What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-07-28 · 310 added, 271 removed, 691 unchanged (46% of the section changed)

1 unchanged sentence

The consolidated balance sheets of First Financial Bankshares, Inc.

and Subsidiaries (the “Company” or “we”) at June 30, 2020 and 2019 (unaudited) and December 31, 2019, and the consolidated statements of earnings, comprehensive earnings and shareholders’ equity for the three and six-months

ended June 30, 2020 and 2019 (unaudited), and the consolidated statements of cash flows for the six-months

ended June 30, 2020 and 2019 (unaudited) and notes to consolidated financial statements (unaudited), follow on pages 4

and Subsidiaries (the “Company” or “we”) at September 30, 2020 and 2019 (unaudited) and December 31, 2019, and the consolidated statements of earnings, comprehensive earnings and shareholders’ equity for the three and nine-months ended September 30, 2020 and 2019 (unaudited), and the consolidated statements of cash flows for the nine-months ended September 30, 2020 and 2019 (unaudited) and notes to consolidated financial statements (unaudited), follow on pages 4 through 38.

FIRST FINANCIAL BANKSHARES, INC.

2 unchanged sentences

(Dollars in thousands, except per share amounts)

September 30,

CASH AND DUE FROM BANKS

2 unchanged sentences

Total cash and cash equivalents

INTEREST-BEARING TIME DEPOSITS IN BANKS

SECURITIES AVAILABLE-FOR-SALE,

3 unchanged sentences

Net loans held-for-investment

Held for sale ($ 63,293 , $ 18,981 and $ 23,076 at fair value at June 30, 2020 and 2019 and December 31, 2019, respectively)

Held-for-sale ($ 94,666 , $ 39,735 and $ 23,076 at fair value at September 30, 2020 and 2019 and

December 31, 2019, respectively)

BANK PREMISES AND EQUIPMENT, net

9 unchanged sentences

SHAREHOLDERS’ EQUITY:

Common stock -

($ 0.01 par value, authorized 200,000,000 shares;

142,035,396 , 135,809,224 and 135,891,755 shares issued at June 30, 2020 and 2019 and December 31, 2019, respectively)

Common stock - ($ 0.01 par value, authorized 200,000,000 shares;

142,121,595 , 135,822,456 and

135,891,755 shares issued at September 30, 2020 and 2019 and December 31, 2019, respectively)

Capital surplus

1 unchanged sentence

Treasury stock (shares at cost:

932,018 , 929,441 and 927,408 at June 30, 2020 and 2019 and December 31,

2019, respectively)

934,859 , 928,287 and 927,408 at September 30, 2020 and 2019 and

December 31, 2019, respectively)

Deferred compensation

7 unchanged sentences

(Dollars in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

September 30,

INTEREST INCOME:

2 unchanged sentences

Exempt from federal income tax

Interest on federal funds sold and interest-bearing deposits in banks

Interest on federal funds sold and interest-bearing demand

deposits in banks

Total interest income

3 unchanged sentences

Net interest income

PROVISION FOR LOAN LOSSES

Net interest income after provision for loan losses

PROVISION FOR CREDIT

Net interest income after provision s

NONINTEREST INCOME:

4 unchanged sentences

securities (includes $ 36 and $ 52 for the three -

months ended June 30, 2020 and 2019, respectively, and $ 3,574 and $ 676 for the six -

months ended June 30, 2020 and 2019, respectively, related to accumulated other comprehensive earnings reclassifications)

months ended September 30, 2020 and 2019, respectively, and $ 3,610 and $ 728 for the nine -

months ended September 30, 2020 and 2019, respectively, related to accumulated other comprehensive earnings reclassifications)

Net gain on sale of foreclosed assets

16 unchanged sentences

EARNINGS BEFORE INCOME TAXES

I NCOME TAX EXPENSE

(includes $ 318 and $ 142 for the three months ended June 30, 2020 and 2019, respectively, and $ 751 and $ 142 for the six months ended June 30, 2020 and 2019, respectively, related to income tax expense from reclassification items)

INCOME TAX EXPENSE

(includes $ 8 and $ 11 for the three -months

ended September 30, 2020 and 2019, respectively, and $ 758 and $ 153 for the nine -months

ended September 30, 2020 and 2019, respectively, related to income tax expense from reclassification items)

EARNINGS PER SHARE, BASIC

6 unchanged sentences

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

September 30,

OTHER ITEMS OF COMPREHENSIVE EARNINGS:

14 unchanged sentences

Shareholders’

Balances at March 31, 2019 (unaudited)

Balances at June 30, 2019 (unaudited)

Net earnings (unaudited)

Stock option exercises (unaudited)

Restricted stock grant (unaudited)

Cash dividends declared, $ 0.12

per share (unaudited)

Change in unrealized gain in investment securities available-for-sale, net of related income taxes (unaudited)

Shares purchased (redeemed) in connection with directors’

deferred compensation plan, net

Cash dividends declared, $ 0.12 per share (unaudited)

Change in unrealized gain in investment securities

available-for-sale,

net of related income taxes (unaudited)

Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)

Stock option expense (unaudited)

Balances at September 30, 2019 (unaudited)

Balances at June 30, 2020 (unaudited)

Balances at March 31, 2020 (unaudited)

Net earnings (unaudited)

Stock option exercises (unaudited)

Restricted stock grant (unaudited)

Cash dividends declared, $ 0.13

share (unaudited)

Change in unrealized gain in investment securities available-for-sale, net of related income taxes (unaudited)

Shares purchased (redeemed) in

connection with directors’

deferred compensation plan, net

Cash dividends declared, $ 0.13 per share (unaudited)

Change in unrealized gain in investment securities available-for-sale,

net of related income taxes (unaudited)

Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)

Stock option expense (unaudited)

Shares repurchased under stock

repurchase authorization

Balances at June 30, 2020 (unaudited)

Balances at September 30, 2020 (unaudited)

FIRST FINANCIAL BANKSHARES, INC.

