FFIN 10-K & 10-Q changes, risk factors and insider trading

After an extended period at a target rate of 0-0.25%, the Federal Reserve Board began aggressively increasing interest rates in March 2022 and continuing into 2023 withreaching increasesa target range of 255.25% basisto points5.50%. Beginning in February,September March, May, and July 2023. Most recently,2024, the Federal Reserve Board decreasedbegan lowering interest rates 50 basis points in September and 25 basis points in November and December 2024, respectively, resulting in a target rate range of 4.25%3.50% to 4.50%3.75% at December 31, 2024.2025. Today, there continues to be uncertainty regarding future interest rates. Increases in interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt obligations through the periodic reset of adjustable interest rate loans. If our borrowers’ ability to pay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results. Asset values, especially commercial real estate as collateral, securities or other fixed rate earning assets, can decline significantly with relatively minor changes in interest rates.rates reducing the demand for collateral securing the loan. Conversely, decreases in interest rates can affect the amount of interest we earn on our loans and investment securities, which could have a material adverse effect on the Company’s financial condition and results of operations. Although we have implemented strategies that we believe reduce the potential effects of adverse changes in interest rates on our results of operations, these strategies may not always be successful. Any of these events could adversely affect our results of operations, financial condition and liquidity.

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

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

Our financial flexibility would be severely constrained if we were unable to maintain our access to funding or if adequate financing were not available at acceptable interest rates. Further, if we were required to rely more heavily on more expensive funding sources to support liquidity, our revenues may not increase proportionately to cover our increased costs. In this case, our operating margins and profitability would be adversely affected. If alternative funding sources were no longer available to us, we may need to sell a portion of our investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in us realizing a loss on the sale of such assets. As of December 31, 2024,2025, we had a net unrealized loss of $424.29$342.03 million on our available for-sale investment securities portfolio as a result of the risingelevated interest rate environment. Our investment securities totaled $4.62$5.51 billion, or 33.03%35.70% of total assets, at December 31, 2024.2025. The details of this portfolio are included in Note 2 to the consolidated financial statements.

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

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

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

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

In deciding whether to extendapprove creditloans or to enter into other transactions,transactions with borrowers and counterparties, we must rely on information furnished byto us by, or on behalf ofof, customersborrowers and counterparties, including financial statements, credit reports and other financial information. We also rely on representations of thoseborrowers customers,and counterparties or other third-parties, such as independent auditors, as to the accuracy and completeness of that information.information Relianceand, onwith inaccuraterespect or misleadingto financial statements, crediton reports of independent auditors. If any of this information is intentionally or othernegligently financialmisrepresented or fraudulent and such misrepresentation or fraud is not detected prior to loan funding, the value of the loan may be significantly lower than expected and we may be subject to regulatory action. Whether a misrepresentation is made by the loan applicant, another third party, or one of our employees, we generally bear the risk of loss associated with the misrepresentation or fraud. Our controls and processes may not have detected, or may not detect all, misrepresented or fraudulent information in our loan originations or from our business clients. Any such misrepresented or fraudulent information could haveadversely a material adverse impact onaffect our business, financial condition and results of operations.operations

Even when market conditions are generally favorable, our investment performance may be adversely affected by the investment style of our wealth management and investment advisors and the particular investments that they make. To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our wealth management business will likely be reduced and our ability to attract new clients will likely be impaired. As such, fluctuations in the equity and debt markets can have a direct impact upon our net earnings. In addition, as approximately 16%14% of trust fees came from management of oil and gas properties in 2024,2025, a decline in the prices of oil and gas could lead to a loss of material amounts of our trust income.

Inflation rose in 2023 and 2022 at levels not seen for over 40 years, and such inflationary pressures continued into 20232024 and 2024.2025. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. In general, the impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment. Assets and liabilities of financial institutions are primarily all monetary in nature, and therefore are principally impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy.

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

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

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

We have historically paid a low premium rate due to our sound financial position. Should the number of bank failures increase or the FDIC insurance fund become depleted in others ways, FDIC premiums could increase or additional special assessments could be imposed. These increased premiums would have an adverse effect on our net income and results of operations. In the fourth quarter of 2023, and the first quarter of 2024, the FDIC imposed a $1.75 million special assessment onto thea Banktotal of $2.06 million in response to the FDIC-insured financial institutions that failed in March 2023. In the first quarter of 2024, the FDIC updated the special assessment to a total of $2.06 million. The special assessment willwas beaccrued and expensed when imposed and is being paid over ten quarters beginning in the second quarter of 2024. In December 2025, the FDIC approved an interim final rule to amend the collection period to eight quarters.

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

significant acquisitions or business combinations involving the Company or its competitors; and changes in governmenteconomic, regulations,competitive, includingregulatory taxconditions laws.and technical factors, or other developments affecting our industry, and publicity regarding our business or any of our significant customers or competitors.

The stock market and in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. General market fluctuations, industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes or credit loss trends could also cause the Company’s stock price to decrease regardless of operational results.results

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

On July 23,22, 2024,2025, the Company’s Board of Directors extended the authorization to repurchase up to 5,000,000 common shares through July 31, 2025.2026. The prior authorization had been in place since July 27, 2021. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. UnderThere thehave previousbeen authorizationno effective through July 31, 2024, 244,559 shares were repurchased and retired (during the months of June and July 2022) at an average price of $38.61 per share. Additionally, 101,337 shares (allrepurchases during September2024 2023)or were repurchased and retired at an average price of $26.99 per share.2025.

