Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is an analysis and discussion of the financial condition and results of operations of Home Bancorp, Inc. (the “Company”), and its wholly owned subsidiary, Home Bank, N.A. (the “Bank”). This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related notes included herein in Part II, Item 8, “Financial Statements and Supplementary Data” and the description of our business included herein in Part 1, Item 1 “Business” .
EXECUTIVE OVERVIEW
The Company reported net income for 2025 of $46.1 million, or $5.87 diluted EPS compared to $36.4 million, or $4.55 diluted EPS, reported for 2024. Key components of the Company's performance in 2025 are summarized below.
• Assets increased $49.0 million, or 1.4%, from December 31, 2024 to $3.5 billion at December 31, 2025.
• Loans increased by $25.8 million, or 1.0%, from December 31, 2024 to $2.7 billion at December 31, 2025.
• During the year ended December 31, 2025, the Company provisioned $1.1 million of the allowance for loan losses compared to a $2.4 million provisioned for the year ended December 31, 2024.
• The allowance for loan losses ("ALL") totaled $33.1 million, or 1.21% of total loans, at December 31, 2025. The allowance for credit losses ("ACL"), which is comprised of the allowance for loan losses plus the allowance for unfunded lending commitments, totaled $34.8 million, or 1.27% of total loans, at December 31, 2025.
• Total deposits increased $192.1 million, or 6.9%, from December 31, 2024 to $3.0 billion at December 31, 2025, primarily due to increases in certificate of deposits, money market accounts, and demand deposit accounts.
• The Company repurchased 321,590 shares of common stock at an average price of $44.30 per share during 2025.
• The net interest margin was 4.03% for the year ended December 31, 2025, up 32 bps compared to 2024, primarily due to a decline in the average cost of interest-bearing liabilities and an increase in the average yield earned on interest-earning assets during 2025.
• The average rate paid on total interest-bearing deposits during 2025 was 2.53%, down 13 bps compared to 2024.
• Noninterest income increased $836,000, or 5.7%, in 2025 compared to 2024, primarily due to an increase in gain on sale of loans, service fees and charges, and bank card fees, which were partially offset by a decrease in gain on sale of assets.
• Noninterest expense increased $2.3 million, or 2.6%, in 2025 compared to 2024, primarily due to an increase in compensation and benefits and other expenses, which were partially offset by a reversal in the provision for credit losses on unfunded commitments.
SELECTED FINANCIAL DATA
Set forth below is selected summary historical financial and other data of the Company. When you read this summary historical financial data, it is important that you also read the historical financial statements and related notes contained in Item 8 of this Form 10-K. Taxable equivalent (“TE”) ratios have been calculated using a marginal tax rate of 21%.
As of December 31,
(dollars in thousands)
Selected Financial Condition Data:
Total assets
Cash and cash equivalents
Interest-bearing deposits in banks
Investment securities:
Available for sale
Held to maturity
Loans receivable, net
Intangible assets
Deposits
Other borrowings
Subordinated debt, net of issuance cost
Federal Home Loan Bank advances
Shareholders’ equity
For the Years Ended December 31,
(dollars in thousands, except per share data)
Selected Operating Data:
Interest income
Interest expense
Net interest income
Provision (reversal) for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income taxes
Net income
Earnings per share - basic
Earnings per share - diluted
Cash dividends per share
As of or For the Years Ended December 31,
Selected Operating Ratios: (1)
Average yield on interest-earning assets (TE)
Average rate on interest-bearing liabilities
Average interest rate spread (TE)(2)
Net interest margin (TE)(3)
Average interest-earning assets to average interest-bearing liabilities
As of or For the Years Ended December 31,
Noninterest expense to average assets
Efficiency ratio (4)
Return on average assets
Return on average common equity
Return on average tangible common equity (Non-GAAP) (7)
Common stock dividend payout ratio
Average equity to average assets
Book value per common share
Tangible book value per common share (Non-GAAP) (8)
Asset Quality Ratios: (5)
Non-performing loans as a percent of total loans receivable
Non-performing assets as a percent of total assets
Allowance for loan losses as a percent of non-performing loans as of end of period
Allowance for loan losses as a percent of net loans as of end of period
Capital Ratios: (5) (6)
Tier 1 risk-based capital ratio
Leverage capital ratio
Total risk-based capital ratio
(1) With the exception of end-of-period ratios, all ratios are based on average daily balances during the respective periods.
(2) Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.
(3) Net interest margin represents net interest income as a percentage of average interest-earning assets. Taxable equivalent yields are calculated using a marginal tax rate of 21%.
(4) The efficiency ratio represents noninterest expense as a percentage of total revenues. Total revenues is the sum of net interest income and noninterest income.
(5) Asset quality and capital ratios are end-of-period ratios.
(6) Capital ratios are for Home Bank only.
(7) Tangible calculation eliminates goodwill, core deposit intangible and the corresponding amortization expense, net of tax.
(8) Tangible calculation eliminates goodwill and core deposit intangible.
This contains financial information prepared other than in accordance with GAAP. The Company uses these non-GAAP financial measures in its analysis of the Company’s performance. Management believes that the non-GAAP information provides useful data in understanding the Company’s operations and in comparing the Company’s results to peers. This non-GAAP information should be considered in addition to the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. A reconciliation of GAAP to non-GAAP disclosures is included in the table below.