9 unchanged sentences

Restricted stock grant (unaudited)

Cash dividends declared, $ 0.23

per share (unaudited)

Change in unrealized gain in investment securities available-for-sale, net of related income taxes (unaudited)

Shares purchased (redeemed) in

connection with directors’

deferred compensation plan, net

Cash dividends declared, $ 0.35 per share (unaudited)

Change in unrealized gain in investment securities

available-for-sale,

net of related income taxes (unaudited)

Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)

Stock option expense (unaudited)

stock split in the form of a

100 % stock dividend (unaudited)

Balances at June 30, 2019 (unaudited)

stock split in the form of a 100 % stock

Balances at September 30, 2019 (unaudited)

Balances at December 31, 2019

Stock issued in acquisition of TB&T

Bancshares, Inc.

Stock issued in acquisition of TB&T Bancshares, Inc.

Net earnings (unaudited)

1 unchanged sentence

Restricted stock grant (unaudited)

Cash dividends declared, $ 0.25

per share (unaudited)

Change in unrealized gain in investment securities available-for-sale, net of related income taxes (unaudited)

Shares purchased (redeemed) in

connection with directors’

deferred compensation plan, net

Cash dividends declared, $ 0.38 per share (unaudited)

Change in unrealized gain in investment securities available-for-sale,

net of related income taxes (unaudited)

Shares purchased in connection with directors’ deferred compensation plan, net (unaudited)

Stock option expense (unaudited)

Shares repurchased under stock

repurchase authorization

Balances at June 30, 2020 (unaudited)

Shares repurchased under stock repurchase authorization (unaudited)

Balances at September 30, 2020 (unaudited)

See notes to consolidated financial statements.

3 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine-Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

1 unchanged sentence

Depreciation and amortization

Provision for loan losses

Securities premium amortization (discount accretion), net

Provision for credit losses

Securities premium amortization, net

Discount accret ion on purchased loans

Gain on sale of assets, net

9 unchanged sentences

Activity in available-for-sale

Net increase in loans

Net increase in loans held -for-investment

Purchases of bank premises and equipment

6 unchanged sentences

Common stock transactions:

Proceeds from stock issuances

Proceeds from stock

option exercises

Dividends paid

1 unchanged sentence

Net cash provided by financing activities

NET INCREASE IN CASH AND CASH EQUIVALENTS

NET DE CREASE

IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, beginning of period

14 unchanged sentences

First Financial Bankshares, Inc.

(a Texas corporation) (“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 June 30, 2020.

The Company’s subsidiary bank is First Financial Bank, National Association, Abilene, Texas.

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, National Association, is located.

(a Texas corporation) (“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 September 30, 2020.

The Company’s subsidiary bank is First Financial Bank, N.

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, National Association, First Financial Insurance Agency, Inc., and First Technology Services, Inc.

6 unchanged sentences

Actual results could differ from those estimates.

The Company’s significant estimates include its allowance for loan losses and its valuation of securities.

The Company’s significant estimates include its allowance for loan losses and its valuation of financial instruments.

Consolidation

2 unchanged sentences

Stock Split and Increase in Authorized Shares

On April 23, 2019, the Company’s Board of Directors declared a two-for-one stock split of the Company’s outstanding common

shares in the form of a 100% stock dividend

effective on June 3, 2019.

On April 23, 2019, the Company’s Board of Directors declared a two-for-one stock split of the Company’s outstanding common shares in the form of a 100% stock dividend effective on June 3, 2019.

In addition, the shareholders of the Company approved an amendment to the Amended and Restated Certificate of Formation to increase the number of authorized shares to 200,000,000 .

All per share amounts in this report have been restated to reflect this stock split.

An amount equal to the par value of the additional common shares issued pursuant to the stock split was reflected as a transfer from retained earnings to common stock in the consolidated financial statements as of and for the six -

months ended June 30, 2019.

ended September 30, 2019.

Stock Repurchase

1 unchanged sentence

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 the stock at such time as repurchases are considered beneficial to

the Company and stockholders.

The stock repurchase plan authorizes management to repurchase and ret

the stock at such time as repurchases a nd

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 June 30, 2020, 324,802 shares were repurchased totaling $ 8,008,000 under this repurchase plan.

Subsequent to June 30, 2020 and through July 28, 2020, no additional shares were repurchased.

were reti red.

Through September 30, 2020, 324,802 shares were repurchased totaling $ 8,008,000 under this repurchase plan.

Subsequent to September 30, 2020 and through November 4

no additional shares were repurchased.

On January 1, 2020, the Company acquired 100 % of the outstanding capital stock of TB&T Bancshares, Inc.

1 unchanged sentence

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, National Association, respectively.

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.

5 unchanged sentences

Measurement of Credit Losses on Financial Instruments

, became effective for the Company which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.

, became effective for the Company which replaces the incurred loss methodology with an expected 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.

It also applies to off-balance

CECL also applies to off-balance

sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments).

8 unchanged sentences

and has calculated and recorded its provision for loan losses under the incurred loss model that existed prior to ASU 2016-13

for the three and nine-months ended September 30, 2020.

Prior to the CARES Act being signed and our election to delay the implementation of CECL, we were completing our CECL implementation plan with our cross-functional working group, under the direction of our Chief Credit Officer along with our Chief Accounting Officer, Chief Lending Officer and Chief Financial Officer.

