First Financial Bankshares Inc.
11/05/2026 | Press release | Distributed by Public on 11/05/2026 12:59
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
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," "could," "may," or "would" and similar expressions, as they relate to us or our management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited, to those discussed in Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2025, under the heading "Risk Factors," and the following:
•
general economic conditions, including the impact of government shutdowns, our local, state and national real estate markets, and employment trends;
•
the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and the implementation of tariffs and other protectionist trade policies;
•
effect of severe weather conditions, including hurricanes, tornadoes, flooding and droughts;
•
volatility and disruption in national and international financial and commodity markets;
•
government intervention in the U.S. financial system including the effects of recent legislative, tax, accounting, tariffs, and regulatory actions and reforms, including the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau ("CFPB"), the Inflation Reduction Act of 2022, the capital ratios of Basel III as adopted by the federal banking authorities and the Tax Cuts and Jobs Act, and the One Big Beautiful Bill Act ("OBBBA");
•
political or social unrest and economic instability;
•
the ability of the federal government to address the national economy;
•
changes in our competitive environment from other financial institutions and financial service providers;
•
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board ("PCAOB"), the Financial Accounting Standards Board ("FASB") and other accounting standard setters;
•
effect of a pandemic, epidemic, or highly contagious disease, on our Company, the communities where we have our branches, the state of Texas and the United States, related to the economy and overall financial stability, including disruptions to supply channels and labor availability;
•
government and regulatory responses to a pandemic, epidemic, or highly contagious disease;
•
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply;
•
the costs, effects and results of regulatory examinations, investigations or reviews and the ability to obtain required regulatory approvals;
•
changes in the demand for loans, including loans originated for sale in the secondary market;
•
fluctuations in the value of collateral securing our loan portfolio and in the level of the allowance for credit losses;
•
the accuracy of our estimates of future credit losses;
•
the accuracy of our estimates and assumptions regarding the performance of our securities portfolio, including securities with a current unrealized loss;
•
inflation, interest rate, market and monetary fluctuations;
•
soundness of other financial institutions with which we have transactions;
•
changes in consumer spending, borrowing and savings habits;
•
changes in commodity prices (e.g., oil and gas, cattle, and wind energy);
•
our ability to attract deposits, maintain and/or increase market share;
•
changes in our liquidity position, including a result of a reduction in the amount of sources of liquidity we currently have;
•
fluctuations in the market value and liquidity of the investment securities we have classified as available-for-sale ("AFS"), including the effects of changes in market interest rates;
•
changes in the reliability of our vendors, internal control system or information systems;
•
cyber-attacks on our technology information systems, including fraud from our customers and external third-party vendors;
•
our ability to attract and retain qualified employees;
•
acquisitions and integration of acquired businesses;
•
the possible impairment of goodwill and other intangibles associated with our acquisitions;
•
consequences of continued bank mergers and acquisitions in our market area, resulting in fewer but much larger and stronger competitors;
•
expansion of operations, including branch openings, new product offerings and expansion into new markets;
•
changes in our compensation and benefit plans;
•
acts of God or of war or terrorism;
•
the impact of changes to the global climate and its effect on our operations and customers;
•
potential risk of environmental liability associated with lending activities;
•
the rise of Artificial Intelligence as a commonly used resource; and
•
our success at managing the risk involved in the foregoing items.
In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Ukraine and Middle East conflicts and other world events, terrorism or other geopolitical events.
Such forward-looking statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategies and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise (except as required by law).
Introduction
As a financial holding company, we generate most of our revenue from interest on loans and investments, wealth management fees, gain on sale of mortgage loans and service charges, interchange income 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 following discussion and analysis of operations and financial condition should be read in conjunction with the consolidated financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company's 2025 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 (i) the accounting estimate requires us to make assumptions about matters that are highly uncertain at the time we make the accounting estimate; and (ii) 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 (i) our allowance for credit losses and our provision for credit losses and (ii) 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 (i) our allowance for credit losses and our provision for credit losses and (ii) our valuation of financial instruments is included in Notes 1, 3, and 9 to our Consolidated Financial Statements.
It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the ACL and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. A large driver to the ACL is the overall credit quality of the underlying credits. Deterioration or improvement in credit quality could have a significant impact on the overall level of ACL.
Stock Repurchase
On July 28, 2026, the Company's Board of Directors renewed and increased the size of the authorization to repurchase up to 7.2 million common shares through July 31, 2027. The prior authorization to repurchase up to 5 million common shares 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 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 September 30, 2026.
Results of Operations
Performance Summary. Net earnings for the third quarter of 2026 were $74.3 million, an increase of 42.2% when compared to earnings of $52.3 million for the third quarter of 2025. Diluted earnings per share was $0.52 for the third quarter of 2026 and $0.36 for the third quarter of 2025.
The return on average assets was 1.93% for the third quarter of 2026, as compared to 1.44% for the third quarter of 2025, respectively. The return on average equity was 15.02% for the third quarter of 2026, as compared to 11.85% for the third quarter of 2025.
Net earnings for the nine-months ended September 30, 2026 were $217.7 million, an increase of 20.8% when compared to earnings of $180.3 million for the nine-months ended September 30, 2025. Diluted earnings per share was $1.51 for the first nine months of 2026 and $1.26 for the first nine months of 2025.
The return on average assets was 1.90% for the first nine months of 2026, as compared to 1.70% for the first nine months of 2025. The return on average equity was 14.85% for the first nine months of 2026, as compared to 14.22% for the first nine months of 2025.
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 $142.1 million for the third quarter of 2026, as compared to $130.4 million for the same period last year. The increase in tax equivalent net interest income for the third quarter of 2026 compared to the same quarter in 2025 was largely attributable to the increases in average loans and the increase in average balance and the rate of return on taxable investment securities. Average earning assets were $14.4 billion for the third quarter of 2026, as compared to $13.6 billion during the third quarter of 2025. The increase of $828.3 million in average earning assets for the third quarter of 2026 when compared to the same period in 2025 was primarily a result of (i) an increase in taxable investment securities of $544.1 million, and (ii) an increase in loans of $219.6 million. Average interest-bearing liabilities were $9.7 billion for the third quarter of 2026, as compared to $9.2 billion in the same period in 2025. The yield on earning assets decreased 4 basis points while the rate paid on interest-bearing liabilities decreased 22 basis points for the third quarter of 2026 when compared to the third quarter of 2025.
Tax-equivalent net interest income was $421.4 million for the first nine months of 2026, as compared to $378.6 million for the same period last year. The increase in tax equivalent net interest income for the first nine months of 2026 compared to the same period in 2025 was largely attributable to the increase in average balance and the rate of return on taxable and tax-exempt investment securities, and increases in average loans. Average earning assets were $14.5 billion for the nine-months ended September 30, 2026, as compared to $13.4 billion during the nine-months ended September 30, 2025. The increase of $1.1 billion in average earning assets for the nine-months ended September 30, 2026 when compared to the same period in 2025 was primarily a result of (i) an increase in taxable investment securities of $578.6 million, (ii) an increase in loans of $270.6 million and (iii) an increase in tax-exempt investment securities of $198.6 million. Average interest-bearing liabilities were $9.8 billion for the nine-months ended September 30, 2026, as compared to $9.1 billion in the same period in 2025. The yield on earning assets decreased 3 basis points while the rate paid on interest-bearing liabilities decreased 20 basis points for the nine-months ended September 30, 2026 when compared to the same period in 2025.
