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Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Liquidity and Market Risk Management At September 30, 2024, we held $2.50 billion in assets that could be used for liquidity purposes, which we refer to as net available internal liquidity. This balance consisted of $1.51 billion in unpledged investment securities which could be used for additional secured borrowing capacity, $718.9 million in cash on deposit with the Federal Reserve Bank ("FRB") and $270.4 million in other liquid cash accounts. Consistent with our practice of maintaining access to significant external liquidity, we had $3.15 billion in net available sources of borrowed funds, which we refer to as net available external liquidity, as of September 30, 2024. This included $4.80 billion in total borrowing capacity with the Federal Home Loan Bank ("FHLB"), of which $1.84 billion has been drawn upon in the ordinary course of business, resulting in $2.97 billion in net available liquidity with the FHLB as of September 30, 2024. The $1.84 billion consisted of $600.0 million in outstanding FHLB advances and $1.24 billion used for pledging purposes. We also had access to approximately $785.6 million in liquidity with the FRB as of September 30, 2024, of which $700.0 million has been drawn upon in the ordinary course of business, resulting in $85.6 million in net available liquidity with the FRB as of September 30, 2024. As of September 30, 2024, the Company also had access to $55.0 million from First National Bankers’ Bank ("FNBB"), and $45.0 million from other various external sources. 86 Table of Contents Overall, we had $5.65 billion net available liquidity as of September 30, 2024, which consisted of $2.50 billion of net available internal liquidity and $3.15 billion in net available external liquidity. Details on our available liquidity as of September 30, 2024 is available below. (in thousands) Total Available Amount Used Net Availability Internal Sources Unpledged investment securities (market value) $ 1,509,661 $ — $ 1,509,661 Cash at FRB 718,881 — 718,881 Other liquid cash accounts 270,411 — 270,411 Total Internal Liquidity 2,498,953 — 2,498,953 External Sources FHLB 4,804,845 1,838,171 2,966,674 FRB Discount Window 85,624 — 85,624 BTFP (par value) 700,000 700,000 — FNBB 55,000 — 55,000 Other 45,000 — 45,000 Total External Liquidity 5,690,469 2,538,171 3,152,298 Total Available Liquidity $ 8,189,422 $ 2,538,171 $ 5,651,251 We have continued to limit our exposure to uninsured deposits and have been actively monitoring this exposure in light of the current banking environment. As of September 30, 2024, we held approximately $8.18 billion in uninsured deposits of which $766.2 million were intercompany subsidiary deposit balances and $2.81 billion were collateralized deposits, for a net position of $4.61 billion. This represented approximately 27.6% of total deposits. In addition, net available liquidity exceeded uninsured and uncollateralized deposits by $1.04 billion as of September 30, 2024. (in thousands) As of September 30, 2024 Uninsured Deposits $ 8,179,825 Intercompany Subsidiary and Affiliate Balances 766,247 Collateralized Deposits 2,806,436 Net Uninsured Position $ 4,607,142 Total Available Liquidity $ 5,651,251 Net Uninsured Position 4,607,142 Net Available Liquidity in Excess of Uninsured Deposits $ 1,044,109 Asset/Liability Management . Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position. Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset and liability management. Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available-for-sale investment portfolio as collateral to provide funds for an intermediate source of liquidity. 87 Table of Contents Interest Rate Sensitivity . Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks. A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk. One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion. This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income. For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At September 30, 2024, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us. Table 26 presents our sensitivity to net interest income as of September 30, 2024 and September 30, 2023. Table 26: Sensitivity of Net Interest Income Percentage Change from Base Percentage Change from Base September 30, Interest Rate Scenario September 30, 2024 September 30, 2023 2024 vs. 2023 Up 200 basis points 9.92 % 7.50 % 2.42 % Up 100 basis points 5.17 3.80 1.37 Down 100 basis points (5.78) (4.70) (1.08) Down 200 basis points (11.74) (9.60) (2.14) There have been no material changes in our market risk exposure from September 30, 2023 to September 30, 2024. Our balance sheet mix has remained consistent, and there has been only one target rate change by the Federal Reserve reducing the target rate from 5.25% to 5.50% as of July 26, 2023, to 4.75% to 5.00% on September 18, 2024.