The working group also included individuals from various functional areas including credit, risk management, accounting and information technology, among others.

implementation plan include s

assessment and documentation of processes, internal controls and data sources;

Our implementation plan included assessment and documentation of processes, internal controls and data sources;

model development, documentation and validation;

1 unchanged sentence

We contracted with a third-party vendor to assist us in the implementation of CECL.

Currently we expect to adopt CECL during the fourth quarter of 2020 with retroactive application to January 1, 2020 which may require adjustments to the amounts for provision for credit losses for the three and nine-months ended September 30, 2020.

Other Recently Issued and Effective Authoritative Accounting Guidance

ASU 2016-02, “Leases.”

amended current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use

2 unchanged sentences

however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model.

The amended guidance was effective in the first quarter of 2019 and required transition using a modified retrospective approach for leases

existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The amended guidance was effective in the first quarter of 2019 and required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The Company evaluated the provision of the new lease standard and, due to the small dollar amounts and number of lease agreements, all considered operating leases, the effect for the Company on January 1, 2019 was not significant.

ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs

“Receivables – Nonrefundable Fees and Other Costs

Premium Amortization on Purchased Callable Debt Securities.”

5 unchanged sentences

The adoption of this guidance did not have a material impact on the Company’s financial statements.

ASU 2017-04, “Intangibles – Goodwill and Other.”

will amend and simplify current goodwill impairment testing to eliminate Step 2 from the current provisions.

“Intangibles – Goodwill and Other.”

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.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary.

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.”

modifies the disclosure requirements on fair value measurements in Topic 820.

“Fair Value Measurement (Topic 820).

– Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.”

modified the disclosure requirements on fair value measurements in Topic 820.

The amendments in ASU 2018-13

1 unchanged sentence

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):

“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

tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

-12 also simplifies 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 beginning after December 15, 2020, and interim periods within.

Adoption of ASU 2019-12 is not expected to have a material impact on the Company’s financial statements.

simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod 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.

is effective for the Company for annual reporting periods after December 15, 2020, and interim periods within.

Adoption of ASU 2019-12

is not expected to have a material impact on the Company’s financial statements.

Investment Securities

27 unchanged sentences

If actual information or conditions are different than estimated, the extent of the impairment of the debt security may be different than previously estimated, which could have a material effect on the Company’s results of operations and financial condition.

The Company’s investment portfolio consists of U.S.

Treasury securities, obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds.

The Company’s investment portfolio

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.

3 unchanged sentences

and Allowance for Loan Losses

Loans held for investment are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses.

Loans held-for-investment

are stated at the amount of unpaid principal, reduced by unearned income and an allowance for loan losses.

Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding.

12 unchanged sentences

Specific allocations are increased or decreased in accordance with deterioration or improvement in credit quality and a corresponding increase or decrease in risk of loss on a particular loan.

In addition, we adjust our allowance for qualitative factors such as current local economic conditions and trends, including, without limitations, unemployment, oil and gas prices, drought conditions, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans.

In addition, we adjust our allowance

qualitative factors such as current local economic conditions and trends, including, without limitations, unemployment, oil and gas prices, drought conditions, changes in lending staff, policies and procedures, changes in credit concentrations, changes in the trends and severity of problem loans and changes in trends in volume and terms of loans.

This qualitative reserve serves to estimate for additional areas of losses inherent in our portfolio that are not reflected in our historic loss factors.

5 unchanged sentences

Accrual of interest is discontinued on a loan and payments are applied to principal when management believes, after considering economic and business conditions and collection efforts, the borrower’s financial condition is such that collection of interest is doubtful.

Except consumer loans, generally all loans past due greater than 90 days, based on contractual terms, are placed on non-accrual.

Except consumer loans, generally all loans past due greater than 90 days, based on contractual terms, are placed on nonaccrual.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

9 unchanged sentences

dependent loans are measured based on the present value of expected future cash flows or the loan’s observable market price.

At June 30, 2020 and 2019 and December 31, 2019, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral less cost to sell.

At September 30, 2020 and 2019 and December 31, 2019, all significant impaired loans have been determined to be collateral dependent and the allowance for loss has been measured utilizing the estimated fair value of the collateral less cost to sell.

From time to time, the Company modifies its loan agreement with a borrower.

7 unchanged sentences

Each of these loans is individually evaluated for impairment and a specific reserve is recorded based on probable losses, taking into consideration the related collateral, modified loan terms and cash flow.

As of June 30, 2020 and 2019, and December 31, 2019, substantially all of the Company’s troubled debt restructured loans were on

As of September 30, 2020 and 2019, and December 31, 2019, substantially all of the Company’s troubled debt restructured loans were on non-accrual.

The provisions of the CARES Act included an election to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19

16 unchanged sentences

Valuation allowances on these impaired loans reflect only losses incurred after the acquisition.

The carrying amount of purchased credit impaired loans at June 30, 2020 and 2019 and December 31, 2019 were $ 7,275,000 , $ 464,000 and $ 251,000 , respectively, compared to a contractual balance of $ 9,818,000 , $ 750,000 and $ 345,000 , respectively.

The carrying amount of purchased credit impaired loans at September 30, 2020 and 2019 and December 31, 2019 were $ 5,978,000 , $ 342,000 and $ 251,000 , respectively, compared to a contractual balance of $ 8,469,000 , $ 605,000 and $ 345,000 , respectively.

Other purchased credit impaired loan disclosures have been omitted due to immateriality.

11 unchanged sentences

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.

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 and six -

months ended June 30, 2020 or 2019 , respectively.

There was no impairment recorded for the three and nine-months

ended September 30, 2020 or 2019, respectively.

Securities Sold Under Agreements To Repurchase

6 unchanged sentences

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of 90 days or less , and federal funds sold.

Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Earnings (Loss)

Unrealized net gains on the Company’s available-for-sale

securities (after applicable income tax expense) totaling $ 151,236,000 and $ 60,571,000 at June 30, 2020 and 2019, respectively, and the minimum pension liability (after applicable income tax benefit) totaling ($ 1,324,000 ) at June 30, 2019, are included in accumulated other comprehensive income.

There were no amounts under the minimum pension liability at June 30, 2020 (see note 9).

securities (after applicable income tax e

) totaling $ 152,063,000 ,

$ 73,521,000 and

September 30, 2020 and 2019 and December 31, 2019 ,

respectively, and the minimum pension liability (after applicable income tax benefit) totaling ($ 1,324,000 ) at September 30, 2019, are included in accumulated other comprehensive earnings

There were no amounts under the minimum pension liability at September 30, 2020 or December 31, 2019

(see note 9).

The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income.

3 unchanged sentences

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 Company recorded stock option expense totaling $ 349,000 and $ 313,000 for the three-months ended June 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 689,000 and $ 625,000 for the six-months

ended June 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 344,000 and $ 431,000 for the three-months ended September 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 1,033,000 and $ 1,056,000 for the nine-months ended September 30, 2020 and 2019, respectively.

The Company also grants restricted stock for a fixed number of shares.

The Company recorded expenses associated with its director and officer restricted stock grants totaling $ 482,000 and $ 345,000 , for the three-months ended June 30, 2020 and 2019, respectively.

The Company recorded expenses associated with its director and officer restricted stock grants totaling $ 932,000 and $ 685,000 for the six-months

ended June 30, 2020 and 2019, respectively.

The Company recorded expenses associated with its director and officer restricted stock grants totaling $ 569,000 and $ 433,000 , for the three-months ended September 30, 2020 and 2019, respectively.

The Company recorded expenses associated with its director and officer restricted stock grants totaling $ 1,501,000 and $ 1,116,000 for the nine-months ended September 30, 2020 and 2019, respectively.

See note 8 for further information.

3 unchanged sentences

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 restricted stock are assumed to be used to purchase common shares at the average market price during the respective period

Anti-dilutive shares for the three and six-months

ended June 30, 2020 were 448,000 and 35,000 , respectively, and excluded from the computation of EPS.

For the three and six-

ended June 30, 2019, there were no anti-dilutive.

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 restricted stock are assumed to be used to purchase common shares at the average market price during the respective period.

Anti-dilutive shares for the three and nine-months ended September 30, 2020

approximately

15,000 respectively, and were

excluded from the computation of EPS.

For the three and nine-months ended September 30, 2019, there were no anti-dilutive shares

The following table reconciles the computation of basic EPS to dilutive EPS:

(in thousands)

For the three-months ended June 30, 2020:

For the three-months ended September 30, 2020:

Net earnings per share, basic

2 unchanged sentences

(in thousands)

For the six-months

ended June 30, 2020:

Fo r the nine-month s

ended September 30, 2020 :

Net earnings per share, basic

2 unchanged sentences

(in thousands)

For the three-months ended June 30, 2019:

For the three-months ended September 30, 2019 :

Net earnings per share, basic

2 unchanged sentences

(in thousands)

For the six-months

ended June 30, 2019:

For the nine-months ended Septe mber 30, 2019:

Net earnings per share, basic

1 unchanged sentence

Net earnings per share, diluted

Note 2 - Securities

A summary of the Company’s available-for-sale

securities follows (in thousands):

June 30, 2020

September 30, 2020

Holding Gains

Holding Losses

Treasury securities

Obligations of states and political subdivisions

Corporate bonds and other

Residential mortgage-backed securities

Commercial mortgage-backed securities

Corporate bonds and other

Total securities available-for-sale

June 30, 2019

September 30, 2019

Holding Gains

15 unchanged sentences

Total securities available-for-sale

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities.

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 June 30, 2020 were computed by using scheduled amortization of balances and historical prepayment rates.

At June 30, 2020 and 2019, and December 31, 2019, the Company did not hold CMOs that entail higher risks than standard mortgage-backed securities.

The expected maturities of these securities at September 30, 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 June 30, 2020 by contractual and expected maturity, are shown below (in thousands):

securities at September 30, 2020 by contractual and expected maturity, are shown below (in thousands):

Due within one year

7 unchanged sentences

12 Months or Longer

June 30, 2020

Treasury securities

September 30, 2020

Obligations of states and political subdivisions

Residential mortgage-backed securities

Commercial mortgage-backed securities

Less than 12 Months

12 Months or Longer

June 30, 2019

September 30, 2019

Obligations of states and political subdivisions

4 unchanged sentences

December 31, 2019

Obligations of state and political subdivisions

Obligations of state and

political subdivisions

Residential mortgage-backed securities

Commercial mortgage-backed securities

The number of investments in an unrealized loss position totaled 14 at June 30, 2020.

The number of investments in an unrealized loss position totaled 80 at September 30, 2020.

We do not believe these unrealized losses are “other-than-temporary” as (i) we do not have the intent to sell our securities prior to recovery and/or maturity and (ii) it is more likely than not that we will not have to sell our securities prior to recovery and/or maturity.

In making this determination, we also consider the length of time and extent to which fair value has been less than cost and the financial condition of the issuer.

The unrealized losses noted are interest rate related due to the level of interest rates at June 30, 2020 compared to the time of purchase.

The unrealized losses noted are interest rate related due to the level of interest rates at September 30, 2020 compared to the time of purchase.

We have reviewed the ratings of the issuers and have not identified any issues related to the ultimate repayment of principal as a result of credit concerns on these securities.

Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies.

At June 30, 2020, 88.76 % of our available-for-sale

At September 30, 2020, 80.94 % of our available-for-sale

securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 52.04 % are guaranteed by the Texas Permanent School Fund.