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 September 30, 2026 |
Nine-Months Ended September 30, 2026 |
|||||||||||||||||||||||
|
Change Attributable to |
Total |
Change Attributable to |
Total |
|||||||||||||||||||||
|
Volume |
Rate |
Change |
Volume |
Rate |
Change |
|||||||||||||||||||
|
Short-term investments |
$ |
665 |
$ |
(347 |
) |
$ |
318 |
$ |
1,988 |
$ |
(1,873 |
) |
$ |
115 |
||||||||||
|
Taxable investment securities |
4,056 |
4,429 |
8,485 |
12,654 |
11,503 |
24,157 |
||||||||||||||||||
|
Tax-exempt investment securities (1) |
30 |
14 |
44 |
4,545 |
3,094 |
7,639 |
||||||||||||||||||
|
Loans (1) (2) |
3,756 |
(3,030 |
) |
726 |
13,660 |
(5,050 |
) |
8,610 |
||||||||||||||||
|
Interest income |
8,507 |
1,066 |
9,573 |
32,847 |
7,674 |
40,521 |
||||||||||||||||||
|
Interest-bearing deposits |
3,326 |
(5,084 |
) |
(1,758 |
) |
12,535 |
(14,026 |
) |
(1,491 |
) |
||||||||||||||
|
Repurchase agreements |
33 |
(37 |
) |
(4 |
) |
92 |
(75 |
) |
17 |
|||||||||||||||
|
Borrowings |
(281 |
) |
(109 |
) |
(390 |
) |
(619 |
) |
(261 |
) |
(880 |
) |
||||||||||||
|
Interest expense |
3,078 |
(5,230 |
) |
(2,152 |
) |
12,008 |
(14,362 |
) |
(2,354 |
) |
||||||||||||||
|
Net interest income |
$ |
5,429 |
$ |
6,296 |
$ |
11,725 |
$ |
20,839 |
$ |
22,036 |
$ |
42,875 |
||||||||||||
(1)
Computed on a tax-equivalent basis assuming a marginal tax rate of 21%.
(2)
Nonaccrual loans are included in loans.
The net interest margin, on a tax equivalent basis, was 3.91% for the third quarter of 2026, an increase of 11 basis points from the same period in 2025. The net interest margin, on a tax equivalent basis, was 3.89% for the nine-months ended September 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 decreased interest rates by 100 basis points in 2024 and 25 basis points in September, October, and December 2025, respectively. Most recently, the Federal Reserve increased interest rates by 25 basis points in September 2026, resulting in a target rate of 3.75% to 4.00% at September 30, 2026.
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):
|
Three-Months Ended September 30, |
||||||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||||||
|
Average |
Income/ |
Yield/ |
Average |
Income/ |
Yield/ |
|||||||||||||||||||
|
Assets |
||||||||||||||||||||||||
|
Short-term investments (1) |
$ |
288,345 |
$ |
2,835 |
3.90 |
% |
$ |
227,450 |
$ |
2,517 |
4.39 |
% |
||||||||||||
|
Taxable investment securities (2) |
4,104,496 |
35,024 |
3.41 |
3,560,347 |
26,539 |
2.98 |
||||||||||||||||||
|
Tax-exempt investment securities (2)(3) |
1,568,453 |
12,950 |
3.30 |
1,564,767 |
12,906 |
3.30 |
||||||||||||||||||
|
Loans (3)(4) |
8,468,672 |
141,862 |
6.65 |
8,249,113 |
141,136 |
6.79 |
||||||||||||||||||
|
Total earning assets |
14,429,966 |
$ |
192,671 |
5.30 |
% |
13,601,677 |
$ |
183,098 |
5.34 |
% |
||||||||||||||
|
Cash and due from banks |
283,205 |
221,798 |
||||||||||||||||||||||
|
Bank premises and equipment, net |
156,482 |
148,659 |
||||||||||||||||||||||
|
Other assets |
230,405 |
244,934 |
||||||||||||||||||||||
|
Goodwill and other intangible assets, net |
313,545 |
313,780 |
||||||||||||||||||||||
|
Allowance for credit losses |
(112,051 |
) |
(102,511 |
) |
||||||||||||||||||||
|
Total assets |
$ |
15,301,552 |
$ |
14,428,337 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
|
Interest-bearing deposits |
$ |
9,630,365 |
$ |
50,252 |
2.07 |
% |
$ |
9,051,463 |
$ |
52,010 |
2.28 |
% |
||||||||||||
|
Repurchase agreements |
57,939 |
206 |
1.41 |
50,051 |
210 |
1.66 |
||||||||||||||||||
|
Borrowings |
22,686 |
81 |
1.42 |
56,198 |
471 |
3.33 |
||||||||||||||||||
|
Total interest-bearing liabilities |
9,710,990 |
$ |
50,539 |
2.06 |
% |
9,157,712 |
$ |
52,691 |
2.28 |
% |
||||||||||||||
|
Noninterest-bearing deposits |
3,508,797 |
3,419,378 |
||||||||||||||||||||||
|
Other liabilities |
118,844 |
101,268 |
||||||||||||||||||||||
|
Total liabilities |
13,338,631 |
12,678,358 |
||||||||||||||||||||||
|
Shareholders' equity |
1,962,921 |
1,749,979 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
15,301,552 |
$ |
14,428,337 |
||||||||||||||||||||
|
Net interest income (tax equivalent) |
$ |
142,132 |
$ |
130,407 |
||||||||||||||||||||
|
Rate Analysis: |
||||||||||||||||||||||||
|
Interest income/earning assets |
5.30 |
% |
5.34 |
% |
||||||||||||||||||||
|
Interest expense/earning assets |
(1.39 |
) |
(1.54 |
) |
||||||||||||||||||||
|
Net interest margin |
3.91 |
% |
3.80 |
% |
||||||||||||||||||||
(1)
Short-term investments are comprised of federal funds sold, interest-bearing deposits in banks and interest-bearing time deposits in banks.
(2)
Average balances include unrealized gains and losses on available-for-sale securities.
(3)
Includes tax equivalent yield adjustment of approximately $3.6 million and $3.4 million in the third quarters of 2026 and 2025, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.
|
Nine-Months Ended September 30, |
||||||||||||||||||||||||
|
2026 |
2025 |
|||||||||||||||||||||||
|
Average |
Income/ |
Yield/ |
Average |
Income/ |
Yield/ |
|||||||||||||||||||
|
Assets |
||||||||||||||||||||||||
|
Short-term investments (1) |
$ |
363,512 |
$ |
10,201 |
3.75 |
% |
$ |
303,224 |
$ |
10,086 |
4.45 |
% |
||||||||||||
|
Taxable investment securities (2) |
4,090,870 |
100,973 |
3.29 |
3,512,304 |
76,816 |
2.92 |
||||||||||||||||||
|
Tax-exempt investment securities (2)(3) |
1,667,729 |
41,268 |
3.30 |
1,469,158 |
33,629 |
3.05 |
||||||||||||||||||
|
Loans (3)(4) |
8,354,207 |
416,723 |
6.67 |
8,083,638 |
408,113 |
6.75 |
||||||||||||||||||
|
Total earning assets |
14,476,318 |
$ |
569,165 |
5.26 |
% |
13,368,324 |
$ |
528,644 |
5.29 |
% |
||||||||||||||
|
Cash and due from banks |
266,297 |
221,826 |
||||||||||||||||||||||
|
Bank premises and equipment, net |
152,935 |
149,614 |
||||||||||||||||||||||
|
Other assets |
218,162 |
241,764 |
||||||||||||||||||||||
|
Goodwill and other intangible assets, net |
313,587 |
313,865 |
||||||||||||||||||||||
|
Allowance for credit losses |
(108,622 |
) |
(100,620 |
) |
||||||||||||||||||||
|
Total assets |
$ |
15,318,677 |
$ |
14,194,773 |
||||||||||||||||||||
|
Liabilities and Shareholders' Equity |
||||||||||||||||||||||||
|
Interest-bearing deposits |
$ |
9,709,818 |
$ |
146,800 |
2.02 |
% |
$ |
8,953,017 |
$ |
148,291 |
2.21 |
% |
||||||||||||
|
Repurchase agreements |
60,379 |
658 |
1.46 |
52,801 |
641 |
1.62 |
||||||||||||||||||
|
Borrowings |
24,436 |
280 |
1.53 |
52,380 |
1,160 |
2.96 |
||||||||||||||||||
|
Total interest-bearing liabilities |
9,794,633 |
$ |
147,738 |
2.02 |
% |
9,058,198 |
$ |
150,092 |
2.22 |
% |
||||||||||||||
|
Noninterest-bearing deposits |
3,452,035 |
3,356,999 |
||||||||||||||||||||||
|
Other liabilities |
111,334 |
85,148 |
||||||||||||||||||||||
|
Total liabilities |
13,358,002 |
12,500,345 |
||||||||||||||||||||||
|
Shareholders' equity |
1,960,675 |
1,694,428 |
||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
$ |
15,318,677 |
$ |
14,194,773 |
||||||||||||||||||||
|
Net interest income (tax equivalent) |
$ |
421,427 |
$ |
378,552 |
||||||||||||||||||||
|
Rate Analysis: |
||||||||||||||||||||||||
|
Interest income/earning assets |
5.26 |
% |
5.29 |
% |
||||||||||||||||||||
|
Interest expense/earning assets |
(1.36 |
) |
(1.50 |
) |
||||||||||||||||||||
|
Net interest margin |
3.89 |
% |
3.79 |
% |
||||||||||||||||||||
(1)
Short-term investments are comprised of federal funds sold, interest-bearing deposits in banks and interest-bearing time deposits in banks.
(2)
Average balances include unrealized gains and losses on available-for-sale securities.
(3)
Includes tax equivalent yield adjustment of approximately $11.2 million and $9.0 million in the first nine months of 2026 and 2025, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.
Noninterest Income. Noninterest income for the third quarter of 2026 was $35.6 million, an increase of $1.4 million, when compared to $34.3 million in the same quarter of 2025. Wealth management fee income increased to $14.5 million for the third quarter of 2026 compared to $13.0 million for the third quarter of 2025. Increases are related to new account growth and increased mineral fee income due to oil and gas prices. The market value of assets under management totaled $12.4 billion at September 30, 2026, compared to $12.1 billion at September 30, 2025. Service charges on deposits increased to $6.7 million for the third quarter of 2026 compared with $6.5 million for the third quarter of 2025, primarily driven by increases in net new accounts. Mortgage related income decreased to $4.2 million for the third quarter of 2026 compared to $4.4 million in the third quarter of 2025. Mortgage volume and margins were impacted by the spike in long term rates during the third quarter of 2026.
Noninterest income for the nine-months ended September 30, 2026 was $103.6 million, an increase of $6.2 million, when compared to $97.4 million in the same period in 2025. Wealth Management fee income increased to $41.8 million for the first nine months of 2026 compared to $38.3 million for the first nine months of 2025 mostly driven by the increase in market value of trust assets managed. Mortgage related income increased to $13.1 million for the first nine months of 2026 compared to $11.3 million for the same period in 2025 benefiting from the restructuring of the secondary mortgage department, new mortgage lenders and an increase in the volume of mortgage loans originated.
Table 3 - Noninterest Income (dollars in thousands):
|
Three-Months Ended September 30, |
Nine-Months Ended September 30, |
|||||||||||||||||||||||
|
2026 |
Increase |
2025 |
2026 |
Increase |
2025 |
|||||||||||||||||||
|
Wealth Management fees |
$ |
14,492 |
$ |
1,542 |
$ |
12,950 |
$ |
41,815 |
$ |
3,466 |
$ |
38,349 |
||||||||||||
|
Service charges on deposit accounts |
6,693 |
246 |
6,447 |
19,033 |
284 |
18,749 |
||||||||||||||||||
|
Debit card fees |
5,953 |
620 |
5,333 |
16,782 |
1,263 |
15,519 |
||||||||||||||||||
|
Credit card fees |
721 |
22 |
699 |
2,106 |
123 |
1,983 |
||||||||||||||||||
|
Gain on sale and fees on mortgage loans |
4,175 |
(200 |
) |
4,375 |
13,131 |
1,798 |
11,333 |
|||||||||||||||||
|
Net loss on sale of available-for-sale securities |
(9 |
) |
(9 |
) |
- |
(9 |
) |
(9 |
) |
- |
||||||||||||||
|
Net gain (loss) on sale of foreclosed assets |
(2 |
) |
120 |
(122 |
) |
(77 |
) |
(120 |
) |
43 |
||||||||||||||
|
Net gain on sale of assets |
(1 |
) |
(1 |
) |
- |
(375 |
) |
(381 |
) |
6 |
||||||||||||||
|
SERP market adjustment |
16 |
(270 |
) |
286 |
1,126 |
629 |
497 |
|||||||||||||||||
|
Other: |
||||||||||||||||||||||||
|
Check printing fees |
36 |
3 |
33 |
68 |
(22 |
) |
90 |
|||||||||||||||||
|
Safe deposit rental fees |
167 |
(3 |
) |
170 |
573 |
(18 |
) |
591 |
||||||||||||||||
|
Credit life fees |
211 |
2 |
209 |
694 |
(209 |
) |
903 |
|||||||||||||||||
|
Brokerage commissions |
480 |
(10 |
) |
490 |
1,419 |
156 |
1,263 |
|||||||||||||||||
|
Wire transfer fees |
485 |
19 |
466 |
1,447 |
106 |
1,341 |
||||||||||||||||||
|
Miscellaneous income |
2,218 |
(710 |
) |
2,928 |
5,842 |
(857 |
) |
6,699 |
||||||||||||||||
|
Total other |
3,597 |
(699 |
) |
4,296 |
10,043 |
(844 |
) |
10,887 |
||||||||||||||||
|
Total Noninterest Income |
$ |
35,635 |
$ |
1,371 |
$ |
34,264 |
$ |
103,575 |
$ |
6,209 |
$ |
97,366 |
||||||||||||
Noninterest Expense. Total noninterest expense for the three-months ended September 30, 2026 was $81.1 million, compared to $73.7 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 45.59% for the third quarter of 2026 compared to 44.74% for the same quarter in 2025.
Salaries, commissions and employee benefits increased to $47.8 million for the third quarter of 2026 compared to $42.6 million for the same period in 2025. The increase from prior year is primarily resulting from annual merit-based and market-driven pay increases that were effective March 1st in the current year as well as additions to staff over the past year.
All other categories of noninterest expense for the third quarter of 2026 totaled $33.2 million, compared to $31.1 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended September 30, 2026 increased when compared to the same period in 2025 largely due to increases in professional fees, and software amortization and expense offset by decreases in operational and other losses and debit card expenses.
Total noninterest expense for the nine-months ended September 30, 2026 was $238.9 million, compared to $215.7 million for the same period of 2025. Our efficiency ratio was 45.51% for the first nine months of 2026 compared to 45.33% during the same period in 2025.
Salaries, commissions and employee benefits for the nine-months ended September 30, 2026 totaled $143.5 million, compared to $127.3 million for the same period in 2025. The increase from prior year is primarily resulting from annual merit-based and market-driven pay increases that were effective March 1st in the current year as well as additions to staff over the past year.
All other categories of noninterest expense for the nine-months ended September 30, 2026 totaled $95.5 million, compared to $88.4 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the nine-months ended September 30, 2026 increased when compared to the same period in 2025 largely due to increases in software amortization and expense and professional and service fees partially offset by decreases in debit card expenses.
Table 4 - Noninterest Expense (dollars in thousands):
|
Three-Months Ended September 30, |
Nine-Months Ended September 30, |
|||||||||||||||||||||||
|
2026 |
Increase |
2025 |
2026 |
Increase |
2025 |
|||||||||||||||||||
|
Salaries, commissions and incentives (excluding mortgage) |
$ |
33,659 |
$ |
3,591 |
$ |
30,068 |
$ |
98,015 |
$ |
9,824 |
$ |
88,191 |
||||||||||||
|
Mortgage salaries and incentives |
2,820 |
2 |
2,818 |
8,523 |
1,066 |
7,457 |
||||||||||||||||||
|
Medical |
3,057 |
97 |
2,960 |
9,802 |
808 |
8,994 |
||||||||||||||||||
|
Profit sharing |
2,917 |
993 |
1,924 |
9,384 |
1,734 |
7,650 |
||||||||||||||||||
|
401(k) match expense |
1,221 |
143 |
1,078 |
3,767 |
441 |
3,326 |
||||||||||||||||||
|
Payroll taxes |
2,318 |
237 |
2,081 |
7,554 |
798 |
6,756 |
||||||||||||||||||
|
SERP market adjustment |
16 |
(270 |
) |
286 |
1,126 |
629 |
497 |
|||||||||||||||||
|
Stock based compensation |
1,801 |
411 |
1,390 |
5,280 |
829 |
4,451 |
||||||||||||||||||
|
Total salaries and employee benefits |
47,809 |
5,204 |
42,605 |
143,451 |
16,129 |
127,322 |
||||||||||||||||||
|
Net occupancy expense |
3,837 |
292 |
3,545 |
11,195 |
330 |
10,865 |
||||||||||||||||||
|
Equipment expense |
2,306 |
(89 |
) |
2,395 |
6,633 |
(561 |
) |
7,194 |
||||||||||||||||
|
FDIC insurance premiums |
1,709 |
74 |
1,635 |
5,036 |
241 |
4,795 |
||||||||||||||||||
|
Debit card expense |
3,029 |
(483 |
) |
3,512 |
9,180 |
(1,013 |
) |
10,193 |
||||||||||||||||
|
Professional and service fees |
3,959 |
959 |
3,000 |
11,026 |
2,645 |
8,381 |
||||||||||||||||||
|
Printing, stationery and supplies |
490 |
34 |
456 |
1,405 |
(6 |
) |
1,411 |
|||||||||||||||||
|
Operational and other losses |
1,333 |
(624 |
) |
1,957 |
3,134 |
(83 |
) |
3,217 |
||||||||||||||||
|
Software amortization and expense |
5,067 |
787 |
4,280 |
14,714 |
2,682 |
12,032 |
||||||||||||||||||
|
Amortization of intangible assets |
42 |
(44 |
) |
86 |
128 |
(138 |
) |
266 |
||||||||||||||||
|
Other: |
||||||||||||||||||||||||
|
Data processing fees |
768 |
90 |
678 |
2,192 |
167 |
2,025 |
||||||||||||||||||
|
Postage |
499 |
107 |
392 |
1,324 |
38 |
1,286 |
||||||||||||||||||
|
Advertising |
911 |
167 |
744 |
2,590 |
300 |
2,290 |
||||||||||||||||||
|
Correspondent bank service charges |
162 |
(58 |
) |
220 |
659 |
(137 |
) |
796 |
||||||||||||||||
|
Telephone |
703 |
8 |
695 |
2,142 |
168 |
1,974 |
||||||||||||||||||
|
Public relations and business development |
1,139 |
169 |
970 |
3,010 |
253 |
2,757 |
||||||||||||||||||
|
Directors' fees |
907 |
81 |
826 |
2,721 |
157 |
2,564 |
||||||||||||||||||
|
Audit and accounting fees |
496 |
(128 |
) |
624 |
1,583 |
(130 |
) |
1,713 |
||||||||||||||||
|
Legal fees and other related costs |
478 |
234 |
244 |
1,213 |
316 |
897 |
||||||||||||||||||
|
Regulatory exam fees |
290 |
23 |
267 |
848 |
109 |
739 |
||||||||||||||||||
|
Travel |
682 |
120 |
562 |
1,857 |
240 |
1,617 |
||||||||||||||||||
|
Courier expense |
438 |
27 |
411 |
1,260 |
181 |
1,079 |
||||||||||||||||||
|
Other real estate owned |
38 |
31 |
7 |
9 |
(27 |
) |
36 |
|||||||||||||||||
|
Other miscellaneous expense |
3,960 |
405 |
3,555 |
11,616 |
1,329 |
10,287 |
||||||||||||||||||
|
Total other |
11,471 |
1,276 |
10,195 |
33,024 |
2,964 |
30,060 |
||||||||||||||||||
|
Total Noninterest Expense |
$ |
81,052 |
$ |
7,386 |
$ |
73,666 |
$ |
238,926 |
$ |
23,190 |
$ |
215,736 |
||||||||||||
Balance Sheet Review
Loans. The portfolio is comprised of loans made to businesses, professionals, municipalities, individuals, and farm and ranch operations primarily in the trade areas served by our subsidiary bank. As of September 30, 2026, total loans held-for-investment were $8.5 billion, an increase of $380.5 million, as compared to December 31, 2025 balances.
As compared to year-end 2025 balances, total real estate loans increased $153.8 million, total commercial loans increased $150.0 million, total consumer loans increased $92.8 million, and agricultural loans decreased $16.0 million. Loans averaged $8.5 billion for the third quarter of 2026, an increase of $219.6 million over the prior year third quarter average balances. Loans averaged $8.4 billion for the first nine months of 2026, an increase of $270.6 million from the average balance during the first nine months of 2025.
Loan portfolio segments include Commercial & Industrial, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. This 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.
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):
|
September 30, |
December 31, |
|||||||
|
2026 |
2025 |
|||||||
|
Commercial: |
||||||||
|
Commercial & Industrial |
$ |
1,164,597 |
$ |
1,116,461 |
||||
|
Municipal |
444,341 |
342,501 |
||||||
|
Total Commercial |
1,608,938 |
1,458,962 |
||||||
|
Agricultural |
79,796 |
95,776 |
||||||
|
Real Estate: |
||||||||
|
Construction & Development |
1,089,540 |
1,157,865 |
||||||
|
Farm |
349,484 |
327,625 |
||||||
|
Non-Owner Occupied CRE |
919,847 |
832,816 |
||||||
|
Owner Occupied CRE |
1,161,530 |
1,120,608 |
||||||
|
Residential |
2,358,106 |
2,285,830 |
||||||
|
Total Real Estate |
5,878,507 |
5,724,744 |
||||||
|
Consumer: |
||||||||
|
Auto |
817,771 |
732,351 |
||||||
|
Non-Auto |
153,776 |
146,443 |
||||||
|
Total Consumer |
971,547 |
878,794 |
||||||
|
Total |
$ |
8,538,788 |
$ |
8,158,276 |
||||
Loans held-for-sale, consisting of secondary market mortgage loans, totaled $25.5 million and $30.0 million at September 30, 2026 and December 31, 2025, respectively. At September 30, 2026 and December 31, 2025, $4.4 million and $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 24.4% of the Company's total loan portfolio as of September 30, 2026. Non-owner occupied CRE represents $919.8 million, or 10.8%, of the Company's total loan portfolio as of September 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 18.1% and multi-tenant retail at approximately 7.7% as of September 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, the Company has enhanced stress testing and loan review activities to mitigate interest rate reprice 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 September 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 September 30, 2026 (dollars in thousands):
|
Total Loans Held-for-Investment: |
Due in One Year or Less |
After One but Within Five Years |
After Five but Within Fifteen Years |
After Fifteen Years |
Total |
|||||||||||||||
|
Commercial: |
||||||||||||||||||||
|
Commercial & Industrial |
$ |
482,027 |
$ |
593,636 |
$ |
82,849 |
$ |
6,085 |
$ |
1,164,597 |
||||||||||
|
Municipal |
113,367 |
77,230 |
154,815 |
98,929 |
444,341 |
|||||||||||||||
|
Total Commercial |
595,394 |
670,866 |
237,664 |
105,014 |
1,608,938 |
|||||||||||||||
|
Agricultural |
62,817 |
15,456 |
1,523 |
- |
79,796 |
|||||||||||||||
|
Real Estate: |
||||||||||||||||||||
|
Construction & Development |
534,501 |
190,033 |
255,155 |
109,851 |
1,089,540 |
|||||||||||||||
|
Farm |
12,299 |
73,707 |
144,943 |
118,535 |
349,484 |
|||||||||||||||
|
Non-Owner Occupied CRE |
103,656 |
420,849 |
295,105 |
100,237 |
919,847 |
|||||||||||||||
|
Owner Occupied CRE |
86,152 |
333,616 |
545,897 |
195,865 |
1,161,530 |
|||||||||||||||
|
Residential |
161,474 |
156,976 |
811,244 |
1,228,412 |
2,358,106 |
|||||||||||||||
|
Total Real Estate |
898,082 |
1,175,181 |
2,052,344 |
1,752,900 |
5,878,507 |
|||||||||||||||
|
Consumer: |
||||||||||||||||||||
|
Auto |
8,106 |
779,326 |
30,339 |
- |
817,771 |
|||||||||||||||
|
Non-Auto |
34,234 |
88,179 |
28,456 |
2,907 |
153,776 |
|||||||||||||||
|
Total Consumer |
42,340 |
867,505 |
58,795 |
2,907 |
971,547 |
|||||||||||||||
|
Total |
$ |
1,598,633 |
$ |
2,729,008 |
$ |
2,350,326 |
$ |
1,860,821 |
$ |
8,538,788 |
||||||||||
|
% of Total Loans |
18.7 |
% |
32.0 |
% |
27.5 |
% |
21.8 |
% |
100.0 |
% |
||||||||||
|
Loans with fixed interest rates: |
Due in One Year or Less |
After One but Within Five Years |
After Five but Within Fifteen Years |
After Fifteen Years |
Total |
|||||||||||||||
|
Commercial: |
||||||||||||||||||||
|
Commercial & Industrial |
$ |
112,174 |
$ |
303,401 |
$ |
3,468 |
$ |
- |
$ |
419,043 |
||||||||||
|
Municipal |
15,102 |
76,788 |
96,840 |
52,525 |
241,255 |
|||||||||||||||
|
Total Commercial |
127,276 |
380,189 |
100,308 |
52,525 |
660,298 |
|||||||||||||||
|
Agricultural |
5,041 |
10,654 |
- |
- |
15,695 |
|||||||||||||||
|
Real Estate: |
||||||||||||||||||||
|
Construction & Development |
246,245 |
65,429 |
53,985 |
16,377 |
382,036 |
|||||||||||||||
|
Farm |
5,714 |
42,929 |
63,290 |
14,032 |
125,965 |
|||||||||||||||
|
Non-Owner Occupied CRE |
79,941 |
162,469 |
22,743 |
3,781 |
268,934 |
|||||||||||||||
|
Owner Occupied CRE |
51,760 |
190,680 |
6,727 |
746 |
249,913 |
|||||||||||||||
|
Residential |
128,965 |
118,797 |
463,274 |
267,240 |
978,276 |
|||||||||||||||
|
Total Real Estate |
512,625 |
580,304 |
610,019 |
302,176 |
2,005,124 |
|||||||||||||||
|
Consumer: |
||||||||||||||||||||
|
Auto |
8,106 |
779,326 |
30,339 |
- |
817,771 |
|||||||||||||||
|
Non-Auto |
33,906 |
88,179 |
28,065 |
350 |
150,500 |
|||||||||||||||
|
Total Consumer |
42,012 |
867,505 |
58,404 |
350 |
968,271 |
|||||||||||||||
|
Total |
$ |
686,954 |
$ |
1,838,652 |
$ |
768,731 |
$ |
355,051 |
$ |
3,649,388 |
||||||||||
|
% of Total Loans |
8.0 |
% |
21.5 |
% |
9.0 |
% |
4.2 |
% |
42.7 |
% |
||||||||||
|
Loans with variable interest rates: |
Due in One Year or Less |
After One but Within Five Years |
After Five but Within Fifteen Years |
After Fifteen Years |
Total |
|||||||||||||||
|
Commercial: |
||||||||||||||||||||
|
Commercial & Industrial |
$ |
369,853 |
$ |
290,235 |
$ |
79,381 |
$ |
6,085 |
$ |
745,554 |
||||||||||
|
Municipal |
98,265 |
442 |
57,975 |
46,404 |
203,086 |
|||||||||||||||
|
Total Commercial |
468,118 |
290,677 |
137,356 |
52,489 |
948,640 |
|||||||||||||||
|
Agricultural |
57,776 |
4,802 |
1,523 |
- |
64,101 |
|||||||||||||||
|
Real Estate: |
||||||||||||||||||||
|
Construction & Development |
288,256 |
124,604 |
201,170 |
93,474 |
707,504 |
|||||||||||||||
|
Farm |
6,585 |
30,778 |
81,653 |
104,503 |
223,519 |
|||||||||||||||
|
Non-Owner Occupied CRE |
23,715 |
258,380 |
272,362 |
96,456 |
650,913 |
|||||||||||||||
|
Owner Occupied CRE |
34,392 |
142,936 |
539,170 |
195,119 |
911,617 |
|||||||||||||||
|
Residential |
32,509 |
38,179 |
347,970 |
961,172 |
1,379,830 |
|||||||||||||||
|
Total Real Estate |
385,457 |
594,877 |
1,442,325 |
1,450,724 |
3,873,383 |
|||||||||||||||
|
Consumer: |
||||||||||||||||||||
|
Auto |
- |
- |
- |
- |
- |
|||||||||||||||
|
Non-Auto |
328 |
- |
391 |
2,557 |
3,276 |
|||||||||||||||
|
Total Consumer |
328 |
- |
391 |
2,557 |
3,276 |
|||||||||||||||
|
Total |
$ |
911,679 |
$ |
890,356 |
$ |
1,581,595 |
$ |
1,505,770 |
$ |
4,889,400 |
||||||||||
|
% of Total Loans |
10.7 |
% |
10.4 |
% |
18.5 |
% |
17.6 |
% |
57.3 |
% |
||||||||||
Of the $4.9 billion of variable interest rate loans shown above, loans totaling $2.5 billion mature or reprice over the next twelve months.
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 $60.5 million at September 30, 2026, as compared to $56.5 million at December 31, 2025. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.71% at September 30, 2026 and 0.69% at December 31, 2025. As a percent of total assets, these assets were 0.40% at September 30, 2026, as compared to 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 September 30, 2026.
Table 6 - Nonaccrual, Past Due 90 Days or More and Still Accruing, and Foreclosed Assets (dollars in thousands, except percentages):
|
September 30, |
December 31, |
|||||||
|
2026 |
2025 |
|||||||
|
Nonaccrual loans |
$ |
57,158 |
$ |
55,121 |
||||
|
Loans still accruing and past due 90 days or more |
19 |
892 |
||||||
|
Total nonperforming loans |
57,177 |
56,013 |
||||||
|
Foreclosed assets |
3,277 |
479 |
||||||
|
Total nonperforming assets |
$ |
60,454 |
$ |
56,492 |
||||
|
As a % of loans held-for-investment and foreclosed assets |
0.71 |
% |
0.69 |
% |
||||
|
As a % of total assets |
0.40 |
0.37 |
||||||
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 $5.7 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 Note 3 to the Consolidated Financial Statements (unaudited).
The provision for loan losses of $2.4 million for the three-months ended September 30, 2026 is combined with the provision reversal for unfunded commitments of $360 thousand and reported in the net aggregate of $2.0 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended September 30, 2026. The provision for loan losses of $9.0 million for the nine-months ended September 30, 2026 is combined with the provision reversal for unfunded commitments of $539 thousand and reported in the net aggregate of $8.5 million under the provision for credit losses in the consolidated statements of earnings for the nine-months ended September 30, 2026.
The provision for loan losses of $25.5 million for the three-months ended September 30, 2025 is combined with the provision reversal for unfunded commitments of $1.1 million and reported in the net aggregate of $24.4 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended September 30, 2025. The provision for loan losses of $30.9 million for the nine-months ended September 30, 2025 is combined with the provision for unfunded commitments of $165 thousand and reported in the net aggregate of $31.1 million under the provision for credit losses in the consolidated statements of earnings for the nine-months ended September 30, 2025.
As a percent of average loans, annualized net charge-offs were 0.04% for the three-months ended September 30, 2026, as compared to annualized net charge-offs of 1.07% for the three-months ended September 30, 2025. For the nine-months ended September 30, 2026 and 2025, annualized net charge-offs were 0.01% and 0.39%, respectively. The third quarter of 2025 was impacted by a $21.6 million credit loss due to borrower fraud. The allowance for credit losses as a percent of loans held-for-investment was 1.33% as of September 30, 2026, as compared to 1.29% for December 31, 2025.
Table 7 - Loan Loss Experience and Allowance for Credit Losses (dollars in thousands, except percentages):
|
Three-Months Ended |
Nine-Months Ended |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Allowance for credit losses at period-end |
$ |
113,892 |
$ |
105,958 |
$ |
113,892 |
$ |
105,958 |
||||||||
|
Loans held-for-investment at period-end |
8,538,788 |
8,243,625 |
8,538,788 |
8,243,625 |
||||||||||||
|
Average loans for period |
8,468,672 |
8,249,113 |
8,354,207 |
8,083,638 |
||||||||||||
|
Net charge-offs (recoveries)/average |
0.04 |
% |
1.07 |
% |
0.01 |
% |
0.39 |
% |
||||||||
|
Allowance for loan losses/period-end |
1.33 |
% |
1.29 |
% |
1.33 |
% |
1.29 |
% |
||||||||
|
Allowance for loan losses/nonaccrual |
199.19 |
% |
187.39 |
% |
199.19 |
% |
187.39 |
% |
||||||||
Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $292.8 million at September 30, 2026 compared to $826.9 million at December 31, 2025. At September 30, 2026, interest-bearing deposits in banks included $231.9 million maintained at the Federal Reserve Bank of Dallas and $60.9 million on deposit with the FHLB.
Available-for-Sale Securities. At September 30, 2026, securities with a fair value of $5.4 billion were classified as securities available-for-sale. As compared to December 31, 2025, the available-for-sale portfolio at September 30, 2026 reflected (i) an increase of $211.7 million in mortgage-backed securities, (ii) a decrease of $277.2 million in obligations of states and political subdivisions, (iii) a decrease of $60.8 million in U.S. Treasury securities, and (iv) an increase of $197 thousand in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by purchases and sales, calls or maturities, and changes in unrealized losses during the first nine-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 September 30, 2026 and December 31, 2025.
Table 8 - Maturities and Yields of Available-for-Sale Securities Held at September 30, 2026 (dollars in thousands, except percentages):
|
Maturing by Contractual Maturity |
||||||||||||||||||||||||||||||||||||||||
|
One Year |
After One Year |
After Five Years |
After |
Total |
||||||||||||||||||||||||||||||||||||
|
Available-for-Sale: |
Amount |
Yield |
Amount |
Yield |
Amount |
Yield |
Amount |
Yield |
Amount |
Yield |
||||||||||||||||||||||||||||||
|
Obligations of states and |
$ |
9,322 |
2.04 |
% |
$ |
172,720 |
2.39 |
% |
$ |
308,220 |
4.81 |
% |
$ |
983,953 |
2.84 |
% |
$ |
1,474,215 |
3.20 |
% |
||||||||||||||||||||
|
Corporate bonds and |
63,571 |
2.62 |
37,905 |
2.03 |
- |
- |
- |
- |
101,476 |
2.40 |
||||||||||||||||||||||||||||||
|
Mortgage-backed |
90,757 |
2.94 |
2,065,365 |
3.41 |
1,463,727 |
3.31 |
192,543 |
2.63 |
3,812,392 |
3.32 |
||||||||||||||||||||||||||||||
|
Total |
$ |
163,650 |
2.76 |
% |
$ |
2,275,990 |
3.31 |
% |
$ |
1,771,947 |
3.57 |
% |
$ |
1,176,496 |
2.81 |
% |
$ |
5,388,083 |
3.27 |
% |
||||||||||||||||||||
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. 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 September 30, 2026, the investment portfolio had an overall tax equivalent yield of 3.27%, a weighted average life of 7.5 years and modified duration of 5.9 years.
Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $13.1 billion as of September 30, 2026, as compared to $13.3 billion as of December 31, 2025.
Table 9 provides a breakdown of average deposits and rates paid over the three and nine-months ended September 30, 2026 and 2025 respectively.
Table 9 - Composition of Average Deposits (dollars in thousands, except percentages):
|
For the Three-Months Ended September 30, |
||||||||||||||||
|
2026 |
2025 |
|||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||
|
Noninterest-bearing deposits |
$ |
3,508,797 |
-% |
$ |
3,419,378 |
-% |
||||||||||
|
Interest-bearing deposits: |
||||||||||||||||
|
Interest-bearing checking |
4,762,792 |
2.06 |
4,531,205 |
2.13 |
||||||||||||
|
Savings and money market accounts |
3,985,430 |
1.91 |
3,633,808 |
2.27 |
||||||||||||
|
Time deposits under $250,000 |
568,699 |
2.75 |
559,783 |
3.02 |
||||||||||||
|
Time deposits of $250,000 or more |
313,444 |
3.02 |
326,667 |
3.28 |
||||||||||||
|
Total interest-bearing deposits |
9,630,365 |
2.07 |
% |
9,051,463 |
2.28 |
% |
||||||||||
|
Total average deposits |
$ |
13,139,162 |
$ |
12,470,841 |
||||||||||||
|
Total cost of deposits |
1.52 |
% |
1.65 |
% |
||||||||||||
|
For the Nine-Months Ended September 30, |
||||||||||||||||
|
2026 |
2025 |
|||||||||||||||
|
Average |
Average |
Average |
Average |
|||||||||||||
|
Noninterest-bearing deposits |
$ |
3,452,035 |
-% |
$ |
3,356,999 |
-% |
||||||||||
|
Interest-bearing deposits: |
||||||||||||||||
|
Interest-bearing checking |
4,857,349 |
1.93 |
4,570,115 |
2.13 |
||||||||||||
|
Savings and money market accounts |
3,962,513 |
1.95 |
3,484,177 |
2.08 |
||||||||||||
|
Time deposits under $250,000 |
562,340 |
2.75 |
560,825 |
3.09 |
||||||||||||
|
Time deposits of $250,000 or more |
327,616 |
2.98 |
337,900 |
3.34 |
||||||||||||
|
Total interest-bearing deposits |
9,709,818 |
2.02 |
% |
8,953,017 |
2.21 |
% |
||||||||||
|
Total average deposits |
$ |
13,161,853 |
$ |
12,310,016 |
||||||||||||
|
Total cost of deposits |
1.49 |
% |
1.61 |
% |
||||||||||||
The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $4.3 billion, or 32.9% of total deposits, as of September 30, 2026.
Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $21.9 million and $21.7 million at September 30, 2026 and December 31, 2025, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $22.7 million and $56.2 million in the third quarters of 2026 and 2025, respectively. The weighted average interest rates paid on these borrowings were 1.42% and 3.33% for the third quarters of 2026 and 2025, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $24.4 million and $52.4 million in the first nine months of 2026 and 2025, respectively. The weighted average interest rates paid on these borrowings were 1.53% and 2.96% for the first nine months of 2026 and 2025, respectively.
Repurchase Agreements. Securities sold under repurchase agreements of $43.1 million and $63.0 million at September 30, 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 $57.9 million and $50.1 million for the third quarters of 2026 and 2025, respectively. The average rates paid on securities sold under repurchase agreements were 1.41% and 1.66% for the third quarters of 2026 and 2025, respectively. The average balances of securities sold under repurchase agreements were $60.4 million and $52.8 million for the first nine months of 2026 and 2025, respectively. The average rates paid on securities sold under repurchase agreements were 1.46% and 1.62% for the first nine months of 2026 and 2025, 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: |
September 30, |
December 31, |
||
|
(in basis points) |
2026 |
2025 |
||
|
+200 |
0.46% |
3.45% |
||
|
+100 |
0.95% |
1.83% |
||
|
-100 |
(2.84)% |
(1.44)% |
||
|
-200 |
(6.39)% |
(2.86)% |
||
The results for the net interest income simulations as of September 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.
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 management committee oversees and monitors this risk.
The fair value of our investment securities classified as available-for-sale totaled $5.4 billion at September 30, 2026. During the nine months ended September 30, 2026, the corresponding net unrealized loss before taxes of $342.0 million at December 31, 2025, changed to a net unrealized loss before taxes of $620.2 million at September 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 September 30, 2026, the 5-year U.S. Treasury rate was 5.09% compared to 3.72% at December 31, 2025, representing a 137 basis point increase during the first nine months of 2026. As of September 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 $284 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $262 million before taxes. Management does not have the intent to sell 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.
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 $1.8 billion, or 12.1% of total assets at September 30, 2026, as compared to $1.9 billion, or 12.4% of total assets at December 31, 2025. Included in shareholders' equity at September 30, 2026 and December 31, 2025 were $489.6 million and $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 third quarter of 2026, total shareholders' equity averaged $2.0 billion, or 12.8% of average assets, as compared to $1.7 billion, or 12.1% of average assets, during the same period in 2025. For the first nine months of 2026, total shareholders' equity averaged $2.0 billion, or 12.8% of average assets, as compared to $1.7 billion or 11.9% of average assets, during the same period in 2025.
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.
Under the Basel III rules, the Company must maintain a capital conservation buffer of 2.50%. 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 September 30, 2026 and December 31, 2025, we had a total risk-based capital ratio of 21.66% and 21.17%, a Tier 1 capital to risk-weighted assets ratio of 20.45% and 19.99%, and a common equity Tier 1 to risk-weighted assets ratio of 20.45% and 19.99%, and a Tier 1 leverage ratio of 13.12% and 12.55%, respectively. The regulatory capital ratios as of September 30, 2026 and December 31, 2025 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 Capital |
Required to be |
||||||||||||||||||||||
|
As of September 30, 2026: |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||
|
First Financial Bankshares, Inc. (Consolidated) |
||||||||||||||||||||||||
|
Total Capital to Risk-Weighted Assets: |
$ |
2,143,323 |
21.66 |
% |
$ |
1,039,069 |
10.50 |
% |
$ |
989,590 |
10.00 |
% |
||||||||||||
|
Tier 1 Capital to Risk-Weighted Assets: |
$ |
2,023,582 |
20.45 |
% |
$ |
841,151 |
8.50 |
% |
$ |
593,754 |
6.00 |
% |
||||||||||||
|
Common Equity Tier 1 Capital to Risk-Weighted Assets: |
$ |
2,023,582 |
20.45 |
% |
$ |
692,713 |
7.00 |
% |
$ |
- |
N/A |
|||||||||||||
|
Leverage Ratio: |
$ |
2,023,582 |
13.12 |
% |
$ |
616,774 |
4.00 |
% |
$ |
- |
N/A |
|||||||||||||
|
First Financial Bank |
||||||||||||||||||||||||
|
Total Capital to Risk-Weighted Assets: |
$ |
1,928,871 |
19.57 |
% |
$ |
1,034,979 |
10.50 |
% |
$ |
985,694 |
10.00 |
% |
||||||||||||
|
Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,809,131 |
18.35 |
% |
$ |
837,840 |
8.50 |
% |
$ |
788,555 |
8.00 |
% |
||||||||||||
|
Common Equity Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,809,131 |
18.35 |
% |
$ |
689,986 |
7.00 |
% |
$ |
640,701 |
6.50 |
% |
||||||||||||
|
Leverage Ratio: |
$ |
1,809,131 |
11.79 |
% |
$ |
613,696 |
4.00 |
% |
$ |
767,120 |
5.00 |
% |
||||||||||||
|
Actual |
Minimum Capital |
Required to be |
||||||||||||||||||||||
|
As of December 31, 2025: |
Amount |
Ratio |
Amount |
Ratio |
Amount |
Ratio |
||||||||||||||||||
|
First Financial Bankshares, Inc. (Consolidated) |
||||||||||||||||||||||||
|
Total Capital to Risk-Weighted Assets: |
$ |
2,000,262 |
21.17 |
% |
$ |
991,973 |
10.50 |
% |
$ |
944,736 |
10.00 |
% |
||||||||||||
|
Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,888,339 |
19.99 |
% |
$ |
803,026 |
8.50 |
% |
$ |
566,842 |
6.00 |
% |
||||||||||||
|
Common Equity Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,888,339 |
19.99 |
% |
$ |
661,315 |
7.00 |
% |
$ |
- |
N/A |
|||||||||||||
|
Leverage Ratio: |
$ |
1,888,339 |
12.55 |
% |
$ |
377,894 |
4.00 |
% |
$ |
- |
N/A |
|||||||||||||
|
First Financial Bank |
||||||||||||||||||||||||
|
Total Capital to Risk-Weighted Assets: |
$ |
1,823,770 |
19.36 |
% |
$ |
989,005 |
10.50 |
% |
$ |
941,909 |
10.00 |
% |
||||||||||||
|
Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,711,847 |
18.17 |
% |
$ |
800,623 |
8.50 |
% |
$ |
753,527 |
8.00 |
% |
||||||||||||
|
Common Equity Tier 1 Capital to Risk-Weighted Assets: |
$ |
1,711,847 |
18.17 |
% |
$ |
659,336 |
7.00 |
% |
$ |
612,241 |
6.50 |
% |
||||||||||||
|
Leverage Ratio: |
$ |
1,711,847 |
11.43 |
% |
$ |
376,764 |
4.00 |
% |
$ |
470,955 |
5.00 |
% |
||||||||||||
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 management involves our ability to convert assets to cash to meet our 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 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 million. At September 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 $2.3 billion at September 30, 2026, secured by portions of our loan portfolio and certain investment securities, and (ii) access to approximately $1.8 billion at the Federal Reserve Bank of Dallas Discount Window lending program secured by portions of certain investment securities and portions of our loan portfolio. At September 30, 2026, there was $678.0 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 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 September 30, 2026. There was no outstanding balance under the line of credit as of September 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 $171.4 million at September 30, 2026, investment securities which totaled $1.1 million at September 30, 2026 and mature over 3 to 4 years, available dividends from our subsidiaries which totaled $395.7 million at September 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 September 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 September 30, 2026, the Company's reserve for unfunded commitments totaled $5.8 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 September 30, 2026 and December 31, 2025 (dollars in thousands):
|
Total Notional Amounts Committed |
||||||||
|
September 30, |
December 31, |
|||||||
|
2026 |
2025 |
|||||||
|
Unfunded lines of credit |
$ |
1,140,114 |
$ |
1,099,205 |
||||
|
Unfunded commitments to extend credit |
624,049 |
638,136 |
||||||
|
Standby letters of credit |
61,791 |
54,760 |
||||||
|
Total commercial commitments |
$ |
1,825,954 |
$ |
1,792,101 |
||||
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 in the financial statements. The above table does not include balances related to the Company's forward mortgage-backed security trades. At September 30, 2026 and December 31, 2025, these credit exposures for mortgage loans sold with recourse approximated $31.6 million and $25.5 million, respectively. Total commercial commitments were approximately $1.8 billion at both September 30, 2026 and December 31, 2025.
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 September 30, 2026, $395.7 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 $126.0 million and $106.2 million for the nine-months ended September 30, 2026 and 2025, respectively.
Dividends. Our long-term dividend policy is to pay cash dividends to our shareholders of approximately 40% to 50% 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 41.52% and 44.51% of net earnings for the first nine months of 2026 and 2025, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.
To pay dividends, we and our subsidiary bank must maintain adequate capital above regulatory guidelines and comply with the general requirements applicable to a Texas corporation. Generally, a Texas corporation may not pay a dividend to its shareholders if (i) after giving effect to the dividend, the corporation would be insolvent, or (ii) the amount of the dividend would exceed the surplus of the corporation. 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. As a member bank, First Financial Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the bank's net income (as reportable in its Reports of Condition and Income) during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve Board.
The Federal Reserve Board, the FDIC, and the Texas Department of Banking have each indicated that paying dividends that deplete a bank's capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve Board, the Texas Department of Banking, and the FDIC expect that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.
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