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

Performance Summary. Net earnings for 20242025 were $223.51$253.58 million compared to net earnings of $198.98$223.51 million for 2023,2024, reflecting an increase of $24.53$30.07 million, or 12.33%.13.45%. The increase in earnings for 20242025 over 20232024 was primarily attributable to the overall growth in net interest income fromdriven theby strong growth in the Company's interest earning assets. Additionally, with the strong growth in deposits in 2025 combined with the continued proceeds resulting from maturities and paydowns of the Company's lower yielding investment portfolio, we were able to redeploy those funds into higher-yielding organic loans and investments during 2025. Furthermore, trust fee income increased $6.99$4.41 millionmillion, or 9.30%, when compared to 2023 and there were no losses on sales of AFS securities in 2024 when compared to $7.12 million losses in 2023. The proceeds from sales of securities during 2023 were used to fund higher-yielding organic loan growth during 2024.

Tax-equivalent net interest income was $513.63 million in 2025, as compared to $437.19 million in 2024, as compared toand $395.36 million in 2023, and $416.84 million in 2022.2023. Average earning assets were $12.48$13.55 billion in 2024,2025, as compared to $12.48 billion in 2024 and $12.00 billion in 20232023. The increase in tax-equivalent net interest income in 2025 compared to 2024 was largely attributable to the change in the mix of interest earning assets primarily derived from continued loan growth combined with increase in volume and $12.46yield on the Company's taxable and tax-exempt securities. The increase of $1.06 billion in 2022.average earning assets in 2025 when compared to 2024 was primarily a result of an increase in loans of $607.02 million, an increase in taxable securities of $265.67 million, and an increase in tax-exempt securities of $109.59 million. The increase in tax-equivalent net interest income in 2024 compared to 2023 was largely attributable to the change in the mix of interest earning assets primarily derived from an increase in average loans offset by a decrease in taxable and tax-exempt securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. The increase of $483.34 million in average earning assets in 2024 when compared to 2023 was primarily a result of an increase in loans of $732.00 million, offset by a decrease in taxable securities of $211.16 million,million and a decrease in tax-exempt securities of $176.36 million. The decrease in tax-equivalent net interest income in 2023 compared to 2022 was largely attributable to the increases in the rates paid on deposits and borrowings and a change in the mix of interest earning assets. The decrease of $461.72 million in average earning assets in 2023 when compared to 2022 was primarily a result of a decrease in taxable securities of $531.39 million and tax-exempt securities of $689.37 million offset by an increase in loans of $860.76 million when compared to 2022. Average interest-bearing liabilities were $8.39$9.18 billion in 2024,2025, as compared to $8.39 billion in 2024 and $7.84 billion in 20232023. andThe $7.76yield billionon earning assets increased 16 basis points in 2022.2025 when compared to 2024 while the rate paid on interest-bearing liabilities decreased 21 basis points. The yield on earning assets increased 62 basis points in 2024 when compared to 2023 while the rate paid on interest-bearing liabilities increased 57 basis points. The yield on earning assets increased 90 basis points in 2023 when compared to 2022 while the rate paid on interest-bearing liabilities increased 143 basis points.

The net interest margin for 20242025 was 3.50%3.79% which was aan increase of 29 basis points from 2024. The net interest margin in 2024 was 3.50%, an increase of 21 basis points from 2023. The net interest margin in 2023 was 3.29%, a decrease of five basis points from 2022. The net interest margin has expanded during the past year primarily due to (i) a shift in asset mix from lower yielding investment securities to higher yielding loans,loans and investment securities, (ii) strong growth in deposits that has enabled the Company to deploy those funds into higher yielding loan and securities portfolio and (iiiii) increased loan yields due to new and renewing loans and variable rate loans repricing higher. The Federal Reserve began aggressively increasing interest rates in March 2022 and continuing into 2023 withto increasesa peak of 255.25% basisto points in February, March, May, and July 2023.5.50%. Most recently, the Federal Reserve decreased interest rates 50100 basis points in September 2024, and 25 basis points in NovemberSeptember, October, and December 2024,2025, respectively, resulting in a target range of 4.25%3.50% to 4.50%3.75% at December 31, 2024.2025.

There are $1.09$1.52 billion of municipal and related deposits which are indexed to short-term treasury rates which have continued to increasefluctuate with the changes in the applicable rate index. Average municipal and related deposits totaled $1.58 billion and $1.46 billion for boththe years ended December 31, 20242025 and 2023,2024, respectively, with an average rate paid of 3.94%3.42% and 3.13%,3.94%, for the respective years then ended.

Noninterest Income. Noninter} estNoninterest income for 20242025 was $123.99$130.72 million compared to $108.00$123.99 million in 2023.2024. ChangesNotable changes in certain categories of noninterest income included (i)an noincrease lossesin ontrust salesfee income of AFS$4.41 securitiesmillion, inor 20249.30%, when compared to $7.12 million losses in 2023, (ii)and an increase in Trustmortgage feerelated income of $6.99$2.37 millionmillion, andor (iii) an increase in gain on sale and fees of mortgage loans of $1.29 million when17.95%, compared to 2023. AFS securities totaling $411.13 million were sold during 2023 resulting in a loss on sales of securities of $7.12 million.2024. There were no securities sales in 2025 and 2024. Trust revenue has increased primarily due to growth in assets under management to $11.94 billion at December 31, 2025 compared to $10.83 billion at December 31, 2024 compared to $9.78 billion at December 31, 2023, as well as increases in oil and gas related fees.2024. Mortgage income increased to $15.55 million in 2025 compared to $13.18 million in 2024 compared to $11.89 million in 2023 due to increased loan volume.origination volume and pricing margins have improved.