At June 30, 2020, $ 2,685,828 ,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 June 30, 2020 and 2019, sales of investment securities that were classified as available-for-sale

At September 30, 2020, $ 2,884,337 ,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 September 30, 2020 and 2019, sales of investment securities that were classified as available-for-sale

totaled $ 10,084 ,000 and $ 1,352 ,000, respectively.

Gross realized gains from security sales during the second quarter of 2020 and 2019 totaled $ 1,516,000 and $ 689,000 , respectively.

Gross realized losses from security sales during the three-month period ended June 30,

020 and 2019 totaled $ 4,000 and $ 13,000 , respectively.

During the six months ended June 30, 2020 and 2019, sales of investment securities classified as available-for-sale

Gross realized gains from security sales during the third quarter of 2020 and 2019 totaled $ 36,000 and $ 54,000 , respectively.

Gross realized losses from security sales during the three-month period ended September 30, 2019 totaled $ 2,000 .

There were no gross realized losses from security sales during the three-month period ended September 30, 2020.

During the nine -

months ended September 30, 2020 and 2019, sales of investment securities classified as available-for-sale

totaled $ 263,042 ,000 and $ 67,404 ,000, respectively.

Gross realized gains from security sales during the six-month

periods ended June 30, 2020 and 2019 totaled $ 3,578,000 and $ 693,000 , respectively.

Gross realized losses from security sales during the six-month

periods ended June 30, 2020 and 2019 totaled $ 4,000 and $ 17,000 , respectively.

Gross realized gains from security sales during the nine-month periods ended September 30, 2020 and 2019 totaled $ 3,614,000 and $ 747,000 , respectively.

Gross realized losses from security sales during the nine-month periods ended September 30, 2020 and 2019 totaled $ 4,000 and $ 19,000 , 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

Note 3 – Loans Held-for-Investment

and Allowance for Loan Losses

Loans held-for-investment

by class of financing receivables are as follows (in thousands):

September 30,

Total loans held-for-investment

Our subsidiary bank has established a line of credit with the Federal Home Loan Bank of Dallas (FHLB) to provide liquidity and meet pledging requirements for those customers eligible to have securities pledged to secure certain uninsured deposits.

At September 30, 2020, $ 3,150,534,000 in loans held by our bank subsidiary were subje c

t to blanket liens as security for this line of credit.

At September 30, 2020, there was $ 30,000,000 outstanding under this line of credit.

The Company’s non-accrual

loans, loans still accruing and past due 90 days or more and restructured loans are as follows (in thousands):

September 30,

Loans still accruing and past due 90 days or more

Troubled debt restructured

Includes $ 7,275,000 , $ 464,000 and $ 251,000 of purchased credit impaired loans as of June 30, 2020 and 2019, and December 31, 2019, respectively.

Troubled debt restructured loans still accruing**

Includes $ 5,978,000 , $ 342,000 and $ 251,000 of purchased credit impaired loans as of September 30, 2020 and 2019, and December 31, 2019, respectively.

Troubled debt restructured loans of $ 4,478,000 , $ 3,983,000 and $ 4,791,000 , whose interest collection, after considering economic and business conditions and collection efforts, is doubtful are included in non-accrual

loans at June 30, 2020 and 2019, and December 31, 2019, respectively.

loans at September 30, 2020 and 2019, and December 31, 2019,

respectively.

The Company’s recorded investment in impaired loans and the related valuation allowance are as follows (in thousands):

June 30, 2020

June 30, 2019

December 31, 2019

September 30,

Recorded Investment

Valuation Allowance

The Company had $ 43,052,000 , $ 27,212,000 and $ 25,770,000 in non-accrual,

past due 90 days or more and still accruing, restructured loans and foreclosed assets at June 30, 2020 and 2019, and December 31, 2019, respectively.

loans at June 30, 2020 and 2019, and December 31, 2019, consisted of the following by class of financing receivables (in thousands):

No significant additional funds are committed to be advanced in connection with impaired loans as of June 30, 2020.

past due 90 days or more and still accruing, restructured loans and foreclosed assets at September 30, 2020 and 2019, and December 31, 2019, respectively.

loans at September 30, 2020 and 2019, and December 31, 2019, consisted of the following by class of financing receivables (in thousands):

September 30,

No significant additional funds are committed to be advanced in connection with impaired loans as of September 30, 2020.

The Company’s impaired loans and related allowance are summarized in the following tables by class of financing receivables (in thousands).

No interest income was recognized on impaired loans subsequent to their classification as impaired.

June 30, 2020

September 30, 2020

Includes $ 5,978,000 of purchased credit impaired loans.

June 30, 2019

September 30, 2019

Includes $ 342,000 of purchased credit impaired loans.

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The Company recognized interest income on impaired loans prior to being recognized as impaired of approximately $ 750,000 during the year ended December 31,

Such amounts for the three-month and six-month

periods ended June 30, 2020 and 2019 were not significant.

From a credit risk standpoint, the Company rates its loans in one of f ive

Such amounts for the three-month and nine-month periods ended September 30, 2020 and 2019 were not significant.

From a credit risk standpoint, the Company rates its loans in one of five categories:

(i) pass, (ii) special mention, (iii) substandard, (iv) doubtful or (v) loss (which are charged-off).

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by class of financing receivables and portfolio segments, which are the same (in thousands):

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

December 31, 2019

The Company’s past due loans are as follows (in thousands):

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Agricultura l

Table of Content s

December 31, 2019

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The following table details the allowance for loan losses by portfolio segment (in thousands).

There were no allowances for purchased credit impaired loans at June 30, 2020 and 2019, and December 31, 2019.

There were no allowances for purchased credit impaired loans at September 30, 2020 and 2019, and December 31, 2019.

Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

June 30, 2020

September 30, 2020

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

June 30, 2019

September 30, 2019

Loans individually evaluated for impairment

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Changes in the allowance for loan losses are summarized as follows by portfolio segment (in thousands):

Three months ended June 30, 2020

September 30, 2020

Beginning balance

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Ending balance

Three months ended June 30, 2019

September 30, 2019

Beginning balance

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Ending balance

Six months ended June 30, 2020

September 30, 2020

Beginning balance

1 unchanged sentence

Ending balance

Six months ended June 30, 2019

September 30, 2019

Beginning balance

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Ending balance

, the Company records a reserve for unfunded commitments in other liabilities which totaled $ 2,300,000 at September 30, 2020 and $ 800,000 at September 30, 2019 and December 31, 2019.

The increase is the result of a $ 1,500,000 provision for unfunded commitments during the three-months ended September 30, 2020.

The provision for loan losses above is combined with the provision for unfunded commitments and reported as provision for credit losses in the statement of earnings.

The Company’s recorded investment in loans related to the balance in the allowance for loan losses on the basis of the Company’s impairment methodology is as follows (in thousands).

Purchased credit impaired loans of $ 7,275,000 , $ 464,000 and $ 251,000 at June 30, 2020 and 2019, and December 31, 2019, respectively, are included in loans individually evaluated for impairment.

June 30, 2020

Purchased credit impaired loans of $ 5,978,000 , $ 342,000 and $ 251,000 at September 30, 2020 and 2019, and December 31, 2019, respectively, are included in loans individually evaluated for impairment .

September 30, 2020

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

June 30, 2019

September 30, 2019

Loans individually evaluated for impairment

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The Company’s loans that were modified and considered troubled debt restructurings are as follows (in thousands):

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Months Ended September 30, 2020

Months Ended September 30, 2019

The balances below provide information as to how the loans were modified as troubled debt restructured loans (in thousands):

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

Months Ended September 30, 2020

Months Ended September 30, 2019

During the three

months ended June 30, 2020 and 2019, no loans were modified as a troubled debt restructured loan within the previous 12 months and for which there was a payment default.

During the six -

months ended June 30, 2020 and 2019, no loans were modified as a troubled debt

loan within the previous 12 months and for which there was a payment default.

months ended September 30, 2020, no loans were modified as a troubled debt restructured loan within the previous 12 months and for which there was a payment default.

During the three and nine-months ended September 30, 2019, two loans totaling $ 28,000 were modified as a troubled debt restructured loan within the previous 12 months and for which there was a payment default.

A default for purposes of this disclosure is a troubled debt restructured loan in which the borrower is 90 days past due or more or results in the foreclosure and repossession of the applicable collateral.

As of June 30, 2020, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings.

As of September 30, 2020, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings.

As discussed in note 1 to these financial statements, the CARES Act provided banks an option to elect to not account for certain loan modifications related to COVID-19

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modifications.

Beginning in mid-March of 2020, the Company began offering deferral and modification of principle and/or interest payments to selected borrowers on a case-by-case basis.

At June 30, 2020, the Company had approximately 2, 2

00 loans totaling $ 468,539,000 million in outstanding loans subject to deferral and modification agreements, representing 10.30 % of outstanding loans held for investment, excluding PPP loans.

At June 30, 2020, $ 3,134,584,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit.

At June 30, 2020, there was no balance outstanding under this line of credit.

Beginning in mid-March

of 2020, the Company began offering deferral and modification of principle and/or interest payments, for

periods but typically no more than 90 days,

to selected borrowers on a case-by-case

At September 30, 2020, the Company had approximately 122 loans

totaling $ 18,650,000 in outstanding loans subject to deferral and modification agreements, representing 0.41 % of outstanding loans held-for-investment,

excluding PPP loans.

Note 4 - Loans Held-for-Sale

Loans held for sale totaled $ 66,370 ,000, $ 22,305 ,000 and $ 28,228 ,000 at June 30, 2020 and 2019, and December 31, 2019, respectively.

At June 30, 2020 and 2019, and December 31, 2019, $ 3,077,000 , $ 3,324,000 and $ 5,152,000 are valued at the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

The change to the fair value option for loans held for sale was effective at June 30, 2018 and was done in conjunction with the Company’s move to mandatory delivery in the secondary market and the purchase of forward mortgage-backed securities to manage the changes in fair value (see note 5 for additional information).

Loans held-for-sale

totaled $ 101,055 ,000, $ 40,499 ,000 and $ 28,228 ,000 at September 30, 2020 and 2019, and December 31, 2019, respectively.

At September 30, 2020 and 2019, and December 31, 2019, $ 6,389,000 , $ 764,000 and $ 5,152,000 are valued at the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

The change to the fair value option for loans held-for-sale

was effective at June 30, 2018 and was done in conjunction with the Company’s move to mandatory delivery in the secondary market and the purchase of forward mortgage-backed securities to manage the changes in fair value (see note 5 for additional information).

These loans, which are sold on a servicing released basis, are valued using a market approach by utilizing either:

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The Company’s historic losses as a result of these indemnities have been insignificant.

Derivative Financial Instruments

Note 5 - Derivative Financial Instruments

The Company enters into interest rate lock commitments (“IRLCs”) with customers to originate residential mortgage loans at a specific interest rate that are ultimately sold in the secondary market.

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Forward mortgage-backed securities contracts are exchange-traded or traded within highly active dealer markets.

In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract and these instruments are therefore classified as Level 1

in the fair value disclosures (see note 10).

The estimated fair values are subject to change primarily due to changes in interest rates.

