capital levels and other aspects of our operations. The bank regulatory agencies possess broad authority to prevent or remedy unsafe or unsound practices or violations of law.

We are subject to heightened regulatory requirements as our total assets exceed $10 billion.

Our total assets were approximately $13.11 billion as of December 31, 2023. The Dodd-Frank Act and its associated regulations impose various additional requirements on banks and bank holding companies with $10 billion or more in total assets, including a more frequent and enhanced regulatory examination regime. In addition, banks with $10 billion or more in total assets (including our bank) are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations, with the Federal Reserve Board maintaining supervision over some consumer related regulations. In light of evolving priorities among government and agency leaders, there is some uncertainty as to how the CFPB examination and regulatory authorities might impact our business in the near and medium terms.

Debit card interchange fee restrictions set forth in the Dodd-Frank Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve Board, cap the maximum debit interchange fee that a debit card issuer with $10 billion or more in total assets may receive per transaction at the sum of $0.21 plus five basis points of the transaction. A debit card issuer that adopts certain fraud prevention procedures may charge an additional $0.01 per transaction. In July 2022, the Company became subject to the Durbin Amendment which reduced our interchange income per transaction in 2022 and going forward.

Federal income tax reform could have unforeseen effects on our financial condition and results of operations.

The recent changes in the political makeup of the Senate and House of Representatives in the U.S. Congress could result also in the reversal of some or all of the effects of the Tax Cuts and Jobs Act, which may have an adverse effect on our business, financial conditions and results of operations.

Our FDIC deposit insurance assessments could increase substantially resulting in higher operating costs.

We have historically paid the lowest premium rate available due to our sound financial position. Should the number of bank failures increase or the FDIC insurance fund become depleted in others ways, FDIC premiums could increase or additional special assessments could be

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imposed. These increased premiums would have an adverse effect on our net income and results of operations. In the fourth quarter of 2023, the FDIC imposed a $1.75 million special assessment on the Bank in response to the FDIC-insured financial institutions that failed in March 2023.

Risks Related to Acquisition Activities

To continue our growth, we are affected by our ability to identify and acquire other financial institutions.

We intend to continue our current growth strategy, including opening new branches and acquiring other banks. The market for acquisitions remains highly competitive, and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition and growth strategy. To the extent that we are unable to find suitable acquisition candidates, an important component of our growth strategy may be lost. Additionally, our completed acquisitions, or any future acquisitions, may not produce the revenue, earnings or synergies that we anticipated.

We may not be able to complete future acquisitions, may not be successful in realizing the benefits of any acquisitions that are completed, or may choose not to pursue acquisition opportunities we might find beneficial.

A substantial part of our historical growth has been a result of acquisitions of other financial institutions, and we may, from time to time, evaluate and engage in the acquisition of other financial institutions. We must generally satisfy a number of conditions prior to completing any such transaction, including certain bank regulatory approvals. Bank regulators consider a number of factors with regard to all institutions involved in the transaction when determining whether to approve a proposed transaction, including, among others, condition of the Company, its ratings and compliance history, anti-money laundering and BSA compliance history, CRA evaluation results, fair lending history and the effect of the proposed transaction on the financial stability of the institutions involved and the market as a whole.

The process for obtaining required regulatory approvals has become substantially more difficult, time-consuming and unpredictable. We may fail to pursue, evaluate or complete strategic and competitively significant business opportunities as a result of our inability, or our perceived inability, to obtain required regulatory approvals in a timely manner or at all.

Assuming we are able to successfully complete one or more transactions, we may not be able to successfully integrate and realize the expected synergies from any completed transaction in a timely manner or at all. In particular, we may be charged by federal and state regulators with regulatory and compliance failures at an acquired business prior to the date of the acquisition, and these failures by the acquired company may have negative consequences for us, including the imposition of formal or informal enforcement actions. Completion and integration of any transaction may also divert management’s attention from other matters, result in additional costs and expenses, or adversely affect our relationships with our customers and employees, any of which may adversely affect our business or results of operations. As a result, our financial condition may be affected, and we may become more susceptible to general economic conditions and competitive pressures.

Use of our common stock for future acquisitions or to raise capital may be dilutive to existing stockholders.

When we determine that appropriate strategic opportunities exist, we may acquire other financial institutions and related businesses, subject to applicable regulatory requirements. We may use our common stock for such acquisitions. We may also seek to raise capital through selling additional common stock, although we have not historically done so. It is possible that the issuance of additional common stock in such acquisition or capital transactions may be dilutive to the interests of our existing shareholders.

Risks Associated with our Common Stock

The trading volume in our common stock is less than other larger financial institutions.

Although the Company’s common stock is listed for trading on the Nasdaq Global Select Market, the trading volume in our common stock is less than that of other, larger financial services companies although such volume has increased in recent years. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the Company’s common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the lower trading volume of the Company’s common stock, significant sales of the Company’s common stock, or the expectation of these sales, could cause the Company’s stock price to fall.

Our stock ownership has shifted to larger institutional shareholders .

Our ownership base has shifted over the past several years resulting in institutional investors and indexed funds holding approximately 56% of our shares as compared to shareholders located in our footprint and other retail individual investors. These institutional shareholders could decide to sell their holdings in our common stock and as such could result in lower market prices of our stock.

Certain banking laws may have an anti-takeover effect.

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Provisions of federal banking laws, including regulatory approval requirements, could make it more difficult for a third-party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. These provisions effectively inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

We may not continue to pay dividends on our common stock in the future.

Holders of our common stock are only entitled to receive such dividends as our board of directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividends in the future. This could adversely affect the market price of our common stock. Also, we are a bank holding company, and our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve Board regarding capital adequacy and dividends.

The Company’s stock price can be volatile.

Stock price volatility may make it more difficult for our shareholders to resell their common stock when they want and at prices they find attractive. The Company’s stock price can fluctuate significantly in response to a variety of factors including, among other things:

General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends could also cause the Company’s stock price to decrease regardless of operational results.

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this Report. As a result, if you acquire our common stock, you may lose some or all of your investment.

General Risk Factors

If we are unable to continue our historical levels of growth, we may not be able to maintain our historical earnings trends.

To achieve our past levels of growth, we have focused on both internal growth and acquisitions. We may not be able to sustain our historical rate of growth or may not be able to grow at all. Additionally, we may not be able to obtain the financing necessary to fund additional growth and may not be able to find suitable acquisition candidates. Various factors, such as economic conditions, competition and heightened regulatory scrutiny, may impede or prohibit the opening of new banking centers and the completion of acquisitions. Further, we may be unable to attract and retain experienced bankers, which could adversely affect our internal growth. If we are not able to continue our historical levels of growth, we may not be able to maintain our historical earnings trends.

ITE M 1B. UNRESOLVED STAFF COMMENTS

None.

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ITEM 1C. CYBER SECURITY

Risk Management and Strategy

The Company’s Information Security Program (“Program”) uses a variety of safeguards to protect the confidentiality, integrity, and availability of information. The Program is designed to identify, prevent, or mitigate the risks from cybersecurity threats. The Program leverages recognized security frameworks, such as National Institute of Standards and Technology (NIST) and Federal Financial Institutions Examination Council (FFEIC), to organize, improve, and assess the program and to better manage and reduce cybersecurity risk. The Program is assessed and updated annually and as needed.

The Program is integrated into the Company’s enterprise risk management program. The Company regularly assesses the threats and vulnerabilities to its environment so it can update and maintain its systems and controls to effectively mitigate these risks. Layered security controls are designed to complement each other to protect customer information and transactions. The Company periodically engages third-party experts and consultants to conduct evaluations of our security controls, whether through penetration testing, audits, assessments, or consulting on best practices to address new challenges. Results are used to help drive priorities and initiatives to improve the Program. Additionally, as a regulated entity, bank regulators assess the quality of our information security program during their regular examinations of the Company and its compliance with federal regulations and requirements.

The Company’s third-party risk management program is designed to oversee and identify the cybersecurity threats associated with the use of third-party service providers. While the optics into a third-party’s operation are limited, the Company performs risk-based evaluations of third-party service providers. These evaluations including reviewing information including, but not limited to, security assessment questionnaires, security testing summaries, audit reports performed under the SSAE 18 Audit Standard, and information security policies.

We view security awareness as a continuous program. All Company employees receive cybersecurity and fraud training at required new employee orientation and subsequently receive information security tips via email each business day. Employees also receive monthly security awareness video training and are required to complete annual computer-based training. The Company also provides information security awareness training to business customers and individuals in our communities.

During the fiscal year of this Report, the Company has not identified risks from cybersecurity threats that individually or in the aggregate have materially affected or are reasonably anticipated to materially affect the organization. Nevertheless, the Company recognizes cybersecurity threats are ongoing and evolving, and we continue to remain vigilant.

Governance

The Company’s system of internal controls also incorporates a protocol for the appropriate reporting and escalation of information and cyber security matters to management and the Board of Directors for resolution and, if necessary, disclosure of any material incidents. The Board of Directors is actively engaged in the oversight of the Company’s continuous efforts to reinforce and enhance its operational resilience and receives education to enhance their oversight efforts accommodate for the ever-evolving information and cyber security threat landscape. The Chief Information Security Officer (“CISO”) regularly updates these committees on the information and cyber security risks, threats, exposures, and mitigation measures. The Company’s incident response process is periodically tested and includes cybersecurity scenarios.

The Program is included in the Company’s enterprise risk management program. The CISO is responsible for developing and implementing our Program and reporting on cybersecurity matters to the Board. Our CISO has over 20 years of related experience, and others on our Corporate Information Security team have cybersecurity experience or certifications, such as the Certified Information Systems Security Professional certification. We view cybersecurity as a shared responsibility, and we periodically perform simulations and tabletop exercises at a management level and incorporate external resources and advisors as needed.

The Program is overseen by the Company’s Risk Committee, First Technology Services Board of Directors, Technology Risk Committee, and Security Advisory Committee. Additionally, the First Financial Trust and Asset Management Board of Directors oversee the Program as it relates to the trust subsidiary. Operational committees that manage risks associated with cybersecurity are Change Control Committee and Patch Management Committee.

The Company’s Board of Directors and subsidiary technology and trust companies’ Boards of Directors monitor the Program including policies and practices. The Company’s Risk Committee and technology company’s Board of Directors oversees areas of operational risk such as information technology activities; risks associated with development, infrastructure, and cybersecurity; oversight of information security risk assessments, strategies, policies, and programs; and disaster recovery, business continuity, and incident response process. The CISO also provides periodic cybersecurity updates to the Audit Committee and the Audit Committee Chairman is member of the Risk Committee. The management-level Technology Risk Committee and Security Advisory Committee oversee management of the Program and related assessments. Operational committees that manage risks associated with cybersecurity are Change Control Committee and Patch Management Committee.

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We face a number of cybersecurity risks in connection with our business. Although such risks have not materially affected us, including our business strategy, results of operations or financial condition, to date, we have, from time to time, experienced threats to and breaches of our data and systems, including malware and computer virus attacks. For more information about the cybersecurity risks we face, see the risk factor entitled “Disruptions in our information technology systems or a compromise of security with respect to our systems could adversely affect our operating results by limiting our ability to effectively monitor and control our operations, adjust to changing market conditions, implement strategic initiatives or support our customer transactions” and “Our business may be adversely affected by security breaches at third-parties.” in Item 1A- Risk Factors.

ITEM 2. PROPERTIES

Our principal office is located in the First Financial Bank Building at 400 Pine Street in downtown Abilene, Texas. We lease two spaces

in buildings owned by First Financial Bank, N.A. totaling approximately 10,155 square feet. As of December 31, 2023, our subsidiaries

collectively own 78 banking, trust and mortgage facilities, some of which are detached drive-ins, and also lease 12 banking facilities and 12 ATM locations. Our management considers all our existing locations to be well-suited for conducting the business of banking. We are in the process of constructing a new branch location in our existing market in Bryan, Texas.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we and our subsidiaries are parties to lawsuits arising in the ordinary course of our banking business. However, there

are no material pending legal proceedings to which we, our subsidiaries or our other direct and indirect subsidiaries, or any of their properties,

are currently subject. Other than regular, routine examinations by state and federal banking authorities, there are no material proceedings pending or known to be contemplated by any governmental authorities.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

IT EM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock, par value $0.01 per share, is traded on the Nasdaq Global Select Market under the trading symbol "FFIN".

Record Holders

As of February 1, 2024, we had 874 registered shareholders of record with our stock transfer agent.

Dividends

See “Item 8—Financial Statements and Supplementary Data—Quarterly Results of Operations” for the frequency and amount of cash dividends paid by us. Also, see “Item 1 – Business – Supervision and Regulation – Payment of Dividends” and “Item 7 – Management’s Discussion and Analysis of the Financial Condition and Results of Operations – Capital and Liquidity – Dividends” for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and state banking laws.

Equity Compensation Plans

See “Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.

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PERFORMANCE GRAPH

The following performance graph compares cumulative total shareholder returns for our common stock, the Russell 3000 Index, and the S&P U.S. BMI Banks Index, which is a banking index prepared by S&P Global Market Intelligence and is comprised of all U.S. domiciled banks, for a five-year period (December 31, 2018 to December 31, 2023). The performance graph assumes $100 invested in our common stock at its closing price on December 31, 2018, and in each of the Russell 3000 Index and the S&P U.S. BMI Banks Index on the same date. The performance graph also assumes the reinvestment of all dividends. The dates on the performance graph represent the last trading day of each year indicated. The amounts noted on the performance graph have been adjusted to give effect to all stock splits and stock dividends.

First Financial Bankshares, Inc

		Period Ending
Index		12/31/18		12/31/19		12/31/20		12/31/21		12/31/22		12/31/23
First Financial Bankshares, Inc.		100.00		123.48		129.50		184.19		126.70		114.29
Russell 3000 Index		100.00		131.02		158.39		199.03		160.80		202.54
S&P U.S. BMI Banks Index		100.00		137.36		119.83		162.92		135.13		147.41

Source: S&P Global Market Intelligence

© 2024

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IT EM 6.	[RESERVED]

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IT EM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to those listed in “Item 1A – Risk Factors” and in the “Cautionary Statement Regarding Forward-Looking Statements” notice on page 1.

Introduction

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

The following discussion and analysis of the major elements of our consolidated balance sheets as of December 31, 2023 and 2022, and consolidated statements of earnings for the years 2021 through 2023 should be read in conjunction with our consolidated financial statements, accompanying notes, and selected financial data presented elsewhere in this Form 10-K.

Critical Accounting Policies

We prepare consolidated financial statements based on generally accepted accounting principles (“GAAP”) and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions.

We deem a policy critical if (1) the accounting estimate required us to make assumptions about matters that are highly uncertain at the time we make the accounting estimate; and (2) different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the financial statements.

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

Stock Repurchase

On July 27, 2021, the Company’s Board of Directors authorized the repurchase of up to 5,000,000 common shares through July 31, 2023. On July 25, 2023, the Company's Board of Directors renewed the prior authorization through July 31, 2024.The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases are considered beneficial to the Company and its stockholders. Any repurchase of stock will be made through the open market, block trades or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. Under the prior authorization, 244,559 shares were repurchased and retired (all during the months of June and July 2022) at an average price of $38.61 per share. Under the current authorization, the Company has repurchased and retired 101,337 shares (all during September 2023) at an average price of $26.99 per share.

Other Recently Issued and Effective Authoritative Accounting Guidance

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2020-04 did not have a significant impact on our financial statements.

ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also

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amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 did not have a significant impact on our financial statements.

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 will also require that an entity disclosure current-period gross charge-offs by year of origination for financial receivables and net investment leases within scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will become effected for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. The adoption of ASU 2022-02 is not expected to have a significant impact on our financial statements.

ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. The adoption of ASU 2022-06 did not have a significant impact on our financial statements.

ASU 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. ASU 2023-02 has been early adopted by the Company as it relates to the qualifying investments that are generating New Market Tax Credits. The adoption of ASU 2023-02 did not have a significant impact on our financial statements.

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

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Selected Financial Data

The selected financial data presented below as of and for the years ended December 31, 2023, 2022, 2021, 2020, and 2019, have been derived from our audited consolidated financial statements. The data set forth below may not be fully comparable from period to period due to an acquisition in 2020 and changes in accounting, including the allowance for credit losses in 2020 (see Notes 1 and 3 to the Notes to Consolidated Financial Statements for further information). The results of operations presented below are not necessarily indicative of the results of operations that may be achieved in the future.

		Year Ended December 31,
		2023				2022				2021				2020				2019
		(dollars in thousands, except per share data)
Summary Income Statement Information:
Interest income		$	528,070			$	432,854			$	376,405			$	364,128			$	319,192
Interest expense			144,261				31,440				6,042				14,243				30,102
Net interest income			383,809				401,414				370,363				349,885				289,090
Provision for credit losses			10,631				17,427				(1,139	)			19,517				2,965
Noninterest income			108,003				131,665				142,176				139,935				108,428
Noninterest expense			237,882				234,778				241,708				227,938				196,521
Earnings before income taxes			243,299				280,874				271,970				242,365				198,032
Income tax expense			44,322				46,399				44,408				40,331				33,220
Net earnings		$	198,977			$	234,475			$	227,562			$	202,034			$	164,812
Per Share Data:
Earnings per share, basic		$	1.39			$	1.64			$	1.60			$	1.42			$	1.22
Earnings per share, diluted			1.39				1.64				1.59				1.42				1.21
Cash dividends declared			0.71				0.66				0.58				0.51				0.47
Book value at period-end			10.50				8.87				12.34				11.80				9.03
Earnings performance ratios:
Return on average assets			1.55	%			1.76	%			1.89	%			1.98	%			2.08	%
Return on average equity			14.99				16.72				13.31				12.93				14.37
Dividend payout ratio			50.96				40.18				36.30				35.88				38.31
Summary Balance Sheet Data (Period-end):
Securities		$	4,732,762			$	5,474,359			$	6,573,179			$	4,393,029			$	3,413,317
Loans, held-for-investment			7,148,791				6,441,868				5,388,972				5,171,033				4,194,969
Total assets			13,105,594				12,974,066				13,102,461				10,904,500				8,262,227
Deposits			11,138,300				11,005,507				10,566,488				8,675,817				6,603,806
Total liabilities			11,606,694				11,708,329				11,343,237				9,226,310				7,035,030
Total shareholders’ equity			1,498,900				1,265,737				1,759,224				1,678,190				1,227,197
Asset quality ratios:
Allowance for credit losses/period-end loans held-for-investment			1.24	%			1.18	%			1.18	%			1.29	%			1.25	%
Nonperforming assets/period-end loans held- for-investment plus foreclosed assets			0.49				0.38				0.63				0.83				0.61
Net charge offs (recoveries)/average loans			0.03				(0.01	)			0.02				0.06				0.04
Capital ratios:
Average shareholders’ equity/average assets			10.32	%			10.55	%			14.20	%			15.32	%			14.44	%
Leverage ratio (1)			12.06				10.96				11.13				11.86				12.60
Tier 1 risk-based capital (2)			18.50				18.22				19.35				20.79				20.06
Common equity tier 1 capital (3)			18.50				18.22				19.35				20.79				20.06
Total risk-based capital (4)			19.62				19.29				20.34				22.03				21.13

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Results of Operations

Performance Summary . Net earnings for 2023 were $198.98 million compared to net earnings of $234.48 million for 2022. Included in earnings for the year ended December 31, 2023, when compared to the year ended December 31, 2022, were (i) a decrease of $17.61 million in net interest income, (ii) a decrease in debit card revenues of $8.56 million, (iii) a decrease in mortgage revenues of $7.15 million, (iv) a $9.26 million decline in gains on sales of securities, and (v) an increase of $4.04 million in FDIC insurance premiums, which includes a $1.75 million special assessment. Offsetting these reductions to earnings were (i) a decline of $6.80 million in the provision for credit losses and (ii) a decline of $5.30 million in incentive and profit sharing expenses.

Net earnings for 2022 were $234.48 million compared to $227.56 million for 2021. The increase in net earnings for 2022 over 2021 was primarily attributable to the overall growth in net interest income from the growth in earning assets. Net earnings in 2022 also include a provision for credit losses of $17.43 million compared to a net reversal of provision for credit losses of $1.14 million in 2021. The increased provision for credit losses in 2022 over 2021 was driven by strong organic loan growth, increases in unfunded commitments and a slight decline in the projected economic forecast metrics post pandemic highs.

On a diluted net earnings per share basis, net earnings were $1.39 for 2023, as compared to $1.64 for 2022 and $1.59 for 2021. The return on average assets was 1.55% for 2023, as compared to 1.76% for 2022 and 1.89% for 2021. The return on average equity was 14.99% for 2023, as compared to 16.72% for 2022 and to 13.31% for 2021.

Net Interest Income . Net interest income is the difference between interest income on earning assets and interest expense on liabilities incurred to fund those assets. Our earning assets consist primarily of loans and investment securities. Our liabilities to fund those assets consist primarily of noninterest-bearing and interest-bearing deposits.

Tax-equivalent net interest income was $395.36 million in 2023, as compared to $416.84 million in 2022, and $385.05 million in 2021. Average earning assets were $12.00 billion in 2023, as compared to $12.46 billion in 2022 and $11.34 billion in 2021. The decrease in tax-equivalent net interest income in 2023 compared to 2022 was largely attributable to the increases in the rates paid on deposits and borrowings and a change in the mix of interest earning assets. The decrease of $461.72 million in average earning assets in 2023 when compared to 2022 was primarily a result of a decrease in taxable securities of $531.39 million and tax-exempt securities of $689.37 million offset by an increase in loans of $860.76 million when compared to 2022. The increase in tax-equivalent net interest income in 2022 compared to 2021 was largely attributable to increases in interest earning assets. The increase of $1.13 billion in average earning assets in 2022 when compared to 2021 was primarily a result of increases in taxable securities of $1.13 billion and loans of $582.26 million offset by a decrease in short-term investments of $372.77 million and tax-exempt securities of $216.64 million when compared to 2021. Average interest-bearing liabilities were $7.84 billion in 2023, as compared to $7.76 billion in 2022 and $6.78 billion in 2021. The yield on earning assets increased 90 basis points in 2023 when compared to 2022 while the rate paid on interest-bearing liabilities increased 143 basis points. The yield on earning assets increased 15 basis points in 2022 when compared to 2021 while the rate paid on interest-bearing liabilities increased 32 basis points.

The table below allocates the change in tax-equivalent net interest income between the amount of change attributable to volume and to rate.

Changes in Interest Income and Interest Expense (in thousands):

		2023 Compared to 2022												2022 Compared to 2021
		Change Attributable to								Total				Change Attributable to								Total
		Volume				Rate				Change				Volume				Rate				Change
Short-term investments		$	(1,698	)		$	4,014			$	2,316			$	(458	)		$	3,415			$	2,957
Taxable investment securities			(10,401	)			11,402				1,001				18,527				13,007				31,534
Tax-exempt investment securities (1)			(20,544	)			(1,784	)			(22,328	)			(6,080	)			3,970				(2,110	)
Loans (1) (2)			43,232				67,123				110,355				29,729				(4,928	)			24,801
Interest income			10,589				80,755				91,344				41,718				15,464				57,182
Interest-bearing deposits			877				97,707				98,584				670				19,872				20,542
Repurchase agreements			(324	)			14,401				14,077				85				1,650				1,735
Borrowings			(1,142	)			1,301				159				53				3,069				3,122
Interest expense			(589	)			113,409				112,820				808				24,591				25,399
Net interest income		$	11,178			$	(32,654	)		$	(21,476	)		$	40,910			$	(9,127	)		$	31,783

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The net interest margin for 2023 was 3.29% which was a decrease of five basis points from 2022. The net interest margin in 2022 was 3.34%, a decrease of six basis points from 2021. We experienced downward pressure on our net interest margin the majority of 2023 compared to 2022 primarily due to (i) the effects of the Federal Reserve Board's accelerated rate of raising interest rates in 2022 and 2023, which was preceded by the extended period of historically low levels of short-term interest rates leading up to the first quarter of 2022, and (ii) the shift in the mix of interest-earning assets and interest-bearing deposits. The Federal Reserve Board began increasing interest rates by raising rates 25 basis points in March 2022, 50 basis points in May 2022, and 75 basis points in June, July, September and November 2022, respectively, 50 basis points in December 2022, and 25 basis points in February, March, May, and July 2023, respectively, resulting in a target rate range of 5.25% to 5.50% at December 31, 2023.

Loan rates on variable loans have increased as the majority of such loans are indexed to the applicable prime rate (8.50% at December 31, 2023), subject to underlying floors. With the latest increase in the federal funds rate, the majority of variable rate loans have increased (see additional discussion beginning on page 43).

During 2022, we increased rates on each of the primary depository products in response to the increasing federal funds rate. Additionally, we have approximately $985 million of municipal and related deposits which are indexed to short-term treasury rates which have continued to increase with the changes in the applicable rate index. Average municipal and related deposits totaled $1.46 billion and $1.48 billion for the years ended December 31, 2023 and 2022, respectively, with an average rate paid of 3.13% and 1.01%, for the respective years then ended.

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The net interest margin, which measures tax-equivalent net interest income as a percentage of average earning assets, is illustrated in the table below for the years 2021 through 2023.

Average Balances and Average Yields and Rates (in thousands, except percentages):

		2023												2022												2021
		Average Balance				Income/ Expense				Yield/ Rate				Average Balance				Income/ Expense				Yield/ Rate				Average Balance				Income/ Expense				Yield/ Rate
Assets
Short-term investments (1)		$	118,008			$	6,012				5.09	%		$	219,721			$	3,696				1.68	%		$	592,494			$	739				0.12	%
Taxable investment securities (2)			3,500,839				79,925				2.28				4,032,228				78,924				1.96				2,898,924				47,390				1.63
Tax-exempt investment securities (2)(3)			1,597,204				45,815				2.87				2,286,578				68,143				2.98				2,503,220				70,253				2.81
Loans (3)(4)			6,784,352				407,870				6.01				5,923,594				297,515				5.02				5,341,332				272,714				5.11
Total earning assets			12,000,403			$	539,622				4.50	%			12,462,121			$	448,278				3.60	%			11,335,970			$	391,096				3.45	%
Cash and due from banks			231,046												231,718												209,384
Bank premises and equipment, net			152,477												150,561												145,504
Other assets			245,550												195,664												97,952
Goodwill and other intangible assets, net			315,067												316,115												317,527
Allowance for credit losses			(83,281	)											(69,508	)											(64,082	)
Total assets		$	12,861,262											$	13,286,671											$	12,042,255
Liabilities and Shareholders’ Equity
Interest-bearing deposits		$	7,188,171			$	124,830				1.74	%		$	6,955,783			$	26,246				0.38	%		$	6,224,621			$	5,704				0.09	%
Repurchase Agreements			568,205				16,139				2.84				674,226				2,062				0.31				535,066				327				0.06
Borrowings			81,262				3,292				4.05				127,865				3,133				2.45				21,544				11				0.05
Total interest-bearing liabilities			7,837,638			$	144,261				1.84	%			7,757,874			$	31,441				0.41	%			6,781,231			$	6,042				0.09	%
Noninterest-bearing deposits			3,632,559												4,063,740												3,449,313
Other liabilities			63,238												62,953												102,279
Total liabilities			11,533,435												11,884,567												10,332,823
Shareholders’ equity			1,327,827												1,402,104												1,709,432
Total liabilities and shareholders’ equity		$	12,861,262											$	13,286,671											$	12,042,255
Net interest income						$	395,361											$	416,837											$	385,054
Rate Analysis:
Interest income/earning assets											4.50	%											3.60	%											3.45	%
Interest expense/earning assets											(1.21	)											(0.26	)											(0.05	)
Net interest margin											3.29	%											3.34	%											3.40	%

Noninterest Income . Noninterest income for 2023 was $108.00 million compared to $131.67 million in 2022. Changes in certain categories of noninterest income included (1) a decline in gains on sales of AFS securities of $9.26 million, (2) a decrease in debit card fees of $8.56 million, and (3) a decrease in gain on sale and fees of mortgage loans of $7.15 million when compared to 2022. Available for sale securities totaling $411.13 million with an average book yield of 2.91% were sold during 2023. The proceeds from the sales of these securities are being used to fund organic loan growth that is yielding approximately 8%, resulting in an anticipated earn back period of less than 18 months. The decrease in debit card fees was due to the impact of becoming subject to regulations imposed by the Federal Reserve Board that limits debit card interchange revenue which became effective for the Company as of July 1, 2022, and is consistent with our previously disclosed expectations. Mortgage income declined due to lower overall origination volumes and declining margins on loan sales as a result of the increases in mortgage interest rates during the year.

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Noninterest income for 2022 was $131.67 million, a decrease of $10.51 million, or 7.39%, as compared to 2021. Changes in certain categories of noninterest income included (1) an increase in trust fees of $3.85 million, (2) an increase in service charges on deposit accounts of $3.38 million, (3) an increase in the net gain on sale of AFS securities of $1.33 million, offset by (4) a decrease in gain on sale and fees of mortgage loans of $14.21 million, and (5) a decrease in debit card fees of $5.63 million. The increase in trust fees resulted from an increase in assets under management over the prior year and an increase in oil and gas production fees driven by increasing oil and gas prices. The fair value of our trust assets managed, which are not reflected in our consolidated balance sheets, totaled $8.75 billion at December 31, 2022. Oil and gas production fees increased related trust fees by $2.77 million in 2022 over 2021. The increase in service charges on deposits was driven by more than 10,500 net new accounts opened in 2022 and growth in treasury management services. Mortgage income declined due to lower overall origination volumes and declining margins on loan sales as a result of the increase in interest rates. The decrease in debit card fees was due to the impact of becoming subject to regulations imposed by the Federal Reserve Board that limits debit card interchange revenue which became effective for the Company as of July 1, 2022, and is consistent with our previously disclosed expectation.

Debit card fees are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. Debit card fees consist of income from debit card usage, point of sale income for debit card transactions and ATM service fees.

Federal Reserve Board rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible interchange fee for an electronic debit transaction is limited to the sum of 21 cents per transaction plus 5 basis points multiplied by the value of the transaction. Based on the applicable Federal Reserve Board rules, as amended, the Company became subject to the limitation effective July 1, 2022, which reduced debit card fees during 2023 compared to 2022, as discussed above.

Noninterest Income (in thousands):

		2023				Increase (Decrease)				2022				Increase (Decrease)				2021
Trust fees		$	40,456			$	461			$	39,995			$	3,850			$	36,145
Service charges on deposit accounts			25,378				838				24,540				3,384				21,156
Debit card fees			21,721				(8,559	)			30,280				(5,625	)			35,905
Credit card fees			2,645				60				2,585				212				2,373
Gain on sale and fees of mortgage loans			11,890				(7,145	)			19,035				(14,210	)			33,245
Net gain on sale of available-for-sale securities			(7,119	)			(9,263	)			2,144				1,329				815
Net gain on sale of foreclosed assets			46				(1,405	)			1,451				1,261				190
Net gain on sale of assets			1,525				1,005				520				310				210
Interest on loan recoveries			2,055				(785	)			2,840				(1,199	)			4,039
Other:
Check printing fees			110				(21	)			131				(81	)			212
Safe deposit rental fees			803				(32	)			835				(32	)			867
Credit life and debt protection fees			605				(414	)			1,019				(74	)			1,093
Brokerage commissions			1,511				73				1,438				46				1,392
Wire transfer fees			1,646				(8	)			1,654				230				1,424
Miscellaneous income			4,731				1,533				3,198				88				3,110
Total other			9,406				1,131				8,275				177				8,098
Total Noninterest Income		$	108,003			$	(23,662	)		$	131,665			$	(10,511	)		$	142,176

Noninterest Expense . Total noninterest expense for 2023 amounted to $237.88 million, an increase of $3.10 million, or 1.32%, as compared to 2022. Total noninterest expense for 2022 was $234.78 million, a decrease of $6.93 million, or 2.87%, as compared to 2021. An important measure in determining whether a financial institution effectively manages noninterest expenses is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio for 2023 was 47.26%, as compared to 42.80% for 2022 and 45.84% for 2021.

Salaries and employee benefits for 2023 totaled $131.92 million, a decrease of $2.22 million, or 1.65%, as compared to 2022. The net decrease reflected a decrease of $2.86 million in profit sharing expenses and lower mortgage compensation expenses of $2.40 million offset by annual merit-based and other market-based pay increases that were effective March 1, 2023.

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

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Salaries and employee benefits for 2022 totaled $134.13 million, a decrease of $7.91 million, or 5.57%, as compared to 2021. The change reflected a decrease of $5.90 million in profit sharing expenses and lower mortgage compensation expenses of $4.94 million offset by annual merit-based and other market-based pay increases that were effective March 1, 2022.

All other categories of noninterest expense for 2022 totaled $100.65 million, an increase of $979 thousand, or 0.98%, as compared to 2021. Included in noninterest expense during 2022, excluding salary and employee benefit related costs, during 2022 were decreases of $1.16 million in software amortization and expense offset by increases in FDIC insurance premiums of $851 thousand due to the increase in the average assets with tangible equity and loan related fees within other miscellaneous expense of $745 thousand due to the increase in the loan portfolio during 2022.

Noninterest Expense (in thousands):

		2023				Increase (Decrease)				2022				Increase (Decrease)				2021
Salaries, commissions and incentives (excluding mortgage)		$	97,155			$	3,264			$	93,891			$	1,867			$	92,024
Mortgage salaries and incentives			8,295				(2,395	)			10,690				(4,942	)			15,632
Medical			10,475				(710	)			11,185				142				11,043
Profit sharing			1,373				(2,860	)			4,233				(5,901	)			10,134
401(k) match expense			3,750				75				3,675				85				3,590
Payroll taxes			7,278				146				7,132				158				6,974
Stock based compensation			3,589				262				3,327				682				2,645
Total salaries and employee benefits			131,915				(2,218	)			134,133				(7,909	)			142,042
Net occupancy expense			13,766				459				13,307				298				13,009
Equipment expense			8,545				(507	)			9,052				(121	)			9,173
FDIC assessment fees			7,749				4,038				3,711				581				3,130
Debit card expense			12,933				702				12,231				274				11,957
Professional and service fees			9,810				1,040				8,770				(564	)			9,334
Printing, stationery and supplies			2,454				340				2,114				204				1,910
Operational and other losses			3,842				613				3,229				(64	)			3,293
Software amortization and expense			10,288				325				9,963				(1,157	)			11,120
Amortization of intangible assets			912				(333	)			1,245				(368	)			1,613
Other:
Data processing fees			2,051				284				1,767				(15	)			1,782
Postage			1,449				115				1,334				(205	)			1,539
Advertising			2,779				(48	)			2,827				(198	)			3,025
Correspondent bank service charges			830				(191	)			1,021				20				1,001
Telephone			3,340				273				3,067				(560	)			3,627
Public relations and business development			3,252				(303	)			3,555				212				3,343
Directors’ fees			2,546				10				2,536				162				2,374
Audit and accounting fees			2,241				441				1,800				41				1,759
Legal fees and other related costs			1,535				(335	)			1,870				(381	)			2,251
Regulatory exam fees			1,272				(314	)			1,586				163				1,423
Travel			1,858				218				1,640				222				1,418
Courier expense			1,218				22				1,196				248				948
Other real estate owned			90				87				3				(46	)			49
Other miscellaneous expense			11,207				(1,614	)			12,821				2,233				10,588
Total other			35,668				(1,355	)			37,023				1,896				35,127
Total Noninterest Expense		$	237,882			$	3,104			$	234,778			$	(6,930	)		$	241,708

Income Taxes . Income tax expense was $44.32 million for 2023, as compared to $46.40 million for 2022 and $44.41 million for 2021. Our effective tax rates on pretax income were 18.22%, 16.52% and 16.33%, respectively, for the years 2023, 2022 and 2021. The effective tax rates differ from the statutory federal tax rate of 21.0% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distribution under our deferred compensation plan and vesting of equity awards, and New Market Tax Credit ("NMTC") benefits.

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Balance Sheet Review

Loans . Our portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of December 31, 2023, total loans HFI were $7.15 billion, an increase of $706.92 million as compared to December 31, 2022.

As compared to year-end 2022 balances, total commercial loans increased $241.25 million, agricultural loans increased $7.94 million, total real estate loans increased $479.96 million, and total consumer loans decreased $22.23 million. Loans averaged $6.78 billion during 2023, an increase of $860 million over 2022 average balances.

In conjunction with the adoption of ASC 326, the Company expanded its four loan portfolio segments used under the legacy disclosure requirements into the following ten portfolio segments. For modeling purposes, our loan portfolio segments include Commercial and Industrial (“C&I”), Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied Commercial Real Estate (“CRE”), Residential, Consumer Auto, and Consumer Non-Auto. This additional segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.

The table below outlines the composition of the Company’s HFI loans by portfolio segment. For all periods prior to December 31, 2020, management has elected to maintain its previously disclosed loan portfolio segments.

Composition of Loans Held-For-Investment (in thousands):

		December 31,
		2023				2022				2021				2020				2019
Commercial:
C&I		$	1,164,811			$	917,317			$	837,075			$	1,131,382			$ N/A
Municipal			214,850				221,090				177,905				181,325			N/A
Total Commercial			1,379,661				1,138,407				1,014,980				1,312,707				856,326
Agricultural			84,890				76,947				98,089				94,864				103,640
Real Estate:
Construction & Development			963,158				959,426				749,793				553,959			N/A
Farm			344,954				306,322				217,220				152,237			N/A
Non-Owner Occupied CRE			827,969				732,089				623,434				617,686			N/A
Owner Occupied CRE			1,037,281				954,400				821,653				746,974			N/A
Residential			1,834,593				1,575,758				1,334,419				1,248,409			N/A
Total Real Estate			5,007,955				4,527,995				3,746,519				3,319,265				2,823,372
Consumer:
Auto			521,859				550,635				405,416				353,595			N/A
Non-Auto			154,426				147,884				123,968				90,602			N/A
Total Consumer			676,285				698,519				529,384				444,197				411,631
Total		$	7,148,791			$	6,441,868			$	5,388,972			$	5,171,033			$	4,194,969

Loans HFS, consisting of secondary market mortgage loans, totaled $14.25 million and $11.97 million at December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, $3.18 million and $1.47 million are valued at the lower of cost or fair value, and the remaining amount is valued under the fair value option.

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

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. Underwriting standards are designed to determine whether the borrower possesses sound business ethics and practices and to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and include personal guarantees.

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Agricultural loans are subject to underwriting standards and processes similar to commercial loans. These agricultural loans are based primarily on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most agricultural loans are secured by the agriculture related assets being financed, such as farm land, cattle or equipment, and include personal guarantees.

Real estate loans are also subject to underwriting standards and processes similar to commercial and agricultural loans. These loans are underwritten primarily based on projected cash flows and, secondarily, as loans secured by real estate. The repayment of real estate loans is generally largely dependent on the successful operation of the property securing the loans or the business conducted on the property securing the loan. Real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are generally diverse in terms of type and geographic location within Texas. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.

Consumer loan underwriting utilizes methodical credit standards and analysis to supplement the Company’s underwriting policies and procedures. The Company’s loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize the Company’s risk.

Maturity Distribution and Interest Sensitivity of Loans at December 31, 2023 (in thousands):

The following tables summarize maturity information of our loan portfolio as of December 31, 2023. The table also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.

Total Loans Held-for-Investment		Due in One Year or Less				After One but Within Five Years				After Five but Within Fifteen Years				After Fifteen Years				Total
Commercial:
C&I		$	486,266			$	550,273			$	103,625			$	24,647			$	1,164,811
Municipal			5,637				44,443				110,999				53,771				214,850
Total Commercial			491,903				594,716				214,624				78,418				1,379,661
Agricultural			64,993				18,280				1,617				—				84,890
Real Estate:
Construction & Development			397,118				199,262				230,838				135,940				963,158
Farm			19,651				68,288				173,533				83,482				344,954
Non-Owner Occupied CRE			100,973				233,174				362,955				130,867				827,969
Owner Occupied CRE			50,058				273,714				479,315				234,194				1,037,281
Residential			134,536				117,832				770,377				811,848				1,834,593
Total Real Estate			702,336				892,270				2,017,018				1,396,331				5,007,955
Consumer:
Auto			6,735				504,045				11,079				—				521,859
Non-Auto			32,014				94,186				22,123				6,103				154,426
Total Consumer			38,749				598,231				33,202				6,103				676,285
Total		$	1,297,981			$	2,103,497			$	2,266,461			$	1,480,852			$	7,148,791
% of Total Loans			18.16	%			29.42	%			31.70	%			20.72	%			100.00	%

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Loans with fixed interest rates:		Due in One Year or Less				After One but Within Five Years				After Five but Within Fifteen Years				After Fifteen Years				Total
Commercial:
C&I		$	79,004			$	324,154			$	11,946			$	—			$	415,104
Municipal			3,963				43,559				80,079				8,392				135,993
Total Commercial			82,967				367,713				92,025				8,392				551,097
Agricultural			9,103				12,859				333				—				22,295
Real Estate:
Construction & Development			154,911				162,150				49,815				10,336				377,212
Farm			8,602				24,316				105,438				1,008				139,364
Non-Owner Occupied CRE			34,751				148,624				69,235				246				252,856
Owner Occupied CRE			27,602				160,146				40,152				170				228,070
Residential			57,001				96,629				484,586				102,155				740,371
Total Real Estate			282,867				591,865				749,226				113,915				1,737,873
Consumer:
Auto			6,708				504,045				11,079				—				521,832
Non-Auto			27,835				92,441				21,813				3,272				145,361
Total Consumer			34,543				596,486				32,892				3,272				667,193
Total		$	409,480			$	1,568,923			$	874,476			$	125,579			$	2,978,458
% of Total Loans			5.73	%			21.94	%			12.23	%			1.76	%			41.66	%

Loans with variable interest rates:		Due in One Year or Less				After One but Within Five Years				After Five but Within Fifteen Years				After Fifteen Years				Total
Commercial:
C&I		$	407,262			$	226,119			$	91,679			$	24,647			$	749,707
Municipal			1,674				884				30,920				45,379				78,857
Total Commercial			408,936				227,003				122,599				70,026				828,564
Agricultural			55,890				5,421				1,284				—				62,595
Real Estate:
Construction & Development			242,207				37,112				181,023				125,604				585,946
Farm			11,049				43,972				68,095				82,474				205,590
Non-Owner Occupied CRE			66,222				84,550				293,720				130,621				575,113
Owner Occupied CRE			22,456				113,568				439,163				234,024				809,211
Residential			77,535				21,203				285,791				709,693				1,094,222
Total Real Estate			419,469				300,405				1,267,792				1,282,416				3,270,082
Consumer:
Auto			27				—				—				—				27
Non-Auto			4,179				1,745				310				2,831				9,065
Total Consumer			4,206				1,745				310				2,831				9,092
Total		$	888,501			$	534,574			$	1,391,985			$	1,355,273			$	4,170,333
% of Total Loans			12.43	%			7.48	%			19.47	%			18.96	%			58.34	%

Of the $4.17 billion of the variable interest rate loans shown above, loans totaling $1.66 billion mature or reprice over the next twelve months. Of this amount, approximately $1.37 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $287 million being subject to floors above or ceilings below the current index.

Asset Quality . Our loan portfolio is subject to periodic reviews by our centralized independent loan review group as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectability of principal or interest under the original terms becomes doubtful. Nonaccrual, past due 90 days or more and still accruing, and restructured loans plus foreclosed assets were $35.10 million at December 31, 2023, as compared to $24.33 million at December 31, 2022 and $34.16 million at December 31, 2021. As a percent of loans HFI and foreclosed assets, these assets were 0.49% at December 31, 2023, as compared to 0.38% at December 31, 2022 and 0.63% at December 31, 2021. As a percent of total assets, these assets were 0.27% at December 31, 2023, as compared to 0.19% at December 31, 2022 and 0.26% at December 31, 2021. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at December 31, 2023.

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Nonaccrual, Past Due 90 Days or More and Still Accruing, Restructured Loans and Foreclosed Assets (in thousands, except percentages):

		At December 31,
		2023				2022				2021				2020				2019
Nonaccrual loans		$	33,609			$	24,325			$	31,673			$	42,643			$	24,608
Loans still accruing and past due 90 days or more			1,004				—				8				113				153
Nonperforming loans (1)			34,613				24,325				31,681				42,756				24,761
Foreclosed assets			483				—				2,477				142				1,009
Total nonperforming assets		$	35,096			$	24,325			$	34,158			$	42,898			$	25,770
As a % of loans held-for-investment and foreclosed assets			0.49	%			0.38	%			0.63	%			0.83	%			0.61	%
As a % of total assets			0.27				0.19				0.26				0.39				0.31

(1) With the adoption of ASU 2022-02, effective January 1, 2023, TDR accounting has been eliminated.

We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans as of December 31, 2023 of approximately $913 thousand during the year ended December 31, 2023. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2023, such income would have approximated $3.22 million.

Included in our loan portfolio are certain other loans not included in the table above that are deemed to be potential problem loans. Potential problem loans are those loans that are currently performing, but for which known information about trends, uncertainties or possible credit problems of the borrowers causes management to have serious doubts as to the ability of such borrowers to comply with present repayment terms, possibly resulting in the transfer of such loans to nonperforming status. These potential problem loans totaled $5.46 million as of December 31, 2023.

See Note 3 to the Consolidated Financial Statements for more information on these assets.

Allowance for Credit Losses . The allowance for credit losses is the amount we determine as of a specific date to be appropriate to absorb current expected credit losses on existing loans. For a discussion of our methodology, see our accounting policies in Note 1 to the Consolidated Financial Statements. The provision for credit losses was $10.63 million in 2023, a provision of $17.43 million in 2022, as compared to a reversal of provision of $1.14 million in 2021. The Company's provision for credit losses during 2023 was driven by strong organic loan growth offset by a decrease in construction and development unfunded commitments. The increase in the Company's provision for credit losses during 2022 was driven by strong organic loan growth, increases in unfunded commitments and a slight decline in the projected economic forecast metrics. The net reversal of the Company's provision for credit losses in 2021 reflected improvement in the economic outlook for our markets across Texas and overall improvements in asset quality offset by loan growth.

As a percent of average loans, net loan charge-offs were 0.03% during 2023, net recoveries of 0.01% during 2022, and net loan charge-offs of 0.02% during 2021. The allowance for credit losses as a percent of loans HFI was 1.24% as of December 31, 2023, as compared to 1.18% as of December 31, 2022, and 1.18% as of December 31, 2021. Included in the following tables are further analysis of our allowance for credit losses.

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

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Loan Loss Experience and Allowance for Credit Losses (in thousands, except percentages):

		2023				2022				2021				2020				2019
Balance at January 1,		$	75,834			$	63,465			$	66,534			$	52,499			$	51,202
Impact of adopting ASC 326			—				—				—				(619	)			—
Initial allowance on acquired TB&T PCD loans			—				—				—				1,678				—
Charge-offs:
Commercial:
C&I			(1,816	)			(589	)			(1,600	)			(2,516	)		N/A
Municipal			—				—				—				—			N/A
Total Commercial			(1,816	)			(589	)			(1,600	)			(2,516	)			(1,545	)
Agricultural			(9	)			(9	)			(2,683	)			(372	)			(319	)
Real estate:
Construction & Development			—				(100	)			—				—			N/A
Farm			—				—				—				—			N/A
Non-Owner Occupied CRE			—				—				(6	)			(563	)		N/A
Owner Occupied CRE			(10	)			(537	)			(231	)			(567	)		N/A
Residential real estate			(258	)			(186	)			(93	)			(373	)		N/A
Total real estate			(268	)			(823	)			(330	)			(1,503	)			(1,335	)
Consumer:
Auto			(1,006	)			(596	)			(610	)			(548	)		N/A
Non-Auto			(600	)			(435	)			(285	)			(375	)		N/A
Total Consumer			(1,606	)			(1,031	)			(895	)			(923	)			(927	)
Total charge-offs			(3,699	)			(2,452	)			(5,508	)			(5,314	)			(4,126	)
Recoveries:
Commercial:
C&I			267				953				2,150				1,315			N/A
Municipal			—				—				—				—			N/A
Total Commercial			267				953				2,150				1,315				1,364
Agricultural			286				155				36				31				158
Real estate:
Construction & Development			106				—				1				—			N/A
Farm			—				—				110			157				N/A
Non-Owner Occupied CRE			71				852				702			131				N/A
Owner Occupied CRE			227				699				821			17				N/A
Residential real estate			24				114				96			151				N/A
Total Real Estate			428				1,665				1,730				456				404
Consumer:
Auto			398				293				401			269				N/A
Non-Auto			170				215				211			171				N/A
Total Consumer			568				508				612				440				532
Total recoveries			1,549				3,281				4,528				2,242				2,458
Net recoveries (charge-offs)			(2,150	)			829				(980	)			(3,072	)			(1,668	)
Provision for credit losses (excluding provision for unfunded commitment)			15,050				11,540				(2,089	)			16,048				2,965
Balance at December 31,		$	88,734			$	75,834			$	63,465			$	66,534			$	52,499

Loans, held-for-investment at year-end		$	7,148,791			$	6,441,868			$	5,388,972			$	5,171,033			$	4,194,969
Average loans			6,784,352				5,923,594				5,341,332				5,152,531				4,074,667
Net (recoveries) charge-offs/average loans			0.03	%			(0.01	)%			0.02	%			0.06	%			0.04	%
Allowance for credit losses/year-end loans held-for-investment			1.24	%			1.18	%			1.18	%			1.29	%			1.25	%
Allowance for credit losses/nonaccrual, past due 90 days still accruing and restructured loans			256.36				311.75				200.33				155.61				212.02

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Allocation of Allowance for Credit Losses (in thousands):

		At December 31,
		2023				2022				2021				2020				2019
		Allocation Amount				Allocation Amount				Allocation Amount				Allocation Amount				Allocation Amount
Commercial:
C&I		$	15,698			$	16,129			$	12,280			$	13,609			$ N/A
Municipal			195				1,026				348				1,552			N/A
Total Commercial			15,893				17,155				12,628				15,161				12,122
Agricultural			1,281				1,041				1,597				1,255				1,206
Real estate:
Construction & Development			28,553				26,443				17,627				13,512			N/A
Farm			2,914				1,957				663				1,876			N/A
Non-Owner Occupied CRE			13,425				9,075				10,722				8,391			N/A
Owner Occupied CRE			13,813				9,928				10,828				12,347			N/A
Residential real estate			11,654				9,075				8,133				12,601			N/A
Total Real Estate			70,359				56,478				47,973				48,727				33,974
Consumer:
Auto			810				845				896				1,020			N/A
Non-Auto			391				315				371				371			N/A
Total Consumer			1,201				1,160				1,267				1,391				5,197
Total		$	88,734			$	75,834			$	63,465			$	66,534			$	52,499

Percent of Loans in Each Category of Total Loans:

		At December 31,
		2023				2022				2021				2020				2019
Commercial:
C&I			16.29	%			14.24	%			15.53	%			21.88	%		N/A%
Municipal			3.01				3.43				3.30				3.51			N/A
Total Commercial			19.30	%			17.67				18.83				25.39				20.41
Agricultural			1.19				1.19				1.83				1.83				2.47
Real estate:
Construction & Development			13.47				14.89				13.91				10.71			N/A
Farm			4.83				4.76				4.03				2.94			N/A
Non-Owner Occupied CRE			11.58				11.36				11.57				11.95			N/A
Owner Occupied CRE			14.51				14.82				15.25				14.45			N/A
Residential real estate			25.66				24.46				24.76				24.14			N/A
Total Real Estate			70.05				70.29				69.52				64.19				67.31
Consumer:
Auto			7.30				8.55				7.52				6.84			N/A
Non-Auto			2.16				2.30				2.30				1.75			N/A
Total Consumer			9.46				10.85				9.82				8.59				9.81
Total			100.00	%			100.00	%			100.00	%			100.00	%			100.00	%

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing demand deposits in banks of $255.24 million at December 31, 2023 and $37.39 million at December 31, 2022, respectively. At December 31, 2023, our interest-bearing deposits in banks included $248.24 million maintained at the Federal Reserve Bank of Dallas and $7.00 million on deposit with the Federal Home Loan Bank of Dallas (FHLB). The average balance of interest-bearing deposits in banks was $115.79 million, $217.53 million and $590.84 million in 2023, 2022 and 2021, respectively. The average yield on interest-bearing deposits in banks was 5.09%, 1.67% and 0.12% in 2023, 2022 and 2021, respectively.

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Available-for-Sale Securities . At December 31, 2023, securities with a fair value of $4.73 billion were classified as securities AFS. There were no securities classified as held-to-maturity at December 31, 2023 and 2022. As compared to December 31, 2022, the AFS portfolio at December 31, 2023, reflected (1) a decrease of $315 thousand in U.S. Treasury securities; (2) a decrease of $401.45 million in obligations of states and political subdivisions; (3) an increase of $3.19 million in corporate bonds and other securities; and (4) a decrease of $343.02 million in mortgage-backed securities. As compared to December 31, 2021, the AFS portfolio at December 31, 2022, reflected (1) an increase of $355.71 million in U.S. Treasury securities; (2) a decrease of $854.86 million in obligations of states and political subdivisions; (3) an increase of $33.47 million in corporate bonds and other securities; and (4) a decrease of $633.13 million in mortgage-backed securities. Securities-AFS included an unrealized loss fair value adjustment of $510.92 million and $677.99 million at December 31, 2023 and 2022, respectively, and an unrealized gain fair value adjustments of $125.67 million at December 31, 2021. Our mortgage related securities are backed by GNMA, FNMA or FHLMC or are collateralized by securities backed by these agencies.

See the below table and Note 2 to the Consolidated Financial Statements for additional disclosures relating to the maturities and fair values of the investment portfolio at December 31, 2023 and 2022.

Maturities and Yields of Available-for-Sale Held at December 31, 2023 (in thousands, except percentages):

		Maturing
		One Year or Less								After One Year Through Five Years								After Five Years Through Ten Years								After Ten Years								Total
Available-for-Sale:		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
U.S. Treasury securities		$	213,660				2.03	%		$	268,574				1.78	%		$	—				—	%		$	—				—	%		$	482,234				1.90	%
Obligations of states and political subdivisions			51,697				3.46				204,966				3.06				1,181,109				2.46				59,385				3.20				1,497,157				2.60
Corporate bonds and other securities			4,483				3.89				77,448				2.75				23,024				1.76				—				—				104,955				2.58
Mortgage-backed securities			85,962				2.69				757,418				2.16				1,251,749				1.90				553,287				2.24				2,648,416				2.07
Total		$	355,802				2.42	%		$	1,308,406				2.26	%		$	2,455,882				2.17	%		$	612,672				2.33	%		$	4,732,762				2.23	%

All yields are computed on a tax-equivalent basis assuming a marginal tax rate of 21%. Yields on AFS securities are based on amortized cost. Maturities of mortgage-backed securities are based on contractual maturities and could differ due to prepayments of underlying mortgages. Maturities of other securities are reported at the earlier of maturity date or call date.

As of December 31, 2023, the investment portfolio had an overall tax equivalent yield of 2.23%, a weighted average life of 6.07 years and modified duration of 5.30 years. At December 31, 2022, the investment portfolio had an overall tax equivalent yield of 2.31%, a weighted average life of 7.76 years and modified duration of 6.33 years.

Deposits . Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.14 billion as of December 31, 2023, as compared to $11.01 billion as of December 31, 2022 and $10.57 billion as of December 31, 2021. The table below provides a breakdown of average deposits and rates paid over the past three years and the remaining maturity of time deposits of $250,000 or more:

Composition of Average Deposits and Remaining Maturity of Time Deposits of $250,000 or More (in thousands, except percentages):

		2023								2022								2021
		Average Balance				Average Rate				Average Balance				Average Rate				Average Balance				Average Rate
Noninterest-bearing deposits		$	3,632,559			—%				$	4,063,740			—%				$	3,449,313			—%
Interest-bearing deposits
Interest-bearing checking			3,321,139				1.36				3,623,301				0.42				3,068,952				0.07
Savings and money market accounts			3,018,102				1.74				2,893,012				0.32				2,682,266				0.07
Time deposits under $250,000			312,046				5.26				303,531				0.34				318,886				0.28
Time deposits of $250,000 or more			536,884				2.00				135,939				0.47				154,517				0.47
Total interest-bearing deposits			7,188,171				1.74	%			6,955,783				0.38	%			6,224,621				0.09	%
Total average deposits		$	10,820,730							$	11,019,523							$	9,673,934
Total cost of deposits							1.15	%							0.24	%							0.06	%

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The table below outlines the maturity of time deposits of $250,000 or more (in thousands):

		As of December 31, 2023
Three months or less		$	164,746
Over three through six months			52,165
Over six through twelve months			127,718
Over twelve months			25,876
Total time deposits of $250,000 or more		$	370,505

The estimated amount of uninsured and uncollateralized deposits including related interest accrued and unpaid is approximately $5.38 billion as of December 31, 2023.

Borrowings. Included in borrowings were federal funds purchased, securities sold under repurchase agreements, advances from the FHLB and other borrowings of $404.08 million, $642.51 million and $671.15 million at December 31, 2023, 2022 and 2021, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowing. The average balances of securities sold under repurchase agreements were $568.21 million, $674.23 million and $535.07 million in 2023, 2022 and 2021, respectively. The average rates paid on securities sold under repurchase agreements were 2.84%, 0.31% and 0.06% for the years ended December 31, 2023, 2022 and 2021, respectively. The average balances of federal funds purchased and advances from the FHLB were $81.26 million, $127.87 million, and $21.54 million in 2023, 2022 and 2021, respectively. The average rates paid on federal funds purchased and advances from the FHLB were 4.05%, 2.45% and 0.05% for the years ended December 31, 2023, 2022 and 2021, respectively. The weighted average interest rate on federal funds purchased, securities sold under repurchase agreements and advances from the FHLB was 3.27%, 1.96% and 0.06% at December 31, 2023, 2022 and 2021, respectively. The highest amount of federal funds purchased, securities sold under repurchase agreements and advances from the FHLB at any month-end during 2023, 2022 and 2021 was $822.98 million, $1.04 billion and $674.88 million, respectively.

Interest Rate Risk

Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. Our exposure to interest rate risk is managed primarily through our strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of changes in market interest rates. We use no off-balance-sheet financial instruments to manage interest rate risk.

Our subsidiary bank has an asset liability management committee that monitors interest rate risk and compliance with investment policies. The subsidiary bank utilizes an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next twelve months. The model measures the impact on net interest income relative to a base case scenario of hypothetical fluctuations in interest rates over the next twelve months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the re-pricing and maturity characteristics of the existing and projected balance sheet.

The following analysis depicts the estimated impact on net interest income of immediate changes in interest rates at the specified levels for the periods presented.

		Percentage change in net interest income:
Change in interest rates:		December 31,
(in basis points)		2023				2022
+400			7.17	%			5.13	%
+300			5.36	%			3.86	%
+200			3.87	%			3.13	%
+100			2.11	%			2.09	%
-100			(2.72	)%			(2.66	)%
-200			(5.54	)%			(5.47	)%
-300			(8.70	)%			(8.54	)%
-400			(9.65	)%			(10.31	)%

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The results for the net interest income simulations as of December 31, 2023 and December 31, 2022 resulted in an asset sensitive position. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-end will remain constant over the relevant twelve-month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics on specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.

Should we be unable to maintain a reasonable balance of maturities and repricing of our interest-earning assets and our interest-bearing liabilities, we could be required to dispose of our assets in an unfavorable manner or pay a higher than market rate to fund our activities. Our asset liability committee oversees and monitors this risk.

The fair value of our investment securities classified as available-for-sale totaled $4.73 billion at December 31, 2023. During the year ended December 31, 2023, the corresponding unrealized loss before taxes on the portfolio of $677.99 million at December 31, 2022, changed to an unrealized loss before taxes of $510.92 million at December 31, 2023, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by sales of securities and changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At December 31, 2023, the 5-year U.S. Treasury rate was 3.84% compared to 4.01% at December 31, 2022, representing a 17 basis point decrease during the year. As of December 31, 2023, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $225 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $198 million before taxes. We believe that we have the ability to hold these securities based on our overall liquidity and intent to hold the portfolio.

Capital and Liquidity

Capital. We evaluate capital resources by our ability to maintain adequate regulatory capital ratios to do business in the banking industry. Issues related to capital resources arise primarily when we are growing at an accelerated rate but not retaining a significant amount of our profits or when we experience significant asset quality deterioration.

Total shareholders’ equity was $1.50 billion, or 11.44% of total assets at December 31, 2023, as compared to $1.27 billion, or 9.76% of total assets at December 31, 2022. Included in shareholders’ equity were $403.30 million and $535.23 million at December 31, 2023 and 2022, respectively, in unrealized losses on investment securities AFS, net of related income taxes. Unrealized gains and losses on investment securities AFS are excluded from and do not impact regulatory capital. During 2023, total shareholders’ equity averaged $1.33 billion, or 10.32% of average assets, as compared to $1.40 billion, or 10.55% of average assets during 2022.

Banking regulators measure capital adequacy by means of the risk-based capital ratios and leverage ratio under the Basel III Rules and prompt corrective action regulations. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio is computed by dividing shareholders’ equity less intangible assets by quarter-to-date average assets less intangible assets.

Beginning in January 2015, under the Basel III Rules, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reached 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including divided payments and stock repurchase, and to pay discretionary bonuses to executive officers.

As of December 31, 2023 and 2022, we had a total risk-based capital ratio of 19.62% and 19.29%, a Tier 1 capital to risk-weighted assets ratio of 18.50% and 18.22%, a common equity Tier 1 capital to risk-weighted ratio of 18.50% and 18.22% and a Tier 1 leverage ratio of 12.06% and 10.96%, respectively. The regulatory capital ratios as of December 31, 2023 and 2022 were calculated under Basel III Rules.

Our subsidiary bank made the election to continue to exclude accumulated other comprehensive income from capital in connection with its March 31, 2015 quarterly financial filing and, in effect, to retain the accumulated other comprehensive income treatment under the prior capital rules.

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Liquidity. Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings, which amounted to $404.08 million at December 31, 2023, and an unfunded $25.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2025 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00 million. At December 31, 2023, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $1.86 billion at December 31, 2023, secured by portions of our loan portfolio and certain investment securities; and (ii) access to the Federal Reserve Bank of Dallas lending program, including the Bank Term Funding Program, secured by portions of certain investment securities. At December 31, 2023, there was $813 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

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

In addition, we anticipate that any future acquisition of financial institutions, expansion of branch locations or offering of new products could also place a demand on our cash resources. Available cash and cash equivalents at the Company, which totaled $143.32 million at December 31, 2023, investment securities which totaled $2.20 million at December 31, 2023 with maturities over 6 to 7 years, available dividends from our subsidiaries which totaled $387.33 million at December 31, 2023, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions.

The Company continuously monitors the Company's liquidity position to ensure that assets and liabilities are managed in a manner that will meet all of the Company's short-term and long-term cash requirements. The Company manages the Company's liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of the Company's shareholders. The Company also monitors its liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits.

In the ordinary course of business we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements for the expected timing of such payments as of December 31, 2023. These payments related to time deposits with stated maturity dates (Note 7 - Deposits and Borrowings) and operating leases (Note 11 - Commitments and Contingencies). In addition, we have construction contracts with remaining future minimum contractual obligations of approximately $624 thousand in 2024.

Off-Balance Sheet/Reserve for Unfunded Commitments. We are a party to financial instruments with off-balance sheet (“OBS”) risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. At December 31, 2023, the Company’s reserve for unfunded commitments totaled $7.90 million which is recorded in other liabilities.

Our exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for unfunded lines of credit, commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We generally use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.

Unfunded lines of credit and commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, as we deem necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment and income-producing commercial properties.

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Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The average collateral value held on letters of credit usually exceeds the contract amount.

See further disclosure of the unfunded lines of credit, unfunded commitments to extend credit and standby letters of credit (Note 12 - Financial Instruments with Off-Balance-Sheet Risk). Future notional amounts committed are $466.25 million in less than one year, $868.47 million in more than one year but less than three years and $588.37 million thereafter.

We believe we have no other OBS arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements.

Parent Company Funding . Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiaries. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiaries. At December 31, 2023, $387.33 million was available for the payment of intercompany dividends by our subsidiaries without the prior approval of regulatory agencies. Our subsidiaries paid aggregate dividends to us of $133.50 million in 2023 and $67.50 million in 2022.

Dividends . Our long-term dividend policy is to pay cash dividends to our shareholders of approximately 35% to 40% of annual net earnings while maintaining adequate capital to support growth. We are also restricted by a loan covenant within our line of credit agreement with Frost Bank to dividend no greater than 55% of net income, as defined in such loan agreement. The cash dividend payout ratios have amounted to 50.96%, 40.18% and 36.30% of net earnings, respectively, in 2023, 2022 and 2021. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.

Our bank subsidiary, which is a national banking association and a member of the Federal Reserve System, is required by federal law to obtain the prior approval of the OCC to declare and pay dividends if the total of all dividends declared in any calendar year would exceed the total of (1) such bank’s net profits (as defined and interpreted by regulation) for that year plus (2) its retained net profits (as defined and interpreted by regulation) for the preceding two calendar years, less any required transfers to surplus.

To pay dividends, we and our subsidiary bank must maintain adequate capital above regulatory guidelines. In addition, if the applicable regulatory authority believes that a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), the authority may require, after notice and hearing, that such bank cease and desist from the unsafe practice. The Federal Reserve Board, the FDIC and the OCC have each indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve Board, the OCC and the FDIC have issued policy statements that recommend that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.

IT EM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management considers interest rate risk to be a significant market risk for the Company. See “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Risk” for disclosure regarding this market risk.

IT EM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements and the report of our independent registered public accounting firm begin on page F-1.

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Quarterly Results of Operations (in thousands, except per share and common stock data):

The following tables set forth certain unaudited historical quarterly financial data for each of the eight consecutive quarters in the fiscal years of 2023 and 2022. This information is derived from unaudited consolidated financial statements that include, in our opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation when read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

		2023
		4 th				3 rd				2 nd				1 st
		(dollars in thousands, except per share amounts)
Summary Income Statement Information:
Interest income			142,207				135,351				129,005				121,508
Interest expense			44,699				41,202				33,139				25,222
Net interest income			97,508				94,149				95,866				96,286
Provision for credit losses			-				2,276				5,573				2,781
Net interest income after provision for credit losses			97,508				91,873				90,293				93,505
Noninterest income			21,979				28,070				29,947				28,007
Noninterest expense			63,474				59,539				57,613				57,256
Earnings before income taxes			56,013				60,404				62,627				64,256
Income tax expense			10,031				10,848				11,754				11,688
Net earnings			45,982				49,556				50,873				52,568
Per Share Data:
Earnings per share, basic		$	0.32			$	0.35			$	0.36			$	0.37
Earnings per share, diluted			0.32				0.35				0.36				0.37
Cash dividends declared			0.18				0.18				0.18				0.17
Book value at period-end			10.50				8.69				9.58				9.62
Common stock sales price:
High		$	31.58			$	33.06			$	32.26			$	38.24
Low			22.84				23.86				25.01				27.55
Close			30.30				25.12				28.49				31.90

		2022
		4 th				3 rd				2 nd				1 st
		(dollars in thousands, except per share amounts)
Summary Income Statement Information:
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
Net interest income after provision for credit losses			99,962				99,935				93,432				90,657
Noninterest income			28,393				30,609				35,669				34,850
Net gain on securities transactions			131				334				1,648				31
Noninterest expense			57,778				59,442				58,333				59,225
Earnings before income taxes			70,708				71,436				72,416				66,313
Income tax expense			12,040				12,095				11,922				10,341
Net earnings		$	58,668			$	59,341			$	60,494			$	55,972
Per Share Data:
Earnings per share, basic		$	0.41			$	0.42			$	0.42			$	0.39
Earnings per share, diluted			0.41				0.41				0.42				0.39
Cash dividends declared			0.17				0.17				0.17				0.15
Book value at period-end			8.87				7.94				9.32				10.43
Common stock sales price:
High		$	46.08			$	47.26			$	45.02			$	53.62
Low			32.53				38.72				37.47				44.09
Close			34.40				41.83				39.27				44.12

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IT EM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

IT EM 9A.	CONTROLS AND PROCEDURES

As of December 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Our management, which includes our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal financial officer have concluded, based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023.

Subsequent to our evaluation, there were no significant changes in our internal control over financial reporting or other factors that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of First Financial Bankshares, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. First Financial Bankshares, Inc. and subsidiaries’ internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

First Financial Bankshares, Inc. and subsidiaries’ management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, it used the criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO) in Internal Control – Integrated Framework . Based on our assessment we believe that, as of December 31, 2023, the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, is effective based on those criteria.

Ernst & Young LLP, Fort Worth, Texas, (U.S. PCAOB Auditor Firm I.D.: 42 ), the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2023. The report, which expresses an opinion on the effectiveness of our internal control over financial reporting as of December 31, 2023, is included below.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Financial Bankshares, Inc.

Opinion on Internal Control over Financial Reporting

We have audited First Financial Bankshares, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, First Financial Bankshares, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive earnings (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023 and the related notes and our report dated February 23, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Fort Worth, Texas

February 23, 2024

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IT EM 9B.	OTHER INFORMATION

None.

ITEM 9C.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

IT EM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 is hereby incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2023.

IT EM 11.	EXECUTIVE COMPENSATION

The information required by Item 11 is hereby incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2023.

IT EM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 related to security ownership of certain beneficial owners and management is hereby incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders. The following chart gives aggregate information under our equity compensation plans as of December 31, 2023. Additional information regarding stock-based compensation plans is presented in Note 17 – Stock Based Compensation in the notes to consolidated financial statements.

		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 (Excluding Securities Reflected in Far Left Column)
Equity compensation plans approved by security holders			1,781,710		(1)		$	30.45		(2)			1,580,195
Equity compensation plans not approved by security holders			—					—					—
Total			1,781,710				$	30.45					1,580,195

The remainder of the information required by Item 12 is incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders.

IT EM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is hereby incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2023.

IT EM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is hereby incorporated by reference from our proxy statement for our 2024 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2023.

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PART IV

IT EM 15.	EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm	F- 1
Consolidated Balance Sheets as of December 31, 2023 and 2022	F- 3
Consolidated Statements of Earnings for the years ended December 31, 2023, 2022 and 2021	F- 4
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2023, 2022 and 2021	F- 5
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2023, 2022 and 2021	F- 6
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021	F- 7
Notes to Consolidated Financial Statements	F- 8

These schedules have been omitted because they are not required, are not applicable or have been included in our consolidated financial statements.

The following exhibits are included or incorporated by reference in this Annual Report on Form 10-K:

2.1	—	Agreement and Plan of Reorganization, dated September 19, 2019, by and among First Financial Bankshares, Inc., Brazos Merger Sub, Inc., and TB&T Bancshares, Inc. (schedules have been omitted pursuant to item 601(b)(2) of Regulation S-K) (incorporated by reference from Exhibit 2.1 to the Registrant's Form 8-K filed September 20, 2019).
3.1	—	Amended and Restated Certificate of Formation (incorporated by reference from Exhibit 3.1 of the Registrant’s Form 10-Q filed July 30, 2019).
3.2	—	Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed April 3, 2020).
3.3	—	Amendment to the Amended and Restated Bylaws of the Registrant, dated July 27, 2021 (incorporated by reference from Exhibit 3.3 to the Registrant's Form 10-Q filed August 2, 2021).
4.1	—	Specimen certificate of First Financial Common Stock (incorporated by reference from Exhibit 3 of the Registrant’s Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).
4.2	—	Description of Registrant’s Securities*
10.1	—	2012 Incentive Stock Option Plan (incorporated by reference from Appendix A of the Registrant’s Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed March 1, 2012).++
10.2	—	2021 Omnibus Stock and Incentive Plan (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed April 28, 2021).++
10.3	—	Promissory Note, dated June 30, 2023, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed July 7, 2023).
10.4	—	Amended and Restated Loan Agreement, dated June 30, 2023, by and between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.2 of the Registrant's Form 8-K filed July 7, 2023).
10.5	—	2015 Restricted Stock Plan as Amended and Restated April 28, 2020 (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed May 1, 2020).++
5
10.6	—	Form of Executive Recognition Agreement (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed August 10, 2022).++
10.7	—	Supplemental Executive Retirement Plan, as amended and restated, effective July 26, 2022 (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed July 29, 2022).++
10.8	—	Confidential Separation and Release Agreement , dated January 9, 2023, by and between the Company and James R. Gordon (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed January 11, 2023).++
21.1	—	Subsidiaries of Registrant.*
23.1	—	Consent of Ernst & Young LLP.*
24.1	—	Power of Attorney (included on signature page of this Form 10-K).*
31.1	—	Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Executive Officer of First Financial Bankshares, Inc.*
31.2	—	Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Financial Officer of First Financial Bankshares, Inc.*

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32.1	—	Section 1350 Certification of Chief Executive Officer of First Financial Bankshares, Inc.+
32.2	—	Section 1350 Certification of Chief Financial Officer of First Financial Bankshares, Inc.+
101.INS	—	Inline XBRL Instance Document. – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.*
101.SCH	—	Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents.*
104	—	The cover page for the Company's Annual Report on Form 10-K for the year ended December 31, 2023, has been formatted in Inline XBRL and contained in Exhibit 101

* Filed herewith.

+ Furnished herewith. This Exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section, and shall not be deemed to be incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

++ Management contract or compensatory plan on arrangement.

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IT EM 16.	FORM 10-K SUMMARY

The Registrant has not selected the option to provide the summary information in this Item 16.

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SIG NATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

				FIRST FINANCIAL BANKSHARES, INC.
Date: February 23, 2024				By:		/s/ F. Scott Dueser
						F. Scott Dueser
						Chairman of the Board, Director, President and
						Chief Executive Officer
						(Principal Executive Officer)

The undersigned directors and officers of First Financial Bankshares, Inc. hereby constitute and appoint Michelle S. Hickox, with full power to act and with full power of substitution and resubstitution, our true and lawful attorney-in-fact with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission and hereby ratify and confirm all that such attorney-in-fact or his substitute shall lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name		Title		Date
/s/ F. Scott Dueser		Chairman of the Board, Director,		February 23, 2024
F. Scott Dueser	President, and Chief Executive Officer (Principal Executive Officer)
/s/ Michelle S. Hickox		Executive Vice President and Chief		February 23, 2024
Michelle S. Hickox	Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer)
/s/ April K. Anthony		Director		February 23, 2024
April K. Anthony
/s/ Vianei Lopez Braun		Director		February 23, 2024
Vianei Lopez Braun
/s/ David L. Copeland		Director		February 23, 2024
David L. Copeland
/s/ Michael B. Denny		Director		February 23, 2024
Michael B. Denny
/s/ Murray H. Edwards		Director		February 23, 2024
Murray H. Edwards
/s/ Eli Jones, Ph.D.		Director		February 23, 2024
Eli Jones, Ph.D.
/s/ I. Tim Lancaster		Director		February 23, 2024
I. Tim Lancaster
/s/ Kade L. Matthews		Director		February 23, 2024
Kade L. Matthews
/s/ Robert C. Nickles		Director		February 23, 2024
Robert C. Nickles
/s/ Johnny E. Trotter		Director		February 23, 2024
Johnny E. Trotter

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Financial Bankshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of First Financial Bankshares, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of earnings, comprehensive earnings (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

		Allowance for Loan Losses
Description of the Matter		As of December 31, 2023, the Company’s loan portfolio totaled $7.1 billion and the related allowance for credit losses (ACL) was $88.7 million. The Company calculates their allowance for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses, utilizing a forward-looking expected loss model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the Company’s loan portfolio. As discussed in Notes 1 and 3 of the consolidated financial statements, the ACL is an amount which represents management’s best estimate of expected credit losses over the contractual life of the Company’s loan portfolio as of the balance sheet date. The ACL includes credit loss estimates for loans evaluated using common risk characteristics such as financial asset type, collateral type, and industry of the borrower. Historical losses are correlated to economic variables that are determined to be the most relevant indicators of expected losses. Those economic variables are forecasted over the reasonable and supportable forecast period to determine the current expected credit losses. Qualitative adjustments are then made to account for factors that management does not believe are captured within the CECL quantitative models. Management applies judgment in estimating the ACL and, in particular, identifying and quantifying qualitative adjustments included within the ACL.

---

		Auditing management’s estimate of the allowance for credit losses involved a high degree of subjectivity due to the complexity of the models and the qualitative adjustments included in the estimate. Management’s identification and measurement of the qualitative adjustments is highly judgmental and could have a significant impact on the allowance for credit losses.
How We Addressed the Matter in Our Audit		We obtained an understanding of the Company’s process for estimating the allowance for credit losses, including the models used and the qualitative adjustments made to establish the ACL. We evaluated the design and tested the operating effectiveness of the controls over the model methodology, including the qualitative adjustment methodology, the validation and monitoring procedures performed over the models, the identification and the measurement of the qualitative adjustments, the reliability and accuracy of data used to estimate the qualitative adjustments, and management’s review and approval of the qualitative adjustments. To test the models, with the support of specialists, we evaluated the model methodology and design, as well as performed procedures over the Company’s correlation of the relevant economic variables to historical losses. On a sample basis, we independently tested the key inputs used in the models by agreeing to internal and external sources. Additionally, on a sample basis, we performed an independent recalculation of the models’ output. To test the qualitative adjustments, we evaluated the identification and measurement of the adjustments, including the basis for concluding the adjustments were reasonable. On a sample basis, we independently tested the completeness and accuracy of data used by the Company to estimate the qualitative adjustments by agreeing underlying data to relevant sources and with the support of specialists, recalculated the qualitative adjustments.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2002.

Fort Worth, Texas

February 23, 2024

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FIRST FINANCIAL BANKSHA RES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2023 and 2022

(Dollars in thousands, except share and per share amounts)

		2023				2022
ASSETS
CASH AND DUE FROM BANKS		$	281,354			$	293,286
INTEREST-BEARING DEMAND DEPOSITS IN BANKS			255,237				37,392
Total cash and cash equivalents			536,591				330,678
SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of these securities was $ 5,243,681 and $ 6,152,348 as of December 31, 2023 and 2022, respectively)			4,732,762				5,474,359
LOANS:
Held-for-investment, excluding PPP Loans			7,148,682				6,441,699
PPP Loans			109				169
Total loans held-for-investment			7,148,791				6,441,868
Less – allowance for credit losses			( 88,734	)			( 75,834	)
Net loans held-for-investment			7,060,057				6,366,034
Held-for-sale ($ 11,077 and $ 10,497 at fair value as of December 31, 2023 and 2022, respectively)			14,253				11,965
BANK PREMISES AND EQUIPMENT, net			151,788				152,973
INTANGIBLE ASSETS, net			314,622				315,534
OTHER ASSETS			295,521				322,523
Total assets		$	13,105,594			$	12,974,066
LIABILITIES AND SHAREHOLDERS’ EQUITY
NONINTEREST-BEARING DEPOSITS		$	3,435,586			$	4,061,788
INTEREST-BEARING DEPOSITS			7,702,714				6,943,719
Total deposits			11,138,300				11,005,507
DIVIDENDS PAYABLE			25,712				24,278
REPURCHASE AGREEMENTS			381,928				618,829
BORROWINGS			22,153				23,678
OTHER LIABILITIES			38,601				36,037
Total liabilities			11,606,694				11,708,329
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
COMMON STOCK—$ 0.01 par value; authorized 200,000,000 shares; 142,716,939 and 142,657,871 shares issued at December 31, 2023 and 2022, respectively			1,427				1,427
CAPITAL SURPLUS			681,246				677,593
RETAINED EARNINGS			1,219,525				1,121,945
TREASURY STOCK (shares at cost: 930,152 and 929,210 at December 31, 2023 and 2022, respectively)			( 11,855	)			( 11,035	)
DEFERRED COMPENSATION			11,855				11,035
ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS), net			( 403,298	)			( 535,228	)
Total shareholders’ equity			1,498,900				1,265,737
Total liabilities and shareholders’ equity		$	13,105,594			$	12,974,066

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST FINANCIAL BANKSHA RES, INC. AND SUBSIDIARIES

Consolidated Statement of Earnings

December 31, 2023, 2022 and 2021

(Dollars in thousands, except share and per share amounts)

		2023				2022				2021
INTEREST INCOME:
Interest and fees on loans		$	405,939			$	296,114			$	271,638
Interest on investment securities:
Taxable			79,925				78,924				47,390
Exempt from federal income tax			36,194				54,121				56,638
Interest on federal funds sold and interest-bearing deposits in banks			6,012				3,695				739
Total interest income			528,070				432,854				376,405
INTEREST EXPENSE:
Interest on deposits			124,830				26,246				5,705
Interest on borrowings			19,431				5,194				337
Total interest expense			144,261				31,440				6,042
Net interest income			383,809				401,414				370,363
PROVISION FOR CREDIT LOSSES			10,631				17,427				( 1,139	)
Net interest income after provisions for credit losses			373,178				383,987				371,502
NONINTEREST INCOME:
Trust fees			40,456				39,995				36,145
Service charges on deposit accounts			25,378				24,540				21,156
Debit card fees			21,721				30,280				35,905
Credit card fees			2,645				2,585				2,373
Gain on sale and fees on mortgage loans			11,890				19,035				33,245
Net gain (loss) on sale of available-for-sale securities			( 7,119	)			2,144				815
Net gain on sale of foreclosed assets			46				1,451				190
Net gain on sale of assets			1,525				520				210
Interest on loan recoveries			2,055				2,840				4,039
Other			9,406				8,275				8,098
Total noninterest income			108,003				131,665				142,176
NONINTEREST EXPENSE:
Salaries, commissions and employee benefits			131,915				134,133				142,042
Net occupancy expense			13,766				13,307				13,009
Equipment expense			8,545				9,052				9,173
FDIC insurance premiums			7,749				3,711				3,130
Debit card expense			12,933				12,231				11,957
Professional and service fees			9,810				8,770				9,334
Printing, stationery and supplies			2,454				2,114				1,910
Operational and other losses			3,842				3,229				3,293
Software amortization and expense			10,288				9,963				11,120
Amortization of intangible assets			912				1,245				1,613
Other			35,668				37,023				35,127
Total noninterest expense			237,882				234,778				241,708
EARNINGS BEFORE INCOME TAXES			243,299				280,874				271,970
INCOME TAX EXPENSE			44,322				46,399				44,408
NET EARNINGS		$	198,977			$	234,475			$	227,562
NET EARNINGS PER SHARE, BASIC		$	1.39			$	1.64			$	1.60
NET EARNINGS PER SHARE, DILUTED		$	1.39			$	1.64			$	1.59
DIVIDENDS PER SHARE		$	0.71			$	0.66			$	0.58

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST FINANCIAL BANKSHA RES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings (Loss)

Years Ended December 31, 2023, 2022 and 2021

(Dollars in thousands)

		2023				2022				2021
NET EARNINGS		$	198,977			$	234,475			$	227,562
OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS):
Change in unrealized gain (loss) on investment securities available-for- sale, before income taxes			159,881				( 800,997	)			( 89,238	)
Reclassification adjustment for realized gains (loss) on investment securities included in net earnings, before income taxes			7,119				( 2,144	)			( 815	)
Total other items of comprehensive earnings (losses)			167,000				( 803,141	)			( 90,053	)
Income tax benefit (expense) related to:
Change in unrealized gain (loss) on investment securities available-for- sale			( 33,575	)			168,210				18,740
Reclassification adjustment for realized gains (loss) on investment securities included in net earnings			( 1,495	)			450				171
Total income tax benefit (expense)			( 35,070	)			168,660				18,911
COMPREHENSIVE EARNINGS (LOSS)		$	330,907			$	( 400,006	)		$	118,598

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST FINANCIAL BANKSHAR ES, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Years Ended December 31, 2023, 2022 and 2021

(Dollars in thousands)

		Common Stock								Capital				Retained				Treasury Stock								Deferred				Accumulated Other Total Comprehensive Earnings				Total Shareholders’
		Shares				Amount				Surplus				Earnings				Shares				Amounts				Compensation				(Loss), net				Equity
BALANCE, December 31, 2020			142,161,834			$	1,422			$	669,644			$	836,729				( 938,591	)		$	( 9,126	)		$	9,126			$	170,395			$	1,678,190
Net earnings			—				—				—				227,562				—				—				—				—				227,562
Stock option exercises/stock unit conversions/restricted stock activity			370,282				3				3,982				—				—				—				—				—				3,985
Cash dividends declared, $ 0.58 per share			—				—				—				( 82,616	)			—				—				—				—				( 82,616	)
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes			—				—				—				—				—				—				—				( 71,142	)			( 71,142	)
Shares purchased in connection with directors’ deferred compensation plan, net			—				—				—				—				1,694				( 964	)			964				—				—
Stock-based compensation expense			—				—				3,245				—				—				—				—				—				3,245
BALANCE, December 31, 2021			142,532,116			$	1,425			$	676,871			$	981,675				( 936,897	)		$	( 10,090	)		$	10,090			$	99,253			$	1,759,224
Net earnings			—				—				—				234,475				—				—				—				—				234,475
Stock option exercises/stock unit conversions/restricted stock activity			370,314				4				6,211				—				—				—				—				—				6,215
Cash dividends declared, $ 0.66 per share			—				—				—				( 94,205	)			—				—				—				—				( 94,205	)
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes			—				—				—				—				—				—				—				( 634,481	)			( 634,481	)
Shares purchased in connection with directors’ deferred compensation plan, net			—				—				—				—				7,687				( 945	)			945				—				—
Stock-based compensation expense			—				—				3,958				—				—				—				—				—				3,958
Shares repurchased and retired under stock repurchase authorization			( 244,559	)			( 2	)			( 9,447	)			—				—				—				—				—				( 9,449	)
BALANCE, December 31, 2022			142,657,871				1,427				677,593				1,121,945				( 929,210	)			( 11,035	)			11,035				( 535,228	)		$	1,265,737
Net earnings			—				—				—				198,977				—				—				—				—				198,977
Stock option exercises/stock unit conversions/restricted stock activity			160,405				1				2,131				—				—				—				—				—				2,132
Cash dividends declared, $ 0.71 per share			—				—				—				( 101,397	)			—				—				—				—				( 101,397	)
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes			—				—				—				—				—				—				—				131,930				131,930
Shares purchased in connection with directors’ deferred compensation plan, net			—				—				—				—				( 942	)			( 820	)			820				—				—
Stock-based compensation expense			—				—				4,256				—				—				—				—				—				4,256
Shares repurchased and retired under stock repurchase authorization			( 101,337	)			( 1	)			( 2,734	)			—				—				—				—				—				( 2,735	)
BALANCE, December 31, 2023			142,716,939			$	1,427			$	681,246			$	1,219,525				( 930,152	)		$	( 11,855	)		$	11,855			$	( 403,298	)		$	1,498,900

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST FINANCIAL BANKSHA RES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years Ended December 31, 2023, 2022 and 2021

(Dollars in thousands)

		2023				2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings		$	198,977			$	234,475			$	227,562
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			12,578				12,762				13,061
Provision for credit losses			10,631				17,427				( 1,139	)
Securities premium amortization, net			52,343				70,788				68,308
Discount accretion on purchased loans			—				( 1,492	)			( 2,362	)
Gain (loss) on sale of securities and other assets, net			5,548				( 4,115	)			( 1,217	)
Stock-based compensation			4,256				3,958				3,245
Net tax benefit from stock-based compensation			319				336				428
Deferred federal income tax (expense) benefit			( 359	)			( 4,205	)			3,531
Change in loans held-for-sale			( 2,239	)			25,194				44,098
Change in other assets			( 3,895	)			( 1,281	)			( 11,317	)
Change in other liabilities			6,663				( 29,577	)			10,953
Total adjustments			85,845				89,795				127,589
Net cash provided by operating activities			284,822				324,270				355,151
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities and other investments:
Sales			411,134				479,273				10,631
Maturities			4,443,813				4,132,928				8,495,614
Purchases			( 4,005,743	)			( 4,385,683	)			( 10,887,727	)
Net increase in loans held-for-investment			( 708,432	)			( 1,049,925	)			( 211,786	)
Purchases of bank premises and equipment			( 17,251	)			( 15,784	)			( 19,205	)
Proceeds from sale of bank premises and equipment and other assets			3,771				1,186				823
Net cash provided by (used in) investing activities			127,292				( 838,005	)			( 2,611,650	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits			( 626,202	)			281,558				797,533
Net increase in interest-bearing deposits			758,995				157,461				1,093,138
Net increase (decrease) in repurchase agreements and borrowings			( 238,426	)			( 28,645	)			241,059
Common stock transactions:
Proceeds from stock option exercises/stock unit conversions/restricted stock activity			2,133				6,215				3,985
Dividends paid			( 99,965	)			( 91,315	)			( 79,712	)
Repurchases of stock			( 2,736	)			( 9,449	)			—
Net cash provided by (used in) financing activities			( 206,201	)			315,825				2,056,003
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			205,913				( 197,910	)			( 200,496	)
CASH AND CASH EQUIVALENTS, beginning of year			330,678				528,588				729,084
CASH AND CASH EQUIVALENTS, end of year		$	536,591			$	330,678			$	528,588
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:
Interest paid			135,167				30,540				6,198
Federal income taxes paid			46,677				45,430				39,528
Schedule of noncash investing and financing activities:
Assets acquired through foreclosure			499				—				2,711

The accompanying notes are an integral part of these consolidated financial statements.

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FIRST FINANCIAL BANKSH ARES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years Ended December 31, 2023, 2022 and 2021

The specific identification method was used to determine cost in order to compute the realized gains and losses .

The Company is lessor for portions of its banking premises. Total rental income for all leases included in net occupancy expense is approximately $ 2,742,000 , $ 2,665,000 and $ 2,622,000 , for the years ended December 31, 2023, 2022 and 2021 , respectively.

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Current authoritative accounting guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of cumulative benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. Current authoritative accounting guidance also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company concluded the tax benefits of positions taken and expected to be taken on its tax returns should be recognized in the financial statements under this guidance. The Company files income tax returns in the U.S. federal jurisdiction and state margin tax returns in the state of Texas. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2019 or Texas state tax examinations by tax authorities for years before 2020. As of December 31, 2023 and 2022 , the Company believes that there are no uncertain tax positions.

The Company leases a portion of its bank premises and equipment under operating leases. At December 31, 2023 , future minimum lease commitments were: 2024 - $ 605,000 , 2025 - $ 438,000 , 2026 - $ 117,000 , 2027 - $ 63,000 and 2028 - $ 23,000 and no ne thereafter.

We believe we have no other off-balance sheet arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements.

The Company has acquired life insurance policies on certain current and former executives and directors of acquired entities. At December 31, 2023 and 2022, other assets on the consolidated balance sheet include $ 34,136,000 and $ 33,241,000 and reported cash value income (net of related insurance premium expenses) of $ 891,000 , $ 836,000 and $ 814,000 in 2023, 2022 and 2021 , respectively.

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