UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
☐
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)
(325) 627-7155
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock, $0.01 par value
FFIN
The Nasdaq Global Select Market
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 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 filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2of 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 is a shell company (as defined in Rule12b-2of the Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
Outstanding at May 6, 2022
Common Stock, $0.01 par value per share
142,719,164
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item
Page
1.
Financial Statements
3
Consolidated Balance Sheets – Unaudited
4
Consolidated Statements of Earnings – Unaudited
5
Consolidated Statements of Comprehensive Earnings (Loss) – Unaudited
6
Consolidated Statements of Shareholders’ Equity – Unaudited
7
Consolidated Statements of Cash Flows – Unaudited
8
Notes to Consolidated Financial Statements – Unaudited
9
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39
3.
Quantitative and Qualitative Disclosures About Market Risk
53
4.
Controls and Procedures
54
PART II - OTHER INFORMATION
Legal Proceedings
55
1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
5.
Other Information
6.
Exhibits
56
Signatures
57
2
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. and Subsidiaries (the “Company” or “we”) at March 31, 2022 and 2021 (unaudited) and December 31, 2021, and the consolidated statements of earnings, comprehensive earnings and shareholders’ equity for the three-months ended March 31, 2022 and 2021 (unaudited), and the consolidated statements of cash flows for the three-months ended March 31, 2022 and 2021 (unaudited) and notes to consolidated financial statements (unaudited), follow on pages 4 through 38.
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31,
December 31,
2022
2021
(Unaudited)
ASSETS
CASH AND DUE FROM BANKS
$
203,187
190,350
205,053
INTEREST-BEARING DEMAND DEPOSITS IN BANKS
394,566
893,221
323,535
Total cash and cash equivalents
597,753
1,083,571
528,588
SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of these securities was $6,767,967, $4,961,438 and $6,447,510 as of March 31, 2022 and 2021 and December 31, 2021, respectively)
6,502,495
5,109,631
6,573,179
LOANS:
Held-for-investment, excluding PPP loans
5,550,430
4,790,752
5,336,179
PPP loans
15,739
531,810
52,793
Total loans held-for-investment
5,566,169
5,322,562
5,388,972
Less—allowance for credit losses
(66,913
)
(62,974
(63,465
Net loans held-for-investment
5,499,256
5,259,588
5,325,507
Held-for-sale ($22,382, $61,511 and $34,122 at fair value at March 31, 2022 and 2021 and December 31, 2021, respectively)
27,670
65,405
37,810
BANK PREMISES AND EQUIPMENT, net
150,168
142,415
149,764
INTANGIBLE ASSETS, net
316,459
317,980
316,779
OTHER ASSETS
220,399
124,297
170,834
Total assets
13,314,200
12,102,887
13,102,461
LIABILITIES AND SHAREHOLDERS’ EQUITY
NONINTEREST-BEARING DEPOSITS
3,978,724
3,350,145
3,780,230
INTEREST-BEARING DEPOSITS
7,021,101
6,063,302
6,786,258
Total deposits
10,999,825
9,413,447
10,566,488
DIVIDENDS PAYABLE
21,411
18,500
21,388
BORROWINGS
758,595
548,604
671,152
TRADE DATE PAYABLE
—
381,871
OTHER LIABILITIES
45,620
75,037
84,209
Total liabilities
11,825,451
10,437,459
11,343,237
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
COMMON STOCK — ($0.01 par value, authorized 200,000,000 shares; 142,704,495, 142,285,611 and 142,532,116 shares issued at March 31, 2022 and 2021 and December 31, 2021, respectively)
1,427
1,423
1,425
CAPITAL SURPLUS
680,665
671,849
676,871
RETAINED EARNINGS
1,016,239
875,147
981,675
TREASURY STOCK (shares at cost: 936,847, 938,004 and 936,897 at March 31, 2022 and 2021 and December 31, 2021, respectively)
(10,404
(9,385
(10,090
DEFERRED COMPENSATION
10,404
9,385
10,090
ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS), net
(209,582
117,009
99,253
Total shareholders’ equity
1,488,749
1,665,428
1,759,224
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF EARNINGS—(UNAUDITED)
Three-Months Ended March 31,
INTEREST INCOME:
Interest and fees on loans
64,499
66,435
Interest on investment securities:
Taxable
17,823
10,264
Exempt from federal income tax
14,593
13,749
Interest on federal funds sold and interest-bearing demand deposits in banks
94
162
Total interest income
97,009
90,610
INTEREST EXPENSE:
Interest on deposits
1,370
1,695
Other
200
91
Total interest expense
1,570
1,786
Net interest income
95,439
88,824
PROVISION FOR CREDIT LOSSES
4,782
(1,997
Net interest income after provision for credit losses
90,657
90,821
NONINTEREST INCOME:
Trust fees
9,817
8,299
Service charges on deposit accounts
5,706
4,793
ATM, interchange and credit card fees
9,528
8,677
Gain on sale and fees on mortgage loans
6,333
9,894
Net gain on available-for-sale securities
31
808
Net gain on sale of foreclosed assets
1,084
Net gain (loss) on sale of assets
(10
145
Interest on loan recoveries
283
382
2,109
1,821
Total noninterest income
34,881
34,874
NONINTEREST EXPENSE:
Salaries, commissions and employee benefits
34,138
34,931
Net occupancy expense
3,225
3,147
Equipment expense
2,257
2,164
FDIC insurance premiums
869
701
ATM, interchange and credit card expenses
2,968
2,772
Professional and service fees
2,225
2,139
Printing, stationery and supplies
540
325
Operational and other losses
596
287
Software amortization and expense
2,457
2,619
Amortization of intangible assets
320
412
9,630
8,226
Total noninterest expense
59,225
57,723
EARNINGS BEFORE INCOME TAXES
66,313
67,972
INCOME TAX EXPENSE
10,341
11,054
NET EARNINGS
55,972
56,918
NET EARNINGS PER SHARE, BASIC
0.39
0.40
NET EARNINGS PER SHARE, DILUTED
DIVIDENDS PER SHARE
0.15
0.13
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) —(UNAUDITED)
(Dollars in thousands)
OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS):
Change in unrealized gain (loss) on investment securities available-for-sale, before income taxes
(390,899
(66,770
Reclassification adjustment for realized gains (loss) on investment securities included in net earnings, before income taxes
(31
(808
Total other items of comprehensive earnings (loss)
(390,930
(67,578
Income tax benefit (expense) related to:
Change in unrealized gain (loss) on investment securities available-for-sale
82,088
14,022
Reclassification adjustment for realized gains (loss) on investment securities included in net earnings
170
Total income tax benefit (expense)
82,095
14,192
COMPREHENSIVE EARNINGS (LOSS)
(252,863
3,532
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Common Stock
Treasury Stock
AccumulatedOther
Total
Shares
Amount
CapitalSurplus
RetainedEarnings
Amounts
DeferredCompensation
ComprehensiveEarnings (Loss)
Shareholders’Equity
Balances at 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 (unaudited)
Stock option exercises (unaudited)
124,524
1
1,903
1,904
Restricted stock grant/forfeiture, net (unaudited)
(747
(17
Cash dividends declared, $0.13 per share (unaudited)
(18,500
Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes (unaudited)
(53,386
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)
587
(259
259
Stock option expense (unaudited)
319
Balances at March 31, 2021 (unaudited)
142,285,611
(938,004
Balances at December 31, 2021
142,532,116
(936,897
172,751
2,919
2,921
(372
559
Cash dividends declared, $0.15 per share (unaudited)
(21,408
Change in unrealized gain (loss) in investment securities available- for-sale, net of related income taxes (unaudited)
(308,835
50
(314
314
316
Balances at March 31, 2022 (unaudited)
142,704,495
(936,847
CONSOLIDATED STATEMENTS OF CASH FLOWS—(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
3,231
3,171
Provision for credit losses
Securities premium amortization, net
19,836
14,105
Discount accretion on purchased loans
(373
(591
Gain on sale of assets, net
(1,074
(910
Change in loans held-for-sale
9,367
16,365
Change in other assets
9,434
8,868
Change in other liabilities
(14,490
840
Total adjustments
30,713
39,851
Net cash provided by operating activities
86,685
96,769
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales
10,631
Maturities
211,266
7,839,968
Purchases
(551,559
(8,280,926
Net increase in loans held-for-investment
(176,350
(148,615
Purchases of bank premises and equipment
(3,193
(3,322
Proceeds from sale of bank premises and equipment and other assets
420
Net cash used in investing activities
(519,836
(581,844
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits
198,494
367,448
Net increase in interest-bearing deposits
234,843
370,182
Net increase in borrowings
87,443
118,511
Common stock transactions:
Proceeds from stock option exercises
Dividends paid
(21,385
(18,483
Net cash provided by financing activities
502,316
839,562
NET INCREASE IN CASH AND CASH EQUIVALENTS
69,165
354,487
CASH AND CASH EQUIVALENTS, beginning of period
729,084
CASH AND CASH EQUIVALENTS, end of period
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:
Interest paid
1,523
1,843
Transfer of loans to other real estate
255
Investment securities purchased but not settled
Restricted stock grant (forfeiture)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
First Financial Bankshares, Inc. (a Texas corporation) (“Bankshares”, “Company,” “we” or “us”) is a financial holding company which owns all of the capital stock of one bank with 78 locations located in Texas as of March 31, 2022. The Company’s subsidiary bank is First Financial Bank, N.A. The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in the market area in which First Financial Bank, N.A. is located. In addition, the Company also owns First Financial Trust & Asset Management Company, N.A., First Financial Insurance Agency, Inc., First Technology Services, Inc. and FB Investment Paris Fund, LLC.