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The following table provides the outstanding notional balances and fair values of outstanding derivative positions (dollars in thousands):

June 30, 2020:

September 30, 2020:

Forward mortgage-backed securities trades

June 30, 2019:

September 30, 2019:

Forward mortgage-backed securities trades

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Borrowings consisted of the following (dollars in thousands):

September 30,

Securities sold under agreements with customers to repurchase

Federal funds purchased

Advances from Federal Home Loan Bank of Dallas

Advances from Federal Home Loan

Bank of Dallas

Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which the Company pledges certain securities that have a fair value equal to at least the amount of the borrowings.

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provisions and therefore the Company does not offset such agreements for financial reporting purposes.

Income tax expense was $ 10,663 ,000 for the second quarter of 2020 as compared to $ 8,594 ,000 for the same period in 2019.

The Company’s effective tax rates on pretax income were 16.63 % and 16.96 % for the second quarters of 2020 and 2019, respectively.

Income tax expense was $ 17,898 ,000 for the six months ended June 30, 2020 as compared to $ 15,959 ,000 for the same period in 2019.

The Company’s effective tax rates on pretax income were 16.48 % and 16.57 % for the six months ended June 30,

2020 and 2019, respectively.

Note 7 - Income Taxes

Income tax expense was $ 10,335 ,000 for the third quarter of 2020 as compared to $ 8,867 ,000 for the same period in 2019.

The Company’s effective tax rates on pretax income were 16.35 % and 17.07 % for the third quarters of 2020 and 2019, respectively.

Income tax expense was $ 28,233 ,000 for the

months ended September 30, 2020 as compared to $ 24,827 ,000 for the same period in 2019.

The Company’s effective tax rates on pretax income were 16.43 % and 16.75 % for the nine -

months ended September 30, 2020 and 2019, respectively.

The effective tax rates differ from the statutory federal tax rate of 21 % primarily due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan and excess tax benefits related to our directors’ deferred compensation plan.

Stock Option Plan and Restricted Stock Plan

Note 8 - Stock Option Plan and Restricted Stock Plan

The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees.

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Other stock option disclosures for this grant have not been provided due to insignificance.

The Company recorded stock option expense totaling $ 349,000 and $ 313,000 for the three-month periods ended June 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 689,000 and $ 625,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 344,000 and $ 431,000 for the three-month periods ended September 30, 2020 and 2019, respectively.

The Company recorded stock option expense totaling $ 1,033,000 and $ 1,056,000 for the nine -

months ended September 30, 2020 and 2019, respectively.

The additional disclosure requirements under authoritative accounting guidance have been omitted due to the amounts being insignificant.

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of nine of the existing directors and two new directors, 21,714 restricted shares with a total value of $ 660,000 were granted to these non-employee

directors and was expensed over the period from the grant date to April 28, 2020, the Company’s next annual

directors and was expensed over the period from the grant date to April 28, 2020, the date of the

shareholders’ meeting at which the directors’ term expired.

On January 28, 2020, upon the election of a new director, 434 restricted shares with a total value of $ 15,000 were granted to this non-employee

director and was expensed over the period from the grant date to April 28, 2020, the Company’s next annual

shareholders’ meeting at which the director term expired.

director and was expensed over the period from the grant date to April 28, 2020, the date of the

next annual shareholders’ meeting at which the director term expired.

On April 28, 2020, upon the re-election

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directors and will be expensed over the period from the grant date to April 27, 2021, the Company’s next annual shareholders’ meeting at which the directors’ term expires.

The Company recorded director expense related to these restricted share grants of $ 160,000 and $ 135,000 for the three-month periods ended June 30, 2020 and 2019, respectively.

The Company recorded director expense related to these restricted stock grants of $ 335,000 and $ 270,000 for the six months ended June 30, 2020 and 2019, respectively.

The Company recorded director expense related to these restricted share grants of $ 150,000 and $ 185,000 for the three-month periods ended September 30, 2020 and 2019, respectively.

The Company recorded director expense related to these restricted stock grants of $ 485,000 and $ 455,000 for the nine -

months ended September 30, 2020 and 2019, respectively.

On October 24, 2017, the Company granted 28,382 restricted shares with a total value of $ 655,000 to certain officers that are being expensed over the vesting period of one to three years .

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On January 28, 2020, the Company granted 2,979 restricted shares with a total value of $ 103,000 to certain officers that will be expensed over a three-year vesting period.

On May 18, 2020, the Company granted 7,176 restricted shares with a total value of $ 200,000

to an officer

that will be expensed over a three-year vesting period.

The Company recorded restricted stock expense for officers of $ 322,000 and $ 210,000 for the three-month periods ended June 30, 2020 and 2019, respectively.

The Company recorded restricted stock expense for officers of $ 597,000 and $ 415,000 for the six-month periods ended June 30, 2020 and 2019, respectively.

On May 18, 2020, the Company granted 7,176 restricted shares with a total value of $ 200,000 to an officer that will be expensed over a three-year vesting period.

The Company recorded restricted stock expense for officers of $ 419,000 and $ 248,000 for the three-month periods ended September 30, 2020 and 2019, respectively.

The Company recorded restricted stock expense for officers of $ 1,016,000 and $ 661,000 for the nine-month periods ended September 30, 2020 and 2019, respectively.

Note 9 - Pension Plan

The Company had a defined benefit pension plan that was frozen effective January 1, 2004, whereby no new participants were added to the Plan and no additional years of service accrued to participants.

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At December 31, 2019, all balances in the pension plan were zero and the Company’s obligation has been extinguished.

For the three- and six-month

periods ended June 30, 2019, the Company recorded pension related expense totaling $ 19,000 and $ 942,000 , respectively.

For the three and nine-month periods ended September 30, 2019, the Company recorded pension related expense totaling $ 31,000 and $ 973,000 , respectively.

Note 10 - Fair Value Disclosures

12 unchanged sentences

Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

to unobservable inputs.