Noninterest income for 20232024 was $108.00$123.99 million compared to $131.67$108.00 million in 2022.2023. Changes in certain categories of noninterest income included (i) ano decline in gainslosses on sales of AFS securities ofin $9.262024 million,when compared to $7.12 million losses in 2023, (ii) aan decreaseincrease in debitTrust cardfee feesincome of $8.56$6.99 million,million and (iii) aan decreaseincrease in gain on sale and fees of mortgage loans of $7.15$1.29 million when compared to 2022.2023. AFS securities totaling $411.13 million with an average book yield of 2.91% were sold during 2023.2023 Theresulting proceedsin froma theloss on sales of thesesecurities of $7.12 million. There were no securities are being used to fund organic loan growth that has been yielding approximately 8%. The decreasesales in debit2024. cardTrust feesrevenue wasincreased primarily due to thegrowth impactin ofassets becomingunder subjectmanagement to regulations$10.83 imposedbillion byat theDecember Federal31, Reserve2024 Boardcompared thatto limits$9.78 debitbillion cardat interchangeDecember revenue31, which2023, becameas effectivewell foras theincreases Companyin July 1, 2022,oil and isgas consistentrelated with our previously disclosed expectations.fees. Mortgage income declinedincreased to $13.18 million in 2024 compared to $11.89 million in 2023 due to lowerincreased overallloan origination volumes and declining margins on loan sales as a result of the increases in mortgage interest rates during 2023.volume.

Salaries and employee benefits for 20242025 totaled $153.30$174.55 million, an increase of $21.38$21.26 million, or 16.21%,13.87%, as compared to 2023.2024. The net increase reflected an increase of $12.90$3.00 million in profit sharing expense and $3.16 million in officer bonus and incentive accruals related to growth in earnings over the prior year. Additionally, officer and employee salaries increased for additionsmerit-based topay theincreases, middlean marketincrease lendingin team and the audit and risk departments due to growth,headcount, as well as merit-basedmarket payadjustments increasesfor sincefront line staff over the priorpast year.

All other categories of noninterest expense for 20242025 totaled $111.77$118.84 million, an increase of $5.80$7.07 million, or 5.47%,6.33%, as compared to 2023.2024. Included in noninterest expense during 2024,2025, excluding salary and employee benefit related costs, were increases in software amortization and expense, occupancy expense,expense and legaloperational and professionalother feeslosses offset by a decrease in FDIClegal insurancefees premiumsand other related costs of $1.25$2.08 million due to the special assessment in the prior year.million.

Salaries and employee benefits for 20232024 totaled $131.92$153.30 million, aan decreaseincrease of $2.22$21.38 million, or 1.65%,16.21%, as compared to 2022.2023. The net decreaseincrease reflected aan decreaseincrease of $2.86$8.09 million in profit sharing expensesexpense and lower mortgage compensation expenses of $2.40$4.81 million offsetin byofficer annual merit-basedbonus and otherincentive market-basedaccruals related to growth in earnings over the prior year. Additionally, officer and employee salaries increased for additions to the middle market lending team and the audit and risk departments due to growth, as well as merit-based pay increases thatsince werethe effectiveprior March 1, 2023.year.

All other categories of noninterest expense for 20232024 totaled $105.97$111.77 million, an increase of $5.32$5.80 million, or 5.29%,5.47%, as compared to 2022.2023. Included in noninterest expense during 2023,2024, excluding salary and employee benefit related costs, were increases in software amortization and expense, occupancy expense, and legal and professional fees offset by a decrease in FDIC insurance premiums of $4.04$1.25 million primarily due to the recognition of $1.75 million related to the special assessment accrued and expensed in the fourthprior quarter of 2023.year.

Income Taxes. Income tax expense was $48.34$56.02 million for 2024,2025, as compared to $48.34 million for 2024 and $44.32 million for 2023 and $46.40 million for 2022.2023. Our effective tax rates on pretax income were 17.78%,18.10%, 18.22%17.78% and 16.52%,18.22%, respectively, for the years 2024,2025, 20232024 and 2022.2023. The effective tax rates differ from the statutory federal tax rate of 21.0% largely due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distribution under our deferred compensation plan and vesting of equity awards, and New Market Tax Credit ("NMTC") benefits.benefits, and Low Income Housing Tax Credits ("LIHTC").

As compared to year-end 20232024 balances, total commercial loans increaseddecreased $166.58by $87.28 million, agricultural loans increased $10.65$233 million,thousand, total real estate loans increased $471.75$245.04 million, and total consumer loans increased $115.33$87.18 million. Loans averaged $7.52$8.12 billion during 2024,2025, an increase of $732.00$607.02 million over 20232024 average balances.

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

Loans HFS, consisting of secondary market mortgage loans, totaled $8.24$29.99 million and $14.25$8.24 million at December 31, 20242025 and 2023,2024, respectively. At December 31, 20242025 and 2023,2024, $4.56 million and $442 thousand and $3.18 million are valued at the lower of cost or fair value, and the remaining amount is valued under the fair value option.

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

Commercial real estate loans (owner and non-owner occupied CRE) represent 23.87%23.94% of the Company's total loan portfolio as of December 31, 2024.2025. Non-owner occupied CRE represents $805.57$832.82 million, or 10.18%,10.21%, of the Company's total loan portfolio as of December 31, 2024.2025. The properties securing this portfolio are diverse as to geographic location in Texas as well as industry type. Collateral for CRE loans is located throughout the Company's markets in central west Texas, the Dallas-Forth Worth metroplex and southeast Texas with less than 1% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/warehousemanufacturing at approximately 13.91%18.60% and multifamily at approximately 7.64%7.75% as of December 31, 2024.2025. All additional CRE portfolio property type categories are 7% or less ofbelow the CREidentified portfolio.concentration levels. Credit underwriting standards are periodically reviewed and adjusted based upon observations from our ongoing monitoring of economic conditions in our lending areas. In response to the current interest rate environment and increases in benchmark rates, the Company has enhanced stress testing and loan review activities to mitigate interest rate reset risk with a specific emphasis on borrowers' abilities to absorb the impact of higher interest rates onas loans.loans that were made in a much lower rate environment renew.

