Table of Contents
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to                     
Commission file number
0-7674
 
 
FIRST FINANCIAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Texas
 
75-0944023
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
400 Pine Street, Abilene, Texas
 
79601
(Address of principal executive offices)
 
(Zip Code)
(325)
627-7155
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock, $0.01 par value
 
FFIN
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒     No   ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
Non-accelerated
filer
     Smaller reporting company  
     Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).    Yes   ☐    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
Class
  
Outstanding at April 27, 2021
Common Stock, $0.01 par value per share
   142,285,611
 
 
 
 

Table of Contents
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
 
Item
      
Page
 
1.
  Consolidated Financial Statements - Unaudited      3  
       4  
       5  
       6  
       7  
       8  
       9  
2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations      46  
3.
  Quantitative and Qualitative Disclosures About Market Risk      69  
4.
  Controls and Procedures      69  
PART II - OTHER INFORMATION
 
1.
  Legal Proceedings      70  
1A.
  Risk Factors      70  
2.
  Unregistered Sales of Equity Securities and Use of Proceeds      70  
3.
  Defaults Upon Senior Securities      70  
4.
  Mine Safety Disclosures      70  
5.
  Other Information      70  
6.
  Exhibits      71  
       73  
 
2

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The consolidated balance sheets of First Financial Bankshares, Inc. and Subsidiaries (the “Company” or “we”) at March 31, 2021 and 2020 (unaudited) and December 31, 2020, and the consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flow for the three-months ended March 31, 2021 and 2020 (unaudited) and notes to consolidated financial statements (unaudited), follow on pages 4 through 45.
 
3

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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
 
     March 31,     December 31,  
     2021     2020     2020  
     (Unaudited)        
ASSETS
                
CASH AND DUE FROM BANKS
   $ 190,350     $ 191,486     $ 211,113  
INTEREST-BEARING DEMAND DEPOSITS IN BANKS
     893,221       76,378       517,971  
    
 
 
   
 
 
   
 
 
 
Total cash and cash equivalents
     1,083,571       267,864       729,084  
SECURITIES
AVAILABLE-FOR-SALE,
at fair value (amortized cost of these securities was $4,961,438, $3,950,510 and $4,177,179 as of March 31, 2021 and 2020 and December 31, 2020, respectively)
     5,109,631       4,107,069       4,393,029  
LOANS:
                        
Held-for-investment
     5,322,562       4,639,389       5,171,033  
Less - allowance for credit losses
     (62,974     (60,440     (66,534
    
 
 
   
 
 
   
 
 
 
Net loans
held-for-investment
     5,259,588       4,578,949       5,104,499  
Held-for-sale
($61,511, $39,659 and $79,585 at fair value at March 31, 2021 and 2020 and December 31, 2020, respectively)
     65,405       42,034       83,969  
BANK PREMISES AND EQUIPMENT, net
     142,415       139,554       142,269  
INTANGIBLE ASSETS, net
     317,980       319,234       318,392  
OTHER ASSETS
     124,297       246,387       133,258  
    
 
 
   
 
 
   
 
 
 
Total assets
   $  12,102,887     $  9,701,091     $  10,904,500  
    
 
 
   
 
 
   
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                        
NONINTEREST-BEARING DEPOSITS
   $ 3,350,145     $ 2,288,597     $ 2,982,697  
INTEREST-BEARING DEPOSITS
     6,063,302       4,921,869       5,693,120  
    
 
 
   
 
 
   
 
 
 
Total deposits
     9,413,447       7,210,466       8,675,817  
DIVIDENDS PAYABLE
     18,500       17,060       18,484  
BORROWINGS
     548,604       857,871       430,093  
OTHER LIABILITIES
     456,908       89,332       101,916  
    
 
 
   
 
 
   
 
 
 
Total liabilities
     10,437,459       8,174,729       9,226,310  
    
 
 
   
 
 
   
 
 
 
COMMITMENTS AND CONTINGENCIES
                        
SHAREHOLDERS’ EQUITY:
                        
Common stock - ($0.01 par value, authorized 200,000,000 shares; 142,285,611, 142,314,930 and 142,161,834 shares issued at March 31, 2021 and 2020 and December 31, 2020, respectively)
     1,423       1,423       1,422  
Capital surplus
     671,849       673,535       669,644  
Retained earnings
     875,147       727,828       836,729  
Treasury stock (shares at cost: 938,004, 928,417 and 938,591 at March 31, 2021 and 2020 and December 31, 2020, respectively)
     (9,385     (8,437     (9,126
Deferred compensation
     9,385       8,437       9,126  
Accumulated other comprehensive earnings, net
     117,009       123,576       170,395  
    
 
 
   
 
 
   
 
 
 
Total shareholders’ equity
     1,665,428       1,526,362       1,678,190  
    
 
 
   
 
 
   
 
 
 
Total liabilities and shareholders’ equity
   $ 12,102,887     $ 9,701,091     $ 10,904,500  
    
 
 
   
 
 
   
 
 
 
See notes to consolidated financial statements.
 
4

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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (UNAUDITED)
(Dollars in thousands, except per share amounts)
 
    
Three-Months Ended March 31,
 
     2021     2020  
INTEREST INCOME:
                
Interest and fees on loans
   $ 66,435     $ 62,995  
Interest on investment securities:
                
Taxable
     10,264       14,655  
Exempt from federal income tax
     13,749       9,694  
Interest on federal funds sold and interest-bearing demand deposits in banks
     162       756  
    
 
 
   
 
 
 
Total interest income
     90,610       88,100  
INTEREST EXPENSE:
                
Interest on deposits
     1,695       6,681  
Other
     91       517  
    
 
 
   
 
 
 
Total interest expense
     1,786       7,198  
    
 
 
   
 
 
 
Net interest income
     88,824       80,902  
PROVISION FOR CREDIT LOSSES
     (1,997     9,850  
    
 
 
   
 
 
 
Net interest income after provisions for credit losses
     90,821       71,052  
           
NONINTEREST INCOME:
                
Trust fees
     8,299       7,437  
Service charges on deposit accounts
     4,793       5,915  
ATM, interchange and credit card fees
     8,677       7,400  
Gain on sale and fees on mortgage loans
     9,894       3,852  
Net gain on sale of
available-for-sale
securities
     808       2,062  
Net gain on sale of foreclosed assets
     55       1  
Net gain on sale of assets
     145       116  
Interest on loan recoveries
     382       265  
Other
     1,821       1,684  
    
 
 
   
 
 
 
Total noninterest income
     34,874       28,732  
    
 
 
   
 
 
 
NONINTEREST EXPENSE:
                
Salaries, commissions and employee benefits
     34,931       29,642  
Net occupancy expense
     3,147       3,027  
Equipment expense
     2,164       2,075  
FDIC insurance premiums
     701       45  
ATM, interchange and credit card expenses
     2,772       2,985  
Professional and service fees
     2,139       2,594  
Printing, stationery and supplies
     325       566  
Operational and other losses
     287       576  
Software amortization and expense
     2,619       2,024  
Amortization of intangible assets
     412       509  
Other
     8,226       11,275  
    
 
 
   
 
 
 
Total noninterest expense
     57,723       55,318  
    
 
 
   
 
 
 
EARNINGS BEFORE INCOME TAXES
     67,972       44,466  
INCOME TAX EXPENSE
     11,054       7,234  
    
 
 
   
 
 
 
NET EARNINGS
   $  56,918     $ 37,232  
    
 
 
   
 
 
 
NET EARNINGS PER SHARE, BASIC
   $ 0.40     $ 0.26  
    
 
 
   
 
 
 
NET EARNINGS PER SHARE, DILUTED
   $ 0.40     $ 0.26  
    
 
 
   
 
 
 
DIVIDENDS PER SHARE
   $ 0.13     $ 0.12  
    
 
 
   
 
 
 
See notes to consolidated financial statements.
 
5

Table of Contents
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - (UNAUDITED)
(Dollars in thousands)
 
    
Three-Months Ended March 31,
 
     2021     2020  
NET EARNINGS
   $ 56,918     $ 37,232  
OTHER ITEMS OF COMPREHENSIVE EARNINGS:
                
Change in unrealized gain on investment securities
available-for-sale,
before income taxes
     (66,770     73,037  
Reclassification adjustment for realized gains on investment securities included in net earnings, before income taxes
     (808     (2,062
    
 
 
   
 
 
 
Total other items of comprehensive earnings
     (67,578     70,975  
    
 
 
   
 
 
 
Income tax benefit (expense) related to:
                
Change in unrealized gain on investment securities
available-for-sale
     14,022       (15,338
Reclassification adjustment for realized gains on investment securities included in net earnings
     170       433  
    
 
 
   
 
 
 
Total income tax benefit (expense)
     14,192       (14,905
    
 
 
   
 
 
 
COMPREHENSIVE EARNINGS
   $ 3,532     $ 93,302  
    
 
 
   
 
 
 
See notes to consolidated financial statements.
 