The fair value hierarchy is as follows:

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Securities classified as available-for-sale

and trading are reported at fair value utilizing Level 1 and Level 2 inputs.

For these securities, the Company obtains fair value measurements from an independent pricing service.

and trading are reported

at fair value utilizing Level 1 and Level 2 inputs.

securities, the Company obtains fair value measurements from an independent pricing service.

The fair value measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other items.

See notes 4 and 5 related to the determination of fair value for loans held-for-sale,

IRLCs and forward mortgage-backed securities trades.

There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three and six -

months ended June 30, 2020 and 2019, and the year ended December 31, 2019.

See notes 4 and 5 related to the determination of fair value

for loans held-for-sale,

forward mortgage-backed securities trades.

There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three and nine-months ended September 30, 2020 and 2019, and the year ended December 31, 2019.

The following table summarizes the Company’s available-for-sale

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and derivatives which are measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

June 30, 2020

Available-for-sale

investment securities:

Treasury securities

Obligations of states and political subdivisions

4 unchanged sentences

Forward mortgage-backed securities trades

June 30, 2019

Available-for-sale

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Forward mortgage-backed securities trades

December 31, 2019

Available-for-sale

4 unchanged sentences

Residential mortgage-backed securities

Commercial mortgage-backed securities

Commercial mortgage

-backed securities

Other securities

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Forward mortgage-backed securities trades

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following table summarize s

the Company’s loans held-for-sale

at fair value and the net unrealized gains as of the balance sheet dates show n

(in thousands):

September 30,

Unpaid principal balance on loans held-for-sale

Net unrealized gains on loans held-for-sale

Loans held-for-sale

at fair value

The following table summarize the Company’s gains on sale and fees

of mortgage loans for the three and nine -

months ended September 30, 2020 and 2019 (in thousand):

Three-Months ended

September 30,

Nine-Months ended

September 30,

Realized gain on sale

mortgage loans*

Change in fair value on loans held-for-sale

forward mortgage-backed securities trades

Total gain on sale of mortgage loans

This includes gains on loans held-for-sale

carried under the fair value method and lower

No residential mortgage loans held-for-sale

were 90 days or more past due or considered impaired as of September 30, 2020 or 2019, or December 31, 2019.

No significant credit losses were recognized on residential mortgage loans held-for-sale

for the three and

nine month periods ended September 30, 2020 and 2019.

Certain financial assets and financial

liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

Impaired loans are reported at the fair value of the underlying collateral less selling costs if repayment is expected solely from the collateral.

Collateral values are estimated using Level 2 inputs based on observable market data.

At June 30, 2020, impaired loans with a carrying value of $ 17,682,000 were reduced by specific valuation reserves totaling $ 3,046,000 resulting in a net fair value of $ 14,636,000 .

Certain non-financial assets and non-financial liabilities measured at fair value on a non-recurring basis include other real estate owned, goodwill and other intangible assets and other non-financial long-lived assets.

Non-financial assets measured at fair value on a non-recurring basis during the three and six-

months ended June 30

, 2020 and 2019 include other real estate owned which

, subsequent to their initial transfer to other real estate owned from loans, were re-measured

At September 30, 2020, impaired loans with a carrying value of $ 20,583,000 were reduced by specific valuation reserves totaling $ 3,241,000 resulting in a net fair value of $ 17,342,000 .

Certain non-financial

assets and non-financial

liabilities measured at fair value on a non-recurring

basis include other real estate owned, goodwill

and other intangible assets and other non-financial

long-lived assets.

Non-financial

assets measured at fair value on a non-recurring

basis during the three and nine-months ended September 30, 2020 and 2019 include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were re-measured

at fair value through a write-down included in gain (loss) on sale of foreclosed assets.

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There were no other real estate owned properties that were re-measured

subsequent to their initial transfer to other real estate owned during the three- and six-months

ended June 30, 2020 and 2019.

At June 30, 2020 and 2019, and December 31, 2019, other real estate owned totaled $ 202,000 , $ 635,000 and $ 982,000 , respectively.

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above.

subsequent to their initial transfer to other real estate owned during the three and nine-months ended September 30, 2020 and 2019.

At September 30, 2020 and 2019, and December 31, 2019, other real estate owned totaled $ 157,000 , $ 1,329,000 and $ 982,000 , respectively.

The Company is required under current authoritative accounting guidance to disclose the estimated

fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above.

For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments.

Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies.

The estimated fair value amounts of financial instruments have been determined

by the Company using available market information and appropriate valuation methodologies.

However, considerable judgment is required to interpret data to develop the estimates of fair value.

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The estimated fair values and carrying values of all financial instruments under current authoritative guidance were as follows (in thousands).

September 30,

Cash and due from banks

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Interest-bearing demand deposits in banks

Interest-bearing time deposits in banks

Available-for-sale

Levels 1 and 2

Loans held for investment

Loans held for sale

Available-for-sale securities

Loans held-for-investment, net of allowance for loan losses

Accrued interest receivable

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made a $ 1,920,000 special dividend to its shareholders prior to closing of the transaction.

At closing, a wholly -

owned subsidiary of the Company merged into TB&T Bancshares, Inc.

At closing, a wholly-owned subsidiary of the Company merged into TB&T Bancshares, Inc.

and immediately thereafter TB&T Bancshares, Inc.

was merged into the Company and The Bank & Trust of Bryan/College Station, Texas, was merged into First Financial Bank, National Association, Abilene, Texas, a wholly-owned subsidiary of the Company.

was merged into the Company and The Bank & Trust of Bryan/College Station, Texas, was merged into First Financial Bank, N.A., a wholly-owned subsidiary of the Company.

The primary purpose of the acquisition was to expand the Company’s market share near the Houston market.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements