What changed in this filing

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Item 1. Business

2021-02-22 compared with 2020-02-14 · 191 added, 97 removed, 364 unchanged (44% of the section changed)

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We were formed as a bank holding company in 1956 under the original name F & M Operating Company, but our banking operations date back to 1890, when Farmers and Merchants National Bank opened for business in Abilene, Texas.

On January 1, 2020, we acquired TB&T Bancshares, Inc.

and its wholly owned subsidiary, The Bank & Trust of Bryan/College Station, Texas and merged these entities with and into the Company and our subsidiary bank, respectively.

As of December 31, 2019, our subsidiaries were:

First Financial Bank, National Association, Abilene, Texas;

First Technology Services, Inc., Abilene, Texas, a wholly owned subsidiary of First Financial Bank, National Association, Abilene, Texas;

First Financial Trust & Asset Management Company, National Association, Abilene, Texas;

As of December 31, 2020, our wholly-owned subsidiaries were:

First Financial Bank, N.A., Abilene, Texas;

First Technology Services, Inc., Abilene, Texas, a wholly-owned subsidiary of First Financial Bank, N.A., Abilene, Texas;

First Financial Trust & Asset Management Company, N.A., Abilene, Texas;

First Financial Insurance Agency, Inc., Abilene, Texas;

First Financial Investments, Inc., Abilene, Texas.

On January 1, 2020, we acquired TB&T Bancshares, Inc.

and its wholly-owned subsidiary, The Bank & Trust of Bryan/College Station, Texas and merged these entities with and into the Company and our subsidiary bank, respectively.

Through our subsidiaries, we conduct a full-service commercial banking business.

Our banking centers are located primarily in Central, North Central, Southeast and West Texas.

As of January 1, 2020, we had 78 financial centers across Texas, with eleven locations in Abilene, three locations in Bryan and Weatherford, two locations in Cleburne, College Station, Conroe, San Angelo, Stephenville, and Granbury, and one location each in Acton, Albany, Aledo, Alvarado, Beaumont, Boyd, Bridgeport, Brock, Burleson, Cisco, Clyde, Cut and Shoot, Decatur, Eastland, El Campo, Fort Worth, Fulshear, Glen Rose, Grapevine, Hereford, Huntsville, Keller, Kingwood, Magnolia, Mauriceville, Merkel, Midlothian, Mineral Wells, Montgomery, Moran, New Waverly, Newton, Odessa, Orange, Palacios, Port Arthur, Ranger, Rising Star, Roby, Southlake, Spring, Sweetwater, Tomball, Trent, Trophy Club, Vidor, Waxahachie, Willis and Willow Park, all in Texas.

As of December 31, 2020, we had 78 financial centers across Texas, with eleven locations in Abilene, three locations in Bryan and Weatherford, two locations in Cleburne, College Station, Conroe, San Angelo, Stephenville, and Granbury, and one location each in Acton, Albany, Aledo, Alvarado, Beaumont, Boyd, Bridgeport, Brock, Burleson, Cisco, Clyde, Cut and Shoot, Decatur, Eastland, El Campo, Fort Worth, Fulshear, Glen Rose, Grapevine, Hereford, Huntsville, Keller, Kingwood, Magnolia, Mauriceville, Merkel, Midlothian, Mineral Wells, Montgomery, Moran, New Waverly, Newton, Odessa, Orange, Palacios, Port Arthur, Ranger, Rising Star, Roby, Southlake, Spring, Sweetwater, Tomball, Trent, Trophy Club, Vidor, Waxahachie, Willis and Willow Park.

Even though we operate in a growing number of Texas markets, we continue to believe that decisions are best made at the local level.

Although we consolidated our bank charters into one charter in 2012, we continue to regionally manage our operations with local advisory boards of directors, local bank region presidents and local decision-makers.

We have consolidated substantially all of the backroom operations, such as investment securities, accounting, check processing, technology and employee benefits, which improved our efficiency and freed management of our bank regions to concentrate on serving the banking needs of their local communities.

In the past, we have chosen to keep our Company focused on the State of Texas, one of the nation’s largest, fastest-growing and most economically diverse states.

With approximately 29.0 million residents, Texas has more people than any other state except California.

Although we consolidated our bank charters into one charter in 2012, we continue to regionally manage our operations with local advisory boards of directors, local regional presidents and local decision-making processes.

We have consolidated substantially all of the backroom operations, such as investment securities, accounting, check processing, credit administration, risk management, marketing, call center, technology and human resources, which improved our efficiency and freed management of our bank regions to concentrate on serving the banking needs of their local communities.

We have chosen to keep our Company focused on the State of Texas, one of the nation’s largest, fastest-growing and most economically diverse states.

With approximately 29.0 million residents as of December 31, 2019, Texas has more people than any other state except California.

The population of Texas grew 17.1% from 2009-2019 according to the U.S.

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Many of the communities in which we operate are also experiencing positive growth as shown below:

Population Growth 2008-2018*

Population Growth 2009-2019 by City and County*

Bridgeport and Wise County

Fort Worth and Tarrant County

Bryan/College Station and Brazos County

Cleburne and Johnson County

Granbury and Hood County

Weatherford, Willow Park, Aledo and Parker County

Stephenville and Erath County

Conroe and Montgomery County

Bryan/College Station

Census Bureau

These economies include dynamic centers of higher education, agriculture, wind energy and natural resources, retail, military, healthcare, tourism, retirement living, manufacturing and distribution.

Fort Worth and Tarrant County

Granbury and Hood County

Stephenville and Erath County

Weatherford, Willow Park, Aledo and Parker County

These economies include dynamic centers of higher education, agriculture, wind energy and natural resources, retail, military, technology, healthcare, tourism, retirement living, manufacturing and distribution.

We believe our community approach to doing business works best for us in small and mid-size

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by growing organically, by opening new branch locations and by acquiring other banks.

Since 1997, we have completed thirteen bank acquisitions and have increased our total assets from $1.57 billion to $8.26 billion as of December 31, 2019.

Since 1997, we have completed fourteen bank acquisitions and have increased our total assets from $1.57 billion to $10.90 billion as of December 31, 2020.

We also have a trust and asset management company and a technology services company.

First Financial Trust and Asset Management Company, National Association operates as a subsidiary of First Financial Bankshares, Inc.

First Financial Trust & Asset Management Company, N.A.

operates as a subsidiary of First Financial Bankshares, Inc.

and First Technology Services, Inc.

operates as a subsidiary of First Financial Bank, National Association, Abilene, Texas.

operates as a subsidiary of First Financial Bank, N.A.

Looking ahead, we intend to continue to grow organically by better serving the needs of our customers and putting them first in all of our decisions.

We continually look for new branch locations, such as our newest branch in Spring, Texas which opened in January 2019, so we can provide more convenient service to our customers.

We continually look for new branch locations, such as our latest branch opened in Spring, Texas which opened in January 2019, so we can provide more convenient service to our customers.

We are actively pursuing acquisition opportunities by calling on banks that we are interested in possibly acquiring.

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Banks between $500 million and $1.0 billion in asset size fit our “sweet spot” for acquisition, but we would consider banks that are larger or smaller, or that are in other areas of Texas if we believe they would be a good fit for our Company.

Information on our revenues, profits and losses and total assets appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 hereof.

Information on our financial condition and operating results appears in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 hereof.

First Financial Bankshares, Inc.

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asset and liability management;

budgeting and forecasting;

capital expenditures;

risk management;

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regulatory compliance;

internal audit.

In particular, we assist our subsidiaries with, among other things, decisions concerning major capital expenditures, employee fringe benefits, including retirement plans and group medical coverage, dividend policies, and appointment of officers and directors, including advisory directors, and their compensation.

internal and external audit.

In particular, we assist our subsidiaries with, among other things, decisions concerning major capital expenditures, employee benefits, including retirement plans and group medical coverage, dividend policies, and appointment of officers and directors, including advisory directors, and their compensation.

We also perform, through corporate staff groups or by outsourcing to third parties, internal audits, compliance oversight and loan reviews of our subsidiaries.

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We evaluate various potential financial institution acquisition opportunities and approve potential locations for new branch offices.

We anticipate that funding for any acquisitions or expansions would be provided from our existing cash balances, available dividends from our subsidiaries, utilization of available lines of credit and future debt or equity offerings.

Services Offered by Our Subsidiaries

Our subsidiary bank, First Financial Bank, National Association, Abilene, Texas is a separate legal entity that operates under the day-to-day

Our subsidiary bank, First Financial Bank, N.A.

is a separate legal entity that operates under the day-to-day

management of its board of directors and officers.

Our multiple banking regions, which operate under our subsidiary bank, each have separate advisory boards that make recommendations and provide assistance to regional management of the bank regarding the operations of their respective region.

our bank regions provides general commercial banking services, which include accepting and holding checking, savings and time deposits, making loans, automated teller machines, drive-in

Our multiple banking regions, which operate under our subsidiary bank, each have separate regional advisory boards that make recommendations and provide assistance to regional management of the bank regarding the operations of their respective region.

Each of our bank regions provides general commercial banking services, which include accepting and holding checking, savings and time deposits, making loans, offering automated teller machines (“ATMs”), drive-in

and night deposit services, safe deposit facilities, remote deposit capture, internet banking, mobile banking, payroll cards, transmitting funds, and performing other customary commercial banking services.

We also conduct full-service trust and wealth management activities through First Financial Trust & Asset Management Company, National Association, our trust company.

Our trust company has nine locations which are located in Abilene, Fort Worth, Houston, Odessa, Beaumont, San Angelo, San Antonio, Stephenville and Sweetwater, all in Texas.

We also provide full-service trust and wealth management activities through First Financial Trust & Asset Management Company, N.A., our trust company.

Our trust company has ten locations which are located in Abilene, Bryan/College Station, Fort Worth, Houston, Odessa, Beaumont, San Angelo, San Antonio, Stephenville and Sweetwater, all in Texas.

Through our trust company, we offer personal trust services, which include wealth management, the administration of estates, testamentary trusts, revocable and irrevocable trusts and agency accounts.

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The Company has been providing trust services since 1927.

In addition, we provide securities brokerage services through arrangements with an unrelated third party in our Abilene, San Angelo and Weatherford banking regions.

Commercial banking in Texas is highly competitive, and because we hold less than 1% of the state’s deposits, we represent only a minor segment of the industry.

In addition, we provide securities brokerage services through an arrangement with an unrelated third-party in our Abilene and San Angelo regions.

Commercial banking in Texas is highly competitive, and because we hold less than 1% of the state’s deposits, we represent a smaller segment of the market share in Texas.

To succeed in this industry, we believe that we must have the capability to compete effectively in the areas of (1) interest rates paid or charged;

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and (3) prices charged for such services;

as well as personalized customer service.

Our bank regions compete in their respective service areas against highly competitive banks, thrifts, savings and loan associations, small loan companies, credit unions, mortgage companies, insurance companies, and brokerage firms, all of which are engaged in providing financial products and services and some of which are larger than us in terms of capital, resources and personnel.

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Although we have a broad base of customers that are not related to us, our customers also occasionally include our officers and directors, as well as other entities with which we are affiliated.

Through our bank regions we may make loans to our officers and directors, and entities with which we are affiliated, in the ordinary course of business.

Through our bank regions we may make loans to our officers and directors, and entities with which we

are affiliated, in the ordinary course of business.

We make these loans on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons.

Loans to our directors, officers and their affiliates are also subject to numerous restrictions under federal and state banking laws, which we describe in greater detail below, under the heading “Supervision and Regulation – Loans to Directors, Executive Officers and Principal Shareholders.”

Including all of our subsidiaries, we employed 1,345 full-time equivalent employees at December 31, 2019.

Overview of the Impact from the COVID Pandemic

During March 2020, the outbreak of the novel Coronavirus Disease 2019 was recognized as a pandemic by the World Health Organization and a national emergency by the President of the United States.

The spread of COVID has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally, including the markets that we serve across the State of Texas.

National, state and local governmental responses to the pandemic have included orders to close or limit businesses activity not deemed essential and directing individuals to limit their movements and travel, observe social distancing, and shelter in place.

These actions, together with responses to the pandemic by businesses and individuals, have resulted in overall temporary decreases in commercial and consumer activity.

These responses and restrictions have led to a loss of revenues for certain industries and a sudden increase in unemployment, volatility in oil and gas prices and in business valuations, market downturns and volatility, changes in consumer behaviors, related emergency response legislation and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.

Effective March 16, 2020, in an emergency response to stem the economic impact of COVID, the Federal Reserve lowered the federal funds target rate to a range of between zero to 0.25%.

This action followed a prior reduction of the federal funds target rate to a range of 1.0% to 1.25% effective on March 4, 2020.

Our earnings and related cash flows are largely dependent upon our net interest income representing the difference between interest income received on interest-earning assets, primarily loans and investment securities, and the interest expense paid on interest-bearing liabilities, primarily customer deposits and borrowed funds.

As our balance sheet is more asset sensitive, our earnings are more adversely affected by decreases in market interest rates as the interest rates received on loans and other investments fall more quickly and to a larger degree than the interest rates paid on deposits and other borrowings.

The decline in interest rates has already led to low yields across all maturity periods.

The Federal Reserve has indicated that it expects to maintain the targeted federal funds rate at current levels until such time that labor market conditions have reached levels consistent with the Federal Open Market Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

However, should the Federal Reserve decrease the targeted federal funds rates even further in response to the economic effects of COVID, overall interest rates will decline further, which will likely negatively impact our net interest income and further compress our net interest margin.

Other actions taken by the Federal Reserve to provide monetary stimulus to counteract the economic disruption caused by COVID include:

Expanded reverse repo operations, adding liquidity to the banking system.

Restarted quantitative easing.

Lowered the interest rate on the discount window by 150 basis points to 25 basis points.

Reduced reserve requirement ratios to zero percent.

Encouraged banks to use their capital and liquidity buffers to lend.

Participated in the Main Street Loan Program.

Introduced and expanded several new programs that will operate on a temporary basis to help preserve market liquidity.

Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and the decline in the value of assets held by us.

While its effects continue to materialize, the COVID pandemic has resulted in a decrease in commercial activity throughout the State of Texas as well as nationally.

This decrease in commercial activity has caused and may continue to cause our customers (including affected businesses and individuals), vendors and counterparties to be unable to meet existing payment or other obligations to us.

The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements has impacted the creditworthiness of potential and current borrowers.

Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions (such as the unemployment rate), which, in turn, are likely to impact our borrowers’ creditworthiness.

See further information related to the risk exposure of our loan portfolio, including industries impacted by COVID and existence of loan deferral programs to assist our borrowers under the sections captioned “Loans” and “Allowance for Credit Losses” included in Note 3.

Although financial markets have rebounded from significant declines, many of the effects which emerged after the onset of the COVID pandemic have persisted through the end of the year.

These changes have had and are likely to continue to impact our markets and the resulting demand for our products and services.

See “Risk Factors-Other Risks” beginning on page 22.

government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by COVID.

The initial legislation, the Coronavirus Preparedness and Response Supplemental Appropriations Act, was enacted on March 6, 2020 and, among other things, authorized funding for research and development of vaccines and allocated money to state and local governments to aid containment and response measures.

The next phase of legislation, the Families First Coronavirus Response Act, was enacted on March 18, 2020 and provides for paid sick/medical leave, establishes no-cost

coverage for coronavirus testing, expands unemployment benefits, expands food assistance, and provides additional funding to states for the ongoing economic consequences of the pandemic, among other provisions.

The following phase of legislation, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), was enacted on March 27, 2020.

Among other provisions, the CARES Act (i) authorized the Secretary of the Treasury to make loans, loan guarantees and other investments, up to $500 billion, for assistance to eligible businesses, states and municipalities with limited, targeted relief for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, (ii) created a $349 billion loan program called the Paycheck Protection Program (the “PPP”) for loans to small businesses guaranteed by the Small Business Administration (“SBA”) for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments, (iii) provided certain credits against the 2020 personal income tax for eligible individuals and their dependents, (iv) expanded eligibility for unemployment insurance and provided eligible recipients with an additional $600 per week on top of the unemployment amount determined by each State and (v) expanded tele-health services in Medicare.

This legislation was amended by the Paycheck Protection Program and Healthcare Enhancement Act of 2020 (the “PPPHE Act”), which was enacted on April 24, 2020.

Among other things, the PPPHE Act provided an additional $310 billion of funding for the PPP of which, $30 billion is specifically allocated for use by banks and other insured depository institutions that have assets between $10 billion and $50 billion.

On July 4, 2020, Congress enacted a new law that extended the deadline for applying for a PPP loan to August 8, 2020.

In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, was enacted to provide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID pandemic.

Among other things, the legislation includes (i) payments of $600 for individuals making up to $75,000 per year, (ii) extension of the Federal Pandemic Unemployment Compensation program to include a $300 weekly enhancement in unemployment benefits beginning after December 26, 2020 up to March 14, 2021, (iii) a temporary and targeted rental assistance program, and extends the eviction moratorium through January 31, 2021, (iv) targeted funding related to transportation, education, agriculture, nutrition and other public health measures and (v) approximately $325 billion for small business relief, including approximately $284 billion for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less.

We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S.

The Federal Reserve created various additional lending facilities and expanded existing facilities to help provide financing in response to the financial disruptions caused by COVID.

The programs include,

among others, the Paycheck Protection Program Liquidity Facility (the “PPP Facility”), which is intended to extend loans to banks making PPP loans.

The Federal Reserve announced extensions through March 31, 2021 for several of its lending facilities, including the PPP Facility, that were generally scheduled to expire on or around December 31, 2020.

Through December 31, 2020, we had funded approximately 6,500 PPP loans totaling $703.73 million.

At December 31, 2020, the Company’s PPP loans have an outstanding balance of $483.66 million following repayments and forgiveness by the SBA.

We did not participate in the PPP Facility program during 2020.

Currently, the Company is assisting borrowers in the round 2 of the PPP under the December 2020 Relief Deal.

Among other things, our Company has taken significant actions to address the impact of COVID on our employees and customers with the stated goal of protecting all parties during the pandemic:

Established daily, at first, then weekly meetings of our management team to monitor and address COVID developments on our business and the impact to our customers and associates.

Implemented an internal communications plan to ensure our employees, customers and critical vendors are kept abreast of developments affecting our operations.

Restricted all non-essential

travel and large external gatherings and instituted mandatory quarantine period for anyone that has known exposure to COVID.

We kept our branch locations open following the onset of COVID, except where the employees of the branch had direct COVID exposure.

Each branch was deep cleaned daily and following potential exposure at a branch, the facility was sprayed to disinfect for the virus.

Expanded remote-access availability so that nearly all our workforce has the capability to work from home or other remote locations, if needed.

All remotes access was provided in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded.

Much of our remote workforce has returned to the office.

Instituted mandatory social distancing policies for those employees not working remotely.

Members of certain operations teams were split into separate buildings or locations to create redundancy for key functions across the organization.

The Company provided testing, free of charge, to all employees and we required testing of any employees with direct COVID exposure.

Employees exposed were placed on quarantine based on the applicable CDC Guidelines.

We required employees and customers to wear masks, prior to the state mandates and publicly assisted in communicating that message to the public to increase awareness of the benefits of wearing masks.

We provided a vitamin and supplement package for employees to help build their immune systems as well as recover from the virus.

We are encouraging our employees to take the COVID vaccinations when available.

We also implemented a short-term loan modification process in late March 2020 to provide temporary payment relief to borrowers who meet certain qualifications.

This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative basis.

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on the impact of the COVID pandemic to our financial statements and results of operations, as well as our business operations.

Notwithstanding the foregoing actions, the COVID outbreak could still, among other things, greatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel, further limit access to or result in further closures of our branch facilities and other physical offices, exacerbate operational, technical or security-related risks arising from a remote workforce, and result in adverse government or regulatory agency orders.

The business and operations of our third-party service providers, many of whom perform critical services for our business, could also be significantly impacted, which in turn could impact us.

As a result, we are currently unable to fully assess or predict the extent of the effects of COVID on our operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.

Human Capital

We operate as a community bank offering a wide range of commercial banking services to consumers, small businesses, corporations, non-profits,

governmental entities and others.

A cornerstone of our operating model is based on personal relationships with our customers.

Therefore, our model is heavily dependent on our personnel to execute our strategy within each region supported by our line of business and operational areas of the Company.

Our executive leadership is critical to the success of our Company as each executive participates in developing our corporate strategy, policy setting, and oversight of each of their respective operating areas.

The executive officers have significant banking experience and/or tenure with the Company, including our Chairman, CEO and President who will have forty-five years with the Company later this year.

Our regional operating philosophy is heavily dependent on our Regional CEOs/Presidents who drive the daily execution of our strategy, customer service, and local decision-making, across our twelve regions.

On average, our seventeen Regional CEOs/Presidents have approximately twenty-five years of banking experience and twelve years of service with the Company.

At December 31, 2020, the Company employed approximately 1,400 full-time and 100 part-time employees all located in the state of Texas.

Our management believes that our employee relations have been and will continue to be good.

None of our employees are represented by collective bargaining agreements.

We seek to attract the best bankers in the markets we serve as well as key managers and associates to serve and build relationships with our customers.

On a day-to-day

basis, these associates execute on our “Excellence in Customer Service” culture, including our 21 Non-Negotiables

of Customer Service.

Initially, each new associate attends New Employee Orientation to gain an understanding of our culture, including our customer service approach, our organization, and our operating and other policies.

From there, associates also receive specific training for their applicable area of service.

We then provide a number of internally developed training programs and encourage associates to attend selected external programs.

We require certain areas (lending, trust, risk, operations) to obtain certifications for their current and future roles in the organization (for example, lenders are required to obtain the Credit Risk Certification from the Risk Management Association).

The Company also provides educational assistance for employees to further their professional development.

In fact, seven of our Regional CEO/Presidents started their careers with the Company and progressed to their current levels over time.

We embrace and promote a culture of diversity, equity, and inclusion to attract, recruit, retain, develop, and promote employees who represent the diverse communities we serve.

Our employees bring their own unique backgrounds, beliefs, cultures, and experiences to our organization.

We celebrate our diverse and inclusive workplace as it brings new ideas, perspectives, and ways to enhance our overall customer and employee experience.

Of our seventeen Regional CEO/Presidents, four are women (three of whom were promoted to these positions during their last eighteen months) and one is Hispanic.

The Company provides, in addition to competitive salaries, either at the Company’s expense or through employee deductions, benefits to its associates to help protect their health and well-being, including medical, dental, vision, employee assistance, short and long-term disability, life insurance, and vacation.

Additionally, through our 401(k) retirement benefits, and profit-sharing contributions (which also contains an employee stock ownership plan or ESOP feature), the Company facilitates its associate’s future financial well-being.

These benefits when combined with incentive compensation programs, both cash and equity based, serve as rewards for performance but also as retention vehicles for our employee base.

The Company has strong relationships with its employee base leading to an average tenure of approximately six years with the Company (including its predecessor banks).

During 2020 and 2019, the Company incurred expenses totaling approximately $27.20 million and $22.38 million, respectively, for these benefits.

Understanding and supporting our communities has been a critical part of our Company’s success.

Annually, we perform a Company-wide day of service to help improve the communities we live in and serve.

In 2020, this amounted to over approximately 5,000 hours of community service across our footprint.

Overall, the attraction, development and retention of our executives, regional presidents and associates are integral to the performance of our Company which ultimately drives value to our shareholders in the form of dividends and price appreciation of our common stock.

Accordingly, our Board of Directors participates in the oversight of our employment practices and policies, through the Compensation Committee.

Our board sets the overall “tone at the top” and holds executive management accountable for embodying, maintaining and communicating our culture to employees.

Supervision and Regulation

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Bank holding companies were generally prohibited from acquiring control of any company that was not a bank and from engaging in any business other than the business of banking or managing and controlling banks.

The Gramm-Leach-Bliley Act, which took effect on March 12, 2000, dismantled

many Depression-era

The Gramm-Leach-Bliley Act, which took effect on March 12, 2000, dismantled many Depression-era

restrictions against affiliations between banking, securities and insurance firms by permitting bank holding companies to engage in a broader range of financial activities, so long as certain safeguards are observed.

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Specifically, the Federal Reserve Board would consider, among other factors, the expected benefits to the public (greater convenience, increased competition, greater efficiency, etc.) against the risks of possible adverse effects (undue concentration of resources, decreased or unfair competition, conflicts of interest, unsound banking practices, etc.).

Under the BHCA, the Company must obtain the prior approval of the Federal Reserve Board, or acting under delegated authority, the Federal Reserve Bank of Dallas before (1) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the Company would directly or indirectly own or control 5% or more of the class;

(2) acquiring all or substantially all of the assets of another bank or bank holding company;

or (3) merging or consolidating with another bank holding company.

The Change in Bank Control Act of 1978, as amended, or the CIBCA, and the related regulations of the Federal Reserve Board require any person or groups of persons acting in concert (except for companies required to make application under the BHCA), to file a written notice with the Federal Reserve Board before the person or group acquires control of the Company.

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As a result, the OCC now supervises, regulates and regularly examines the following subsidiaries:

First Financial Bank, National Association, Abilene, Texas;

First Financial Trust & Asset Management Company, National Association;

First Financial Bank, N.A.;

First Financial Trust & Asset Management Company, N.A.;

First Technology Services, Inc.

(a wholly owned subsidiary of First Financial Bank, National Association)

(a wholly-owned subsidiary of First Financial Bank, N.A.)

The OCC’s supervision and regulation of banks is primarily intended to protect the interests of depositors.

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An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to bank regulators.

Through December 31, 2019, the assessment rate for our subsidiary bank was at the lowest risk-based premium available, which was 3.00% of the assessment base per annum.

In addition, the FDIC can impose special assessments to cover shortages in the DIF and has imposed special assessments in the past.

In October 2010, the FDIC adopted a new Restoration Plan for the DIF to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the Dodd-Frank Act.

In October 2010, the FDIC adopted a new Restoration Plan for the DIF to ensure that the fund reserve ratio reached 1.35% by September 30, 2020, as required by the Dodd-Frank Act.

On April 26, 2016, the FDIC adopted a rule amending pricing for deposit insurance for institutions with less than $10 billion in assets effective the quarter after the fund reserve ratio reached 1.15%.

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The Dodd-Frank Act also eliminated the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds.

The Dodd-Frank Act required the FDIC to offset the effect of increasing the reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion, such as the our subsidiary bank.

The Dodd-Frank Act required the FDIC to offset the effect of increasing the reserve ratio on insured depository institutions with total consolidated assets of less than $10 billion.

In September 2018, the reserve ratio reached 1.36% at which time banks with assets of less than $10 billion were awarded assessment credits for their portion of their assessments that contributed to the growth in the reserve ratio from 1.15% to 1.35%.

When the reserve ratio reached 1.40% in June 2019, the FDIC applied these credits to the September 30, 2019 assessment invoice and then again to the December 31, 2019 assessment invoice.

Our subsidiary’s bank’s assessment credit totaled $1.84 million of which $522 thousand and $525 thousand, respectively, were used to zero out the September 30, 2019 and December 31, 2019 assessment invoices.

As of December 31, 2019, $791 thousand remains in available credits, which our subsidiary bank expects to be applied to the March 31, 2020 and June 30, 2020 assessment invoices.

As required by the Dodd-Frank Act, the FDIC also revised the deposit insurance assessment system, effective April 1, 2011, to base assessments on the average total consolidated assets of insured depository institutions during the assessment period, less the average tangible equity of the institution during the assessment period, as opposed to solely bank deposits at an institution.

When the reserve ratio reached 1.40% in June 2019, the FDIC applied these credits to the September 30, 2019, December 31, 2019, March 31, 2020 and June 30, 2020 assessment invoices.

Our subsidiary bank’s assessment credit totaled $1.85 million of which $522 thousand, $525 thousand, $541 thousand and $264 thousand, respectively, were used to fully offset the September 30, 2019, December 31, 2019 and March 31, 2020 assessment invoices while the June 30, 2020 assessment invoice was significantly reduced by the remaining credits.

As a result of our subsidiary bank exceeding $10 billion in assets as of December 31, 2020, our subsidiary bank is no longer eligible to utilize credits to offset its FDIC assessment.

This base assessment change necessitated that the FDIC adjust the assessment rates to ensure that the revenue collected under the new assessment system will approximately equal that under the existing assessment system.

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Our subsidiaries paid aggregate dividends to us of $87.50 million in 2020 and $84.50 million in 2019.

Under the dividend restrictions discussed above, as of December 31, 2019, our subsidiaries could have declared in the aggregate additional dividends of approximately $261.42 million from retained net profits, without obtaining regulatory approvals.

Under the dividend restrictions discussed above, as of December 31, 2020, our subsidiaries could have declared in the aggregate additional dividends of $289.68 million from retained net profits, without obtaining regulatory approvals.

Federal Income Tax

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The provisional amount recorded related to the re-measurement

of the Company’s deferred tax balance was $7.65 million, a reduction of income tax expense for the year ended December 31, 2017.

At December 31, 2018, final regulations for the Tax Cuts and Jobs Act were still pending;

however, the Company updated its estimate of the impact to our deferred tax balances based on the proposed regulations issued to date and recorded an additional reduction of income tax expense for the year ended December 31, 2018 of $664 thousand.

No additional adjustment amounts were recorded for the year ended December 31, 2019, and the Company does not anticipate significant revision will be necessary.

of the Company’s deferred tax liability balance was $7.65 million, a reduction of income tax expense for the year ended December 31, 2017.

The Company subsequently updated its estimate of the impact to our deferred tax balances based on the proposed regulations issued to date and recorded an additional reduction of income tax expense for the year ended December 31, 2018 of $664 thousand.

No additional adjustment amounts were recorded for the years ended December 31, 2019 and 2020.

Affiliate Transactions

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affiliates, on the other hand.

The Dodd-Frank Act expanded the definition of affiliate to make any investment fund, including a mutual fund, for which a depository institution or its affiliates serve as investment advisor an affiliate of the depository institution.

The Dodd-Frank Act expanded the definition of affiliate to make any investment fund, including a mutual fund, for which a depository institution or its affiliates serve as an investment advisor an affiliate of the depository institution.

“Covered transactions” include a loan or extension of credit to a non-depository

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The “covered transactions” that an insured depository institution and its subsidiaries are permitted to engage in with their non-depository

affiliates are limited to the following amounts:

affiliates are limited to the following

(1) in the case of any one such affiliate, the aggregate amount of “covered transactions” cannot exceed ten percent of the capital stock and the surplus of the insured depository institution;

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The Basel III Rules established three components of regulatory capital:

(1) common equity tier 1 capital (“CET1”), (2) additional tier 1 capital, and (3) tier 2 capital.

(1) common equity tier 1 capital (“CET1”), (2) additional tier 1 capital, and (3) total capital.

Tier 1 capital is the sum of CET1 and additional tier 1 capital instruments meeting certain revised requirements.

Total capital is the sum of tier 1 capital and tier 2 capital.

Total capital is the sum of tier 1 capital and tier 2 capital elements.

Under the Basel III Rules, for most banking organizations, the most common form of additional tier 1 capital is non-cumulative

perpetual preferred stock and the most common form of tier 2 capital is subordinated notes and a portion of the allocation for loan and lease losses, in each case, subject to the Basel III Rules’ specific requirements.

perpetual preferred stock and the most common form of tier 2 capital is subordinated notes and a portion of the allocation for credit losses, in each case, subject to the Basel III Rules’ specific requirements.

As of December 31, 2020, we do not have any non-cumulative

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Risk-weighted assets, calculated using the standardized approach in the Basel III Rules for us and our subsidiary bank, provide the denominator for such ratios.

There is also a leverage ratio that compares tier 1 capital to average total assets.

There is also a leverage capital ratio that compares tier 1 capital to average total assets.

Pursuant to the Basel III Rules, the effects of certain accumulated other comprehensive income or loss (“AOCI”) items are not excluded;

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The Company made its one-time,

permanent election to continue to exclude AOCI from capital in its filing with the Federal Reserve Board for the quarter ended March 31, 2015.

permanent election to continue to exclude AOCI from capital in its filing with the Federal Reserve Board and OCC for the quarter ended March 31, 2015.

If the Company would not have made this election, unrealized gains and losses would have been included in the calculation of its regulatory capital.

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8.0% total capital to risk-weighted assets;

4.0% tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).

4.0% tier 1 capital to average consolidated assets (known as the “leverage ratio”).

The Basel III Rules established a “capital conservation buffer” of 2.5% above the new regulatory minimum risk-based capital requirements.

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These regulatory capital ratios were calculated under the Basel III Rules.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets.

Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet

exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III Rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.

The final rules include a two-quarter

grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater- than-9%

leverage capital ratio requirement, is generally still deemed “well capitalized” so long as the banking organization maintains a leverage capital ratio greater than 8%.

A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III Rules and file the appropriate regulatory reports.

The Company and our subsidiary bank do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future.

Prompt Corrective Action.

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This support may be required at times when, absent such Federal Reserve Board policy, we would not otherwise be required to provide it.

In addition, any loans we make to our subsidiaries would be subordinate in right of payment to deposits

and to other indebtedness of our subsidiaries.

In addition, any loans we make to our subsidiaries would be subordinate in right of payment to deposits and to other indebtedness of our subsidiaries.

In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and be subject to a priority of payment.

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and moderate-income neighborhoods served by the bank, and to take that determination into account in its evaluation of any application made by such bank for, among other things, approval of the acquisition or establishment of a branch or other depository facility, an office relocation, a merger, or the acquisition of shares of capital stock of another financial institution.

The regulatory authority prepares a written evaluation of an institution’s record of meeting the credit needs of its entire

community and assigns a rating.

The regulatory authority prepares a written evaluation of an institution’s record of meeting the credit needs of its entire community and assigns a rating.

These ratings are “Outstanding,” “Satisfactory,” “Needs Improvement” and “Substantial Non-Compliance.”

Institutions with ratings lower than “Satisfactory” may be restricted from engaging in the aforementioned activities.

We believe our subsidiary bank has taken and takes significant actions to comply with the CRA, and our subsidiary bank received a “Satisfactory” rating in its most recent review by federal regulators with respect to its compliance with the CRA.

We believe our subsidiary bank meets the credit needs of the communities in which it operates.

Our subsidiary bank received a “Satisfactory” rating in its most recent assessment of its performance under the CRA by federal regulators.

Monitoring and Reporting Suspicious Activity

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In June 2010, the Federal Reserve Board, OCC and FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.

The guidance,

which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.

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Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, Section 956 of the Dodd-Frank Act required certain regulators (including the FDIC, SEC and Federal Reserve Board) to adopt requirements or guidelines prohibiting excessive compensation.

In addition, Section 956 of the Dodd-Frank Act required certain regulators (including the FDIC, Securities and Exchanges Commission (“SEC”) and Federal Reserve Board) to adopt requirements or guidelines prohibiting excessive compensation.

In June 2016, the Federal Reserve, jointly with five other federal regulators, published a proposed rule in response to Section 956 of the Dodd-Frank Act, which requires implementation of regulations or guidelines to:

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“golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders.

The legislation also authorizes the Securities and Exchange Commission (“SEC”) to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials.

The legislation also authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials.

Additionally, the Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not.

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Smaller institutions are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking regulators for consumer compliance purposes.

Given the Bank has exceeded $10 billion in assets for each of the last three quarterly periods and expects to exceed $10 billion for the quarterly period ended March 31, 2021, the Bank will be subject to regulation by the CFPB going forward.

The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits the state attorney general to enforce compliance with both the state and federal laws and regulations.

The CFPB has finalized rules relating to, among other things, remittance transfers under the Electronic Fund Transfer Act, which requires companies to provide consumers with certain disclosures before the consumer pays for a remittance transfer.

These rules became effective in October 2013.

The CFPB has also amended certain rules under Regulation C relating to home mortgage disclosure to reflect a change in the asset-size

exemption threshold for depository institutions based on the annual percentage change in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

In addition, on January 10, 2013, the CFPB released its final “Ability-to-Repay/Qualified

Mortgage” rules, which amended the Truth in Lending Act (Regulation Z).

Regulation Z prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan.

The final amended rule implemented sections 1411 and 1412 of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end

credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.” The final rule also implemented section 1414 of the Dodd-Frank Act, which limits prepayment penalties.

Finally, the final rule requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated.

This rule became effective January 10, 2014.

Technology Risk Management and Consumer Privacy

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Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.

confidentiality of customer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a customer.

Under Section 501 of the Gramm-Leach-Bliley Act, the federal banking agencies have established appropriate standards for financial institutions regarding the implementation of safeguards to ensure the security and confidentiality of customer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a customer.

Among other matters, the rules require each bank to implement a comprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information.

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requirements and the customer has not elected to opt out of the disclosure.

Under Section 504, the agencies are authorized to issue regulations as necessary to implement notice requirements and restrictions on a financial institution’s ability to disclose nonpublic personal information about customers to nonaffiliated third parties.

Under Section 504, the agencies are

authorized to issue regulations as necessary to implement notice requirements and restrictions on a financial institution’s ability to disclose nonpublic personal information about customers to nonaffiliated third parties.

Under the final rule the regulators adopted, all banks must develop initial and annual privacy notices which describe in general terms the bank’s information sharing practices.

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Concentrated Commercial Real Estate Lending Regulations

The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.

The federal banking agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.

The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm

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On June 29, 2011, the Federal Reserve Board set the interchange rate cap at $0.21 per transaction and 5 basis points multiplied by the value of the transaction.

While the restrictions on interchange fees do not apply to banks that, together with their affiliates, have assets of less than $10 billion, the rule could affect the competitiveness of debit cards issued by smaller banks;

The restrictions on interchange fees apply to banks that, together with their affiliates, have assets of $10 billion or more;

however, on November 20, 2020, the federal bank regulatory agencies announced an interim final rule that provides temporary relief for certain community banking organizations that have crossed the threshold as of December 31, 2020 if they had less than $10 billion in assets as of December 31, 2019.

Under the interim final rule, these banks will generally have until 2022 to either reduce their size to below $10 billion in assets, or to prepare for the regulatory and reporting standards under the Dodd Frank Act;

restrictions under the Volcker Rule of the Company’s ability to engage in proprietary trading and to invest in, sponsor and engage in certain types of transactions with certain private funds.

The Company had until July 15, 2015 to fully conform to the Volcker Rules restrictions.

The Company initially had until July 15, 2015 to fully conform to the Volcker Rules restrictions.

In 2018, banks smaller than $10 billion in assets were provided with an exception to the Volcker Rule.

However, the Company is now subject to the Volcker Rule now that it has exceeded $10 billion in assets.

Many of the Dodd-Frank Act’s provisions are still subject to the final rulemaking by federal banking agencies, and the implication of the Dodd-Frank Act for the Company’s business will depend to a large extent on how such rules are adopted and implemented.

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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-K

Item 1. Business