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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
 
                                                 Accumulated        
                                                 Other     Total  
     Common Stock      Capital     Retained     Treasury Stock     Deferred      Comprehensive     Shareholders’  
     Shares     Amount      Surplus     Earnings     Shares     Amounts     Compensation      Earnings     Equity  
Balances at December 31, 2019
     135,891,755     $ 1,359      $ 450,676     $ 707,656       (927,408   $ (8,222   $ 8,222      $ 67,506     $ 1,227,197  
Stock issued in acquisition of TB&T Bancshares, Inc. (unaudited)
     6,275,574       63        220,210                                                220,273  
Net earnings (unaudited)
     —         —          —         37,232       —         —         —          —         37,232  
Stock option exercises (unaudited)
     144,188       1        2,191       —         —         —         —          —         2,192  
Restricted stock grant (unaudited)
     3,413       —          118       —         —         —         —          —         118  
Cash dividends declared, $0.12 per share (unaudited)
     —         —          —         (17,060     —         —         —          —         (17,060
Change in unrealized gain in investment securities
available-for-sale,
net of related income taxes (unaudited)
     —         —          —         —         —         —         —          56,070       56,070  
Shares purchased (redeemed) in connection with directors’ deferred compensation plan, net (unaudited)
     —         —          —         —         (1,009     (215     215        —          
Stock option expense (unaudited)
     —         —          340       —         —         —         —          —         340  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at March 31, 2020 (unaudited)
     142,314,930     $ 1,423      $ 673,535     $ 727,828       (928,417   $ (8,437   $ 8,437      $ 123,576     $ 1,526,362  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at December 31, 2020
     142,161,834     $ 1,422      $ 669,644     $ 836,729       (938,591   $ (9,126   $ 9,126      $ 170,395     $ 1,678,190  
Net earnings (unaudited)
     —         —          —         56,918       —         —         —          —         56,918  
Stock option exercises (unaudited)
     124,524       1        1,903       —         —         —         —          —         1,904  
Restricted stock grant/fortfeiture, net (unaudited)
     (747     —          (17     —         —         —         —          —         (17
Cash dividends declared, $0.13 per share (unaudited)
     —         —          —         (18,500     —         —         —          —         (18,500
Change in unrealized gain in investment securities
available-for-sale,
net of related income taxes (unaudited)
     —         —          —         —         —         —         —          (53,386     (53,386
Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)
     —         —          —         —         587       (259     259        —          
Stock option expense (unaudited)
     —         —          319       —         —         —         —          —         319  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
Balances at March 31, 2021 (unaudited)
     142,285,611     $ 1,423      $ 671,849     $ 875,147       (938,004   $ (9,385   $ 9,385      $ 117,009     $ 1,665,428  
    
 
 
   
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
    
 
 
   
 
 
 
See notes to consolidated financial statements.
 
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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(Dollars in thousands)
 
                 
     Three-Months Ended March 31,  
     2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Net earnings
   $ 56,918     $ 37,232  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
     3,171       3,087  
Provision for credit losses
     (1,997     9,850  
Securities premium amortization, net
     14,105       7,239  
Discount accretion on purchased loans
     (591     (354
Gain on sale of assets, net
     (910     (2,250
Change in loans
held-for-sale
     16,365       (13,445
Change in other assets
     8,868       (15,046
Change in other liabilities
     840       4,919  
    
 
 
   
 
 
 
Total adjustments
     39,851       (6,000
    
 
 
   
 
 
 
Net cash provided by operating activities
     96,769       31,232  
    
 
 
   
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Cash received in acquisition of TB&T Bancshares, Inc.
     —         61,028  
Activity in
available-for-sale
securities:
                
Sales
     10,631       95,437  
Maturities
     7,839,968       1,614,414  
Purchases
     (8,280,926     (2,333,332
Net (increase) decrease in loans
held-for-investment
     (148,615     1,366  
Purchases of bank premises and equipment
     (3,322     (5,734
Proceeds from sale of bank premises and equipment and other assets
     420       171  
    
