FIRST FINANCIAL BANKSHARES INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES As of December 31, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Our management, which includes our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal financial officer have concluded, based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020. Subsequent to our evaluation, there were no significant changes in our internal control over financial reporting or other factors that has materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of First Financial Bankshares, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. First Financial Bankshares, Inc. and subsidiaries’ internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. First Financial Bankshares, Inc. and subsidiaries’ management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria for effective internal control over financial reporting set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO) in Internal Control – Integrated Framework . Based on our assessment we believe that, as of December 31, 2020, the Company’s internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, is effective based on those criteria. First Financial Bankshares, Inc. and subsidiaries’ independent auditors have issued an audit report, dated February 22, 2021, on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. 62 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of First Financial Bankshares, Inc. Opinion on Internal Control over Financial Reporting We have audited First Financial Bankshares, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, First Financial Bankshares, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020 and the related notes and our report dated February 22, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 63 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Dallas, Texas February 22, 2021 ITEM 9B. OTHER INFORMATION None. 64 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 is hereby incorporated by reference from our proxy statement for our 2021 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2020. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is hereby incorporated by reference from our proxy statement for our 2021 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2020. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by Item 12 related to security ownership of certain beneficial owners and management is hereby incorporated by reference from our proxy statement for our 2021 annual meeting of shareholders. The following chart gives aggregate information under our equity compensation plans as of December 31, 2020. Additional information regarding stock-based compensation plans is presented in Note 18 – Stock Option Plan and Restricted Stock Plan in the notes to consolidated financial statements. Number of Shares To be Issued Upon Exercise of Outstanding Awards Weighted Average Exercise Price of Outstanding Awards Number of Shares Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Far Left Column) Equity compensation plans approved by security holders 1,928,945 (1) $ 20.85 (2) 4,177,826 Equity compensation plans not approved by security holders — — — Total 1,928,945 $ 20.85 4,177,826 (1) Includes 1,833,057 shares related to the Company’s stock option plan and 95,888 shares related to the Company’s restricted stock plan. (2) Excludes outstanding restricted stock which are granted for no consideration. The remainder of the information required by Item 12 is incorporated by reference from our proxy statement for our 2021 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is hereby incorporated by reference from our proxy statement for our 2021 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2020. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by Item 14 is hereby incorporated by reference from our proxy statement for our 2021 Annual Meeting of Shareholders which will be filed with the SEC not later than 120 days after December 31, 2020. 65 Table of Contents PART IV ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Earnings for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: These schedules have been omitted because they are not required, are not applicable or have been included in our consolidated financial statements. (3) Exhibits: The following exhibits are included or incorporated by reference in this Annual Report on Form 10-K: 66 Table of Contents 2.1 —    Agreement and Plan of Reorganization, dated October 12, 2017, by and among First Financial Bankshares, Inc., Kingwood Merger Sub, Inc., and Commercial Bancshares, Inc. (schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (incorporated by reference from Exhibit 2.1 to Registrant’s Form 8-K filed October 12, 2017). 2.2 —    Agreement and Plan of Reorganization dated September 19, 2019 by and among First Financial Bankshares, Inc., Brazos Merger Sub, Inc. and TB&T Bancshares, Inc. (schedules have been omitted pursuant to item 601(b)(2) of Regulation S-K) (incorporated by reference from Exhibit 2.1 to Registrant’s Form 8-K filed September 20, 2019). 3.1 —    Amended and Restated Certificate of Formation (incorporated by reference from Exhibit 3.1 of the Registrant’s Form 10-Q filed July 30, 2019). 3.2 —    Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed April 3, 2020). 4.1 —    Specimen certificate of First Financial Common Stock (incorporated by reference from Exhibit 3 of the Registrant’s Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994). 4.2 —    Description of Registrant’s Securities* 10.1 —    2002 Incentive Stock Option Plan (incorporated by reference from Exhibit 10.3 of the Registrant’s Form 10-Q filed May 4, 2010).++ 10.2 —    2012 Incentive Stock Option Plan (incorporated by reference from Appendix A of the Registrant’s Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed March 1, 2012).++ 10.3 —    Loan Agreement, dated June 30, 2013, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed July 1, 2013). 10.4 —    First Amendment to Loan Agreement, dated June 30, 2015, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2015). 10.5 —    Second Amendment to Loan Agreement, dated June 30, 2017, between First Financial Bankhares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2017). 10.6 —    Third Amendment to Loan Agreement, dated June 30, 2019, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed July 1, 2019). 10.7 —    2015 Restricted Stock Plan as Amended and Restated April 28, 2020 (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed May 1, 2020).++ 10.8 —    Form of Executive Recognition Agreement (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed June 30, 2020).++ 21.1 —    Subsidiaries of Registrant.* 23.1 —    Consent of Ernst & Young LLP.* 24.1 —    Power of Attorney (included on signature page of this Form 10-K).* 31.1 —    Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Executive Officer of First Financial Bankshares, Inc.* 31.2 —    Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Financial Officer of First Financial Bankshares, Inc.* 32.1 —    Section 1350 Certification of Chief Executive Officer of First Financial Bankshares, Inc.+ 32.2 —    Section 1350 Certification of Chief Financial Officer of First Financial Bankshares, Inc.+ 101.INS —   XBRL Instance Document. – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL Document.* 101.SCH —   XBRL Taxonomy Extension Schema Document.* 101.CAL —   XBRL Taxonomy Extension Calculation Linkbase Document.* 101.DEF —   XBRL Taxonomy Extension Definition Linkbase Document.* 101.LAB —   XBRL Taxonomy Extension Label Linkbase Document.* 101.PRE —   XBRL Taxonomy Extension Presentation Linkbase Document.* * Filed herewith. + Furnished herewith. This Exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section, and shall not be deemed to be incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. ++ Management contract or compensatory plan on arrangement. 67 Table of Contents ITEM 16. FORM 10-K SUMMARY The Registrant has not selected the option to provide the summary information in this Item 16. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST FINANCIAL BANKSHARES, INC. Date: February 22, 2021 By: /s/ F. Scott Dueser F. SCOTT DUESER Chairman of the Board, Director, President and Chief Executive Officer (Principal Executive Officer) The undersigned directors and officers of First Financial Bankshares, Inc. hereby constitute and appoint James R. Gordon, with full power to act and with full power of substitution and resubstitution, our true and lawful attorney-in-fact with full power to execute in our name and behalf in the capacities indicated below any and all amendments to this report and to file the same, with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission and hereby ratify and confirm all that such attorney-in-fact or his substitute shall lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Name Title Date /s/ F. Scott Dueser F. Scott Dueser Chairman of the Board, Director, President, and Chief Executive Officer (Principal Executive Officer) February 22, 2021 /s/ James R. Gordon James R. Gordon Executive Vice President and Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) February 22, 2021 /s/ April K. Anthony April K. Anthony Director February 22, 2021 /s/ Vianei Lopez Braun Vianei Lopez Braun Director February 22, 2021 /s/ Tucker S. Bridwell Tucker S. Bridwell Director February 22, 2021 /s/ David L. Copeland David L. Copeland Director February 22, 2021 68 Table of Contents Name Title Date /s/ Michael B. Denny Michael B. Denny Director February 22, 2021 /s/ Murray H. Edwards Murray H. Edwards Director February 22, 2021 /s/ I. Tim Lancaster I. Tim Lancaster Director February 22, 2021 /s/ Kade Matthews Kade Matthews Director February 22, 2021 /s/ Robert C. Nickles Robert C. Nickles Director February 22, 2021 /s/ Johnny Trotter Johnny Trotter Director February 22, 2021 69 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of First Financial Bankshares, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of First Financial Bankshares, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2021 expressed an unqualified opinion thereon. Adoption of ASU No. 2016-13 As discussed in Note 1 of the consolidated financial statements, the Company changed its method of accounting for allowance for loan losses. As explained below, auditing the Company’s allowance for loan losses was a critical audit matter. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. F-1 Table of Contents Allowance for Loan Losses Description of the Matter As of December 31, 2020, the Company’s loan portfolio totaled $5.2 billion and the related allowance for loan losses (ALL) was $66.5 million. As noted above and in Note 1, as of January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses, which introduces a forward-looking expected loss model (the “Current Expected Credit Losses (CECL)” model) to estimate credit losses over the remaining expected life of the Company’s loan portfolio. As discussed in Notes 1 and 3 of the consolidated financial statements, the ALL is an amount which represents management’s best estimate of expected credit losses over the contractual life of the Company’s loan portfolio as of the balance sheet date. The ALL includes credit loss estimates for loans evaluated using common risk characteristics such as financial asset type, collateral type and industry of the borrower. Historical losses are correlated to economic variables that are determined to be the most relevant indicators of expected losses. Those economic variables are forecasted over the reasonable and supportable forecast period to determine the current expected credit losses. Qualitative adjustments are then made to account for factors that management does not believe are captured in the CECL quantitative models. Management applies judgment in estimating the ALL and, in particular, in identifying and quantifying qualitative adjustments included within the ALL. Auditing management’s estimate of the allowance for loan losses involved a high degree of subjectivity due to the complexity of the models and the qualitative adjustments included in the estimate. Management’s identification and measurement of the qualitative adjustments is highly judgmental and could have a significant impact on the allowance for loan losses. How We Addressed the Matter in Our Audit We obtained an understanding of the Company’s process for establishing the allowance for loan losses, including the models used and the qualitative adjustments made to the ALL. We evaluated the design and tested the operating effectiveness of the controls and governance over the model methodology and qualitative adjustment methodology, including the validation and monitoring procedures performed over the models, the identification and the assessment of the need for qualitative adjustments, the reliability and accuracy of data used to estimate the various components of the qualitative adjustments, and management’s review and approval of the qualitative adjustments. To test the models, with the support of specialists, we evaluated the model methodology and design, including the Company’s selection of economic variables that were deemed to be the most relevant indicators of expected credit losses, as well as performed procedures over the Company’s correlation of those economic variables to historical losses. On a sample basis, we independently tested and agreed the key inputs used in the models to internal and external sources. Additionally, on a sample basis, we performed an independent recalculation of the models’ output. To test the qualitative adjustments, we evaluated the identification and measurement of the adjustments, including the basis for concluding the adjustments were warranted when considering the model methodology and the historical data used in the adjustments. We tested the completeness and accuracy of data used by the Company to estimate the qualitative adjustments by agreeing underlying data to internal sources and recalculated the analyses used by the Company to measure the adjustments. We also reviewed peer-bank allowance coverage ratios and subsequent event information and considered whether it corroborated or contradicted the Company’s overall estimate of the ALL. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Dallas, Texas February 22, 2021 F-2 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2020 and 2019 (Dollars in thousands, except share and per share amounts) 2020 2019 ASSETS CASH AND DUE FROM BANKS $ 211,113 $ 231,534 FEDERAL FUNDS SOLD — 3,150 INTEREST-BEARING DEMAND DEPOSITS IN BANKS 517,971 47,920 Total cash and cash equivalents 729,084 282,604 SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of these securities was $ 4,177,179 and $ 3,327,805 as of December 31, 2020 and 2019, respectively) 4,393,029 3,413,317 LOANS: Held-for-investment 5,171,033 4,194,969 Less – allowance for loan losses ( 66,534 ) ( 52,499 ) Net loans held - for - investment 5,104,499 4,142,470 Held-for-sale ($ 79,585 and $ 23,076 under fair value option as of December 31, 2020 and 2019 , respectively) 83,969 28,228 BANK PREMISES AND EQUIPMENT, net 142,269 131,022 INTANGIBLE ASSETS , net 318,392 173,667 OTHER ASSETS 133,258 90,919 Total assets $ 10,904,500 $ 8,262,227 LIABILITIES AND SHAREHOLDERS’ EQUITY NONINTEREST-BEARING DEPOSITS $ 2,982,697 $ 2,065,128 INTEREST-BEARING DEPOSITS 5,693,120 4,538,678 Total deposits 8,675,817 6,603,806 DIVIDENDS PAYABLE 18,484 16,306 BORROWINGS 430,093 381,356 OTHER LIABILITIES 101,916 33,562 Total liabilities 9,226,310 7,035,030 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY: Common stock—$ 0.01 par value; authorized 200,000,000 shares; 142,161,834 and 135,891,755 shares issued at December 31, 2020 and 2019, respectively 1,422 1,359 Capital surplus 669,644 450,676 Retained earnings 836,729 707,656 Treasury stock (shares at cost: 938,591 and 927,408 at December 31, 2020 and 2019, respectively) ( 9,126 ) ( 8,222 ) Deferred c ompensation 9,126 8,222 Accumulated other comprehensive earnings 170,395 67,506 Total shareholders’ equity 1,678,190 1,227,197 Total liabilities and shareholders’ equity $ 10,904,500 $ 8,262,227 The accompanying notes are an integral part of these consolidated financial statements. F-3 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Statement of Earnings December 31, 2020, 2019 and 2018 (Dollars in thousands, except share and per share amounts) 2020 2019 2018 INTEREST INCOME: Interest and fees on loans $ 263,320 $ 224,556 $ 200,347 Interest on investment securities: Taxable 51,456 55,670 50,052 Exempt from federal income tax 48,399 37,075 39,661 Interest on federal funds sold and interest-bearing deposits in banks 953 1,891 1,630 Total interest income 364,128 319,192 291,690 INTEREST EXPENSE: Interest on deposits 13,118 27,122 16,946 Other 1,125 2,980 1,984 Total interest expense 14,243 30,102 18,930 Net interest income 349,885 289,090 272,760 PROVISION FOR CREDIT LOSSES 19,517 2,965 5,665 Net interest income after provisions for credit losses 330,368 286,125 267,095 NONINTEREST INCOME: Trust fees 29,531 28,401 28,181 Service charges on deposit accounts 20,572 22,039 21,663 ATM, interchange and credit card fees 32,469 29,863 28,532 Gain on sale and fees on mortgage loans 43,872 18,144 15,157 Net gain on sale of available-for-sale securities 3,633 733 1,354 Net gain (loss) on sale of foreclosed assets 159 274 116 Net gain (loss) on sale of assets 112 319 ( 147 ) Interest on loan recoveries 856 2,092 938 Other 8,731 6,563 5,970 Total noninterest income 139,935 108,428 101,764 NONINTEREST EXPENSE: Salaries and employee benefits 135,123 112,336 105,189 Cost related to termination of pension plan — 2,673 1,546 Net occupancy expense 12,388 11,156 11,173 Equipment expense 8,396 9,052 10,118 FDIC insurance premiums 1,758 1,091 2,333 ATM, interchange and credit card expenses 11,235 9,856 9,282 Professional and service fees 9,346 7,853 8,894 Printing, stationery and supplies 2,163 1,812 1,997 Operational and other losses 2,462 1,879 2,188 Software amortization and expense 8,862 7,305 6,020 Amortization of intangible assets 1,990 1,016 1,272 Other 34,215 30,492 30,672 Total noninterest expense 227,938 196,521 190,684 EARNINGS BEFORE INCOME TAXES 242,365 198,032 178,175 INCOME TAX EXPENSE 40,331 33,220 27,537 NET EARNINGS $ 202,034 $ 164,812 $ 150,638 NET EARNINGS PER SHARE, BASIC $ 1.42 $ 1.22 $ 1.11 NET EARNINGS PER SHARE, DILUTED $ 1.42 $ 1.21 $ 1.11 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Earnings Years Ended December 31, 2020, 2019 and 2018 (Dollars in thousands) 2020 2019 2018 NET EARNINGS $ 202,034 $ 164,812 $ 150,638 OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS): Change in unrealized gain (loss) on investment securities available-for-sale, before income tax 133,872 80,906 ( 38,185 ) Reclassification adjustment for realized gains on investment securities included in net earnings, before income tax ( 3,633 ) ( 733 ) ( 1,354 ) Minimum liability pension adjustment, before income tax — 1,676 1,970 Total other items of comprehensive earnings (losses) 130,239 81,849 ( 37,569 ) Income tax benefit (expense) related to: Investment securities ( 28,113 ) ( 16,990 ) 8,019 Reclassification adjustment for realized gains on investment securities included in net earnings 763 154 284 Minimum liability pension adjustment — ( 352 ) ( 414 ) Total income tax benefit (expense) ( 27,350 ) ( 17,188 ) 7,889 COMPREHENSIVE EARNINGS $ 304,923 $ 229,473 $ 120,958 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity Years Ended December 31, 2020, 2019 and 2018 (Dollars in thousands) Common Stock Capital Surplus Retained Earnings Treasury Stock Deferred Compensation Accumulated Other Total Comprehensive Earnings (Losses) Shareholders’ Equity Shares Amount Shares Amounts BALANCE, December 31, 2017 66,260,444 $ 663 $ 378,062 $ 517,257 ( 495,964 ) $ ( 7,148 ) $ 7,148 $ 26,786 $ 922,768 Net earnings — — — 150,638 — — — — 150,638 Stock option exercises 173,822 2 3,861 — — — 3,863 Restricted stock grant, net 29,496 — 1,609 — — — — 1,609 Cash dividends declared, $ 0.41 per share — — — ( 55,499 ) — — — — ( 55,499 ) Stock issued in acquisition of Commercial Bancshares, Inc. 1,289,371 13 58,074 — — — — — 58,087 Minimum liability pension adjustment, net of related income taxes — — — — — — — 1,556 1,556 Change in unrealized gain (loss) in investment securities available-for-sale, net of related income taxes — — — — — — — ( 31,235 ) ( 31,235 ) Shares purchased in connection with directors’ deferred compensation plan, net — — — — 28,153 ( 359 ) 359 — — Stock option expense — — 1,508 — — — — — 1,508 Reclassification of certain income tax effects related to the U.S. statutory federal income tax rate under the Tax Cuts and Jobs Acts to retained earnings — — — ( 5,759 ) — — — 5,759 — Reclassification of unrealized gain in equity securities At December 31, 2017 from accumulated other Comprehensive earnings to retained earnings — — — 21 — — — ( 21 ) — BALANCE, December 31, 2018 67,753,133 $ 678 $ 443,114 $ 606,658 ( 467,811 ) $ ( 7,507 ) $ 7,507 $ 2,845 $ 1,053,295 Net earnings — — — 164,812 — — — — 164,812 Stock option exercises 241,725 2 4,291 — — — — — 4,293 Restricted stock grant, net 56,687 — 1,782 — — — — — 1,782 Cash dividends declared, $ 0.47 per share — — — ( 63,135 ) — — — — ( 63,135 ) Minimum liability pension adjustment, net of related income taxes — — — — — — — 1,324 1,324 Change in unrealized gain in investment securities available-for-sale, net of related income taxes — — — — — — — 63,337 63,337 Shares purchased in connection with directors’ deferred compensation plan, net — — — — 4,742 ( 715 ) 715 — — Stock option expense — — 1,489 — — — — — 1,489 Two-for-one stock split in the form of 100 % stock dividend 67,840,210 679 — ( 679 ) ( 464,339 ) — — — — BALANCE, December 31, 2019 135,891,755 $ 1,359 $ 450,676 $ 707,656 ( 927,408 ) $ ( 8,222 ) $ 8,222 $ 67,506 $ 1,227,197 (continued) The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders’ Equity Years Ended December 31, 2020, 2019 and 2018 (Dollars in thousands) Cumulative effect of adopting ASC 326 on January 1, 2020, net of related income taxes — — — ( 466 ) — — — — ( 466 ) Total shareholders’ equity at beginning of period, as adjusted 135,891,755 1,359 450,676 707,190 ( 927,408 ) ( 8,222 ) 8,222 67,506 1,226,731 Stock issued in acquisition of TB&T Bancshares, Inc. 6,275,574 63 220,210 — — — — — 220,273 Net earnings — — — 202,034 — — — — 202,034 Stock option exercises 295,093 3 4,714 — — — — — 4,717 Restricted stock grant, net 24,214 — 672 — — — — — 672 Cash dividends declared, $ 0.51 per share — — — ( 72,495 ) — — — — ( 72,495 ) Change in unrealized gain in investment securities available-for-sale, net of related income taxes — — — — — — — 102,889 102,889 Shares purchased in connection with directors’ deferred compensation plan, net — — — — ( 11,183 ) ( 904 ) 904 — — Stock option expense — — 1,377 — — — — — 1,377 Shares repurchased and retired under stock repurchase authorization ( 324,802 ) ( 3 ) ( 8,005 ) — — — — — ( 8,008 ) BALANCE, December 31, 2020 142,161,834 $ 1,422 $ 669,644 $ 836,729 ( 938,591 ) $ ( 9,126 ) $ 9,126 $ 170,395 $ 1,678,190 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 2020, 2019 and 2018 (Dollars in thousands) 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 202,034 $ 164,812 $ 150,638 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 12,793 11,665 12,549 Provision for credit losses 19,517 2,965 5,665 Securities premium amortization, net 41,959 25,788 27,467 Discount accretion on purchased loans ( 3,780 ) ( 1,666 ) ( 2,636 ) Gain on sale of assets, net ( 4,001 ) ( 1,477 ) ( 1,216 ) Deferred federal income tax (expense) benefit ( 5,249 ) ( 29 ) ( 250 ) Change in loans held-for-sale ( 53,494 ) ( 5,830 ) ( 5,791 ) Change in other assets ( 23,233 ) 1,851 ( 1,697 ) Change in other liabilities 24,122 4,374 1,621 Total adjustments 8,634 37,641 35,712 Net cash provided by operating activities 210,668 202,453 186,350 CASH FLOWS FROM INVESTING ACTIVITIES: Cash received in acquisition of TB&T Bancshares, Inc., net 61,028 — — Cash received in acquisition of Commercial Bancshares, Inc., net — — 18,653 Net decrease in interest-bearing time deposits in banks — 1,458 — Activity in available-for-sale securities: Sales 263,042 67,414 220,259 Maturities 6,075,017 4,460,703 3,439,028 Purchases ( 7,117,151 ) ( 4,727,430 ) ( 3,731,821 ) Net increase in loans held-for-investment ( 529,144 ) ( 243,524 ) ( 202,602 ) Purchases of bank premises and equipment ( 16,450 ) ( 8,671 ) ( 17,646 ) Proceeds from sale of bank premises and equipment and other assets 1,456 2,249 844 Net cash used in investing activities ( 1,262,202 ) ( 447,801 ) ( 273,285 ) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in noninterest-bearing deposits 679,744 ( 50,979 ) ( 87,583 ) Net increase (decrease) in interest-bearing deposits 843,142 474,396 ( 36,891 ) Net increase (decrease) in borrowings 48,737 ( 87,350 ) 137,706 Common stock transactions: Proceeds from stock option exercises 4,717 4,294 3,864 Dividends paid ( 70,318 ) ( 61,056 ) ( 53,861 ) Repurchase of stock ( 8,008 ) — — Net cash provided by (used in) financing activities 1,498,014 279,305 ( 36,765 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 446,480 33,957 ( 123,700 ) CASH AND CASH EQUIVALENTS, beginning of year 282,604 248,647 372,347 CASH AND CASH EQUIVALENTS, end of year $ 729,084 $ 282,604 $ 248,647 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Operations First Financial Bankshares, Inc. (a Texas corporation) (“Bankshares”, “Company”, “we” or “us”) is a financial holding company which owns all of the capital stock of one bank with 78 locations located in Texas as of December 31, 2020. The Company’s subsidiary bank is First Financial Bank, N.A. The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in the market area in which First Financial Bank, N.A., is located. In addition, the Company also owns First Financial Trust & Asset Management Company, N.A., First Financial Insurance Agency, Inc., First Technology Services, Inc. and First Financial Investments, Inc. Basis of Presentation A summary of significant accounting policies of the Company and its subsidiaries applied in the preparation of the accompanying consolidated financial statements follows. The accounting principles followed by the Company and the methods of applying them are in conformity with both United States generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry. The Company evaluated subsequent events for potential recognition through the date the consolidated financial statements were issued. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include its allowance for credit losses and its valuation of financial instruments. Consolidation The accompanying consolidated financial statements include the accounts of Bankshares and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated. 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. 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 year ended December 31, 2019. Stock Repurchase On March 12, 2020, the Company’s Board of Directors authorized the repurchase of up to 4,000,000 common shares through September 30, 2021. Previously, the Board of Directors had authorized the repurchase of up to 2,000,000 common shares through September 30, 2020. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and its 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 December 31, 2020, 324,802 shares were repurchased and retired (all during the months of March and April of 2020) totaling $ 8,008,000 under this repurchase plan. Subsequent to December 31, 2020 and through February 22 , 2021, no additional shares were repurchased. For the years ended December 31, 2019 and 2018, no shares were repurchased under this repurchase plan or the prior authorization that expired September 30, 2020. F-9 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Acquisition On January 1, 2018, the Company acquired 100 % of the outstanding capital stock of Commercial Bancshares, Inc. through the merger of a wholly-owned subsidiary with and into Commercial Bancshares, Inc. Following such merger, Commercial Bancshares, Inc. and its wholly-owned subsidiary, Commercial State Bank, Kingwood, Texas were merged into the Company and First Financial Bank, National Association, respectively. The results of operations of Commercial Bancshares, Inc. subsequent to the acquisition date, are include in the consolidated earnings of the Company. See Note 20 for additional information. On January 1, 2020, the Company acquired 100 % of the outstanding capital stock of TB&T Bancshares, Inc. through the merger of a wholly-owned subsidiary with and into TB&T Bancshares, Inc. Following such merger, TB&T Bancshares, Inc. and its wholly-owned subsidiary, The Bank & Trust of Bryan/College Station, Texas were merged into the Company and First Financial Bank, N.A., respectively. The results of operations of TB&T Bancshares, Inc. subsequent to the acquisition date, are included in the consolidated earnings of the Company. See Note 21 for additional information. Adoption of New Accounting Standards On January 1, 2020, Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , became effective for the Company. Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) replaced the previous “incurred loss” model for measuring credit losses with an 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 and held-to-maturity debt securities. It also applies to OBS credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. On March 27, 2020, the CARES Act was signed by the President of the United States that included an option for entities to delay the implementation of ASC 326 until the earlier of the termination date of the national emergency declaration by the President, or December 31, 2020. Under this option, the Company elected to delay implementation of CECL and calculated and recorded the provision for credit losses through the nine-months ended September 30, 2020 under the incurred loss model. At December 31, 2020, the Company elected to adopt ASC 326, effective as of January 1, 2020, through a transition charge to retained earnings of $ 589 ,000 ($ 466 ,000 net of applicable income taxes). This transition adjustment was comprised of a decrease of $ 619,000 in allowance for credit losses and an increase of $ 1,208,000 in the reserve for unfunded commitments. With the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections which are described below. Prior to January 1, 2020, allowance for credit losses were based on the incurred loss methodology in accordance with accounting policies disclosed in Note 1 of the Consolidated Financial Statements included in the Company’s 2019 Form 10-K. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost, net investment in leases and OBS credit exposures. The Company adopted ASC 326 using the prospective transition approach for securities for which other-than-temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. We did not have any securities for which OTTI had been recognized as of December 31, 2019. The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (“PCD”) that were previously classified as purchased credit impaired (“PCI”) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. For the periods ended December 31, 2020 and 2019, amounts related to the Company’s PCD and PCI loans were insignificant and disclosures related to these balances have been omitted. F-10 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Investment Securities Management classifies debt securities as held-to-maturity, available-for-sale, or trading based on its intent. Securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of securities at the time of purchase. Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of securities in noninterest income. The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the year ended December 31, 2020. The Company records its available-for-sale securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security. The Company’s investment portfolio currently consists of obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis. Allowance for Credit Losses – Available-for-Sale Securities For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previously recognized allowances are charged-off and the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. F-11 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Prior to the adoption of ASC 326, declines in the fair value of securities below their cost that were deemed to be other-than-temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to January 1, 2020, management considered, among other things, the length of time and the extent to which the fair value had been less than cost, the financial condition and near-term prospects of the issuer and the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.​​​​​​​​​​​​​​​​​​​​​ Allowance for Credit Losses – Held-to-Maturity Securities The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management’s best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses. At December 31, 2020 and 2019, the Company held no securities that were classified as held-to-maturity. Loans Held-for-Investment Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets. Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured. Prior to the adoption of ASC 326 on January 1, 2020, loans were reported as impaired when, based on then current information and events, it was probable we would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment was evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectibility of the principal amount was reasonably assured, in which case interest was recognized on a cash basis. Impaired loans, or portions thereof, were charged off when deemed uncollectible. F-12 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Further information regarding our accounting policies related to past due loans, nonaccrual loans and troubled-debt restructurings is presented in Note 3. Acquired Loans Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”). PCD loans are defined as a loan or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration. The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as nonaccrual as of the acquisition date and are collateral dependent are assessed for allowance on an individual basis. For PCD loans, an initial allowance is established on the acquisition date and combined with the fair value of the loan to arrive at acquisition date amortized cost. Accordingly, no allowance for credit losses is recognized on PCD loans at the acquisition date. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses. Non-PCD loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses. Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the non-credit discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. The non-credit premium or discount is recognized into interest income on a level yield basis over the remaining expected life of the loan. For non-PCD loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan. Prior to January 1, 2020, loans acquired in a business combination that had evidence of credit impairment and for which it was probable, at acquisition, that the Company would be unable to collect all contractually required payments receivable were considered PCI. PCI loans were accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit grade, loan type, and date of origination. Allowance for Credit Losses—Loans The allowance for credit losses (“allowance” or “ACL”) is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans. The ACL represents an amount which, in management’s judgement, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a F-13 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable. In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. Refer to Note 3 for more details on the Company’s portfolio segments. The Company applies two methodologies to estimate the allowance on its pooled portfolio segments; discounted cash flows method and weighted average remaining life method. Allowance estimates on the following portfolio segments are calculated using the discounted cash flows method: C&I, Municipal, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE and Residential. Allowance estimates on the following portfolio segments are calculated using the remaining life method: Agriculture, Consumer Auto and Consumer Non-Auto. The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a one-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include; Texas unemployment rate, Texas house price index and Texas retail sales index. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience. In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on an ongoing basis. Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected F-14 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature, volume and size of a loan or the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters or health pandemics. Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers. The adoption of the CECL standard did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, nonaccrual practices, assessment of troubled debt restructurings or charge-off policies. Allowance for Credit Losses—Off-Balance-Sheet/Reserve for Unfunded Commitments The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. These obligations include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. At December 31, 2020, the Company’s reserve for unfunded commitments totaled $ 5,486,000 . Other Real Estate Other real estate owned is foreclosed property held pending disposition and is initially recorded at fair value, less estimated costs to sell. At foreclosure, if the fair value of the real estate, less estimated costs to sell, is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Any subsequent reduction in value is recognized by a charge to income. Operating and holding expenses of such properties, net of related income, and gains and losses on their disposition are included in net gain (loss) on sale of foreclosed assets as incurred. Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever is shorter . Business Combinations, Goodwill and Other Intangible Assets The Company accounts for all business combinations under the purchase method of accounting. Tangible and intangible assets and liabilities of the acquired entity are recorded at fair value. Intangible assets with finite useful lives represent the future benefit associated with the acquisition of the core deposits and are amortized over seven years , utilizing a method that approximates the expected attrition of the deposits. Goodwill with an indefinite life is not amortized, but rather tested annually for impairment as of June 30 each year and totaled $ 313,481 ,000 and $ 171,565 ,000, at December 31, 2020 and 2019, respectively. There was no impairment recorded for the years ended December 31, 2020, 2019 and 2018. F-15 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The carrying amount of goodwill arising from acquisitions that qualify as an asset purchase for federal income tax purposes was $ 16,048 ,000 and $ 18,680 ,000 at December 31, 2020 and 2019, respectively, and is deductible for federal income tax purposes. Securities Sold Under Agreements To Repurchase Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of the cash received in connection with the transaction. The Company may be required to provide additional collateral based on the estimated fair value of the underlying securities. Segment Reporting The Company has determined that its banking regions meet the aggregation criteria of the current authoritative accounting guidance since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas). Statements of Cash Flows For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of 90 days or less , and federal funds sold. Accumulated Other Comprehensive Income (Loss) Unrealized net gains on the Company’s available-for-sale securities (after applicable income tax expense) totaling $ 170,395 ,000 and $ 67,506 ,000 at December 31, 2020 and 2019, respectively, are included in accumulated other comprehensive income. There were no amounts under the minimum pension liability at December 31, 2020 or 2019 (see Note 14). Income Taxes The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Stock Based Compensation The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the grant date. The grant date fair value is amortized over the vesting period which generally is six years. The Company also grants restricted stock for a fixed number of shares which generally vests over periods of one to three years. See Note 18 for further information. Advertising Costs Advertising costs are expensed as incurred. F-16 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Per Share Data Net earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common stock shares outstanding during the period. The Company calculates diluted 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 determined 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 year. Anti-dilutive shares for the years ended December 31, 2020 were 399,300 and were excluded from the computation of EPS. There were no such anti-dilutive stock options for the years ended December 31, 2019 and 2018. The following table reconciles the computation of basic EPS to diluted EPS: For the year ended December 31, 2020: Net Earnings (in thousands) Weighted Average Shares Per Share Amount Net earnings per share, basic $ 202,034 142,032,420 $ 1.42 Effect of stock options and stock grants — 512,571 — Net earnings per share, diluted $ 202,034 142,544,991 $ 1.42 For the year ended December 31, 2019: Net earnings per share, basic $ 164,812 135,647,354 $ 1.22 Effect of stock options and stock grants — 698,665 ( 0.01 ) Net earnings per share, diluted $ 164,812 136,346,019 $ 1.21 For the year ended December 31, 2018: Net earnings per share, basic $ 150,638 135,218,734 $ 1.11 Effect of stock options and stock grants — 747,294 — Net earnings per share, diluted $ 150,638 135,966,028 $ 1.11 Recently Issued and Effective Authoritative Accounting Guidance ASU 2017-04, “Intangibles – Goodwill and Other.” ASU 2017-04 amended and simplified current goodwill impairment testing to eliminate Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if a quantitative impairment test is necessary. ASU 2017-04 became effective for the Company on January 1, 2020 and did not have a significant impact on the Company’s financial statements. ASU 2018-13, “Fair Value Measurement (Topic 820). – Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modified the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 remove disclosures that no longer are considered cost beneficial, modify/clarify the specific requirements of certain disclosures, and add disclosure requirements identified as relevant. ASU 2018-13 became effective on January 1, 2020 and did not have a significant impact on the Company’s financial statements. ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12, simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company for annual reporting periods after December 15, 2020, and interim periods within. Adoption of ASU 2019-12 is not expected to have a material impact on the Company’s financial statements and related disclosures. F-17 Table of Contents FIRST FINANCIAL BANKSHARES , INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 2. SECURITIES: Debt securities have been classified in the condensed consolidated balance sheets according to management’s intent. The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of available-for-sale securities are as follows (dollars in thousands):​​​​​​​ ​​​​​​​ December 31, 2020 Amortized Cost Basis Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Securities available-for-sale: Obligations of state and political subdivisions $ 2,283,616 $ 143,339 $ ( 79 ) $ 2,426,876 Residential mortgage-backed securities 1,421,922 50,473 ( 115 ) 1,472,280 Commercial mortgage-backed securities 467,243 22,077 ( 4 ) 489,316 Corporate bonds and other 4,398 159 — 4,557 Total securities available-for-sale $ 4,177,179 $ 216,048 $ ( 198 ) $ 4,393,029 December 31, 2019 Amortized Cost Basis Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value Securities available-for-sale: U.S. Treasury securities $ 9,997 $ 22 $ — $ 10,019 Obligations of state and political subdivisions 1,231,619 57,764 ( 400 ) 1,288,983 Corporate bonds and other 4,643 65 — 4,708 Residential mortgage-backed securities 1,586,872 23,139 ( 1,148 ) 1,608,863 Commercial mortgage-backed securities 494,674 6,356 ( 286 ) 500,744 Total securities available-for-sale $ 3,327,805 $ 87,346 $ ( 1,834 ) $ 3,413,317 The Company did no t hold any securities classified as held-to-maturity for the years ended December 31, 2020 and 2019. 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 December 31, 2020, were computed by using scheduled amortization of balances and historical prepayment rates. The amortized cost and estimated fair value of available-for-sale securities at December 31, 2020, by contractual and expected maturity, are shown below (in thousands): Amortized Cost Basis Estimated Fair Value Due within one year $ 285,774 $ 289,600 Due after one year through five years 2,078,388 2,187,779 Due after five years through ten years 1,805,324 1,907,631 Due after ten years 7,693 8,019 Total $ 4,177,179 $ 4,393,029 F-18 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The following tables disclose, as of December 31, 2020 and 2019, the Company’s investment securities that have been in a continuous unrealized-loss position for less than 12 months and for 12 or more months (in thousands): Less than 12 Months 12 Months or Longer Total December 31, 2020 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Obligations of state and political subdivisions $ 25,214 $ 79 $ — $ — $ 25,214 $ 79 Residential mortgage-backed securities 36,017 96 3,156 19 39,173 115 Commercial mortgage-backed securities 16,218 4 — — 16,218 4 Total $ 77,449 $ 179 $ 3,156 $ 19 $ 80,605 $ 198 Less than 12 Months 12 Months or Longer Total December 31, 2019 Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Obligations of state and political subdivisions $ 65,787 $ 400 $ 326 $ — $ 66,113 $ 400 Residential mortgage-backed securities 100,004 306 103,983 842 203,987 1,148 Commercial mortgage-backed securities 74,560 178 35,178 108 109,738 286 Total $ 240,351 $ 884 $ 139,487 $ 950 $ 379,838 $ 1,834 The number of investments in an unrealized loss position totaled 24 at December 31, 2020. Any unrealized losses in the U.S. treasuries and government agencies, state and municipal, mortgage-backed and asset-backed investment securities at December 31, 2020 are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required at December 31, 2020. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At December 31, 2020 and 2019, 80.87 % and 86.34 %, respectively, of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 51.57 % and 41.35 %, respectively, were guaranteed by the Texas Permanent School Fund. Securities, carried at approximately $ 3,005,084,000 and $ 2,329,784,000 December 31, 2020 and 2019, respectively, were pledged as collateral for public or trust fund deposits, repurchase agreements and for other purposes required or permitted by law. During 2020, 2019 and 2018, sales of investment securities that were classified as available-for-sale totaled $ 263,042,000 , $ 67,414,000 and $ 220,259,000 . Gross realized gains from 2020, 2019 and 2018, securities sales were $ 3,637,000 , $ 752,000 and $ 1,847,000 , respectively. Gross realized losses from 2020, 2019 and 2018 securities sales were $ 4,000 , $ 19,000 and $ 493,000 , respectively. The specific identification method was used to determine cost in order to compute the realized gains and losses. 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES: In conjunction with the adoption of ASC 326, the Company expanded its four loan portfolios into ten portfolio segments. For the year ended December 31, 2020, the tables to follow outline the Company’s loan portfolio by the ten portfolio segments where applicable. For all prior periods, management has elected to maintain its previously disclosed loan segments. F-19 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Loans held-for-investment by portfolio segment are as follows (dollars in thousands): December 31, 2020 2019 Commercial: C&I $ 1,131,382 $ N/A Municipal 181,325 N/A Total Commercial 1,312,707 856,326 Agricultural 94,864 103,640 Real Estate: Construction & Development 553,959 N/A Farm 152,237 N/A Non-Owner Occupied CRE 617,686 N/A Owner Occupied CRE 746,974 N/A Residential 1,248,409 N/A Total Real Estate 3,319,265 2,823,372 Consumer: Auto 353,595 N/A Non-Auto 90,602 N/A Total Consumer 444,197 411,631 Total Loans 5,171,033 4,194,969 Less: Allowance for credit losses ( 66,534 ) ( 52,499 ) Loans, net $ 5,104,499 $ 4,142,470 Outstanding loan balances at December 31, 2020 and 2019, are net of unearned income, including net deferred loan fees. 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 December 31, 2020, $ 3,239,207,000 in loans held by our bank subsidiary were subject to blanket liens as security for this line of credit. At December 31, 2020, there was no balance outstanding under this line of credit. The Company completed the implementation of the CECL standard effective January 1, 2020. The new guidance requires additional disclosures and introduces certain changes to definitions previously used under allowance for loan losses guidance. Accordingly, the following sections present separate disclosures compliant with the new and the legacy disclosure requirements. The Company’s nonaccrual loans, loans still accruing and past due 90 days or more and restructured loans are as follows (dollars in thousands): December 31, 2020 2019 Nonaccrual loans $ 42,619 $ 24,582 Loans still accruing and past due 90 days or more 113 153 Troubled debt restructured loans* 24 26 Total $ 42,756 $ 24,761 * Troubled debt restructured loans of $ 7,407,000 and $ 4,791,000 , for which interest collection is doubtful, are included in nonaccrual loans as of December 31, 2020 and 2019, respectively. F-2 0 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The Company had $ 42,898,000 and $ 25,770,000 in nonaccrual , past due 90 days or more and still accruing, restructured loans and foreclosed assets at December 31, 2020 and 2019, respectively. Nonaccrual loans totaled $ 42,619 ,000 and $ 24,582 ,000 at December 31, 2020 and 2019, respectively, and consisted of the following (in thousands): December 31, 2020 2019 Commercial: C&I $ 5,015 $ N/A Municipal — N/A Total Commercial 5,015 3,093 Agricultural 1,076 1,376 Real Estate: Construction & Development 3,838 N/A Farm 7,299 N/A Non-Owner Occupied CRE 5,243 N/A Owner Occupied CRE 10,797 N/A Residential 8,851 N/A Total Real Estate 36,028 19,787 Consumer: Auto 407 N/A Non-Auto 93 N/A Total Consumer 500 326 Total $ 42,619 $ 24,582 The Company recognized interest income on nonaccrual loans prior to being recognized as nonaccrual of approximately $ 1,006,000 , $ 750,000 and $ 948,000 during the years ended De c ember 31, 2020, 2019 and 2018, respectively. No significant additional funds are committed to be advanced in connection with nonaccrual loans as of December 31, 2020. Summary information on the allowance for credit losses for the year ended December 31, 2020, in line with the new CECL disclosure requirements, is outlined by portfolio segment in the following tables (in thousands): December 31, 2020 C&I Municipal Agricultural Construction & Development Farm Beginning balance, prior to adoption of ASC 326 $ 11,010 $ 1,112 $ 1,206 $ 6,045 $ 663 Impact of adopting ASC 326 ( 155 ) ( 16 ) ( 8 ) ( 75 ) ( 8 ) Initial allowance on acquired TB&T PCD loans — — — — 727 Provision for loan losses 3,955 456 398 7,542 337 Recoveries 1,315 — 31 — 157 Charge-offs ( 2,516 ) — ( 372 ) — — Ending balance $ 13,609 $ 1,552 $ 1,255 $ 13,512 $ 1,876 F-21 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 3 1, 2020, 2019 and 2018 December 31, 2020 (continued) Non-Owner Occupied CRE Owner Occupied CRE Residential Auto Non- Auto Total Beginning balance, prior to adoption of ASC 326 $ 7,341 $ 9,533 $ 10,392 $ 3,900 $ 1,297 $ 52,499 Impact of adopting ASC 326 ( 91 ) ( 118 ) ( 129 ) ( 14 ) ( 5 ) ( 619 ) Initial allowance on acquired TB&T PCD loans — 847 104 — — 1,678 Provision for loan losses 1,573 2,635 2,456 ( 2,587 ) ( 717 ) 16,048 Recoveries 131 17 151 269 171 2,242 Charge-offs ( 563 ) ( 567 ) ( 373 ) ( 548 ) ( 375 ) ( 5,314 ) Ending balance $ 8,391 $ 12,347 $ 12,601 $ 1,020 $ 371 $ 66,534 Summary information on the allowance for loan losses for the year ended December 31, 2019, in line with the legacy disclosure requirements, is outlined by portfolio segment in the following tables (in thousands): December 31, 2019 Commercial Agricultural Real Estate Consumer Total Beginning balance $ 11,948 $ 1,446 $ 32,342 $ 5,466 $ 51,202 Provision for loan losses 398 ( 79 ) 2,520 126 2,965 Recoveries 1,364 158 404 532 2,458 Charge-offs ( 1,588 ) ( 319 ) ( 1,292 ) ( 927 ) ( 4,126 ) Ending balance $ 12,122 $ 1,206 $ 33,974 $ 5,197 $ 52,499 Additionally, the Company records a reserve for unfunded commitments in other liabilities which totaled $ 5,486,000 and $ 809,000 at December 31, 2020 and 2019, respectively. The provision for loan losses above of $ 16,048,000 is combined with the provision for unfunded commitments of $ 3,469,000 and reported in the aggregate under the provision for credit losses in the statement of earnings for the year ended December 31, 2020. F-22 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The Company’s loans that are individually evaluated for credit losses (both collateral and non-collateral dependent) and their related allowances as of December 31, 2020, are summarized in the following table by loan segment in accordance with the new CECL disclosure requirements (in thousands): December 31, 2020 Collateral Dependent Loans Individually Evaluated for Credit Losses Without an Allowance Collateral Dependent Loans Individually Evaluated for Credit Losses With an Allowance Non-Collateral Dependent Loans Individually Evaluated for Credit Losses Total Loans Individually Evaluated for Credit Losses Related Allowance on Collateral Dependent Loans Related Allowance on Non- Collateral Dependent Loans Total Allowance for Credit Losses on Loans Individually Evaluated for Credit Losses Commercial: C&I $ 1,544 $ 3,471 $ 25,629 $ 30,644 $ 799 $ 4,592 $ 5,391 Municipal — — 9,439 9,439 — 1,435 1,435 Total Commercial 1,544 3,471 35,068 40,083 799 6,027 6,826 Agricultural 470 606 5,572 6,648 96 886 982 Real Estate: Construction & Development 1,176 2,661 11,368 15,205 35 617 652 Farm 2,614 4,685 3,349 10,648 654 658 1,312 Non-Owner Occupied CRE 4,009 1,234 17,383 22,626 500 1,421 1,921 Owner Occupied CRE 7,279 3,518 51,933 62,730 657 5,172 5,829 Residential 4,347 4,504 28,196 37,047 676 2,431 3,107 Total Real Estate 19,425 16,602 112,229 148,256 2,522 10,299 12,821 Consumer: Auto — 407 1,523 1,930 1 5 6 Non-Auto — 94 440 534 1 1 2 Total Consumer — 501 1,963 2,464 2 6 8 Total $ 21,439 $ 21,180 $ 154,832 $ 197,451 $ 3,419 $ 17,218 $ 20,637 The following table presents the recorded investment with respect to impaired loans, the associated allowance by the applicable portfolio segment and the unpaid contractual principal balance of the impaired loans at December 31, 2019, in accordance with the legacy disclosure requirements (in thousands): December 31, 2019 Unpaid Contractual Principal Balance Recorded Investment With No Allowance Recorded Investment With Allowance Total Recorded Investment Related Allowance 12 Month Average Recorded Investment Commercial $ 4,511 $ 630 $ 2,463 $ 3,093 $ 1,042 $ 3,488 Agricultural 1,603 658 718 1,376 235 1,644 Real Estate 27,366 7,081 12,706 19,787 1,950 21,726 Consumer 469 — 326 326 1 449 Total $ 33,949 $ 8,369 $ 16,213 $ 24,582 $ 3,228 $ 27,307 F-23 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of December 31, 2020, are summarized in the following table by loan segment in accordance with the new CECL disclosure requirements (in thousands). Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. December 31, 2020 C&I Municipal Agricultural Construction & Development Farm Loans individually evaluated for credit losses $ 5,391 $ 1,435 $ 982 $ 652 $ 1,312 Loans collectively evaluated for credit losses 8,218 117 273 12,860 564 Total $ 13,609 $ 1,552 $ 1,255 $ 13,512 $ 1,876 December 31, 2020 (continued) Non-Owner Occupied C RE Owner Occupied C R E Residential Auto Non-Auto Total Loans individually evaluated for credit losses $ 1,921 $ 5,829 $ 3,107 $ 6 $ 2 $ 20,637 Loans collectively evaluated for credit losses 6,470 6,518 9,494 1,014 369 45,897 Total $ 8,391 $ 12,347 $ 12,601 $ 1,020 $ 371 $ 66,534 The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of December 31, 2019, are summarized in the following table by loan segment in accordance with the legacy disclosure requirements (in thousands). December 31, 2019 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 1,042 $ 235 $ 1,950 $ 1 $ 3,228 Loan collectively evaluated for impairment 11,080 971 32,024 5,196 49,271 Total $ 12,122 $ 1,206 $ 33,974 $ 5,197 $ 52,499 The Company’s recorded investment in loans as of December 31, 2020, related to the balance in the allowance for credit losses on the basis of the Company’s evaluation methodology in accordance with the new CECL disclosure requirements follows below (in thousands). December 31, 2020 C&I Municipal Agriculture Construction & Development Farm Loans individually evaluated for credit losses $ 30,644 $ 9,439 $ 6,648 $ 15,205 $ 10,648 Loans collectively evaluated for credit losses 1,100,738 171,886 88,216 538,754 141,589 Total $ 1,131,382 $ 181,325 $ 94,864 $ 553,959 $ 152,237 December 31, 2020 (continued) Non - Owner Occupied CRE Owner Occupied CRE Residential Auto Non-Auto Total Loans individually evaluated for credit losses $ 22,626 $ 62,730 $ 37,047 $ 1,930 $ 534 $ 197,451 Loans collectively evaluated for credit losses 595,060 684,244 1,211,362 351,665 90,068 4,973,582 Total $ 617,686 $ 746,974 $ 1,248,409 $ 353,595 $ 90,602 $ 5,171,033 F-24 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The Company’s recorded investment in loans as of December 31, 2019, related to the balance in the allowance for loan losses on the basis of the Company’s legacy impairment methodology follows below (in thousands). December 31, 2019 Commercial Agricultural Real Estate Consumer Total Loans individually evaluated for impairment $ 3,093 $ 1,376 $ 19,787 $ 326 $ 24,582 Loan collectively evaluated for impairment 853,233 102,264 2,803,585 411,305 4,170,387 Total $ 856,326 $ 103,640 $ 2,823,372 $ 411,631 $ 4,194,969 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). The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our on-going monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss). Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly. Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed. Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on nonaccrual. The following tables summarize the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at December 31, 2020 under the new CECL disclosure requirements (in millions): December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total C&I Risk rating: Pass $ 874 $ 101 $ 70 $ 28 $ 10 $ 16 $ — $ 1,099 Special mention 9 2 — 1 — — — 12 Substandard 12 4 4 — — — — 20 Doubtful — — — — — — — — Total $ 895 $ 107 $ 74 $ 29 $ 10 $ 16 $ — $ 1,131 F-25 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Municipal Risk rating: Pass $ 26 $ 19 $ 29 $ 14 $ 13 $ 71 $ — $ 172 Special mention — — — — — — — — Substandard 2 — — 5 1 1 — 9 Doubtful — — — — — — — — Total $ 28 $ 19 $ 29 $ 19 $ 14 $ 72 $ — $ 181 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Agricultural Risk rating: Pass $ 57 $ 19 $ 9 $ 3 $ 1 $ — $ — $ 89 Special mention — — — — — — — — Substandard 6 — — — — — — 6 Doubtful — — — — — — — — Total $ 63 $ 19 $ 9 $ 3 $ 1 $ — $ — $ 95 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Construction & Development Risk rating: Pass $ 371 $ 97 $ 36 $ 19 $ 7 $ 9 $ — $ 539 Special mention 2 4 — — — — — 6 Substandard 4 1 — 3 — 1 — 9 Doubtful — — — — — — — — Total $ 377 $ 102 $ 36 $ 22 $ 7 $ 10 $ — $ 554 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Farm Risk rating: Pass $ 57 $ 22 $ 18 $ 11 $ 11 $ 23 $ — $ 142 Special mention — — — — — — — — Substandard 7 1 — 1 — 1 — 10 Doubtful — — — — — — — — Total $ 64 $ 23 $ 18 $ 12 $ 11 $ 24 $ — $ 152 F-26 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Non-Owner Occupied CRE Risk rating: Pass $ 197 $ 117 $ 93 $ 44 $ 55 $ 88 $ — $ 594 Special mention 1 — 1 8 1 — — 11 Substandard — 2 — — — 11 — 13 Doubtful — — — — — — — — Total $ 198 $ 119 $ 94 $ 52 $ 56 $ 99 $ — $ 618 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Owner Occupied CRE Risk rating: Pass $ 176 $ 132 $ 105 $ 75 $ 65 $ 132 $ — $ 685 Special mention 5 5 2 4 1 1 — 18 Substandard 5 4 20 4 1 10 — 44 Doubtful — — — — — — — — Total $ 186 $ 141 $ 127 $ 83 $ 67 $ 143 $ — $ 747 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Residential Risk rating: Pass $ 373 $ 172 $ 134 $ 101 $ 101 $ 237 $ 93 $ 1,211 Special mention 3 1 1 1 1 3 — 10 Substandard 5 3 3 3 1 10 2 27 Doubtful — — — — — — — — Total $ 381 $ 176 $ 138 $ 105 $ 103 $ 250 $ 95 $ 1,248 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Auto Risk rating: Pass $ 177 $ 104 $ 39 $ 21 $ 9 $ 2 $ — $ 352 Special mention — — — — — — — — Substandard 1 1 — — — — — 2 Doubtful — — — — — — — — Total $ 178 $ 105 $ 39 $ 21 $ 9 $ 2 $ — $ 354 F-27 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Non-Auto Risk rating: Pass $ 48 $ 21 $ 7 $ 4 $ 1 $ 2 $ 7 $ 90 Special mention — — — — — — — — Substandard — — — — — 1 — 1 Doubtful — — — — — — — — Total $ 48 $ 21 $ 7 $ 4 $ 1 $ 3 $ 7 $ 91 December 31, 2020 2019 2018 2017 2016 Prior Revolving Loans Amort Cost Basis Total Total Loans Risk rating: Pass $ 2,356 $ 804 $ 540 $ 320 $ 273 $ 580 $ 100 $ 4,973 Special mention 20 12 4 14 3 4 — 57 Substandard 42 16 27 16 3 35 2 141 Doubtful — — — — — — — — Total $ 2,417 $ 834 $ 571 $ 349 $ 280 $ 619 $ 102 $ 5,171 The following tables summarize the Company’s internal ratings of its loans held-for-investment, at December 31, 2019 under the legacy disclosure requirements (in million): December 31, 2019 Pass Special Mention Substandard Doubtful Total Commercial $ 825 $ 21 $ 10 $ — $ 856 Agricultural 102 — 2 — 104 Real Estate 2,717 42 64 — 2,823 Consumer 411 — 1 — 412 Total $ 4,055 $ 63 $ 77 $ — $ 4,195 F-28 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 At December 31, 2020 and 2019, the Company’s past due loans are as follows (in thousands): December 31, 2020 15-59 Days Past Due* 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans 90 Days Past Due Still Accruing Commercial: C&I $ 3,647 $ 406 $ 576 $ 4,629 $ 1,126,753 $ 1,131,382 $ 21 Municipal — — — — 181,325 181,325 — Total Commercial 3,647 406 576 4,629 1,308,078 1,312,707 21 Agricultural 193 95 — 288 94,576 94,864 — Real Estate: Construction & Development 4,775 44 — 4,819 549,140 553,959 — Farm 708 — — 708 151,529 152,237 — Non-Owner Occupied CRE 613 — — 613 617,073 617,686 — Owner Occupied CRE 1,393 322 133 1,848 745,126 746,974 — Residential 8,072 18 275 8,365 1,240,044 1,248,409 33 Total Real Estate 15,561 384 408 16,353 3,302,912 3,319,265 33 Consumer: Auto 551 158 75 784 352,811 353,595 59 Non-Auto 214 24 — 238 90,364 90,602 — Total Consumer 765 182 75 1,022 443,175 444,197 59 Total $ 20,166 $ 1,067 $ 1,059 $ 22,292 $ 5,148,741 $ 5,171,033 $ 113 December 31, 2019 15-59 Days Past Due* 60-89 Days Past Due Greater Than 90 Days Total Past Due Current Total Loans Total 90 Days Past Du e Still Accruing Commercial $ 3,257 $ 557 $ 722 $ 4,536 $ 851,790 $ 856,326 $ 112 Agricultural 183 44 400 627 103,013 103,640 — Real Estate 12,890 288 195 13,373 2,809,999 2,823,372 — Consumer 572 151 45 768 410,863 411,631 41 Total $ 16,902 $ 1,040 $ 1,362 $ 19,304 $ 4,175,665 $ 4,194,969 $ 153 * The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due. F-29 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The restructuring of a loan is considered a “troubled debt restructuring” if both the borrower is experiencing financial difficulties and the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules, reductions in collateral and other actions intended to minimize potential losses. The Company’s loans that were modified in the years ended December 31, 2020 and 2019, and considered troubled debt restructurings are as follows (in thousands): Year Ended December 31, 2020 Pre-Modification Post- Modification Recorded Recorded Number Investment Investment Commercial: C&I 11 $ 1,151 $ 1,151 Municipal — — — Total Commercial 11 1,151 1,151 Agricultural 1 134 134 Real Estate: Construction & Development 1 81 81 Farm — — — Non-Owner Occupied CRE — — — Owner Occupied CRE 3 3,508 3,508 Residential 2 152 152 Total Real Estate 6 3,741 3,741 Consumer: Auto — — — Non-Auto 1 14 14 Total Consumer 1 14 14 Total 19 $ 5,040 $ 5,040 Year Ended December 31, 2019 Number Pre-Modification Recorded Investment Post- Modification Recorded Investment Commercial 7 $ 551 $ 551 Agricultural 11 812 812 Real Estate 7 1,397 1,397 Consumer — — — Total 25 $ 2,760 $ 2,760 F-30 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The balances below provide information as to how the loans were modified as troubled deb t restructured loans during the years ended December 31, 2020 and 2019 (in thousands): Year Ended December 31, 2020 Adjusted Combined Interest Extended Rate and Rate Maturity Maturity Commercial: C&I $ — $ 918 $ 233 Municipal — — — Total Commercial — 918 233 Agricultural — 134 — Real Estate: Construction & Development — — 81 Farm — — — Non-Owner Occupied CRE — — — Owner Occupied CRE — 1,546 1,962 Residential — — 152 Total Real Estate — 1,546 2,195 Consumer: Auto — — — Non-Auto — 14 — Total Consumer — 14 — Total $ — $ 2,612 $ 2,428 Year Ended December 31, 2019 Adjusted Interest Rate Extended Maturity Combined Rate and Maturity Commercial $ — $ 389 $ 162 Agricultural — 354 458 Real Estate — 494 903 Consumer — — — Total $ — $ 1,237 $ 1,523 F-31 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 During the year ended December 31, 2020 no loans were modified as troubled debt restructured loans within the previous 12 months and for which there was a payment default. During the year ended December 31, 2019, certain loans were modified as a troubled debt restructured loans 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 or more due or results in the foreclosure and repossession of the applicable collateral. The loans with payment default are as follows (in thousands): Year Ended December 31, 2019 Number Balance Commercial — $ — Agriculture 7 267 Real Estate — — Consumer — — Total 7 $ 267 December 31, 2020, the Company has no commitments to lend additional funds to loan customers whose terms have been modified in troubled debt restructurings. Beginning in mid-March of 2020, the Company began offering deferral modification of principle and/or interest payments, for varying periods but typically no more than 90 days, to selected borrowers on a case-by-case basis. At December 31, 2020, the Company had approximately 59 loans totaling $ 2,691,000 in outstanding loans subject to deferral and modification agreements. The CARES Act provided banks an option to elect to not account for certain loan modifications related to COVID as troubled debt restructurings as long as the borrowers were not more than 30 days past due as of December 31, 2019. The above disclosed troubled debt restructurings did not include balances related to COVID modifications. An analysis of the changes in loans to officers, directors, principal shareholders, or associates of such persons for the year ended December 31, 2020 (determined as of each respective year-end) follows (in thousands): Beginning Balance Additional Loans Payments Ending Balance Year ended December 31, 2020 $ 85,364 $ 107,837 $ 102,237 $ 90,964 In the opinion of management, those loans are on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unaffiliated persons. 4. LOANS HELD-FOR-SALE: Loans held for sale totaled $ 83,969 ,000 and $ 28,228 ,000 at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, $ 4,384,000 and $ 5,152,000 , respectively, are valued at the lower of cost or fair value, and the remaining amount 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: (i) the fair value of the securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as F-32 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Level 2 in the fair value disclosures (see Note 10). Interest income on mortgage loans held-for-sale is recognized based on the contractual rates and reflected in interest income on loans in the consolidated statements of earnings. The Company has no continuing ownership in any of these residential mortgage loans sold. The Company originates certain mortgage loans for sale in the secondary market. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to six months, or if documentation is determined not to be in compliance with regulations. The Company’s historic losses as a result of these indemnities have been insignificant. 5. DERIVATIVE FINANCIAL INSTRUMENTS : The Company enters into IRLCs with customers to originate residential mortgage loans at a specific interest rate that are ultimately sold in the secondary market. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. The Company purchases forward mortgage-backed securities contracts to manage the changes in fair value associated with changes in interest rates related to a portion of the IRLCs. These instruments are typically entered into at the time the IRLC is made in the aggregate. These financial instruments are not designated as hedging instruments for accounting purposes and are used for asset and liability management needs. All derivatives are carried at fair value in either other assets or other liabilities, through earnings in the statement of earnings. The fair values of IRLCs are based on current secondary market prices for underlying loans and estimated servicing value with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability (pull-through rate) net of estimated costs to originate the loan. The fair value of IRLCs is subject to change primarily due to changes in interest rates and the estimated pull-through rate. These commitments are classified as Level 2 in the fair value disclosures (see Note 10), as the valuations are based on observable market inputs. 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 2 in the fair value disclosures (see Note 10). The estimated fair values are subject to change primarily due to changes in interest rates. The impact of these forward contracts is included in gain on sale and fees on mortgage loans in the statement of earnings. The following table provides the outstanding notional balances and fair values of outstanding derivative positions (in thousands): December 31, 2020: Outstanding Notional Balance Asset Derivative Fair Value Liability Derivative Fair Value IRLCs $ 202,906 $ 4,618 $ — Forward mortgage-backed securities trades 198,000 — 1,560 December 31, 2019: Outstanding Notional Balance Asset Derivative Fair Value Liability Derivative Fair Value IRLCs $ 47,415 $ 886 $ — Forward mortgage-backed securities trades 78,500 — 152 F-33 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 6. BANK PREMISES AND EQUIPMENT : The following is a summary of bank premises and equipment (in thousands): Useful Life December 31, 2020 2019 Land – $ 34,266 $ 30,800 Buildings 20 to 40 years 148,630 138,110 Furniture and equipment 3 to 10 years 57,283 60,200 Leasehold improvements Lesser of lease term or 5 to 15 years 3,016 3,364 243,195 232,474 Less : accumulated depreciation and amortization ( 100,926 ) ( 101,452 ) Total Bank Premises and Equipment $ 142,269 $ 131,022 Depreciation expense for the years ended December 31, 2020, 2019 and 2018 amounted to $ 9,865,000 , $ 9,801,000 and $ 10,130,000 , respectively, and is included in the captions net occupancy expense and equipment expense in the accompanying consolidated statements of earnings. The Company is lessor for portions of its banking premises. Total rental income for all leases included in net occupancy expense is approximately $ 2,789,000 , $ 2,831,000 and $ 2,682,000 , for the years ended December 31, 2020, 2019 and 2018, respectivel y . 7. DEPOSITS AND BORROWINGS: Time deposits of $ 250,000 or more totaled approximately $ 153,962,000 and $ 117,716,000 at December 31, 2020 and 2019, respectively. At December 31, 2020, the scheduled maturities of time deposits (in thousands) were, as follows: Year ending December 31, 2021 $ 391,638 2022 46,762 2023 17,733 2024 9,838 2025 9,429 Thereafter 25 $ 475,425 Deposits received from related parties at December 31, 2020 and 2019 totaled $ 98,413,000 and $ 87,027,000 , respectively. Borrowings at December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 2019 Securities sold under agreements with customers to repurchase. $ 412,743 $ 375,106 Federal funds purchased 17,350 6,250 Advances from Federal Home Loan Bank of Dallas — — Total $ 430,093 $ 381,356 F-34 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 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. The agreements mature daily and therefore the risk arising from a decline in the fair value of the collateral pledged is minimal. The securities pledged are mortgage-backed securities. These agreements do not include “right of set-off” provisions and therefore the Company does not offset such agreements for financial reporting purposes. 8. LINE OF CREDIT: The Company renewed its loan agreement, effective June 30, 2019, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $ 25,000,000 on a revolving line of credit. Prior to June 30, 2021, interest will be paid quarterly at The Wall Street Journal Prime Rate and the line of credit matures June 30, 2021 . If a balance exists at June 30, 2021, the principal balance converts to a term facility payable quarterly over five years and interest is paid quarterly at The Wall Street Journal Prime Rate. The line of credit is unsecured. Among other provisions in the credit agreement, we must satisfy certain financial covenants during the term of the loan agreement, including, without limitation, covenants that require us to maintain certain capital, tangible net worth, loan loss reserve, non-performing asset and cash flow coverage ratios. In addition, the credit agreement contains certain operational covenants, which among others, restricts the payment of dividends above 55 % of consolidated net income, limits the incurrence of debt (excluding any amounts acquired in an acquisition) and prohibits the disposal of assets except in the ordinary course of business. Since 1995, we have historically declared dividends as a percentage of our consolidated net income in a range of 37 % (low) in 1995 to 53 % (high) in 2003 and 2006. The Company was in compliance with the financial and operational covenants at December 31, 2020. There was no outstanding balance under the line of credit as of December 31, 2020 or 2019. 9. INCOME TAXES: On December 22, 2017, the Tax Cuts and Jobs Act was signed into law with sweeping modifications to the Internal Revenue Code. The primary change for the Company was to lower the corporate income tax rate to 21 % from 35 %. The Company’s deferred tax assets and liabilities were re-measured based on the income tax rates at which they are expected to reverse in the future, which is generally 21 %. The provisional amount recorded related to the re-measurement of the Company’s deferred tax balance was $ 7,650,000 , a reduction of income tax expense for the year ended December 31, 2017. Additionally, 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 $ 664,000 . No additional adjustment amounts were recorded for the years ended December 31, 2020 and 2019. The Company files a consolidated federal income tax return. Income tax expense is comprised of the following (in thousands): Year Ended December 31, 2020 2019 2018 Current federal income tax $ 45,133 $ 33,099 $ 28,359 Current state income tax 447 150 92 Deferred federal income tax expense (benefit) ( 5,249 ) ( 29 ) ( 250 ) Restatement of net deferred tax liability due to change in income tax rate — — ( 664 ) Income tax expense $ 40,331 $ 33,220 $ 27,537 F-35 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Income tax expense, as a percentage of pretax earnings, differs from the statutory federal income tax rate as follows: As a Percent of Pretax Earnings 2020 2019 2018 Statutory federal income tax rate 21.0 % 21.0 % 21.0 % Restatement of net deferred tax liability due to change in income tax rate — — ( 0.4 ) Reductions in tax rate resulting from interest income exempt from federal income tax ( 4.6 ) ( 4.5 ) ( 5.2 ) Effect of state income tax 0.2 0.1 0.1 ESOP tax deduction ( 0.1 ) ( 0.1 ) ( 0.1 ) Other 0.1 0.3 0.1 Effective income tax rate 16.6 % 16.8 % 15.5 % The approximate effects of each type of difference that gave rise to the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows (in thousands): 2020 2019 Deferred tax assets: Tax basis of loans in excess of financial statement basis $ 19,193 $ 12,245 Recognized for financial reporting purposes but not yet for tax purposes: Deferred compensation 2,479 2,254 Write-downs and adjustments to other real estate owned and repossessed assets — 48 Other deferred tax assets 746 157 Total deferred tax assets $ 22,418 $ 14,704 Deferred tax liabilities: Financial statement basis of fixed assets in excess of tax basis $ 5,712 $ 4,651 Intangible asset amortization deductible for tax purposes, but not for financial reporting purposes 13,400 11,935 Recognized for financial reporting purposes but not yet for tax purposes: Accretion on investment securities 698 755 Net unrealized gain on investment securities available-for-sale 45,295 17,945 Other deferred tax liabilities 46 51 Total deferred tax liabilities $ 65,151 $ 35,337 Net deferred tax asset (liability) $ ( 42,733 ) $ ( 20,633 ) At December 31, 2020 and 2019, management believes that it is more likely than not that all of the deferred tax assets shown above will be realized and therefore no valuation allowance was recorded. Current authoritative accounting guidance prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of cumulative benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. Current authoritative accounting guidance also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. The Company concluded the tax F-36 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 benefits of positions taken and expected to be taken on its tax returns should be recognized in the financial statements under this guidance. The Company files income tax returns in the U.S. federal jurisdiction and state margin tax returns in the state of Texas. We are no longer subject to U.S. federal income tax examinations by tax authorities for years before 2016 or Texas state tax examinations by tax authorities for years before 2017. As of December 31, 2020 and 2019, the Company believes that there are no uncertain tax positions. 10. FAIR VALUE DISCLOSURES: The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. 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. The fair value hierarchy is as follow s : • Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means. • Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities. A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. F-37 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 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. 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 2 and Level 3 during the years ended December 31, 2020, 2019 and 2018. The following table summarizes the Company’s available-for-sale securities, loans held-for-sale, and derivatives which are measured at fair value on a recurring basis as of December 31, 2020 and 2019 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in thousands): December 31, 2020 Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Available-for-sale investment securities: Obligations of state and political subdivisions $ — $ 2,426,876 $ — $ 2,426,876 Residential mortgage-backed securities — 1,472,280 — 1,472,280 Commercial mortgage-backed securities — 489,316 — 489,316 Other securities 4,557 — — 4,557 Total $ 4,557 $ 4,388,472 $ — $ 4,393,029 Loans held-for-sale $ — $ 79,585 $ — $ 79,585 IRLCs $ — $ 4,618 $ — $ 4,618 Forward mortgage-backed securities traded $ — $ ( 1,560 ) $ — $ ( 1,560 ) December 31, 2019 Level 1 Inputs Level 2 Inputs Level 3 Inputs Total Fair Value Available-for-sale investment securities: U.S Treasury securities $ 10,019 $ — $ — $ 10,019 Obligations of state and political subdivisions — 1,288,983 — 1,288,983 Corporate bonds — 230 — 230 Residential mortgage-backed securities — 1,608,863 — 1,608,863 Commercial mortgage-backed securities — 500,744 — 500,744 Other securities 4,478 — — 4,478 Total $ 14,497 $ 3,398,820 $ — $ 3,413,317 Loans held-for-sale $ — $ 23,076 $ — $ 23,076 IRLCs $ — $ 886 $ — $ 886 Forward mortgage-backed securities traded $ — $ ( 152 ) $ — $ ( 152 ) F-38 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The following table summarizes the Company’s loans held-for-sale at fair value and the net unrealized gains as of the balance sheet dates shown below (in thousands): December 31, 2020 2019 Unpaid principal balance on loans held-for-sale $ 76,602 $ 22,340 Net unrealized gains on loans held-for-sale 2,983 736 Loans held-for-sale at fair value $ 79,585 $ 23,076 The following table summarizes the Company’s gains on sale and fees of mortgage loans for the years ended December 31, 2020, 2019 and 2018 (in thousands): Years ended December 31, 2020 2019 2018 Realized gain on sale and fees on mortgage loans* $ 39,378 $ 17,748 $ 14,595 Change in fair value on loans held-for-sale and IRLCs 5,900 145 919 Change in forward mortgage-backed securities trades ( 1,406 ) 251 ( 357 ) Total gain on sale of mortgage loans $ 43,872 $ 18,144 $ 15,157 * This includes gain on loans held-for-sale carried under the fair value method and lower of cost or market. No residential mortgage loans held-for-sale were 90 days or more past due or considered nonaccrual as of December 31, 2020 or 2019. No significant credit losses were recognized on mortgage loans held-for-sale for the years ended December 31, 2020, 2019 and 2018. Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring 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 nonrecurring basis during the years ended December 31, 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. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from 5 % to 25 % of the appraised value. Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were no other real estate owned properties that were re-measured subsequent to their initial transfer to other real estate owned during the years ended December 31, 2020 and 2019. At December 31, 2020 and 2019, other real estate owned totaled $ 119,000 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. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. F-39 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Cash and due from banks, federal funds sold, interest-bearing deposits in banks and accrued interest receivable and payable are liquid in nature and considered Levels 1 or 2 of the fair value hierarchy. Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarch y . The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material. The estimated fair values and carrying values of all financial instruments under current authoritative guidance at December 31, 2020 and 2019, were as follows (in thousands): 2020 2019 Carrying Estimated Carrying Estimated Fair Value Value Fair Value Value Fair Value Hierarchy Cash and due from banks $ 211,113 $ 211,113 $ 231,534 $ 231,534 Level 1 Federal funds sold — — 3,150 3,150 Level 1 Interest-bearing demand deposits in banks 517,971 517,971 47,920 47,920 Level 1 Available-for-sale securities 4,393,029 4,393,029 3,413,317 3,413,317 Levels 1 and 2 Loans held-for-investment, net of allowance for credit losses 5,104,499 5,109,885 4,142,470 4,157,327 Level 3 Loans held-for-sale 83,969 84,233 28,228 28,343 Level 2 Accrued interest receivable 53,433 53,433 36,894 36,894 Level 2 Deposits with stated maturities 475,542 477,218 420,013 421,397 Level 2 Deposits with no stated maturities 8,200,275 8,200,275 6,183,793 6,183,793 Level 1 Borrowings 430,093 430,093 381,356 381,356 Level 2 Accrued interest payable 377 377 628 628 Level 2 IRLCs 4,618 4,618 886 886 Level 2 Forward mortgage-backed securities trades ( 1,560 ) ( 1,560 ) ( 152 ) ( 152 ) Level 2 F-40 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 11. COMMITMENTS AND CONTINGENCIES: The Company is engaged in legal actions arising from the normal course of business. In management’s opinion, the Company has adequate legal defenses with respect to these actions, and as of December 31, 2020 the resolution of these matters is not expected to have material adverse effects upon the results of operations or financial condition of the Company. The Company leases a portion of its bank premises and equipment under operating leases. At December 31, 2020, future minimum lease commitments were: 2021 - $ 1,049,000 , 2022 - $ 494,000 , 2023 - $ 376,000 , 2024 $ 317,000 and 2025 $ 218,000 and thereafter - $ 78,000 . 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. At December 31, 2020, the Company’s reserve for unfunded commitments totaled $ 5,486,000 which is recorded in other liabilities. Our exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for unfunded lines of credit, commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We generally use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. December 31, 2020 (in thousands) Financial instruments whose contract amounts represent credit risk: Unfunded lines of credit $ 871,960 Unfunded commitments to extend credit 742,538 Standby letters of credit 40,050 Total commercial commitments $ 1,654,548 The above table also does not include balances related to the Company’s IRLCs and forward mortgage-backed security trades. Unfunded lines of credit and commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, as we deem necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment and income-producing commercial properties. Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The average collateral value held on letters of credit usually exceeds the contract amount. We believe we have no other off-balance sheet arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements. 13. CONCENTRATION OF CREDIT RISK: The Company grants commercial, retail, agriculture and residential real estate loans to customers primarily in North Central, Southeastern and West Texas. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers’ ability to honor their commitments is dependent upon each local economic sector. In addition, the Company holds mortgage related securities which are guaranteed by GNMA, FNMA or FHLMC or are collateralized by loans backed by these agencies. F-41 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 14. 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. The pension plan covered substantially all of the Company’s employees at the time. In December 2018 the Company determined it was in the best interest of its shareholders to work toward terminating its pension obligation. The Company annuitized approximately 53 % of the pension benefit obligation at that time and recorded a loss on settlement totaling $ 1,546,000 for the year ended December 31, 2018. In 2019, the Company continued to take steps to completely settle and terminate its remaining pension obligation and recorded loss associated with the final termination of $ 2,673,000 . The loss incurred included unrealized loss previously recorded in other comprehensive income and refunding to remaining participants for funding balance overages offset by a gain on hedging instrument entered into to minimize interest rate movement during the termination period. At December 31, 2019, all balances in the pension plan were zero and the Company’s obligation has been extinguished. 15. EMPLOYEE BENEFIT PLANS: The Company also provides a 401(k) plan and profit sharing plan which covers substantially all full-time employees. The 401(k) plan allows employees to contribute a percentage of their base annual salary with a corresponding employer match. The profit sharing plan is a defined contribution plan and includes an employee stock ownership feature (“ESOP”). Employees are fully vested to the extent of their contributions and become fully vested in the Company’s contributions over a six-year vesting period. In 2004, after freezing our pension plan, we added a safe harbor match to the 401(k) plan. We match a maximum of 4 % on employee deferrals of 5 % of their employee compensation. Total expense for this matching in 2020, 2019 and 2018 was $ 3,374,000 , $ 2,759,000 and $ 2,588,000 , respectively, and is included in salaries and employee benefits in the statements of earnings. Costs related to the Company’s profit sharing plan totaled approximately $ 10,740,000 , $ 7,661,000 and $ 7,049,000 in 2020, 2019 and 2018, respectively, and are included in salaries and employee benefits in the accompanying consolidated statements of earnings. As of December 31, 2020 and 2019, the profit sharing plan’s assets included First Financial Bankshares, Inc. common stock valued at approximately $ 81,605,000 and $ 83,014,000 , respectively. The Company has a non-qualified “excess benefit” plan whereunder executives, whose Company contributions to the profit sharing plan and employer match under the 401(k) feature are curtailed due to Internal Revenue Service limitations, received contributions from the Company equal to the amount under qualified plans as if there had been no Internal Revenue Service limitations. This plan used the same contribution formula and vesting requirements as the 401(k) plan. Th is " Make Whole Plan " was frozen to new participants and contributions effective December 31, 2018. As of December 31, 2020 and 2019, the Make Whole Plan held 115,614 and 137,861 shares, respectively, in trust for the Company’s executives. The Company made contributions totaling $ 349,000 during the year ended December 31, 2018. There were no contributions to this plan during the years ended December 31, 20 20 and 20 19 . The Company adopted a Supplemental Executive Retirement Plan (“SERP”), effective January 1, 2019. The SERP benefits certain key senior executives of the Company who are selected by the Board to participate. The SERP is intended to provide a benefit from the Company upon retirement, death, disability or voluntary or involuntary termination of services (other than “for cause”). Under the SERP, the Company may, but is not required to, make discretionary contributions to the executive’s accounts from time to time. The contributions may be fully vested or subject to vesting conditions imposed by the Board of Directors with respect to the contributions; provided, however, that all unvested amounts credited to an executive’s account will become fully vested upon the executive’s death or disability or upon the occurrence of a change of control (as defined in the SERP). Company contributions to the SERP on behalf of an executive are credited with earnings and losses based on the executive’s investment elections. The investment options under the SERP are currently the same as those offered under the Company’s profit sharing plan, except that Company stock is not an available investment option under the SERP. An executive’s vested account is payable to the participant following hi s F-42 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 or her termination in a single lump sum or installments, as elected by the participant. At December 31, 2020, securities available-for-sale and other assets on the consolidated balance sheet include $ 522,000 of SERP balances. The Company made contributions totaling $ 719,000 and $ 477,000 to the SERP for the years ended December 31, 2020 and 2019 , subsequent to the respective year ends, for certain executive officers. There were no contributions to this plan during the year ended December 31, 2018. The Company has a directors’ deferred compensation plan whereby the directors may elect to defer up to 100 % of their directors’ fees. All deferred compensation is invested in the Company’s common stock held in a rabbi trust wherein the funds are used to purchase Company common shares on the open market. The stock is held in nominee name of the trustee, and the principal and earnings of the trust are held separate and apart from other funds of the Company and are used exclusively for the uses and purposes of the deferred compensation agreement. The accounts of the trust have been consolidated in the financial statements of the Company. As of December 31, 2020 and 2019, the rabbi trust held 938,591 and 927,408 shares, respectively, in trust for the Company’s directors and are reflected as treasury shares on the consolidated financial statements. The Company has acquired life insurance policies on certain current and former executives and directors of acquired entities. At December 31, 2020 and 2019, other assets on the consolidated balance sheet include $ 31,584,000 and $ 15,299,000 and reported cash value income (net of related insurance premium expenses) of $ 822,000 , $ 359,000 and $ 396,000 in 2020, 2019 and 2018, respectively. 16. DIVIDENDS FROM SUBSIDIARIES: At December 31, 2020, $ 289,684,000 was available for the declaration of dividends by the Company’s subsidiaries without the prior approval of regulatory agencies. 17. REGULATORY MATTERS: Banking regulators measure capital adequacy by means of the risk-based capital ratios and the leverage ratio under the Basel III regulatory capital framework and prompt corrective action regulations. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio is computed by dividing shareholders’ equity less intangible assets by quarter-to-date average assets less intangible assets. Beginning in January 2015, under the Basel III regulatory capital framework, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625 % level and increased 0.625 % each year thereafter, until it reached 2.50 % on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers. As of December 31, 2020 and 2019, we had a total risk-based capital ratio of 22.03 % and 21.13 %, a Tier 1 capital to risk-weighted assets ratio of 20.79 % and 20.06 %; a common equity Tier 1 capital to risk-weighted assets ratio of 20.79 % and 20.06 %, and a Tier 1 leverage ratio of 11.86 % and 12.60 %, respectively. The regulatory capital ratios as of December 31, 2020 and 2019 were calculated under Basel III rules. F-43 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 As of December 31, 2020 and 2019, the regulatory capital ratios of the Company and Bank under the Basel III regulatory capital framework are as follows: Actual Minimum Capital Required-Basel III Fully Phased-In* Required to be Considered Well- Capitalized As of December 31, 2020: Amount Ratio Amount Ratio Amount Ratio Total Capital to Risk-Weighted Assets: Consolidated $ 1,273,749 22.03 % $ 607,038 10.50 % $ 578,131 10.00 % First Financial Bank, N.A $ 1,123,275 19.47 % $ 605,830 10.50 % $ 576,981 10.00 % Tier 1 Capital to Risk-Weighted Assets: Consolidated $ 1,201,729 20.79 % $ 491,412 8.50 % $ 346,879 6.00 % First Financial Bank, N.A $ 1,051,255 18.22 % $ 490,434 8.50 % $ 461,585 8.00 % Common Equity Tier 1 Capital to Risk-Weighted Assets: Consolidated $ 1,201,729 20.79 % $ 404,692 7.00 % — N/A First Financial Bank, N.A $ 1,051,255 18.22 % $ 403,887 7.00 % $ 375,038 6.50 % Leverage Ratio: Consolidated $ 1,201,729 11.86 % $ 405,268 4.00 % — N/A First Financial Bank, N.A $ 1,051,255 10.41 % $ 404,002 4.00 % $ 505,002 5.00 % *At December 31, 2020 the Capital Conservative Buffer Basel III has been fully phased-in. Actual Minimum Capital Required-Basel III Fully Phased-In* Required to be Considered Well- Capitalized As of December 31, 2019: Amount Ratio Amount Ratio Amount Ratio Total Capital to Risk-Weighted Assets: Consolidated $ 1,051,029 21.13 % $ 522,275 10.50 % $ 497,405 10.00 % First Financial Bank, N.A $ 908,778 18.31 % $ 521,081 10.50 % $ 496,268 10.00 % Tier 1 Capital to Risk-Weighted Assets: Consolidated $ 997,721 20.06 % $ 422,794 8.50 % $ 298,443 6.00 % First Financial Bank, N.A $ 855,470 17.24 % $ 421,828 8.50 % $ 397,014 8.00 % Common Equity Tier 1 Capital to Risk-Weighted Assets: Consolidated $ 997,721 20.06 % $ 348,184 7.00 % — N/A First Financial Bank, N.A $ 855,470 17.24 % $ 347,388 7.00 % $ 322,574 6.50 % Leverage Ratio: Consolidated $ 997,721 12.60 % $ 316,850 4.00 % — N/A First Financial Bank, N.A $ 855,470 10.84 % $ 315,570 4.00 % $ 394,463 5.00 % In connection with the adoption of the Basel III regulatory capital framework, our subsidiary bank made the election to continue to exclude accumulated other comprehensive income from available-for-sale securities (“AOCI”) from capital in connection with its quarterly financial filing and, in effect, to retain the AOCI treatment under the prior capital rules. In connection with the First Financial Trust & Asset Management Company, N.A.’s (the “Trust Company”) application to obtain our trust charter, the Trust Company is required to maintain tangible net assets of $ 2,000,000 at all times. As of December 31, 2020, our Trust Company had tangible net assets totaling $ 33,513,000 . F-44 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Our subsidiary bank may be required at times to maintain reserve balances with the Federal Reserve Bank. At December 31, 2020 there was no subsidiary bank’s reserve balance required and at December 31, 2019, the subsidiary bank’s reserve balance required was $ 17,274,000 . 18. STOCK OPTION PLAN AND RESTRICTED STOCK PLAN: The Company has two incentive stock plans previously approved by the Company’s shareholders to provide for the granting of options to employees of the Company at prices not less than market at the date of grant. At December 31, 2020, the Company had reserved 5,378,359 shares of stock for issuance under the plan. The plan provides that options granted are exercisable after two years from date of grant at a rate of 20 % each year cumulatively during the 10 -year term of the option. Shares are issued under the stock option plan from available authorized shares. An analysis of stock option activity for the year ended December 31, 2020 is presented in the table and narrative below: Shares Weighted- Average Ex. Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value ($000) Outstanding, beginning of year 2,138,196 $ 20.12 Granted 11,250 34.55 Exercised ( 294,645 ) 15.96 Cancelled ( 21,744 ) 22.04 Outstanding, end of year 1,833,057 20.85 5.81 $ 28,098 Exercisable at end of year 892,957 $ 17.20 4.46 $ 16,936 The options outstanding at December 31, 2020 had exercise prices ranging between $ 7.87 and $ 34.55 . Stock options have been adjusted retroactively for the effects of stock dividends and split s . The following table summarizes information concerning outstanding and vested stock options as of December 31, 2020: Exercise Price Number Outstanding Remaining Contracted Life (Years) Number Vested $ 7.87 42,020 0.8 42,020 $ 15.43 258,507 2.8 258,507 $ 16.95 477,294 4.8 355,654 $ 21.18 656,736 6.4 236,776 $ 29.70 388,050 8.5 — $ 34.55 11,250 9.1 — The fair value of the options granted during 2020 and 2019 were estimated using the Black-Scholes options pricing model with the following weighted-average assumptions: risk-free interest rate of 1.83 %; expected dividend yield of 1.62 %; expected life of 6.64 ; and expected volatility of 26.69 %. The weighted-average grant-date fair value of options granted during 2020 and 2019 was $ 7.31 , respectively. There were no grants during 2018. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $ 4,052,000 , $ 5,742,000 and $ 5,476,000 , respectively. The Company recorded stock option expense totaling $ 1,377,000 , $ 1,489,000 and $ 1,508,000 for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $ 4,977,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.86 years. The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $ 1,293,000 , $ 1,693,000 and $ 888,000 . F-45 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 On April 28, 2015, shareholders of the Company approved a restricted stock plan for selected employees, officers, non-employee directors and consultants. At December 31, 2020, the Company had allocated 633,524 shares of stock for issuance under the plan. The following table summarized information about vested and unvested restricted stock outstanding at December 31, 2020, 2019 and 2018, respectively. For the year ended For the year ended For the year ended 2020 2019 2018 Restricted Stock Outstanding Weighted Average Grant Date Fair Value Restricted Stock Outstanding Weighted Average Grant Date Fair Value Restricted Stock Outstanding Weighted Average Grant Date Fair Value Balance at beginning of period 105,309 $ 29.93 97,192 $ 25.45 94,679 $ 20.12 Grants 56,480 29.22 67,331 31.80 73,470 26.95 Vesting ( 65,662 ) 29.39 ( 57,406 ) 31.49 ( 65,411 ) 25.79 Forfeited/expired ( 239 ) 29.70 ( 1,808 ) 27.67 ( 5,546 ) 22.85 Balance at end of period 95,888 $ 29.89 105,309 $ 29.93 97,192 $ 25.45 The total fair value of restricted stock vested was $ 1,924,000 , $ 1,597,000 and $ 1,385,000 for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recorded restricted stock expense for officers of $ 1,301,000 , $ 995,000 and $ 680,000 , respectively, for the years ended December 31, 2020, 2019 and 2018. The Company recorded director expense related to these restricted stock grants of $ 635,000 , $ 620,000 and $ 560,000 for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020 and 2019, there were $ 2,157,000 and $ 2,456,000 , respectively, of total unrecognized compensation cost related to unvested restricted stock which is expected to be recognized over a weighted-average period of 1.69 years and 1.67 years, respectively. At December 31, 2020 and 2019, there was $ 49,000 and $ 46,000 , respectively, accrued in other liabilities related to dividends declared to be paid upon vesting. 19. CONDENSED FINANCIAL INFORMATION—PARENT COMPANY: Condensed Balance Sheets-December 31, 2020 and 2019 ASSETS 2020 2019 Cash in subsidiary bank (1) $ 67,904 $ 44,422 Cash in unaffiliated banks (1) 2 2 Interest-bearing deposits in subsidiary bank (1) 68,760 80,652 Total cash and cash equivalents 136,666 125,076 Securities available-for-sale, at fair value 2,610 6,297 Investment in and advances to subsidiaries, at equity (1) 1,558,851 1,111,955 Intangible assets 723 723 Other assets 2,982 2,701 Total assets $ 1,701,832 $ 1,246,752 F-46 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 LIABILITIES AND SHAREHOLDERS’ EQUITY Total liabilities $ 23,642 $ 19,555 Shareholders’ equity: Common stock 1,422 1,359 Capital surplus 669,644 450,676 Retained earnings 836,729 707,656 Treasury stock ( 9,126 ) ( 8,222 ) Deferred compensation 9,126 8,222 Accumulated other comprehensive earnings 170,395 67,506 Total shareholders’ equity 1,678,190 1,227,197 Total liabilities and shareholders’ equity $ 1,701,832 $ 1,246,752 (1) Eliminates in consolidation. Condensed Statements of Earnings- For the Years Ended December 31, 2020, 2019 and 2018 2020 2019 2018 Income: Cash dividends from subsidiaries (1) $ 87,500 $ 84,500 $ 74,100 Excess of earnings over dividends of subsidiaries (1) 122,997 86,956 82,323 Other 8,368 7,937 7,269 Total income 218,865 179,393 163,692 Expenses: Salaries and employee benefits 13,795 11,963 9,966 Other operating expenses 5,599 4,756 4,781 Total expense 19,394 16,719 14,747 Earnings before income taxes 199,471 162,674 148,945 Income tax benefit 2,563 2,138 1,693 Net earnings $ 202,034 $ 164,812 $ 150,638 (1) Eliminates in consolidation. F-47 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 Condensed Statements of Cash Flows- For the Years Ended December 31, 2020, 2019 and 2018 2020 2019 2018 Cash flows from operating activities: Net earnings $ 202,034 $ 164,812 $ 150,638 Adjustments to reconcile net earnings to net cash provided by operating activities: Excess of earnings over dividends of subsidiary bank ( 122,997 ) ( 86,956 ) ( 82,323 ) Depreciation and amortization, net 198 246 331 Gain on sale of assets, net ( 38 ) — — Decrease (increase) in other assets 164 1,508 560 Increase (decrease) in other liabilities 2,083 990 1,932 Other 35 — ( 2 ) Net cash provided by operating activities 81,479 80,600 71,136 Cash flows from investing activities: Maturity of available-for-sale securities 3,720 — 2,000 Purchases of bank premises and equipment and software — ( 24 ) ( 346 ) Net cash provided by (used in) investing activities 3,720 ( 24 ) 1,654 Cash flows from financing activities: Proceeds of stock issuances 4,717 4,294 3,864 Cash dividends paid ( 70,318 ) ( 61,056 ) ( 53,861 ) Repurchase of stock ( 8,008 ) — — Net cash used in financing activities ( 73,609 ) ( 56,762 ) ( 49,997 ) Net increase in cash and cash equivalents 11,590 23,814 22,793 Cash and cash equivalents, beginning of year 125,076 101,262 78,469 Cash and cash equivalents, end of year $ 136,666 $ 125,076 $ 101,262 F-48 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 20. CASH FLOW INFORMATION: Supplemental information on cash flows and noncash transactions is as follows (dollars in thousands): Year Ended December 31, 2020 2019 2018 Supplemental cash flow information: Interest paid $ 14,494 $ 29,882 $ 18,709 Federal income taxes paid 44,381 30,726 26,578 Schedule of noncash investing and financing activities: Assets acquired through foreclosure 164 1,463 126 Investment securities purchased but not settled 14,641 — — Restricted stock granted to officers and directors 672 1,782 1,609 Stock issued in acquisition of TB&T Bancshares, Inc. 220,273 — — Stock issued in acquisition of Commercial Bancshares, Inc. — — 58,087 21. ACQUISITIONS Commercial Bancshares, Inc. On October 12, 2017 , we entered into an agreement and plan of reorganization to acquire Commercial Bancshares, Inc. and its wholly owned bank subsidiary, Commercial State Bank, Kingwood, Texas. On January 1, 2018, the transaction was completed. Pursuant to the agreement, we issued 1,289,371 shares of the Company’s common stock in exchange for all of the outstanding shares of Commercial Bancshares, Inc. In addition, Commercial Bancshares, Inc. made a $ 22,075,000 special dividend to its shareholders prior to closing of the transaction, which was increased for the amount by which Commercial Bancshares, Inc.’s consolidated shareholders’ equity as of January 1, 2018 exceeded $ 42,402,000 , after certain adjustments per the merger agreement. At closing, Commercial Bancshares, Inc. was merged into the Company and Commercial State Bank, Kingwood, Texas, was merged into First Financial Bank, National Association, Abilene, Texas, a wholly owned subsidiary of the Company. The primary purpose of the acquisition was to expand the Company’s market share around Houston. Factors that contributed to a purchase price resulting in goodwill include Commercial State Bank’s record of earnings, strong management and board of directors, strong local economic environment and opportunity for growth. The results of operations from this acquisition are included in the consolidated earnings of the Company commencing January 1, 2018. F-49 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The following table presents the amounts recorded on the consolidated balance sheet on the acquisition date (dollars in thousands): Fair value of consideration paid: Common stock issued ( 1,289,371 shares) $ 58,087 Fair value of identifiable assets acquired: Cash and cash equivalents 18,653 Securities available-for-sale 64,501 Loans 266,327 Identifiable intangible assets 3,167 Other assets 15,375 Total identifiable assets acquired 368,023 Fair value of liabilities assumed: Deposits 341,902 Other liabilities ( 373 ) Total liabilities assumed 341,529 Fair value of net identifiable assets acquired 26,494 Goodwill resulting from acquisition $ 31,593 Goodwill recorded in the acquisition was accounted for in accordance with the authoritative business combination guidance. Accordingly, goodwill will not be amortized but will be tested for impairment annually. The goodwill recorded is not deductible for federal income tax purposes. The fair value of total loans acquired was $ 266,327 ,000 at acquisition compared to contractual amounts of $ 271,714,000 . The fair value of purchased credit impaired loans at acquisition was $ 3,013,000 compared to contractual amounts of $ 3,806,000 . Additional purchased credit impaired loan disclosures were omitted due to immateriality. All other acquired loans were considered performing loans. Commercial State Bank had branches in Kingwood, Fulshear, El Campo and Palacios, all located around Houston, Texas. TB&T Bancshares, Inc. On September 19, 2019 , we entered into an agreement and plan of reorganization to acquire TB&T Bancshares, Inc. and its wholly-owned bank subsidiary, The Bank & Trust of Bryan/College Station, Texas. On January 1, 2020, the transaction was completed. Pursuant to the agreement, we issued 6,275,574 shares of the Company’s common stock in exchange for all of the outstanding shares of TB&T Bancshares, Inc. In addition, TBT Bancshares, Inc. 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. 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, 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. Factors that contributed to a purchase price resulting in goodwill include their record of earnings, strong management and board of directors, strong local economic environment and opportunity for growth. The results of operations from this acquisition are included in the consolidated earnings of the Company commencing January 1, 2020. F-50 Table of Contents FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 2020, 2019 and 2018 The following table presents the preliminary amounts recorded on the consolidated balance sheet on the acquisition date (dollars in thousands): Fair value of consideration paid: Common stock issued ( 6,275,574 shares) $ 220,273 Fair value of identifiable assets acquired: Cash and cash equivalents $ 61,028 Securities available-for-sale 93,967 Loans 447,702 Identifiable intangible assets 4,798 Other assets 25,377 Total identifiable assets acquired $ 632,872 Fair value of liabilities assumed: Deposits $ 549,125 Other liabilities 5,397 Total liabilities assumed $ 554,522 Fair value of net identifiable assets acquired 78,350 Goodwill resulting from acquisition $ 141,923 Goodwill recorded in the acquisition was accounted for in accordance with the authoritative business combination guidance. Accordingly, goodwill will not be amortized but will be tested for impairment annually. The goodwill recorded is not deductible for federal income tax purposes. The fair value of total loans acquired was $ 447,702 ,000 at acquisition compared to contractual amounts of $ 455,181,000 . F-51