Basis of Presentation
A summary of significant accounting policies of the Company and its subsidiaries applied in the preparation of the accompanying consolidated financial statements follows. The accounting principles followed by the Company and the methods of applying them are in conformity with both United States generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry.
The Company evaluated subsequent events for potential recognition through the date the consolidated financial statements were issued.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include its allowance for credit losses and its valuation of financial instruments.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.
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. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. Subsequent to July 27, 2021 and through the date of this report, no shares were repurchased under the plan.
Other Recently Issued and Effective Authoritative Accounting Guidance
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12, simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 was effective for the Company for annual reporting periods after December 15, 2020, and interim periods within. Adoption of ASU 2019-12 did not have a significant impact on the Company’s financial statements and related disclosures.
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 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 refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 will also require that an entity disclose current-period gross charge-offs by year of origination for financial receivables and net investment leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will become effective 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.
Investment Securities
Management classifies debt securities as held-to-maturity, available-for-sale, or trading based on its intent. Securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of securities at the time of purchase.
Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of securities in noninterest income.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the three-months ended March 31, 2022 and 2021.
The Company records its available-for-sale securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the marketplace as a result of the illiquid market, specific to the type of security.
The Company’s investment portfolio currently consists of obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis.
Allowance for Credit Losses –Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previously recognized allowances are charged-off and the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.
Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
At March 31, 2022, and 2021 and December 31, 2021, no allowance for credit losses - available-for-sale securities was recorded.
Allowance for Credit Losses – Held-to-Maturity Securities
The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management’s best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses.
10
At March 31, 2022, and 2021 and December 31, 2021, the Company held no securities that were classified as held-to-maturity.
Loans Held-for-Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.
Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured.
Further information regarding our accounting policies related to past due loans, nonaccrual loans and troubled-debt restructurings is presented in Note 3.
Acquired Loans
Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Upon the adoption of ASC 326, acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”).
PCD loans are defined as a loan or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration.
The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as nonaccrual as of the acquisition date and are collateral dependent are assessed for allowance on an individual basis. For PCD loans, an initial allowance is established on the acquisition date. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.
Non-PCD loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses as well as a fair value adjustment to the amortized cost of the loan and accreted into income over the life of the loan.
Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the non-credit discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. For non-PCD loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan.
Allowance for Credit Losses - Loans
The allowance for credit losses (“allowance” or “ACL”) is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans. The ACL represents an amount which, in management’s judgement, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.
11
The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. 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. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. Refer to Note 3 for more details on the Company’s portfolio segments.
The Company applies two methodologies to estimate the allowance on its pooled portfolio segments; discounted cash flows method and weighted average remaining life method. Allowance estimates on the following portfolio segments are calculated using the discounted cash flows method: C&I, Municipal, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, and Residential. Allowance estimates on the following portfolio segments are calculated using the remaining life method: Agriculture, Consumer Auto and Consumer Non-Auto. The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a one-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period, expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include; Texas unemployment rate, Texas house price index and Texas retail sales index. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on an ongoing basis.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature, volume and size of a loan or the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or health pandemics.
Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
Allowance for Credit Losses - Off-Balance-Sheet/Reserve for Unfunded Commitments
The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. These obligations include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. At March 31, 2022, and 2021 and December 31, 2021, the Company’s reserve for unfunded commitments totaled $7,471,000, $6,918,000 and $6,436,000, respectively, which is included in other liabilities in the consolidated balance sheet.
12
Other Real Estate
Other real estate owned is foreclosed property held pending disposition and is initially recorded at fair value, less estimated costs to sell. At foreclosure, if the fair value of the real estate, less estimated costs to sell, is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Any subsequent reduction in value is recognized by a charge to income. Operating and holding expenses of such properties, net of related income, and gains/losses on their disposition are included in net gain (loss) on sale of foreclosed assets as incurred.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever is shorter.
Business Combinations, Goodwill and Other Intangible Assets
The Company accounts for all business combinations under the purchase method of accounting. Tangible and intangible assets and liabilities of the acquired entity are recorded at fair value. Intangible assets with finite useful lives represent the future benefit associated with the acquisition of the core deposits and are amortized over seven years, utilizing a method that approximates the expected attrition of the deposits. Goodwill with an indefinite life is not amortized, but rather tested annually for impairment as of June 30 each year. There was no impairment recorded for the three-months ended March 31, 2022 or 2021, respectively.
Securities Sold Under Agreements To Repurchase
Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of the cash received in connection with the transaction. The Company may be required to provide additional collateral based on the estimated fair value of the underlying securities.
Segment Reporting
The Company has determined that its banking regions meet the aggregation criteria of the current authoritative accounting guidance since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas).
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of 90 days or less, and federal funds sold.
Accumulated Other Comprehensive Earnings (Loss)
Unrealized net gains or losses on the Company’s available-for-sale securities (after applicable income tax expense) totaling $209,582,000 of losses at March 31, 2022 and $117,009,000 and $99,253,000 of gains at March 31, 2021 and December 31, 2021, respectively, are included in accumulated other comprehensive earnings (loss) as a separate component of shareholders' equity.
Income Taxes
The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value using the Black-Scholes model of the shares at the grant date. The grant date fair value is amortized over the vesting period which generally is five or six years. The Company also grants restricted stock and/or units for a fixed number of shares which generally vests over periods of one to three years and/or performance metrics over a three-year period related to a defined group of peers. For stock option grants, the exercise price is established based on the closing trading price. No adjustments have been necessary to properly value the grant based on the terms or other conditions of the grants. See Note 8 for further information.
Advertising Costs
Advertising costs are expensed as incurred.
13
Per Share Data
Net earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The Company calculates dilutive EPS assuming all outstanding stock options to purchase common shares and unvested restricted stock shares and units have been exercised and/or vested at the beginning of the year (or the time of issuance, if later.) The dilutive effect of the outstanding options and restricted stock is reflected by application of the treasury stock method, whereby the proceeds from the exercised options and unearned compensation for both restricted stock and stock options are assumed to be used to purchase common shares at the average market price during the respective period. There were 212,000 anti-dilutive shares for the three-months ended March 31, 2022 that were excluded from the computation of EPS. There were no anti-dilutive shares for the three-months ended March 31, 2021. The following table reconciles the computation of basic EPS to diluted EPS:
Net
Weighted
Earnings
Average
Per Share
(in thousands)
For the three-months ended March 31, 2022:
Net earnings per share, basic
142,558,743
Effect of stock options and stock grants
743,320
Net earnings per share, diluted
143,302,063
For the three-months ended March 31, 2021:
142,146,275
856,383
143,002,658
Note 2 - Securities
Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of available-for-sale securities are as follows (dollars in thousands):
March 31, 2022
Gross
Amortized
Unrealized
Estimated
Cost Basis
Holding Gains
Holding Losses
Fair Value
Securities available-for-sale:
U.S. Treasury securities
311,860
(10,516
301,344
Obligations of states and political subdivisions
2,590,308
26,628
(87,455
2,529,481
Residential mortgage-backed securities
3,450,006
(186,954
3,265,191
Commercial mortgage-backed securities
341,506
924
(4,752
337,678
Corporate bonds and other
74,287
(5,486
68,801
Total securities available-for-sale
6,767,967
29,691
(295,163
March 31, 2021
2,418,227
106,988
(8,198
2,517,017
2,073,647
43,575
(8,628
2,108,594
431,137
15,916
447,053
38,427
79
(1,539
36,967
4,961,438
166,558
(18,365
14
December 31, 2021
126,716
125
126,841
2,638,369
116,319
(1,217
2,753,471
3,256,746
23,990
(21,287
3,259,449
356,207
8,914
(1
365,120
69,472
32
(1,206
68,298
6,447,510
149,380
(23,711
The Company did not hold any securities classified as held-to-maturity at March 31, 2022, March 31, 2021, or December 31, 2021.
The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at March 31, 2022 and 2021, and December 31, 2021, were computed by using scheduled amortization of balances and historical prepayment rates.
The amortized cost and estimated fair value of available-for-sale securities at March 31, 2022, by contractual and expected maturity, are shown below (in thousands):
Due within one year
285,925
287,450
Due after one year through five years
2,975,374
2,896,943
Due after five years through ten years
2,966,491
2,814,749
Due after ten years
540,177
503,353
The following tables disclose as of March 31, 2022, and 2021 and December 31, 2021, the Company’s investment securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 or more months (in thousands):
Less than 12 Months
12 Months or Longer
UnrealizedLoss
10,516
1,518,732
85,015
25,679
2,440
1,544,411
87,455
2,725,934
163,034
303,344
23,920
3,029,278
186,954
202,719
4,752
40,701
2,431
28,100
3,055
5,486
4,789,430
265,748
357,123
29,415
5,146,553
295,163
533,213
8,198
589,353
8,618
999
590,352
8,628
471
32,490
1,539
1,155,527
18,355
1,156,526
18,365
163,698
1,096
18,943
122
182,641
1,218
2,263,010
19,742
54,392
1,544
2,317,402
21,286
820
47,436
635
16,432
571
63,868
1,206
2,474,964
21,474
89,767
2,237
2,564,731
23,711
The number of investments in an unrealized loss position totaled 651 at March 31, 2022. We believe any unrealized losses in the U.S. treasury securities, obligations of state and political subdivisions, residential and commercial mortgage-backed and asset-backed investment securities, and corporate bonds and other at March 31, 2022 and 2021, and December 31, 2021, are due to changes in interest rates and not credit-related events. As such, no
15
allowance for credit losses is required on these securities at March 31, 2022 and 2021, and December 31, 2021. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At March 31, 2022, 72.34% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 54.51% are guaranteed by the Texas Permanent School Fund.
At March 31, 2022, $3,896,810,000 of the Company’s securities were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law.
During the three-months ended March 31, 2022, there were no sales of investment securities that were classified as available-for-sale. During the three-months ended March 31, 2021, proceeds from sales of investment securities that were classified as available-for-sale totaled $10,631,000. Gross realized security gains from calls and sales during the three-months ended March 31, 2022 and 2021, totaled $33,000 and $808,000, respectively. Gross realized security losses from calls and sales during the three-months ended March 31, 2022 totaled $2,000 with no gross realized security losses from calls and sales during the three-months ended March 31, 2021.
The specific identification method was used to determine cost in order to compute the realized gains and losses.
Note 3 – Loans Held-for-Investment and Allowance for Credit Losses
For the periods ended March 31, 2022, March 31, 2021 and December 31, 2021, the following tables outline the Company’s loan portfolio by the ten portfolio segments where applicable.
Loans held-for-investment by portfolio segment are as follows (dollars in thousands):
Commercial:
C&I*
838,049
1,178,126
837,075
Municipal
191,799
176,949
177,905
Total Commercial
1,029,848
1,355,075
1,014,980
Agricultural
82,883
90,366
98,089
Real Estate:
Construction & Development
806,211
587,928
749,793
Farm
225,942
162,046
217,220
Non-Owner Occupied CRE
636,160
650,144
623,434
Owner Occupied CRE
881,181
759,906
821,653
Residential
1,352,162
1,254,727
1,334,419
Total Real Estate
3,901,656
3,414,751
3,746,519
Consumer:
Auto
419,818
370,027
405,416
Non-Auto
131,964
92,343
123,968
Total Consumer
551,782
462,370
529,384
Total Loans
Less: Allowance for credit losses
Loans, net
* All disclosures for the C&I loan segment include PPP loan balances, net of deferred fees and costs, as disclosed on the face of the consolidated balance sheet.
Outstanding loan balances at March 31, 2022 and 2021, and December 31, 2021, are net of unearned income, including net deferred loan fees.
Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas (“FHLB”) to provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits. At March 31, 2022, this available line of credit was $2,063,253,000. At March 31, 2022, $3,560,756,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At March 31, 2022, there was no balance outstanding under this line of credit.
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The Company’s nonaccrual loans, loans still accruing and past due 90 days or more and restructured loans are as follows (dollars in thousands):
Nonaccrual loans
28,723
39,333
31,652
Loans still accruing and past due 90 days or more
Troubled debt restructured loans still accruing*
20
23
21
28,754
39,358
31,681
* Troubled debt restructured loans of $6,135,000, $6,619,000 and $6,721,000, for which interest collection is doubtful are included in nonaccrual loans as of March 31, 2022, and 2021 and December 31, 2021, respectively.
The Company had $28,754,000, $39,658,000 and $34,158,000 in nonaccrual, past due 90 days or more and still accruing, restructured loans, and foreclosed assets at March 31, 2022 and 2021, and December 31, 2021, respectively. Nonaccrual loans at March 31, 2022 and 2021, and December 31, 2021, consisted of the following (dollars in thousands):
C&I
4,711
4,709
5,370
4,338
1,068
4,920
594
1,296
708
1,209
6,859
1,173
2,574
7,088
2,671
7,288
9,557
7,897
7,567
8,364
8,360
19,232
33,164
20,809
402
317
514
40
75
442
392
553
No significant additional funds are committed to be advanced in connection with nonaccrual loans as of March 31, 2022.
Summary information on the allowance for credit losses for the three-months ended March 31, 2022 and 2021, are outlined by portfolio segment in the following tables (dollars in thousands):
Three-months ended March 31, 2022
Construction&Development
Beginning balance
12,280
348
1,597
17,627
663
Provision for loan losses
3,455
1,070
289
360
210
Recoveries
156
25
Charge-offs
(154
(100
Ending balance
15,737
1,418
1,911
17,887
873
Three-months ended March 31, 2022 (continued)
Non-OwnerOccupiedCRE
OwnerOccupiedCRE
10,722
10,828
8,133
896
371
63,465
(2,278
789
(163
(20
35
3,747
66
46
(88
(146
(73
(98
(659
8,499
11,536
7,829
354
66,913
17
Three-months ended March 31, 2021
13,609
1,552
1,255
13,512
1,876
(1,239
639
721
(268
(662
223
(270
12,323
2,191
1,985
13,246
1,223
Three-months ended March 31, 2021 (continued)
8,391
12,347
12,601
1,020
66,534
1,052
(2,467
(1,384
141
38
(3,429
19
73
47
443
(6
(8
(47
(166
(77
(574
9,492
9,878
11,189
379
62,974
Additionally, the Company records a reserve for unfunded commitments in other liabilities which totaled $7,471,000, $6,918,000 and $6,436,000 at March 31, 2022 and 2021, and December 31, 2021, respectively. The provision for loan losses of $3,747,000 for the three-months ended March 31, 2022 above is combined with the provision for unfunded commitments of $1,035,000 and reported in the aggregate of $4,782,000 under the provision for credit losses in the consolidated statement of earnings for the three-months ended March 31, 2022. The $3,429,000 reversal of the provision for loan losses for the three-months ended March 31, 2021 above is combined with the provision for unfunded commitments of $1,432,000 and reported in the aggregate of a reversal of $1,997,000 under the provision for credit losses for the three-months ended March 31, 2021.
The Company’s loans that are individually evaluated for credit losses (both collateral and non-collateral dependent) and their related allowances as of March 31, 2022, and 2021 and December 31, 2021, are summarized in the following tables by loan segment (dollars in thousands):
CollateralDependent LoansIndividuallyEvaluated forCredit LossesWithout anAllowance
CollateralDependent LoansIndividuallyEvaluated forCredit LossesWith anAllowance
Non-CollateralDependentLoansIndividuallyEvaluated forCredit Losses
Total LoansIndividuallyEvaluatedfor CreditLosses
RelatedAllowanceon CollateralDependentLoans
RelatedAllowance onNon-CollateralDependentLoans
TotalAllowance forCredit Losseson LoansIndividuallyEvaluated forCredit Losses
95
4,616
20,620
25,331
2,525
5,268
7,793
96
20,716
25,427
2,349
1,989
411
4,749
946
276
1,222
9,632
10,226
44
1,446
1,490
1,214
2,423
2,463
111
32,705
35,279
3,006
3,016
6,187
1,101
29,608
36,896
3,149
3,245
4,954
2,613
27,709
35,276
306
1,668
1,974
14,813
4,419
100,868
120,100
456
9,269
9,725
1,092
1,494
350
390
1,442
1,884
17,257
11,466
123,437
152,160
3,928
14,816
18,744
18
1,806
2,903
14,580
19,289
777
3,104
3,881
9,777
1,536
24,357
29,066
4,640
5,417
457
612
5,790
1,620
1,790
1,124
171
11,202
12,497
868
880
2,241
4,618
3,436
10,295
590
81
671
6,045
1,043
32,299
39,387
226
3,109
3,335
6,081
3,476
45,893
55,450
599
3,000
3,599
4,210
4,154
26,331
34,695
577
2,297
2,874
19,701
13,462
119,161
152,324
2,004
9,355
11,359
1,399
1,716
376
451
1,775
2,167
21,964
17,369
151,083
190,416
2,952
15,621
18,573
749
4,621
19,021
24,391
2,533
4,094
6,627
109
19,130
24,500
3,026
1,894
478
5,398
1,086
359
1,445
102
606
4,765
5,473
90
135
225
997
176
1,969
3,142
2,543
128
31,797
34,468
4,044
4,059
6,548
1,349
40,607
48,504
152
3,329
3,481
5,990
2,370
29,210
37,570
307
1,719
2,026
16,180
4,629
108,348
129,157
564
9,229
9,793
1,161
1,675
416
455
1,577
2,130
19,955
11,697
129,533
161,185
4,184
13,686
17,870
The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of March 31, 2022, and 2021 and December 31, 2021, are summarized in the following table by loan segment (dollars in thousands). Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
Loans individually evaluated for credit losses
Loans collectively evaluated for credit losses
7,944
689
16,397
March 31, 2022 (continued)
5,483
8,291
5,855
866
353
48,169
8,442
655
195
12,366
552
March 31, 2021 (continued)
6,157
6,279
8,315
1,063
377
44,401
5,653
17,402
661
December 31, 2021 (continued)
6,663
7,347
6,107
892
370
45,595
The Company’s recorded investment in loans as of March 31, 2022, and 2021 and December 31, 2021, related to the balance in the allowance for credit losses follows below (dollars in thousands):
812,718
191,703
78,134
795,985
223,519
600,881
844,285
1,316,886
418,324
131,574
5,414,009
1,158,837
167,172
83,507
575,431
151,751
610,757
704,456
1,220,032
368,311
91,892
5,132,146
812,684
177,796
92,691
744,320
214,078
588,966
773,149
1,296,849
403,741
123,513
5,227,787
From a credit risk standpoint, the Company rates its loans in one of five categories: (i) pass, (ii) special mention, (iii) substandard, (iv) doubtful or (v) loss (which are charged-off).
The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our on-going monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on nonaccrual.
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at March 31, 2022 (dollars in millions):
2020
2019
2018
Prior
RevolvingLoansAmortizedCost Basis
Risk rating:
Pass
163
438
121
42
24
26
814
Special mention
Substandard
Doubtful
166
449
124
838
33
93
192
51
83
118
524
106
795
119
532
107
22
806
110
28
29
52
211
123
62
101
601
129
76
114
636
100
258
136
97
88
845
263
140
178
881
441
208
78
266
1,315
108
448
215
281
1,352
68
197
89
418
45
131
69
132
704
2,327
862
400
302
702
116
5,413
48
105
711
2,363
885
427
743
5,566
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at March 31, 2021 (dollars in millions):
2017
303
647
84
61
41
1,160
656
86
64
1,179
92
167
177
347
575
352
67
588
30
198
611
27
199
120
87
148
650
74
168
126
72
169
705
134
80
181
760
346
157
1,220
160
161
368
747
2,024
694
482
291
794
5,133
34
754
2,070
729
510
321
837
5,323
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at December 31, 2021 (dollars in millions):
526
813
537
183
98
557
744
561
750
117
214
43
217
77
130
624
250
143
59
773
260
147
103
65
822
477
230
115
222
483
237
71
235
1,334
218
403
219
405
2,548
1,005
332
548
5,228
2,585
1,027
499
236
579
5,389
At March 31, 2022, and 2021 and December 31, 2021, the Company’s past due loans are as follows (dollars in thousands):
15-59DaysPastDue*
60-89DaysPastDue
GreaterThan 90Days
Total PastDue
Current
90 DaysPast DueStillAccruing
8,971
36
1,658
10,665
827,384
153
191,646
9,124
10,818
1,019,030
4,846
78,037
3,562
37
802,612
445
452
225,490
5,066
5,174
630,986
2,789
1,028
525
4,342
876,839
6,757
224
7,231
1,344,931
18,181
1,360
1,257
20,798
3,880,858
49
419,447
131,836
551,283
32,578
2,938
36,961
5,529,208
60-89DaysPast Due
3,469
4,055
1,174,071
176,930
3,488
4,074
1,351,001
2,535
87,831
1,810
1,917
586,011
161,975
695
649,449
1,847
758,059
6,920
6,987
1,247,740
11,343
11,517
3,403,234
470
511
369,516
92,203
651
461,719
17,965
433
18,777
5,303,785
3,638
3,894
833,181
63
177,842
3,701
3,957
1,011,023
97,908
2,953
2,992
746,801
600
815
216,405
623,199
280
1,093
820,560
4,984
327
410
5,721
1,328,698
9,585
581
690
10,856
3,735,663
393
419
404,997
172
123,796
538
591
528,793
14,005
665
915
15,585
5,373,387
* The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due.
The restructuring of a loan is considered a “troubled debt restructuring” if both the borrower is experiencing financial difficulties and the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, reductions in collateral and other actions intended to minimize potential losses.
There were no loans that were modified and considered troubled debt restructurings for the three-months ended March 31, 2022. The Company’s loans that were modified and considered troubled debt restructurings for the three-months ended March 31, 2021 are as follows (dollars in thousands):
Three-Months Ended March 31, 2021
Pre-Modification
Post-Modification
Recorded
Number
Investment
149
500
697
846
The balances below provide information as to how the loans were modified as troubled debt restructured loans for the three-months ended March 31, 2021 (in thousands):
Adjusted
Combined
Interest
Maturity
Rate and
Rate
Extended
During the three-months ended March 31, 2022 and March 31, 2021, no loans were modified as a troubled debt restructured loan within the previous 12 months and for which there was a payment default, respectively. A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or more or results in the foreclosure and repossession of the applicable collateral.
As of March 31, 2022, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings.
Note 4 - Loans Held-for-Sale
Loans held-for-sale totaled $27,670,000, $65,405,000 and $37,810,000 at March 31, 2022 and 2021, and December 31, 2021, respectively. At March 31, 2022 and 2021, and December 31, 2021, $5,288,000, $3,894,000 and $3,688,000, respectively, are valued at the lower of cost or fair value, and the remaining amounts are valued under the fair value option.
These loans, which are sold on a servicing released basis, are valued using a market approach by utilizing either: (i) the fair value of the securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures (see Note 9). Interest income on mortgage loans held-for-sale is recognized based on the contractual rates and reflected in interest income on loans in the consolidated statements of earnings. The Company has no continuing ownership in any residential mortgage loans sold.
The Company originates certain mortgage loans for sale in the secondary market. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to six months, or if documentation is determined not to be in compliance with regulations. The Company’s historic losses as a result of these indemnities have been insignificant.
Note 5 - Derivative Financial Instruments
The Company enters into interest rate lock commitments (“IRLCs”) with customers to originate residential mortgage loans at a specific interest rate that are ultimately sold in the secondary market. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company.
The Company purchases forward mortgage-backed securities contracts to manage the changes in fair value associated with changes in interest rates related to a portion of the IRLCs. These instruments are typically entered into at the time the IRLC is made in the aggregate.
The fair values of IRLCs are based on current secondary market prices for underlying loans and estimated servicing value with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability (pull-through rate) net of estimated costs to originate the loan. The fair value of IRLCs is subject to change primarily due to changes in interest rates and the estimated pull-through rate. These commitments are classified as Level 2 in the fair value disclosures (see Note 9), as the valuations are based on observable market inputs.
Forward mortgage-backed securities contracts are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract and these instruments are therefore classified as Level 2 in the fair value disclosures (see Note 9). The estimated fair values are subject to change primarily due to changes in interest rates. The impact of these forward contracts is included in gain on sale and fees on mortgage loans in the statement of earnings.
These financial instruments are not designated as hedging instruments for accounting purposes. All derivatives are carried at fair value in either other assets or other liabilities and are reflected in the gain on sale and fees on mortgage loans in the consolidated statement of earnings.
The following tables provide the outstanding notional balances and fair values of outstanding derivative positions (dollars in thousands):
March 31, 2022:
OutstandingNotionalBalance
AssetDerivativeFair Value
LiabilityDerivativeFair Value
IRLCs
106,806
Forward mortgage-backed securities trades
115,000
2,103
March 31, 2021:
180,596
1,645
317,500
2,806
December 31, 2021:
AssetDerivativeFairValue
LiabilityDerivativeFairValue
85,973
1,279
116,000
Note 6 – Borrowings
Borrowings consisted of the following (dollars in thousands):
Securities sold under agreements with customers to repurchase
716,717
523,254
625,499
Federal funds purchased
20,825
25,350
24,600
Other borrowings
21,053
Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which the Company pledges certain securities that have a fair value equal to at least the amount of the borrowings. The agreements mature daily and therefore the risk arising from a decline in the fair value of the collateral pledged is minimal. The securities pledged are mortgage-backed securities. These agreements do not include “right of set-off” provisions and therefore the Company does not offset such agreements for financial reporting purposes.
The Company renewed its loan agreement, effective June 30, 2021, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25,000,000 on a revolving line of credit. There was no outstanding balance under the line of credit as of March 31, 2022 and 2021, or December 31, 2021.
During 2021, the Company began investing in qualifying Community Development Entities ("CDE") under the federal New Market Tax Credits ("NMTC") program. See Note 7 for further discussion of our activity and related balances on the consolidated balance sheets, including the $21,053,000 in other borrowings shown above.
Note 7 - Income Taxes
Income tax expense was $10,341,000 for the first quarter of 2022 as compared to $11,054,000 for the same period in 2021. The Company’s effective tax rates on pretax income were 15.59% and 16.26% for the first quarters of 2022 and 2021, respectively. The effective tax rates differ from the statutory federal tax rate of 21% primarily due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan and excess tax benefits related to our directors’ deferred compensation plan, equity awards and NMTC benefits.
Low Income Housing Tax Credit Investments - During 2021, the Company began investing in an affordable housing fund that will invest in real estate projects that qualify for the federal low income housing tax credit ("LIHTC") program designed to promote private development of low income housing. The investments made by the fund will generate a return to the Company primarily through the realization of LIHTCs, and also through federal tax deductions generated from the ongoing operating losses from the investees of the fund. The Company's investment in the fund will be amortized through income tax expense using the proportional amortization method as related tax credits are utilized by the Company. The initial capital contribution commitment to the fund was for up to $5,500,000 and the initial contribution was $55,000 which is included in other assets at March 31, 2022 and December 31, 2021. There were no balances related to this investment on the consolidated balance sheet as of March 31, 2021.
New Market Tax Credit Investments - During 2021, the Company began investing in qualifying CDEs under the federal NMTC program. NMTC investments are made through the third-party CDEs which are qualified through the U.S. Department of Treasury and receive periodic allocation of amounts under the NMTC program. NMTCs are generated from qualified investments by the CDEs utilizing equity investments made by a taxpayer, like the Company. Through these equity investments, the Company will receive the tax benefits from the NMTCs equal to 39% of the qualified investment from the CDE yield method and related tax credits are allocated to the Company. At March 31, 2022 and December 31, 2021, the consolidated balance sheet of the Company included a $18,000,000 loan to the investee in loans, the $29,000,000 CDE investments in other assets and the $21,053,000 leveraged loan from the investee in other borrowings (see Note 6). There were no balances related to this investment on the consolidated balance sheet as of March 31, 2021.
Note 8 - Stock Based Compensation
On April 27, 2021, the Company’s shareholders approved the 2021 Omnibus Stock and Incentive Plan (“2021 Plan”) and reserved 2,500,000 shares of the Company’s common stock for issuance under this plan. At March 31, 2022, the Company had 2,208,271 shares of stock remaining for issuance under the plan. The 2021 Plan supersedes all prior stock option and restricted stock plans with shares previously reserved for issuance under such plans cancelled.
Restricted Stock Units
Under the 2021 Plan, the Company grants restricted stock units under compensation arrangements for the benefit of employees, executive officers and directors. Restricted stock unit grants are subject to time-based vesting. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the service conditions set forth in the grant agreements. The following table summarizes information about the changes in restricted stock units for the three-months ended March 31, 2022. There was no restricted stock unit activity for the three-months ended March 31, 2021.
For the three-months ended
RestrictedStock UnitsOutstanding
WeightedAverageGrant DateFair Value
Balance at beginning of period
22,597
48.91
Grants
Vesting
Forfeited/expired
Balance at end of period
Also under the 2021 Plan, the Company awards performance-based restricted stock units ("PSUs") to executive officers and other officers and employees. Under the terms of the award, the number of units that will vest and convert to shares of common stock will be based on the extent to which the Company achieves specific performance criteria during the fixed three-year performance period. The number of shares issued upon vesting will range from 0% to 200% of the PSUs granted. The PSUs vest at the end of a three-year period based 50% each on average adjusted earnings per share growth and return on average assets as reported, adjusted for unusual gains/losses, merger expenses, and other items as approved by the compensation committee of the Company's board of directors. Performance for each period is measured relative to other U.S. publicly traded banks with $10 billion to $50 billion in assets. Compensation expense for the PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards.
The following table summarizes information about the changes in PSUs as of and for the three-months ended March 31, 2022. There was no PSU activity during the three-months ended March 31, 2021.
Performance-Based RestrictedStock UnitsOutstanding
Restricted Stock Awards
The following table summarizes information about vested and unvested restricted stock.
For the three-months ended March 31,
RestrictedStockOutstanding
46,598
35.75
95,888
29.89
615
49.60
(3,161
32.06
(993
34.55
(200
29.70
(479
43,852
36.24
94,416
29.82
The total fair value of restricted stock vested for the three-months ended March 31, 2022 and 2021, was $148,000 and $39,000, respectively.
The Company recorded consolidated restricted stock, restricted stock unit and performance-based restricted stock unit expense for employees of $426,000 and $290,000 for the three-months ended March 31, 2022 and 2021, respectively. The Company recorded director expense related to these restricted stock grants of $170,000 and $150,000, for the three-months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022 and 2021, there were $2,436,000 and $1,701,000, respectively, of total unrecognized compensation cost related to consolidated unvested restricted stock, restricted stock units and performance-based restricted stock units which is expected to be recognized over a weighted-average period of 1.05 years and 1.44 years, respectively. At March 31, 2022 and 2021, and December 31, 2021, there was $59,000, $61,000 and $52,000, respectively, accrued in other liabilities related to dividends declared to be paid upon vesting.
Stock Option Plans
Prior to the approval of the 2021 Plan, the 2012 Incentive Stock Option Plan (the “2012 Plan”) provided for the granting of options to employees of the Company at prices not less than market value at the date of the grant. The 2012 Plan provided that options granted vest and are exercisable after two years from the date of grant and vest at a rate of 20% each year thereafter and have a 10-year term. The most recent grant from the 2021 Plan provided that 20% of the options granted vest and are exercisable after one year from the date of grant and the remaining options vest and are exercisable at a rate of 20% each year thereafter and have a 10-year term. Shares are issued under the 2012 Plan and the 2021 Plan from available authorized shares. An analysis of stock option activity for the three-months ended March 31, 2022 is presented in the table and narrative below:
Weighted-Average Ex. Price
Outstanding, December 31, 2021
1,669,976
25.11
Granted
Exercised
(172,751
18.27
Cancelled
(31,775
26.67
Outstanding, March 31, 2022
1,465,450
25.88
Exercisable, March 31, 2022
715,057
19.18
The options outstanding at March 31, 2022 had exercise prices ranging between $15.43 and $48.91. Stock options have been adjusted retroactively for the effects of stock dividends and splits.
The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees.
The Company recorded stock option expense totaling $316,000 and $319,000 for the three-months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022, there was $4,083,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.80 years. The total fair value of shares vested during the three-months ended March 31, 2022 and 2021 was $65,000 and $31,000, respectively.
Note 9 - Fair Value Disclosures
The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Securities classified as available-for-sale and trading are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other items.
See Notes 4 and 5 related to the determination of fair value for loans held-for-sale, IRLCs and forward mortgage-backed securities trades.
There were no transfers between Level 2 and Level 3 during the three-months ended March 31, 2022 and 2021, and the year ended December 31, 2021.
The following table summarizes the Company’s available-for-sale securities, loans held-for-sale, and derivatives which are measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
Level 1Inputs
Level 2Inputs
Level 3Inputs
Total FairValue
Available-for-sale investment securities:
Obligations of state and political subdivisions
Corporate bonds
64,581
Other securities
4,220
305,564
6,196,931
Loans held-for-sale
22,382
4,477
5,105,154
61,511
4,430
131,271
6,441,908
34,122
(147
The following table summarizes the Company’s loans held-for-sale at fair value and the net unrealized gains as of the balance sheet dates shown below (dollars in thousands):
Unpaid principal balance on loans held-for-sale
22,233
60,727
33,200
Net unrealized gains on loans held-for-sale
784
922
Loans held-for-sale at fair value
The following table summarizes the Company’s gains on sale and fees of mortgage loans for the three-months ended March 31, 2022 and 2021 (dollars in thousand):
Three-Months endedMarch 31,
Realized gain on sale and fees on mortgage loans*
5,998
10,728
Change in fair value on loans held-for-sale and IRLCs
(1,915
(5,200
Change in forward mortgage-backed securities trades
2,250
4,366
Total gain on sale of mortgage loans
* This includes gains on loans held-for-sale carried under the fair value method and lower of cost or market.
No residential mortgage loans held-for-sale were 90 days or more past due or considered nonaccrual as of March 31, 2022, and 2021, or December 31, 2021. No significant credit losses were recognized on mortgage loans held-for-sale for the three-months ended March 31, 2022 and 2021.
Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include other real estate owned, goodwill and other intangible assets, and other non-financial long-lived assets. Non-financial assets measured at fair value on a non-recurring basis during the three-months ended March 31, 2022 and 2021 include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were re-measured at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from 5% to 25% of the appraised value. Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were no other real estate owned properties that were re-measured subsequent to their initial transfer to other real estate owned during the three-months ended March 31, 2022 and 2021.
At March 31, 2022 and December 31, 2021, the Company had no other real estate owned. At March 31, 2021, other real estate owned totaled $255,000.
The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Cash and due from banks, federal funds sold, interest-bearing deposits in banks and accrued interest receivable and payable are liquid in nature and considered Levels 1 or 2 of the fair value hierarchy.
Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarchy.
The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.
The estimated fair values and carrying values of all financial instruments under current authoritative guidance were as follows (dollars in thousands).
CarryingValue
EstimatedFair Value
Fair ValueHierarchy
Cash and due from banks
Level 1
Interest-bearing demand deposits in banks
Available-for-sale securities
Levels 1and 2
Loans held-for-investment, net of allowance for credit losses
5,522,778
5,273,235
5,335,791
Level 3
26,985
65,273
37,844
Level 2
Accrued interest receivable
48,066
42,322
57,169
Deposits with stated maturities
449,130
449,987
483,685
485,193
461,415
462,312
Deposits with no stated maturities
10,550,695
8,929,762
10,105,073
Borrowings
Accrued interest payable
268
221
Forward mortgage-backed securities trades asset (liability)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Form 10-Q 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-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” 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 discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, under the heading “Risk Factors,” and the following:
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).
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. Our primary source of funding for our loans and investments are deposits held by our subsidiary, First Financial Bank, N.A. Our largest expense is 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 operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2021 Annual Report on 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 Note 1 to our Consolidated Financial Statements beginning on page 9.
On July 27, 2021, the Company’s Board of Directors authorized the repurchase of up to 5.00 million common shares through July 31, 2023. 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. Subsequent to July 27, 2021 and through the date of this report, no shares were repurchased under the plan.
Results of Operations
Performance Summary. Net earnings for the first quarter of 2022 were $55.97 million compared with earnings of $56.92 million for the first quarter of 2021. Diluted earnings per share was $0.39 for the first quarter of 2022 compared with $0.40 in the same quarter a year ago.
The return on average assets was 1.71% for the first quarter of 2022, as compared to 2.05% for the first quarter of 2021. The return on average equity was 13.53% for the first quarter of 2022 as compared to 13.83% for the first quarter of 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 $99.22 million for the first quarter of 2022, as compared to $92.37 million for the same period last year. The increase in 2022 tax equivalent net interest income compared to 2021 was largely attributable to the increases in interest earning assets primarily derived from an increase in loans and investment securities held partially offset by the lower amortization of PPP origination fees of $4.88 million. Average earning assets were $12.50 billion for the first quarter of 2022, as compared to $10.56 billion during the first quarter of 2021. The increase of $1.95 billion in average earning assets in 2022 when compared to 2021 was primarily a result of increases of taxable securities of $1.98 billion and
tax-exempt securities of $243.41 million offset by a decrease in interest-bearing deposits in nonaffiliated banks of $465.16 million when compared to March 31, 2021 balances. Average interest-bearing liabilities were $7.68 billion for the first quarter of 2022, as compared to $6.37 billion in the same period in 2021. The increase in average interest-bearing liabilities primarily resulted from continued organic growth. The yield on earning assets decreased 35 basis points while the rate paid on interest-bearing liabilities decreased three basis points for the first quarter of 2022 compared to the first quarter of 2021.
Table 1 allocates the change in tax-equivalent net interest income between the amount of change attributable to volume and to rate.
Table 1 - Changes in Interest Income and Interest Expense (dollars in thousands):
Three-Months Ended March 31, 2022Compared to Three-Months Ended March 31, 2021
Change Attributable to
Volume
Change
Short-term investments
(117
(67
Taxable investment securities
9,029
(1,470
7,559
Tax-exempt investment securities (1)
1,745
(617
1,128
Loans (1) (2)
2,412
(4,399
(1,987
Interest income
13,069
(6,436
6,633
Interest-bearing deposits
(608
(327
Short-term borrowings
Interest expense
(563
(217
12,723
(5,873
6,850
The net interest margin, on a tax equivalent basis, was 3.22% for the first quarter of 2022, a decrease of 33 basis points from the same period in 2021. We have continued to experience downward pressures on our net interest margin in 2022 and 2021 primarily due to (i) the extended period of historically low levels of short-term interest rates, (ii) the flat to inverted yield curve being experienced in the bond market, (iii) the shift in the mix of interest earning assets and (iv) the impact of the overall level of excess liquidity, which totaled $597.75 million and $528.59 million at March 31, 2022 and 2021, respectively. We have been able to somewhat mitigate the impact of these lower short-term interest rates and the flat/inverted yield curve by establishing minimum interest rates on certain of our loans, improving the pricing for loan risk and reducing the rates paid on our interest-bearing liabilities. During the first quarter of 2022, the Federal Reserve increased rates 25 basis points resulting in a target rate range of 25 to 50 basis points. Most recently, on May 5, 2022, the Federal Reserve increased rates 50 basis points resulting in a current target rate range of 75 to 100 basis points.
The net interest margin, which measures tax-equivalent net interest income as a percentage of average earning assets, is illustrated in Table 2.
Table 2 - Average Balances and Average Yields and Rates (dollars in thousands, except percentages):
AverageBalance
Income/Expense
Yield/Rate
Assets
Short-term investments (1)
172,985
0.22
%
639,071
0.10
Taxable investment securities (2)
4,231,949
1.68
2,251,419
1.82
Tax-exempt investment securities (2)(3)
2,612,025
18,107
2.77
2,368,615
16,979
2.87
Loans (3)(4)
5,487,538
64,766
4.79
5,296,149
66,753
5.11
Total earning assets
12,504,497
100,791
3.27
10,555,254
94,158
3.62
230,490
209,438
Bank premises and equipment, net
149,639
141,901
Other assets
111,669
98,301
Goodwill and other intangible assets, net
316,589
318,141
Allowance for credit losses
(63,577
(67,231
13,249,307
11,255,804
Liabilities and Shareholders’ Equity
6,898,059
1,369
0.08
5,916,237
1,696
0.12
781,314
201
456,620
Total interest-bearing liabilities
7,679,373
6,372,857
1,787
0.11
Noninterest-bearing deposits
3,827,451
3,114,656
Other liabilities
64,999
99,581
11,571,823
9,587,094
Shareholders’ equity
1,677,484
1,668,710
Net interest income (tax equivalent)
99,221
92,371
Rate Analysis:
Interest income/earning assets
Interest expense/earning assets
(0.05
(0.07
Net interest margin
3.22
3.55
Noninterest Income. Noninterest income for the first quarter of 2022 was $34.88 million compared to $34.87 million in the same quarter of 2021. Increases in certain categories of noninterest income included (1) trust fees of $1.52 million, (2) service charges on deposit accounts of $913 thousand, (3) ATM, interchange and credit card fees of $851 thousand and (4) net gain on sale of foreclosed assets of $1.03 million when compared to the first quarter of 2021. Mortgage related income was $6.33 million in the first quarter of 2022 compared to $9.89 million in the first quarter of 2021 due to lower overall origination volumes. The increase in trust fees resulted from an increase in the fair value of assets under management over the prior quarters. The fair value of trust assets managed, which are not reflected in our consolidated balance sheets, totaled $8.63 billion at March 31, 2022, up 14.59% when compared to $7.54 billion at March 31, 2021. The increase in ATM, interchange and credit card fees were driven by continued growth in the number of net new accounts and debit cards issued and overall customer utilization.
ATM and interchange fees are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions. ATM and interchange fees consist of income from debit card usage, point of sale income for debit card transactions and ATM service fees.
Federal Reserve 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. Management has estimated the impact of this reduction in ATM and interchange fees to approximate $18 million annually (pre-tax) once the Federal Reserve rules apply to the Company. Federal Reserve requirements stipulate that these rules would go into effect on July 1st following the year-end in which a financial institution’s total assets exceeded $10 billion at December 31st. This effect was delayed to 2021 by the Federal Reserve in late 2020; however, will become effective for the Company on July 1, 2022.
Table 3 - Noninterest Income (dollars in thousands):
Three-Months EndedMarch 31,
Increase(Decrease)
1,518
913
851
(3,561
Net gain on sale of available-for-sale securities
(777
1,029
Net gain on sale of assets
(155
(99
Other:
Check printing fees
(7
Safe deposit rental fees
290
(16
Credit life fees
Brokerage commissions
374
345
Wire transfer fees
388
315
Miscellaneous income
811
205
Total other
288
Total Noninterest Income
Noninterest Expense. Total noninterest expense for the first quarter of 2022 was $59.23 million, an increase of $1.50 million, or 2.60%, as compared to the same period of 2021. An important measure in determining whether a financial institution effectively manages noninterest expense is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio improved to 44.16% for the first quarter of 2022 compared to 45.36% for the same quarter in 2021.
Salaries, commissions and employee benefits for the first quarter of 2022 totaled $34.14 million, compared to $34.93 million for the same period in 2021. The decrease reflected annual merit-based pay increases that were effective March 1, 2022 and offset by lower mortgage compensation expenses of $1.40 million and a decrease of $697 thousand in profit sharing expenses for the first quarter of 2022.
All other categories of noninterest expense for the first quarter of 2022 totaled $25.09 million, up from $22.79 million in the same quarter a year ago. Included in other noninterest expense for the three-months ended March 31, 2022 was $600 thousand of foreclosed asset expenses compared to $23 thousand for the three-months ended March 31, 2021.
Table 4 - Noninterest Expense (dollars in thousands):
Salaries and commissions
25,756
(338
26,094
Medical
2,891
2,840
Profit sharing
1,598
(697
2,295
401(k) match expense
982
963
Payroll taxes
2,169
2,131
Stock based compensation
742
608
Total salaries and employee benefits
(793
FDIC assessment fees
ATM, interchange and credit card expense
196
309
(162
(92
Data processing fees
406
Postage
308
(69
Advertising
699
(22
Correspondent bank service charges
254
Telephone
765
(511
1,276
Public relations and business development
127
667
Directors’ fees
720
104
616
Audit and accounting fees
513
505
Legal fees and other related costs
670
522
Regulatory exam fees
395
58
337
Travel
313
245
Courier expense
265
206
Other real estate owned
(28
3,489
2,090
1,404
Total Noninterest Expense
1,502
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 March 31, 2022, total loans held-for-investment were $5.57 billion, an increase of $177.20 million, as compared to December 31, 2021. Total PPP loans outstanding were $15.74 million at March 31, 2022, which are included in the Company’s commercial loan totals. PPP loan balances accounted for $33.46 million in average balances for the quarter ended March 31, 2022.
As compared to year-end 2021 balances, total real estate loans increased $155.14 million, total commercial loans increased $14.87 million, agricultural loans decreased $15.21 million and total consumer loans increased $22.40 million. Loans averaged $5.49 billion for the first quarter of 2022, an increase of $191.39 million over the prior year first quarter average balances.
Our loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied 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 loans originated as a result of the Company’s participation in the PPP program are included in the C&I loan portfolio segment as of March 31, 2022, and 2021 and December 31, 2021.
Table 5 outlines the composition of the Company’s held-for-investment loans by portfolio segment.
Table 5 - Composition of Loans Held-for-Investment (dollars in thousands):
C&I *
Loans held-for-sale, consisting of secondary market mortgage loans, totaled $27.67 million, $65.41 million, and $37.81 million at March 31, 2022 and 2021, and December 31, 2021, respectively. At March 31, 2022 and 2021, and December 31, 2021, $5.29 million, $3.89 million and $3.69 million, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.
The following tables summarize maturity information of our loan portfolio as of March 31, 2022. The table also presents the portions 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.
Maturity Distribution and Interest Sensitivity of Loans at March 31, 2022 (dollars in thousands):
Due in One Year or Less
After One but Within Five Years
After Five but Within Fifteen Years
After Fifteen Years
345,663
373,489
94,015
9,143
822,310
PPP
15,323
14,046
42,668
110,364
24,721
360,125
431,480
204,379
33,864
60,651
20,769
1,463
410,245
151,891
143,487
100,588
21,253
25,537
124,216
54,936
25,866
183,206
294,293
132,795
42,324
179,855
445,645
213,357
100,605
99,846
633,400
518,311
600,293
640,335
1,641,041
1,019,987
5,892
403,034
10,892
26,105
85,730
14,007
6,122
31,997
488,764
24,899
1,053,066
1,581,348
1,871,782
1,059,973
% of Total Loans
18.92
28.41
33.63
19.04
100.00
Loans with fixed interest rates:
57,319
224,040
5,144
287,399
3,675
40,977
86,979
131,631
61,410
280,340
92,123
434,769
6,194
13,438
528
20,160
145,185
77,150
40,377
948
263,660
6,332
19,262
65,813
1,609
93,016
8,208
117,602
60,972
186,782
19,813
110,875
46,164
1,309
178,161
27,648
84,008
417,360
36,709
565,725
207,186
408,897
630,686
40,575
1,287,344
20,942
83,441
13,581
5,718
123,682
26,834
486,475
24,473
543,500
301,624
1,189,150
747,810
47,189
2,285,773
5.42
21.36
13.43
0.85
41.07
Loans with variable interest rates:
288,344
149,449
88,871
8,247
534,911
10,371
1,691
23,385
60,168
298,715
151,140
112,256
32,968
595,079
54,457
7,331
935
62,723
265,060
74,741
103,110
99,640
542,551
14,921
6,275
58,403
53,327
132,926
17,658
65,604
233,321
449,378
22,511
68,980
399,481
212,048
703,020
72,957
15,838
216,040
481,602
786,437
393,107
231,438
1,010,355
979,412
2,614,312
5,163
2,289
426
404
8,282
751,442
392,198
1,123,972
1,012,784
3,280,396
13.50
7.05
20.19
18.20
58.93
Of the $3.28 billion of variable interest rate loans shown above, loans totaling $1.36 billion mature or reprice over the next twelve months. Of this amount, approximately $335 million will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $1.02 billion being subject to floors above 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 $28.75 million at March 31, 2022, as compared to $39.66 million at March 31, 2021 and $34.16 million at December 31, 2021. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.52% at March 31, 2022, as compared to 0.75% at March 31, 2021 and 0.63% at December 31, 2021. As a percent of total assets, these assets were 0.22% at March 31, 2022, as compared to 0.33% at March 31, 2021 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 March 31, 2022.
Table 6 – Nonaccrual, Past Due 90 Days or More and Still Accruing, Restructured Loans and Foreclosed Assets (dollars in thousands, except percentages):
Troubled debt restructured loans*
Nonperforming loans
Foreclosed assets
300
2,477
Total nonperforming assets
39,658
34,158
As a % of loans held-for-investment and foreclosed assets
0.52
0.75
0.63
As a % of total assets
0.33
0.26
* Troubled debt restructured loans of $6.14 million, $6.62 million and $6.72 million, respectively, whose interest collection, after considering economic and business conditions and collection efforts, is doubtful are included in nonaccrual loans as of March 31, 2022 and 2021, and December 31, 2021, respectively.
We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans of approximately $1.35 million for the year ended December 31, 2021. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2021, such income would have approximated $2.61 million. Such amounts for the 2022 and 2021 interim periods were not significant.
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 (unaudited). The provision for loan losses of $3.75 million for the three-months ended March 31, 2022 is combined with the provision for unfunded commitments of $1.04 million and reported in the aggregate of $4.78 million under the provision for credit losses in the Consolidated Statement of Earnings for the three-months ended March 31, 2022. The $3.43 million reversal of the provision for loan losses for the three-months
ended March 31, 2021 is combined with the provision for unfunded commitments $1.43 million and reported in the aggregate of $2.00 million under the provision for credit losses for the three-months ended March 31, 2021. The increase in the Company's provision for credit losses during the first quarter of 2022 was primarily driven by strong organic loan growth. As a percent of average loans, net loan charge-offs were 0.02% for the first quarter of 2022, as compared to 0.01% for the first quarter of 2021. The allowance for credit losses as a percent of loans held-for-investment was 1.20% as of March 31, 2022, as compared to 1.18% as of both March 31, 2021 and December 31, 2021, respectively.
Table 7 - Loan Loss Experience and Allowance for Credit Losses (dollars in thousands, except percentages):
Allowance for credit losses at period-end
Loans held-for-investment at period-end
Average loans for period
Net charge-offs (recoveries)/average loans (annualized)
0.02
0.01
Allowance for loan losses/period-end loans held-for-investment
1.20
1.18
Allowance for loan losses/nonaccrual loans, past due 90 days still accruing and restructured loans
232.71
160.00
Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $394.57 million at March 31, 2022 compared to $893.22 million at March 31, 2021 and $323.54 million at December 31, 2021, respectively. At March 31, 2022, interest-bearing deposits in banks included $393.63 million maintained at the Federal Reserve Bank of Dallas and $939 thousand on deposit with the FHLB.
Available-for-Sale Securities. At March 31, 2022, securities with a fair value of $6.50 billion were classified as securities available-for-sale. As compared to December 31, 2021, the available-for-sale portfolio at March 31, 2022 reflected (i) an increase of $175 million in U.S. Treasury securities, (ii) a decrease of $223.99 million in obligations of states and political subdivisions, (iii) an increase of $503 thousand in corporate bonds and other securities, and (iv) a decrease of $21.70 million in mortgage-backed securities. 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 (unaudited) for additional disclosures relating to the maturities and fair values of the investment portfolio at March 31, 2022 and 2021, and December 31, 2021.
Table 8 - Maturities and Yields of Available-for-Sale Securities Held at March 31, 2022 (dollars in thousands, except percentages):
Maturing by Contractual Maturity
One Yearor Less
After One YearThroughFive Years
After Five YearsThroughTen Years
AfterTen Years
Available-for-Sale:
Yield
1.29
167,213
4.42
660,838
3.78
1,699,561
2.59
1,869
4.47
3.02
Corporate bonds and other securities
4,221
1.06
24,973
1.61
39,607
1.71
1.64
Mortgage-backed securities
116,016
2.43
1,909,788
1.78
1,075,581
1.67
501,484
2.24
3,602,869
1.83
3.41
2.18
2.27
All yields are computed on a tax-equivalent basis assuming a marginal tax rate of 21%. Yields on available-for-sale 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 March 31, 2022, the investment portfolio had an overall tax equivalent yield of 2.27%, a weighted average life of 5.81 years and modified duration of 5.13 years.
Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.00 billion as of March 31, 2022, as compared to $9.41 billion as of March 31, 2021 and $10.57 billion as of December 31, 2021.
Table 9 provides a breakdown of average deposits and rates paid over the three-month periods ended March 31, 2022 and 2021, respectively.
Table 9 - Composition of Average Deposits (dollars in thousands, except percentages):
AverageRate
—%
Interest-bearing deposits:
Interest-bearing checking
3,621,493
2,901,819
0.09
Savings and money market accounts
2,824,201
0.06
2,535,474
Time deposits under $250,000
308,116
324,758
0.34
Time deposits of $250,000 or more
144,249
0.28
154,186
0.60
Total interest-bearing deposits
Total average deposits
10,725,510
9,030,893
Total cost of deposits
0.05
The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid is approximately $3.99 billion as of March 31, 2022
Borrowings. Included in borrowings were federal funds purchased, securities sold under repurchase agreements, advances from the FHLB and other borrowings of $758.60 million, $548.60 million and $671.15 million at March 31, 2022 and 2021 and December 31, 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 borrowings. The average balance of federal funds purchased, securities sold under repurchase agreements, advances from the FHLB and other borrowings were $781.31 million and $456.62 million in the first quarters of 2022 and 2021, respectively. The weighted average interest rates paid on these borrowings were 0.10% and 0.08% for the first quarters of 2022 and 2021, 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:
(in basis points)
+400
9.17%
17.54%
10.56%
+300
7.26%
13.39%
8.52%
+200
5.36%
9.05%
6.13%
+100
3.15%
4.51%
3.42%
-100
(3.66)%
(4.72)%
(5.64)%
-200
(8.22)%
(7.21)%
(9.06)%
The results for the net interest income simulations as of March 31, 2022, March 31, 2021 and December 31, 2021 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 $6.50 billion at March 31, 2022. During the quarter-ended March 31, 2022, the corresponding unrealized gain before taxes on the portfolio of $125.67 million at December 31, 2021, and moved into an unrealized loss before taxes of $265.47 million at March 31, 2022, 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 increases in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At March 31, 2022, the 5-year U.S. Treasury rate was 2.42% compared to 1.26% at December 31, 2021, representing a 116 basis point increase during the quarter. As of March 31, 2022, an additional 50 basis point increase in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $138 million before taxes. We currently 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 $1.49 billion, or 11.18% of total assets at March 31, 2022, as compared to $1.67 billion, or 13.76% of total assets at March 31, 2021, and $1.76 billion, or 13.43% of total assets at December 31, 2021. Included in shareholders’ equity at March 31, 2022 were $209.58 million in unrealized losses on investment securities available-for-sale, net of related income taxes. Included in shareholders' equity at March 31, 2021 and December 31, 2021 were $117.01 million and $99.25 million, respectively, in unrealized gains on investment securities available-for-sale, net of related income taxes. For the first quarter of 2022, total shareholders’ equity averaged $1.68 billion, or 12.66% of average assets, as compared to $1.67 billion, or 14.83% of average assets, during the same period in 2021.
Banking regulators measure capital adequacy by means of the risk-based capital ratios and the 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 2.50% 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 dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.
As of March 31, 2022 and 2021, and December 31, 2021, we had a total risk-based capital ratio of 20.01%, 21.47% and 20.34%, a Tier 1 capital to risk-weighted assets ratio of 19.00%, 20.32% and 19.35%; a common equity Tier 1 to risk-weighted assets ratio of 19.00%, 20.32% and 19.35% and a Tier 1 leverage ratio of 10.78%, 11.55% and 11.13%, respectively. The regulatory capital ratios as of March 31, 2022 and 2021, and December 31, 2021 were calculated under Basel III rules.
The regulatory capital ratios of the Company and Bank under the Basel III regulatory capital framework are as follows:
Actual
Minimum CapitalRequired-Basel III
Required to beConsidered Well-Capitalized
As of March 31, 2022:
Ratio
Total Capital to Risk-Weighted Assets:
Consolidated
1,469,193
20.01
770,926
10.50
734,216
10.00
First Financial Bank, N.A
1,315,543
17.96
769,254
732,623
Tier 1 Capital to Risk-Weighted Assets:
1,394,808
19.00
624,083
8.50
440,529
6.00
1,241,158
16.94
622,729
586,098
8.00
Common Equity Tier 1 Capital to Risk-Weighted Assets:
513,951
7.00
N/A
512,836
476,205
6.50
Leverage Ratio:
10.78
517,596
4.00
9.62
515,926
644,908
5.00
As of March 31, 2021:
1,312,779
21.47
642,092
611,516
1,174,022
19.24
640,757
610,245
1,242,887
20.32
519,788
366,909
1,104,130
18.09
518,708
488,196
428,061
427,172
396,659
11.55
430,308
10.30
428,971
536,214
Minimum CapitalRequired Basel III
As of December 31, 2021:
1,425,907
20.34
736,003
700,955
1,258,965
17.99
734,604
699,623
1,356,006
19.35
595,812
420,573
1,189,064
17.00
594,679
559,698
490,669
489,736
454,755
11.13
487,459
9.79
485,926
607,407
In connection with the adoption of the Basel III regulatory capital framework, our subsidiary bank made the election to continue to exclude accumulated other comprehensive income from available-for-sale securities (“AOCI”) from capital in connection with its quarterly financial filing and, in effect, to retain the AOCI treatment under the prior capital rules.
Liquidity. Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources,
such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings (see below) and an unfunded $25.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures in June 2023 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00 million. At March 31, 2022, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $2.06 billion at March 31, 2022, secured by portions of our loan portfolio and certain investment securities and (ii) access to the Federal Reserve Bank of Dallas lending program. At March 31, 2022, the Company did not have any balances under this line of credit.
The Company renewed its loan agreement, effective June 30, 2021, 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. Prior to June 30, 2023, interest is paid quarterly at The Wall Street Journal Prime Rate and the line of credit matures June 30, 2023. If a balance exists at June 30, 2023, the principal balance converts to a term facility payable quarterly over five years and interest is paid quarterly at The Wall Street Journal Prime Rate. The line of credit is unsecured. Among other provisions in the credit agreement, we must satisfy certain financial covenants during the term of the loan agreement, including, without limitation, covenants that require us to maintain certain capital, tangible net worth, loan loss reserve, non-performing asset and cash flow coverage ratios. In addition, the credit agreement contains certain operational covenants, which among others, restricts the payment of dividends above 55% of consolidated net income, limits the incurrence of debt (excluding any amounts acquired in an acquisition) and prohibits the disposal of assets except in the ordinary course of business. Since 1995, we have historically declared dividends as a percentage of our consolidated net income in a range of 36% (low) in 2021 and 2020 to 53% (high) in 2003 and 2006. The Company was in compliance with the financial and operational covenants at March 31, 2022. There was no outstanding balance under the line of credit as of March 31, 2022 and 2021, or December 31, 2021.
In addition, we anticipate that future acquisitions of financial institutions, expansion of branch locations or offerings of new products could also place a demand on our cash resources. Available cash and cash equivalents at our parent company which totaled $134.26 million at March 31, 2022, investment securities which totaled $2.31 million at March 31, 2022 and mature over 8 to 9 years, available dividends from our subsidiaries which totaled $317.31 million at March 31, 2022, 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.
Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed potentially problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of March 31, 2022, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. We are monitoring closely the economic impact of the coronavirus on our customers and the communities we serve. Given the strong core deposit base and relatively low loan to deposit ratios maintained at our subsidiary bank, we consider our current liquidity position to be adequate to meet our short-term and long-term liquidity needs. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
Off-Balance Sheet (“OBS”)/Reserve for Unfunded Commitments. We are a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. At March 31, 2022, the Company’s reserve for unfunded commitments totaled $7.47 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.
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.
Table 10 – Commitments as of March 31, 2022 (in thousands):
Total NotionalAmountsCommitted
Unfunded lines of credit
929,712
Unfunded commitments to extend credit
875,991
Standby letters of credit
35,093
Total commercial commitments
1,840,796
We believe we have no other OBS arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements. The above table does not include balances related to the Company’s IRLC and forward mortgage-backed security trades.
Parent Company Funding. Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiaries. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiaries. At March 31, 2022, $317.31 million was available for the payment of intercompany dividends by our subsidiaries without the prior approval of regulatory agencies. Our subsidiaries paid aggregate dividends of $3.00 million and $6.00 million for the three-months ended March 31, 2022 and 2021, respectively.
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 38.25% and 32.50% of net earnings for the first three months of 2022 and 2021, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy. On April 26, 2022, the Board of Directors declared a $0.17 per share cash dividend for the second quarter of 2022, a 13.33% increase over the dividend declared in the first quarter of 2022. The record date for this dividend will be June 16, 2022, payable on July 1, 2022.
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, 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, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Management considers interest rate risk to be a significant market risk for the Company. See “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources—Interest Rate Risk” for disclosure regarding this market risk.
Item 4. Controls and Procedures.
As of March 31, 2022, 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 March 31, 2022.
Subsequent to our evaluation, there were no significant changes in internal controls over financial reporting or other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. 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 any of their properties, are currently subject. Other than regular, routine examinations by state and federal banking authorities, there are no proceedings pending or known to be contemplated by any governmental authorities.
Item 1A. Risk Factors.
There has been no material change in the risk factors previously disclosed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
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 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 3.2 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 (incorporated by reference from Exhibit 4.2 of the Registrant’s Form 10-K filed February 22, 2022).
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 as Amended (incorporated by reference from Exhibit 10 of the Registrant’s Form 8-K filed April 28, 2021).++
10.3
Loan agreement dated June 30, 2013, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed July 1, 2013).
10.4
First Amendment to Loan Agreement, dated June 30, 2015, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2015).
10.5
Second Amendment to Loan Agreement, dated June 30, 2017, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2017).
10.6
Third Amendment to Loan Agreement, dated June 30, 2019, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed July 1, 2019).
10.7
Fourth Amendment to Loan Agreement, dated June 30, 2021, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrants Form 8-K filed July 7, 2021).
10.8
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).++
10.9
Form of Executive Recognition Agreement (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2020).++
10.10
First Financial Bankshares, Inc. Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2022 (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed November 1, 2021.)++
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.*
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 Document.*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.*
* 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 or arrangement.
SIGNATURES
Pursuant to the requirements 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: May 6, 2022
By:
/s/ F. Scott Dueser
F. Scott Dueser
Chairman of the Board, President and Chief Executive Officer
/s/ James R. Gordon
James R. Gordon
Executive Vice President and
Chief Financial Officer, Secretary and Treasurer