 
 
   
 
 
 
Net cash used in investing activities
     (581,844     (566,650
    
 
 
   
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Net increase (decrease) in noninterest-bearing deposits
     367,448       (14,356
Net increase in interest-bearing deposits
     370,182       72,633  
Net increase in borrowings
     118,511       476,515  
Common stock transactions:
                
Proceeds from stock option exercises
     1,904       2,192  
Dividends paid
     (18,483     (16,306
    
 
 
   
 
 
 
Net cash provided by financing activities
     839,562       520,678  
    
 
 
   
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     354,487       (14,740
CASH AND CASH EQUIVALENTS, beginning of period
     729,084       282,604  
    
 
 
   
 
 
 
CASH AND CASH EQUIVALENTS, end of period
   $ 1,083,571     $ 267,864  
    
 
 
   
 
 
 
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:
 
       
Interest paid
   $ 1,843     $ 7,042  
Transfer of loans and bank premises to other real estate
     255       —    
Investment securities purchased but not settled
     381,871       33,066  
Investment securities sold but not yet settled
     —         126,119  
Restricted stock grant (forfeiture)
     (17     118  
Stock issued in acquisition of TB&T Bancshares, Inc.
     —         220,273  
See notes to consolidated financial statements.
 
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FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
First Financial Bankshares, Inc. (a Texas corporation) (“Bankshares”, “Company,” “we” or “us”) is a financial holding company which owns all of the capital stock of one bank with 78 locations located in Texas as of March 31, 2021. The Company’s subsidiary bank is First Financial Bank, N.A. The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in the market area in which First Financial Bank, N.A. is located. In addition, the Company also owns First Financial Trust & Asset Management Company, N.A., First Financial Insurance Agency, Inc., First Technology Services, Inc. and First Financial Investments, Inc.
Basis of Presentation
A summary of significant accounting policies of the Company and its subsidiaries applied in the preparation of the accompanying consolidated financial statements follows. The accounting principles followed by the Company and the methods of applying them are in conformity with both United States generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry.
The Company evaluated subsequent events for potential recognition through the date the consolidated financial statements were issued.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include its allowance for credit losses and its valuation of financial instruments.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.
Stock Repurchase
On March 12, 2020, the Company’s Board of Directors authorized the repurchase of up to 4,000,000 common shares through September 30, 2021. Previously, the Board of Directors had authorized the repurchase of up to 2,000,000 common shares through September 30, 2020. 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. Through March 31, 2021, 324,802 shares were repurchased and retired (all during the months of March and April 2020) totaling $8,008,000 under this repurchase plan.
 
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Acquisition
On January 1, 2020, the Company acquired 100% of the outstanding capital stock of TB&T Bancshares, Inc. through the merger of a wholly-owned subsidiary with and into TB&T Bancshares, Inc. Following such merger, TB&T Bancshares, Inc. and its wholly-owned subsidiary, The Bank & Trust of Bryan/College Station, Texas were merged into the Company and First Financial Bank, N.A., respectively. The results of operations of TB&T Bancshares, Inc. subsequent to the acquisition date, are included in the consolidated earnings of the Company. See Note 10 for additional information.
Adoption of New Accounting Standards
On January 1, 2020, ASU
2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, became effective for the Company. Accounting Standards Codification (“ASC” Topic 326 (“ASC 326”) replaced the previous “incurred loss” model for measuring credit losses with an unexpected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and
held-to-maturity
debt securities. It also applies to
off-balance-sheet
(“OBS”) credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, ASC 326 made changes to the accounting for
available-for-sale
debt securities. One such change is to require credit losses to be presented as an allowance rather than a write-down on
available-for-sale
debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States that included an option for entities to delay the implementation of ASC 326 until the earlier of the termination date of the national emergency declaration by the President or December 31, 2020. Under this option, the Company elected to delay its implementation of CECL and calculated and recorded the provision for credit losses through the nine-months ended September 2020 under the incurred loss model. At December 31, 2020, the Company elected to adopt ASC 326, effective as of January 1, 2020, through a transition charge to retained earnings of $589,000 ($466,000 net of applicable income taxes). This transition adjustment was comprised of a decrease of $619,000 in allowance for credit losses and an increase of $1,208,000 in the reserve for unfunded commitments.
With the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections which are described below. For the 2020 interim reporting periods, the allowance for credit losses were based on the incurred loss methodology in accordance with accounting policies disclosed in Note 1 of the Consolidated Financial Statements included in the Company’s 2019 Form
10-K.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investment in leases and OBS credit exposures.
The Company adopted ASC 326 using the prospective transition approach for securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed.
The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC
310-30.
In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. For the periods ended March 31, 2021 and 2020, and December 31, 2020, amounts related to the Company’s PCD and PCI loans were insignificant and disclosures related to these balances have been omitted.
 
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Other Recently Issued and Effective Authoritative Accounting Guidance
ASU
2017-04,
“Intangibles – Goodwill and Other.”
ASU
2017-04
amended and simplified current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. ASU
2017-04
became effective for the Company on January 1, 2020 and did not have a significant impact on the Company’s financial statements.
ASU
2018-13,
“Fair Value Measurement (Topic 820). – Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”
    ASU
2018-13
modified the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU
2018-13
remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU
2018-13
became effective on January 1, 2020 and did not have a significant impact on the Company’s financial statements.
ASU
2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
ASU
2019-12,
simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up
in the tax basis of goodwill. ASU
2019-12
is effective for the Company for annual reporting periods after December 15, 2020, and interim periods within. Adoption of ASU
2019-12
did not have a significant impact on the Company’s financial statements and related disclosures.
ASU
2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
ASU
2020-04
provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU
2020-04
applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU
2020-04
was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU
2020-04
did not have a significant impact on our financial statements.
ASU
2021-01,
“Reference Rate Reform (Topic 848): Scope.”
ASU
2021-01
clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU
2021-01
also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU
2021-01
was effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU
2021-01
did not have a significant impact on our financial statements.
Investment Securities
Management classifies debt securities as
held-to-maturity,
available-for-sale,
or trading based on its intent. Securities that management has the positive intent and ability to hold to maturity are classified as
held-to-maturity
and recorded at amortized cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as
held-to-maturity
or trading are classified as
available-for-sale
and recorded at fair value, with unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of securities at the time of purchase.
 
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Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of securities in noninterest income.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the three-months ended March 31, 2021 and 2020.
The Company records its
available-for-sale
securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the marketplace as a result of the illiquid market specific to the type of security.
The Company’s investment portfolio currently consists of obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis.
Allowance for Credit Losses –
Available-for-Sale
Securities
For
available-for-sale
securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previously recognized allowances are
charged-off
and the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For
available-for-sale
securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.
Management has made the accounting policy election to exclude accrued interest receivable on
available-for-sale
securities from the estimate of credit losses. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses.
Available-for-sale
securities are
charged-off
against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
 
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Prior to the adoption of ASC 326, declines in the fair value of securities below their cost that were deemed to be other-than-temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to the adoption, management considered, among other things, the length of time and the extent to which the fair value had been less than cost, the financial condition and near-term prospects of the issuer and the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.​​​​​​​
Allowance
for Credit Losses – Held-to-Maturity
Securities
The allowance for credit losses on
held-to-maturity
securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of
held-to-maturity
securities to present management’s best estimate of the net amount expected to be collected.
Held-to-maturity
securities are
charged-off
against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on
held-to-maturity
securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on
held-to-maturity
securities from the estimate of credit losses.
At March 31, 2021, 2020 and December 31, 2020, the Company held no securities that were classified as
held-to-maturity.
Loans
Held-for-Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.
Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured.
Prior to the adoption of ASC 326, loans were reported as impaired when, based on then current information and events, it was probable we would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.
 
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Impairment was evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis. Impaired loans, or portions thereof, were charged off when deemed uncollectible.
Further information regarding our accounting policies related to past due loans, nonaccrual loans and troubled-debt restructurings is presented in Note 3.
Acquired Loans
Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration
(“non-PCD”).
PCD loans are defined as a loan or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration.
The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as nonaccrual as of the acquisition date and are collateral dependent are assessed for allowance on an individual basis.
For PCD loans, an initial allowance is established on the acquisition date and combined with the fair value of the loan to arrive at acquisition date amortized cost.
Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.
Non-PCD
loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses.
Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the
non-credit
discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. The
non-credit
premium or discount is recognized into interest income on a level yield basis over the remaining expected life of the loan. For
non-PCD
loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan.
Prior to the adoption of ASC 326, loans acquired in a business combination that had evidence of credit impairment and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered PCI. PCI loans were accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination.
 
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Allowance for Credit Losses - Loans
The allowance for credit losses (“allowance” or “ACL”) is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans. The ACL represents an amount which, in management’s judgement, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are
charged-off
against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously
charged-off
and expected to be
charged-off.
Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.
The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable forecast period, including the Company’s expected prepayment and curtailment rates; (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, including, among others,
loan-to-value
ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan portfolio segments include Commercial and Industrial (“C&I”), Municipal, Agricultural, Construction and Development, Farm,
Non-Owner
Occupied and Owner Occupied Commercial Real Estate (“CRE”), Residential, Consumer Auto and Consumer
Non-Auto.
We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. Refer to Note 3 for more details on the Company’s portfolio segments.
The Company applies two methodologies to estimate the allowance on its pooled portfolio segments; discounted cash flows method and weighted average remaining life method. Allowance estimates on the following portfolio segments are calculated using the discounted cash flows method: C&I, Municipal, Construction and Development, Farm,
Non-Owner
Occupied and Owner Occupied CRE and Residential. Allowance estimates on the following portfolio segments are calculated using the remaining life method: Agriculture, Consumer Auto and Consumer
Non-Auto.
The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a
one-year
economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include; Texas unemployment rate, Texas house price index and Texas retail sales index. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.
 
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In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on an ongoing basis.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor
(“Q-Factor”)
adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making
Q-Factor
adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature, volume and size of a loan or the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are
non-collateral
dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics.
Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
The adoption of the CECL standard did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, nonaccrual practices, assessment of troubled debt restructurings or
charge-off
policies.
Allowance for Credit Losses -
Off-Balance-Sheet/Reserve
for Unfunded Commitments
The allowance for credit losses on
off-balance-sheet
credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. These obligations include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. At March 31, 2021, 2020 and December 31, 2020, the Company’s reserve for unfunded commitments totaled $6,918,000, $809,000 and $5,486,000, respectively.
 
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Other Real Estate
Other real estate owned is foreclosed property held pending disposition and is initially recorded at fair value, less estimated costs to sell. At foreclosure, if the fair value of the real estate, less estimated costs to sell, is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Any subsequent reduction in value is recognized by a charge to income. Operating and holding expenses of such properties, net of related income, and gains and losses on their disposition are included in net gain (loss) on sale of foreclosed assets as incurred.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever is shorter.
Business Combinations, Goodwill and Other Intangible Assets
The Company accounts for all business combinations under the purchase method of accounting. Tangible and intangible assets and liabilities of the acquired entity are recorded at fair value. Intangible assets with finite useful lives represent the future benefit associated with the acquisition of the core deposits and are amortized over seven years, utilizing a method that approximates the expected attrition of the deposits. Goodwill with an indefinite life is not amortized, but rather tested annually for impairment as of June 30 each year. There was no impairment recorded for the three-months ended March 31, 2021 or 2020, respectively.
Securities Sold Under Agreements To Repurchase
Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of the cash received in connection with the transaction. The Company may be required to provide additional collateral based on the estimated fair value of the underlying securities.
Segment Reporting
The Company has determined that its banking regions meet the aggregation criteria of the current authoritative accounting guidance since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas).
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing demand deposits in banks with original maturity of 90 days or less, and federal funds sold.
Accumulated Other Comprehensive Earnings (Loss)
Unrealized net gains on the Company’s
available-for-sale
securities (after applicable income taxes) totaling $117,009,000, $123,576,000 and $170,395,000 at March 31, 2021 and 2020, and December 31, 2020, respectively, are included in accumulated other comprehensive earnings.
 
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Income Taxes
The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the grant date. The grant date fair value is amortized over the vesting period which generally is six years. The Company also grants restricted stock for a fixed number of shares. The grant date fair value is amortized over the vesting period which generally is one to three years. See Note 8 for further information.
Advertising Costs
Advertising costs are expensed as incurred.
Per Share Data
Net earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The Company calculates dilutive EPS assuming all outstanding stock options to purchase common shares and unvested restricted stock shares have been exercised and/or vested at the beginning of the year (or the time of issuance, if later.) The dilutive effect of the outstanding options and restricted stock is reflected by application of the treasury stock method, whereby the proceeds from the exercised options and unearned compensation for both restricted stock and stock options are assumed to be used to purchase common shares at the average market price during the respective period. There were no anti-dilutive shares for the three-months ended March 31, 2021 and 2020. The following table reconciles the computation of basic EPS to diluted EPS:
 
     Net
Earnings
(in thousands)
     Weighted
Average
Shares
     Per Share
Amount
 
For the three-months ended March 31, 2021:
                          
Net earnings per share, basic
   $ 56,918        142,146,275      $ 0.40  
Effect of stock options and stock grants
               856,383            
    
 
 
    
 
 
    
 
 
 
Net earnings per share, diluted
   $ 56,918        143,002,658      $ 0.40  
    
 
 
    
 
 
    
 
 
 
 


 
  
Net
Earnings
(in thousands)
 
  
Weighted
Average
Shares
 
  
Per Share
Amount
 
For the three-months ended March 31, 2020:
  
     
  
     
  
     
Net earnings per share, basic
  
$
37,232
 
  
 
142,118,864
 
  
$
0.26
 
Effect of stock options and stock grants
  
 
  
 
  
 
616,344
 
  
 
  
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Net earnings per share, diluted
  
$
37,232
 
  
 
142,735,208
 
  
$
0.26
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 

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Note 2 - Securities
Debt securities have been classified in the consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of
available-for-sale
securities are as follows (in thousands):
​​​​​​​
     March 31, 2021  
     Amortized
Cost Basis
     Gross
Unrealized
Holding
Gains
     Gross
Unrealized
Holding
Losses
     Estimated
Fair Value
 
Securities
available-for-sale:
                                   
Obligations of states and political subdivisions
   $ 2,418,227      $ 106,988      $ (8,198    $ 2,517,017  
Residential mortgage-backed securities
     2,073,647        43,575        (8,628      2,108,594  
Commercial mortgage-backed securities
     431,137        15,916        —          447,053  
Corporate bonds and other
     38,427        79        (1,539      36,967  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total securities
available-for-sale
   $ 4,961,438      $ 166,558      $ (18,365    $ 5,109,631  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
     March 31, 2020  
     Amortized
Cost Basis
     Gross
Unrealized
Holding G
ains
     Gross
Unrealized
Holding
Losses
     Estimated
Fair Value
 
Securities
available-for-sale:
                                   
U.S. Treasury securities
   $ 10,039      $ 74      $ —        $ 10,113  
Obligations of states and political subdivisions
     1,731,392        78,996        (2,717      1,807,671  
Residential mortgage-backed securities
     1,617,341        62,659        (20      1,679,980  
Commercial mortgage-backed securities
     587,114        17,624        (184      604,554  
Corporate bonds and other
     4,624        133        (6      4,751  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total securities
available-for-sale
   $ 3,950,510      $ 159,486      $ (2,927    $ 4,107,069  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
     December 31, 2020  
     Amortized
Cost Basis
     Gross
Unrealized
Holding
Gains
     Gross
Unrealized
Holding
Losses
     Estimated
Fair Value
 
Securities
available-for-sale:
                                   
Obligations of states and political subdivisions
   $ 2,283,616      $ 143,339      $ (79    $ 2,426,876  
Residential mortgage-backed securities
     1,421,922        50,473        (115      1,472,280  
Commercial mortgage-backed securities
     467,243        22,077        (4      489,316  
Corporate bonds and other
     4,398        159        —          4,557  
    
 
 
    
 
 
    
 
 
    
 
 
 
Total securities
available-for-sale
   $ 4,177,179      $ 216,048      $ (198    $ 4,393,029  
    
 
 
    
 
 
    
 
 
    
 
 
 
The Company did not hold any securities classified as
held-to-maturity
at March 31, 2021, March 31, 2020, or December 31, 2020.
 