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 themanagement's judgment of management,opinion, the collectabilityborrower ofmay principalbe orunable interestto undermeet thepayment originalobligations termsas becomesthey doubtful.become due, as well as when required by regulatory provisions. Nonaccrual, past due 90 days or more and still accruing, and restructured loans plus foreclosed assets were $56.49 million at December 31, 2025, as compared to $63.10 million at December 31, 2024,2024 as compared toand $35.10 million at December 31, 2023 and $24.33 million at December 31, 2022.2023. As a percent of loans HFI and foreclosed assets, these assets were 0.69% at December 31, 2025, as compared to 0.80% at December 31, 2024,2024 as compared toand 0.49% at December 31, 2023 and 0.38% at December 31, 2022.2023. As a percent of total assets, these assets were 0.37% at December 31, 2025, as compared to 0.45% at December 31, 2024,2024 as compared toand 0.27% at December 31, 2023 and 0.19% at December 31, 2022.2023. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at December 31, 2024.2025.

We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans as of December 31, 20242025 of approximately $1.11$795 millionthousand during the year ended December 31, 2024.2025. If interest on theseall nonaccrual loans at December 31, 2025 had been recognized on a full accrual basis during the year ended December 31, 2024,2025, such income would have approximated $5.35$5.69 million.

Allowance for Credit Losses. The allowance for credit losses is the amount we determine as of a specific date to be appropriate to absorb current expected credit losses on existing loans. For a discussion of our methodology, see our accounting policies in Note 1 to the Consolidated Financial Statements. The provision for credit losses was $28.61 million in 2025, $13.82 million in 2024, and $10.63 million in 2023,2023. andThe $17.43Company's provision for credit losses during 2025 was impacted by a $21.55 million incredit 2022.loss believed to be due to fraudulent activity associated with a commercial borrower. The Company's provision for credit losses during 2024 was driven by strong organic loan growth and an increase in classified loans. The increase in the Company's provision for credit losses during 2023 was driven by strong organic loan growth offset by a decrease in construction and development unfunded commitments.

As a percent of average loans, net loan charge-offs were 0.05%0.29%, during 20240.05%, and 0.03% during 2023,2025, 2024, and net2023, loan recoveries of 0.01% during 2022.respectively. The allowance for credit losses as a percent of loans HFI was 1.24%1.29% as of December 31, 2024,2025, as compared to 1.24% as of December 31, 2023,2024, and 1.18%2023, as of December 31, 2022.respectively. Included in the following tables are further analysis of our allowance for credit losses.

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

Available-for-Sale Securities. At December 31, 2024,2025, securities with a fair value of $4.62$5.51 billion were classified as securities AFS. There were no securities classified as held-to-maturity at December 31, 20242025 and 2023.2024. As compared to December 31, 2024, the AFS portfolio at December 31, 2025, reflected (i) an increase of $802.36 million in mortgage-backed securities; (ii) an increase of $311.13 million in obligations of states and political subdivisions; (iii) a decrease of $212.75 million in U.S. Treasury securities; and (iv) a decrease of $4.39 million in corporate bonds and other securities. As compared to December 31, 2023, the AFS portfolio at December 31, 2024, reflected (i) a decrease of $208.67 million in U.S. Treasury securities; (ii) a decrease of $56.91 million in obligations of states and political subdivisions; (iii) an increase of $149.87 million in mortgage-backed securities,securities; and (iv) an increase of $711 thousand in corporate bonds and other securities. As compared to December 31, 2022, the AFS portfolio at December 31, 2023, reflected (i) a decrease of $401.45 million in obligations of states and political subdivisions; (ii) a decrease of $343.02 million in mortgage-backed securities; (iii) a decrease of $315 thousand in U.S. Treasury securities; and (iv) an increase of $3.19 million in corporate bonds and other securities. Securities AFS included an unrealized loss fair value adjustment of $537.55$342.03 million, $510.92$537.55 million and $677.99$510.92 million at December 31, 2025, 2024, 2023, and 2022,2023, respectively. Our mortgage related securities are backed by GNMA, FNMA or FHLMC or are collateralized by securities backed by these agencies.

The estimated amount of uninsured and uncollateralized deposits including related interest accrued and unpaid is approximately $4.01$4.03 billionbillion, or 30.23% of total deposits, as of December 31, 2024.2025.

Repurchase Agreements. Securities sold under repurchase agreements were $62.96 million, $61.42 million and $381.93 million at December 31, 2025, 2024 and 2023, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowing. The average balances of securities sold under repurchase agreements were $53.75 million, $173.07 million,million and $568.21 million and $674.23 million in 2024,2025, 20232024 and 2022,2023, respectively. The average balances of securities sold under repurchase agreements has decreased from the prior year asrelated to the timing of customers have movedmoving funds to IntraFi deposit accounts.accounts throughout 2024. The average rates paid on securities sold under repurchase agreements were 3.16%,1.60%, 2.84%3.16% and 0.31%2.84% for the years ended December 31, 2024,2025, 20232024 and 2022,2023, respectively. The weighted average interest rate on federal funds purchased, securities sold under repurchase agreements and advances from the FHLB was 2.01%,1.46%, 3.27%2.01% and 1.96%3.27% at December 31, 2024,2025, 20232024 and 2022,2023, respectively. The highest amount of federal funds purchased, securities sold under repurchase agreements and advances from the FHLB at any month-end during 2024,2025, 2024 and 2023 and 2022 was $563.28$197.51 million, $822.98$563.28 million and $1.04$822.98 billion,million, respectively.

The fair value of our investment securities classified as available-for-sale totaled $4.62$5.51 billion at December 31, 2024.2025. During the year ended December 31, 2024,2025, the corresponding unrealized loss before taxes on the portfolio of $510.92$537.55 million at December 31, 2023,2024, changeddeclined to an unrealized loss before taxes of $537.55$342.03 million at December 31, 2024,2025, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changesimprovement in the fair value werewas driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At December 31, 2024,2025, the 5-year U.S. Treasury rate was 4.39%3.72% compared to 3.84%4.39% at December 31, 2023,2024, representing a 5566 basis point increasedecrease during the year. As of December 31, 2024,2025, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $231.38$259.83 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $193.96$228.37 million before taxes. WeThe believeCompany does not intend to sell any impaired available for sale securities before fair value recovers to the current amortized cost, and it is more-likely-than-not that we have the abilityCompany will not be required to holdsell theseimpaired securities basedbefore onfair ourvalue overallrecovers, liquiditywhich andmay intentbe to hold the portfolio.maturity.

Liquidity. Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings, which amounted to $197.02$84.64 million at December 31, 2024,2025, and an unfunded $25.00$50.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 20252027 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00$175.00 million. At December 31, 2024,2025, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $1.86$2.31 billion at December 31, 2024,2025, secured by portions of our loan portfolio and certain investment securities; and (ii) access to approximately $1.85 billion at the Federal Reserve Bank of Dallas discount window lending program, including the Bank Term Funding Program,program secured by portions of certain investment securities.securities and portions of our loan portfolio. At December 31, 2024,2025, there was $1.05$670.00 billionmillion used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

The Company renewed and amended its loan agreement, effective June 30, 2023,2025, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25.00$50.00 million on a revolving line of credit. See Note 8 - Line of Credit in the accompanying notes to consolidated financial statements regarding further information on this line of credit.

In addition, we anticipate that any future acquisition of financial institutions, expansion of branch locations or offering of new products could also place a demand on our cash resources. Available cash and cash equivalents at theour Company,parent company, which totaled $94.59$138.86 million at December 31, 2024,2025, investment securities which totaled $2.12$1.12 million at December 31, 20242025 with maturities over 54 to 65 years, available dividends from our subsidiaries which totaled $428.66$366.54 million at December 31, 2024,2025, 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.

In the ordinary course of business, we have entered into contractual obligations and have made other commitments to make future payments. Refer to the accompanying notes to consolidated financial statements for the expected timing of such payments as of December 31, 2024.2025. These payments related to time deposits with stated maturity dates (Note 7 - Deposits and Borrowings) and operating leases (Note 11 - Commitments and Contingencies). In addition, we have construction contracts with remaining future minimum contractual obligations of approximately $358$4.89 thousandmillion in 2025.2026.

See further disclosure of the unfunded lines of credit, unfunded commitments to extend credit and standby letters of credit (Note 12 - Financial Instruments with Off-Balance-Sheet Risk). Future notional amounts committed are $1.04$904.09 billionmillion in less than one year, $601.28$445.74 million in more than one year but less than three years and $525.41$442.28 million thereafter.

As a financial holding company, we generate most of our revenue from interest on loans and investments, trustwealth management fees, gain on sale of mortgage loans and service charges and fees on deposit accounts. Our primary source of funding for our loans and investments are deposits held by our bank subsidiary, First Financial Bank. Our largest expenses are interest on deposits and 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 prior authorization had been in place since July 27, 2021. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders.shareholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. There have been no repurchases during 2025 or through MarchJune 31,30, 2026.

Performance Summary. Net earnings for the firstsecond quarter of 2026 were $71.54$71.9 million, an increase of 16.62%7.9% when compared to earnings of $61.35$66.7 million for the firstsecond quarter of 2025. Diluted earnings per share was $0.50 for the firstsecond quarter of 2026 and $0.43$0.47 for the firstsecond quarter of 2025.

The return on average assets was 1.89% for both second quarters of 2026 and 2025, respectively. The return on average equity was 14.70% for the firstsecond quarter of 2026, as compared to 1.78%15.82% for the firstsecond quarter of 2025. The return on average equity was 14.83% for the first quarter of 2026, as compared to 15.12% for the first quarter of 2025.

Tax-equivalent net interest income was $138.58$140.7 million for the firstsecond quarter of 2026, as compared to $121.49$126.7 million for the same period last year. The increase in tax equivalent net interest income for the firstsecond quarter of 2026 compared to the same quarter in 2025 was largely attributable to the increases in average loans,loans and the increase in average balance and the rate of return on taxable and tax-exempt investment securities, and a $1.26 million reversal of interest expense.securities. Average earning assets were $14.54$14.5 billion for the firstsecond quarter of 2026, as compared to $13.16$13.3 billion during the firstsecond quarter of 2025. The increase of $1.38$1.1 billion in average earning assets for the firstsecond quarter of 2026 when compared to the same period in 2025 was primarily a result of (i) an increase in loans of $321.05$272.5 million, (ii) an increase in taxable investment securities of $570.66$621.1 million and (iii) an increase in tax-exempt investment securities of $319.33$276.2 million. Average interest-bearing liabilities were $9.91$9.8 billion for the firstsecond quarter of 2026, as compared to $9.01$9.0 billion in the same period in 2025. The yield on earning assets decreased 2 basis points while the rate paid on interest-bearing liabilities decreased 2018 basis points for the firstsecond quarter of 2026 when compared to the firstsecond quarter of 2025.

The net interest margin, on a tax equivalent basis, was 3.86%3.90% for the firstsecond quarter of 2026, an increase of 129 basis points from the same period in 2025. The net interest margin, on a tax equivalent basis, was 3.88% for the six-months ended June 30, 2026, an increase of 10 basis points from the same period in 2025. The net interest margin has expanded during the past year primarily due to (i) strong growth in deposits that has enabled the Company to deploy those funds into the higher yielding loans and securities portfolios, (ii) a reduction in cost of deposits, and (iii) investment of lower yielding securities cash flows into higher yielding bonds. The Federal Reserve began increasing interest rates in March 2022 and continuing into 2023 to a peak of 5.25% to 5.50%. Most recently, the Federal Reserve decreased interest rates by 100 basis points in 2024 and 25 basis points in September, October, and December 2025, respectively, resulting in a target rate of 3.50% to 3.75% at MarchJune 31,30, 2026.

There are $1.44$1.5 billion of municipal and related deposits which are indexed to short-term treasury rates which have continued to fluctuate with the changes in the applicable rate index. Average municipal and related deposits totaled $1.89 billion and $1.60 billion for the three-months ended March 31, 2026 and 2025, respectively, with an average rate paid of 3.02% and 3.39%, for the respective three-months then ended.

Includes tax equivalent yield adjustment of approximately $3.79$3.8 million and $2.70$2.9 million in the firstsecond quarters of 2026 and 2025, respectively, using an effective tax rate of 21% for both periods.

Noninterest Income. Noninterest income for the firstsecond quarter of 2026 was $32.10$35.8 million, an increase of $1.87$3.0 million, when compared to $30.23$32.9 million in the same quarter of 2025. TrustWealth Management fee income increased to $13.36$14.0 million for the firstsecond quarter of 2026 compared to $12.65$12.7 million for the firstsecond quarter of 2025, driven by growth in the increaseassets inunder management. The market value of trust assets managedunder tomanagement $11.91totaled $12.2 billion at MarchJune 31,30, 2026, compared to $10.86$11.5 billion at MarchJune 31,30, 2025. Service charges on deposits decreasedincreased to $6.08$6.3 million for the firstsecond quarter of 2026 compared with $6.18$6.1 million for the firstsecond quarter of 2025, driven by increases in fees on deposit accounts and offset by a decrease in overdraft fees. Mortgage related income increased to $4.28$4.7 million for the firstsecond quarter of 2026 compared to $2.83$4.1 million in the firstsecond quarter of 2025,2025. dueMortgage income continues to increasedbenefit from the restructuring of the secondary mortgage department, new mortgage lenders and centralization of mortgage operations this past year and an increase in the volume inof mortgage loans originatedoriginated. Other noninterest income increased to $5.0 million for the second quarter of 2026 compared to $3.7 million for the second quarter of 2025. In the second quarter of 2026, within other noninterest income was an increase of $1.2 million over the second quarter of 2025 reflecting an increase in the fair market value of the assets held in the Company's supplemental executive retirement plan. The plan holds marketable securities, including shares of the Company stock. Deferred compensation of the same amount related to these changes in value is included in salaries and betteremployee margins.benefits expense. Also, during the second quarter of 2026, the Company received life insurance proceeds of approximately $200 thousand for the death of a former employee.

Noninterest Expense. Total noninterest expense for the firstthree-months quarterended ofJune 30, 2026 was $76.77$81.1 million, compared to $70.34$71.7 million for the same period of 2025. An important measure in determining whether a financial institution effectively manages noninterest expense is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio was 44.98%45.94% for the firstsecond quarter of 2026 compared to 46.36%44.97% for the same quarter in 2025.

Salaries, commissions and employee benefits increased to $49.7 million for the firstsecond quarter of 2026 totaled $45.98 million, compared to $42.14$42.6 million for the same period in 2025. The increase from prior year is primarily resulting from additions to staff andannual merit-based and market drivenmarket-driven pay increases tothat officerswere effective March 1st and employeesprofit oversharing and incentive accruals, which are up due to year-over-year earnings growth. Also, there was a change in deferred compensation expense of $1.2 million from the pastsecond year.quarter of the prior year due to the increase in the supplemental executive retirement plan deferred compensation liability as previously discussed, which was offset by an equal amount in other noninterest income.

All other categories of noninterest expense for the firstsecond quarter of 2026 totaled $30.79$31.4 million, compared to $28.19$29.2 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended MarchJune 31,30, 2026 increased when compared to the same period in 2025 largely due to increases in software amortization,amortization and expense and professional and service fees and operationaloffset by decreases in equipment and otherdebit losses.card expenses.

Loans. The portfolio is comprised of loans made to businesses, professionals, municipalities, individuals, and farm and ranch operations locatedprimarily in the primary trade areas served by our subsidiary bank. As of MarchJune 31,30, 2026, total loans held-for-investment were $8.29$8.3 billion, an increase of $126.84$188.7 million, as compared to December 31, 2025 balances.

As compared to year-end 2025 balances, total commercial loans increased $75.44 million, total real estate loans increased $53.43$108.8 million, total commercial loans increased $47.8 million, total consumer loans increased $16.17$46.0 million, and agricultural loans decreased $18.19$14.0 million. Loans averaged $8.27$8.3 billion for the firstsecond quarter of 2026, an increase of $321.05$272.5 million over the prior year firstsecond quarter average balances. Loans averaged $8.3 billion for the first six months of 2026, an increase of $296.6 million from the average balance during the first six months of 2025.

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $22.98$23.6 million, $14.35 million,million and $29.99$30.0 million at MarchJune 31,30, 2026 and 2025, and December 31, 2025, respectively. At MarchJune 31,30, 2026 and 2025, and December 31, 2025, $4.85$4.7 million, $351 thousandmillion and $4.56$4.6 million, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

Commercial real estate loans (owner and non-owner occupied CRE) represent 23.63%23.7% of the Company's total loan portfolio as of MarchJune 31,30, 2026. Non-owner occupied CRE represents $825.77$831.9 million, or 9.97%,10.0%, of the Company's total loan portfolio as of MarchJune 31,30, 2026. The properties securing this portfolio are diverse as to geographic location in Texas as well as industry type. Collateral for CRE loans is located throughout the Company’s markets in central west Texas, the Dallas-Fort Worth metroplex and southeast Texas with less than 1% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/manufacturing at approximately 19.91%18.5% and multifamilymulti-tenant retail at approximately 6.11%7.9% as of MarchJune 31,30, 2026. All additional property CRE portfolio property type categories are below the identified concentration levels. Credit underwriting standards are periodically reviewed and adjusted based upon observations from our ongoing monitoring of economic conditions in our lending areas. In response to the current interest rate environment and increases in benchmark rates,environment, the Company has enhanced stress testing and loan review activities to mitigate interest rate resetreprice risk with a specific emphasis on borrowers’ abilities to absorb the impact of higher interest rates as loans that were made in a much lower rate environment renew.

The following tables summarize maturity information of our loan portfolio as of MarchJune 31,30, 2026. The tables also present the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.

Maturity Distribution and Interest Sensitivity of Loans at MarchJune 31,30, 2026 (dollars in thousands):

Asset Quality. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group, engaged third-parties, as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectability of principal or interest under the original terms becomes doubtful. Nonaccrual, past due 90 days or more and still accruing, and foreclosed assets were $54.31$67.0 million at MarchJune 31,30, 2026, as compared to $61.69 million at March 31, 2025 and $56.49$56.5 million at December 31, 2025. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.66%0.80% at MarchJune 31,30, 2026, 0.78% at March 31, 2025,2026 and 0.69% at December 31, 2025. As a percent of total assets, these assets were 0.35%0.44% at MarchJune 31,30, 2026, as compared to 0.43% at March 31, 2025 and 0.37% at December 31, 2025, respectively. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at MarchJune 31,30, 2026.

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 loans of approximately $795 thousand for the year ended December 31, 2025. Such amounts for the 2026 and 2025 interim periods were not significant. If interest on all nonaccrual loans had been recognized on a full accrual basis during the year ended December 31, 2025, such income would have been approximately $5.69$5.7 million. Such amounts for the 2026 and 2025 interim periods were not significant.

The provision for loan losses of $2.74$3.9 million for the three-months ended MarchJune 31,30, 2026 is combined with the reversal of provision for unfunded commitments of $447$268 thousand and reported in the net aggregate of $2.29$4.2 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended MarchJune 31,30, 2026. The provision for loan losses of $2.99$6.7 million for the three-monthssix-months ended MarchJune 31,30, 20252026 is combined with the provision reversal for unfunded commitments of $537$179 thousand and reported in the net aggregate of $3.53$6.5 million under the provision for credit losses in the consolidated statements of earnings for the three-monthssix-months ended MarchJune 31,30, 2025.2026.

As a percent of average loans, annualized net loan charge-offsrecoveries were 0.02%0.03% for the three-months ended MarchJune 31,30, 2026, as compared to 0.01%annualized net charge-offs of 0.04% for the three-months ended MarchJune 31,30, 2025. For the six-months ended June 30, 2026 and 2025, annualized net recoveries were 0.01% and annualized net charge-offs of 0.02%, respectively. The allowance for credit losses as a percent of loans held-for-investment was 1.30%1.35% as of MarchJune 31,30, 2026, as compared to 1.27% for March 31, 2025 and 1.29% for December 31, 2025, respectively.2025.

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $458.20$287.0 million at MarchJune 31,30, 2026 compared to $682.36 million at March 31, 2025 and $826.95$826.9 million at December 31, 2025, respectively.2025. At MarchJune 31,30, 2026, interest-bearing deposits in banks included $402.62$273.7 million maintained at the Federal Reserve Bank of Dallas and $55.58$13.2 million on deposit with the FHLB.

Available-for-Sale Securities. At MarchJune 31,30, 2026, securities with a fair value of $5.67$5.7 billion were classified as securities available-for-sale. As compared to December 31, 2025, the available-for-sale portfolio at MarchJune 31,30, 2026 reflected (i) an increase of $221.49$229.4 million in mortgage-backed securities, (ii) aan decreaseincrease of $40.85 million in U.S. Treasury securities, (iii) a decrease of $21.65$2.5 million in obligations of states and political subdivisions, (iii) a decrease of $60.8 million in U.S. Treasury securities, and (iv) a decrease of $4.31$9.3 million in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by purchases and calls or maturities, and changes in unrealized losses during the first quartersix-months of 2026. 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 MarchJune 31,30, 2026 and December 31, 2025.

Table 8 - Maturities and Yields of Available-for-Sale Securities Held at MarchJune 31,30, 2026 (dollars in thousands, except percentages):

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. The expected maturities of these securities were computed by using scheduled amortization of balances and historical prepayment rates. Maturities of other securities are reported at the earlier of maturity date or call date.

As of MarchJune 31,30, 2026, the investment portfolio had an overall tax equivalent yield of 3.19%,3.22%, a weighted average life of 6.716.3 years and modified duration of 5.555.3 years.

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $13.25$13.1 billion as of MarchJune 31,30, 2026, as compared to $12.47 billion as of March 31, 2025 and $13.35$13.3 billion as of December 31, 2025.

Table 9 provides a breakdown of average deposits and rates paid over the three monthand periodssix-months ended MarchJune 31,30, 2026 and 2025,2025 respectively.

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $4.00$4.0 billion, or 30.17%30.5% of total deposits, as of MarchJune 31,30, 2026.

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $22.31 million, $26.98$21.8 million and $21.68$21.7 million at MarchJune 31,30, 2026 and 2025, and December 31, 2025, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $22.16$28.5 million and $74.56$26.6 million in the firstsecond quarters of 2026 and 2025, respectively. The weighted average interest rates paid on these borrowings were 1.35%1.76% and 3.06%1.93% for the firstsecond quarters of 2026 and 2025, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $25.3 million and $50.4 million in the first half of 2026 and 2025, respectively. The weighted average interest rates paid on these borrowings were 1.59% and 2.76% for the first half of 2026 and 2025, respectively.

Repurchase Agreements. Securities sold under repurchase agreements of $67.95 million, $56.61$53.7 million and $62.96$63.0 million at MarchJune 31,30, 2026 and 2025,2026, and December 31, 2025, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowings. The average balances of securities sold under repurchase agreements were $62.85$60.4 million and $53.92$54.5 million for the firstsecond quarters of 2026 and 2025, respectively. The average rates paid on securities sold under repurchase agreements were 1.48% and 1.57%1.63% for the firstsecond quarters of 2026 and 2025, respectively. The average balances of securities sold under repurchase agreements were $61.6 million and $54.2 million for the first half of 2026 and 2025, respectively. The average rates paid on securities sold under repurchase agreements were 1.48% and 1.60% for the first half of 2026 and 2025, respectively

The results for the net interest income simulations as of MarchJune 31,30, 2026 and December 31, 2025 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.

The fair value of our investment securities classified as available-for-sale totaled $5.67$5.7 billion at MarchJune 31,30, 2026. During the threesix months ended MarchJune 31,30, 2026, the corresponding unrealized loss before taxes on the portfolio of $342.03$342.0 million at December 31, 2025, changed to an unrealized loss before taxes of $367.52$354.4 million at MarchJune 31,30, 2026, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At MarchJune 31,30, 2026, the 5-year U.S. Treasury rate was 3.95%4.19% compared to 3.72% at December 31, 2025, representing a 2347 basis point increase during the first threesix months of 2026. As of MarchJune 31,30, 2026, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $270.95$260 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $236.65$220 million before taxes. The CompanyManagement does not intendhave the intent to sell any impaired available-for-sale securities before fair value recovers to the current amortized cost, and it is more-likely-than-not that the Company will not be required to sell impaired securities before the fair value recovers, which may be maturity.

Total shareholders’ equity was $1.94$2.0 billion, or 12.63%13.0% of total assets at MarchJune 31,30, 2026, as compared to $1.68$1.9 billion, or 11.74% of total assets at March 31, 2025, and $1.92 billion, or 12.41%12.4% of total assets at December 31, 2025. Included in shareholders' equity at MarchJune 31,30, 2026, and 2025,2026 and December 31, 2025 were $290.06 million, $388.89$279.7 million and $269.94$269.9 million, respectively, in unrealized losses on investment securities available-for-sale, net of related income taxes, although such amount is excluded from and does not impact regulatory capital. For the firstsecond quarter of 2026, total shareholders' equity averaged $1.96$2.0 billion, or 12.74%12.8% of average assets, as compared to $1.65$1.7 billion, or 11.76%11.9% of average assets, during the same period in 2025. For the first six months of 2026, total shareholders' equity averaged $2.0 billion, or 12.8% of average assets, as compared to $1.7 billion or 11.8% of average assets, during the same period in 2025.

As of MarchJune 31,30, 2026 and 2025, and December 31, 2025, we had a total risk-based capital ratio of 21.42%, 20.31%21.62% and 21.17%, a Tier 1 capital to risk-weighted assets ratio of 20.23%, 19.12%20.40% and 19.99%, and a common equity Tier 1 to risk-weighted assets ratio of 20.23%, 19.12%20.40% and 19.99%19.99%, and a Tier 1 leverage ratio of 12.58%, 12.46%12.88% and 12.55%, respectively. The regulatory capital ratios as of MarchJune 31,30, 2026 and 2025, and December 31, 2025 were calculated under Basel III rules.

Liquidity. Liquidity ismanagement involves our ability to meetconvert assets to cash demandsto asmeet theyour arise.current and future obligations to customers at any time. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable, or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings (see below) and an unfunded $50.00$50 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2027 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $175.00$175 million. At MarchJune 31,30, 2026, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $2.31$2.3 billion at MarchJune 31,30, 2026, secured by portions of our loan portfolio and certain investment securities, and (ii) access to approximately $1.87$1.6 billion at the Federal Reserve Bank of Dallas discountDiscount windowWindow lending program secured by portions of certain investment securities and portions of our loan portfolio. At MarchJune 31,30, 2026, there was $633.00$668.0 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

The Company renewed and amended its loan agreement, effective June 30, 2025, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $50.00$50 million on a revolving line of credit. Prior to June 30, 2027, interest is paid quarterly at the U.S. prime rate as quoted in the Money Rates section of The Wall Street Journal, and the line of credit matures June 30, 2027. If a balance exists at July 1, 2027, the principal balance converts to a term facility payable quarterly over five years and interest is paid quarterly at the U.S. prime rate as quoted in the Money Rates section of The Wall Street Journal. The line of credit is unsecured. Among other provisions in the Loan Agreement, the Company must satisfy certain financial covenants during the term of the Loan Agreement, including without limitation, covenants that require the Company to maintain certain capital, profitability, loan loss reserve, non-performing asset and debt service 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 MarchJune 31,30, 2026. There was no outstanding balance under the line of credit as of MarchJune 31,30, 2026.

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 $147.46$162.7 million at MarchJune 31,30, 2026, investment securities which totaled $1.10$1.1 million at MarchJune 31,30, 2026 and mature over 4 to 5 years, available dividends from our subsidiaries which totaled $326.70$360.0 million at MarchJune 31,30, 2026, 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 MarchJune 31,30, 2026, 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 impact to the financial system due to the past failures of several banks. Given the diversified 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 MarchJune 31,30, 2026, the Company’s reserve for unfunded commitments totaled $5.94$6.2 million which is recorded in other liabilities.