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The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at March 31, 2021 and 2020, and December 31, 2020, were computed by using scheduled amortization of balances and historical prepayment rates.
The amortized cost and estimated fair value of
available-for-sale
securities at March 31, 2021, by contractual and expected maturity, are shown below (in thousands):
 
     Amortized
Cost Basis
     Estimated Fair
Value
 
Due within one year
   $ 290,536      $ 295,145  
Due after one year through five years
     2,355,100        2,456,956  
Due after five years through ten years
     2,145,293        2,188,324  
Due after ten years
     170,509        169,206  
    
 
 
    
 
 
 
Total
   $ 4,961,438      $ 5,109,631  
    
 
 
    
 
 
 
The following tables disclose the Company’s investment securities that have been in a continuous
unrealized-loss
position for less than 12 months and for 12 or more months (in thousands):
 
     Less than 12 Months      12 Months or Longer      Total  
March 31, 2021
   Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
 
Obligations of states and political subdivisions
   $ 533,213      $ 8,198      $         $         $ 533,213      $ 8,198  
Residential mortgage-backed securities
     589,353        8,618        999        10        590,352        8,628  
Commercial mortgage-backed securities
     471                                      471            
Corporate bonds and other
     32,490        1,539                            32,490        1,539  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 1,155,527      $ 18,355      $ 999      $ 10      $ 1,156,526      $ 18,365  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
     Less than 12 Months      12 Months or Longer      Total  
March 31, 2020
   Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
     Fair Value      Unrealized
Loss
 
Obligations of states and political subdivisions
   $ 168,725      $ 2,717      $         $         $ 168,725      $ 2,717  
Residential mortgage-backed securities
     1                  8,164        21        8,165        21  
Commercial mortgage-backed securities
     44,724        173        9,630        10        54,354        183  
Corporate bonds and other
     220        6                            220        6  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 213,670      $ 2,896      $ 17,794      $ 31      $ 231,464      $ 2,927  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
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Table of Contents
     Less than 12 Months      12 Months or Longer      Total  
December 31, 2020
   Fair
Value
     Unrealized
Loss
     Fair Value      Unrealized
Loss
     Fair
Value
     Unrealized
Loss
 
Obligations of state and
political subdivisions
   $
 
 
25,214
 
 
   $ 79      $         $
 

  

 
   $
 
 
25,214
 
 
   $ 79  
Residential mortgage-backed securities
     36,017        96        3,156        19        39,173        115  
Commercial mortgage-backed securities
     16,218        4                            16,218        4  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total
   $ 77,449      $ 179      $ 3,156      $ 19      $ 80,605      $ 198  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
The number of investments in an unrealized loss position totaled 149 at March 31, 2021. Any unrealized losses in the obligations of state and political subdivisions, residential and commercial mortgage-backed and asset-backed investment securities at March 31, 2021 and 2020, and December 31, 2020, are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at March 31, 2021 and 2020, and December 31, 2020. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At March 31, 2021, 77.27% of our
available-for-sale
securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 52.70% are guaranteed by the Texas Permanent School Fund.
At March 31, 2021, $3,103,077,000 of the Company’s securities were pledged as collateral for public or trust fund deposits, repurchase agreements, a borrowing line with the Federal Reserve Bank of Dallas and for other purposes required or permitted by law.
During the three-months ended March 31, 2021 and 2020, sales of investment securities that were classified as
available-for-sale
totaled $10,631,000 and $95,437,000, respectively. Gross realized gains from security sales during the first quarter of 2021 and 2020 totaled $808,000 and $2,062,000, respectively. There were no gross realized losses from security sales during the three-month periods ended March 31, 2021 and 2020, respectively.
The specific identification method was used to determine cost in order to compute the realized gains and losses.
Note 3 – Loans
Held-for-Investment
and Allowance for Loan Losses
In conjunction with the adoption of ASC 326, the Company expanded its four loan portfolios into ten portfolio segments.
For the periods ended March 31, 2021 and December 31, 2020, the following tables outline the Company’s loan portfolio by the ten portfolio segments where applicable. For disclosures related to the period ended March 31, 2020, management has elected to maintain its previously disclosed loan segments.
 
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Table of Contents
Loans
held-for-investment
by portfolio segment are as follows (in thousands):
 
     March 31,      December 31,  
     2021      2020      2020  
Commercial:
                          
C&I
   $ 1,178,126      $ N/A      $ 1,131,382  
Municipal
     176,949        N/A        181,325  
    
 
 
    
 
 
    
 
 
 
Total Commercial
     1,355,075        869,450        1,312,707  
Agricultural
     90,366        99,582        94,864  
Real Estate:
                          
Construction & Development
     587,928        N/A        553,959  
Farm