Non-GAAP Reconciliation
As of or For the Years Ended December 31,
(dollars in thousands, except per share data)
Book value per common share
Less: Intangibles
Tangible book value per common share
Net Income
Add: CDI amortization, net of tax
Non-GAAP tangible income
Return on common equity
Add: Intangibles
Return on average tangible common equity
CRITICAL ACCOUNTING ESTIMATES
SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.
We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. Our accounting policies are discussed in detail in Note 2 - Summary of Significant Accounting Policies in the accompanying notes to the Consolidated Financial Statements included in Item 8. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, management believes the policies noted below meet the SEC’s definition of critical accounting policies.
Allowance for Credit Losses
Management considers the policies related to the allowance for credit losses as the most critical to the financial statement presentation. The total allowance for credit losses includes activity related to allowances calculated in accordance with Accounting Standards Codification ("ASC") 326, Financial Instruments — Credit Losses. The allowance for credit losses is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for loan losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical information are made to incorporate our reasonable and supportable forecast of future at the portfolio segment level, as well as any necessary qualitative adjustments, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and of assets, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.
Allowance for credit losses on unfunded loan commitments represents expected credit losses over the contractual period for which the Company is exposed to credit risk from a contractual obligation to extend credit. No allowance is recorded if the Company has the unconditional right to cancel the obligation. The allowance is reported as a component of other liabilities within the Consolidated Statements of Financial Condition. Adjustments to the allowance for unfunded commitments are reported in the Consolidated Statements of Income as a component of Noninterest Expense.
Business Combinations
Assets and liabilities acquired in business combinations are recorded at their fair value. In accordance with ASC Topic 805, Business Combinations , the Company generally records provisional amounts at the time of acquisition based on the information available to the Company. The determination of fair value as of the acquisition date requires management to consider various factors that involve judgment and estimation, including the application of discount rates, prepayment rates, attrition rates, future estimates of interest rates, as well as many other assumptions. These assumptions can have a material impact on the estimated fair value, and as a result, the goodwill recorded in a business combination. The provisional estimates of fair values may be adjusted for a period of up to one year ("measurement period") from the date of acquisition if new information is obtained. Subsequently, adjustments recorded during the measurement period are recognized in the current reporting period.
ACQUISITION ACTIVITY
The Company has completed six acquisitions since 2010. The following table is a summary of the Company’s acquisition activity as recorded.
SUMMARY OF ACQUISITION ACTIVITY
(dollars in thousands)
Acquisition
Acquisition
Date
Total
Assets
Total
Loans
Goodwill
Core
Deposit
Intangible
Total
Deposits
Statewide Bank
GS Financial Corporation
Britton & Koontz Capital Corporation
Louisiana Bancorp, Inc.
St. Martin Bancshares, Inc.
Friendswood Capital Corporation
Total Acquisitions
FINANCIAL CONDITION
Loans, Allowance for Credit Losses and Asset Quality
Loans
The types of loans originated by the Company are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans and the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the FRB, legislative tax policies and governmental budgetary matters.
The Company’s lending activities are subject to underwriting standards and loan origination procedures established by our Board of Directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. one- to four-family residential mortgage loan applications and consumer loan applications are taken at any of the Bank’s branch offices. Applications for other loans typically are taken personally by one of our loan officers, although they may be received by a branch office initially and then referred to a loan officer. All loan applications are processed and underwritten centrally at the Bank’s main office.
Total loans in portfolio (which does not include mortgage loans held for sale) increased $25.8 million, or 1.0%, from December 31, 2024 to $2.7 billion at December 31, 2025.
The following table summarizes the composition of the Company’s loan portfolio as of the dates indicated.
December 31,
(dollars in thousands)
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Total real estate loans
Other loans:
Commercial and industrial
Consumer
Total other loans
Total loans
The following table reflects contractual loan maturities as of December 31, 2025, unadjusted for scheduled principal reductions, prepayments, or repricing opportunities. The table also reflects the portion of loans due after one year that have fixed or variable interest rates.
Amounts as of December 31, 2025 which mature in:
(dollars in thousands)
One year or
less
After one but within five years
After five but within fifteen years
After fifteen years
Total
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Loans with fixed interest rates:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Amounts as of December 31, 2025 which mature in:
(dollars in thousands)
One year or
less
After one but within five years
After five but within fifteen years
After fifteen years
Total
Loans with variable interest rates:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Allowance for Credit Losses
Management recalculates the ACL at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date. For more information on the adoption of ASC 326 and the Company's relevant accounting policies, refer to Note 2 of the Consolidated Financial Statements in Item 8.
The following table presents the activity in the allowance for credit losses for the years indicated.
For the Years Ended December 31,
(dollars in thousands)
Allowance for loan losses:
Beginning balance
Provision for acquired PCD loans
Provision for loan losses
Loans charged off:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Recoveries on charged off loans
Ending balance - allowance for loan losses
Allowance for unfunded lending commitments:
Beginning balance
(Reversal) provision for losses on unfunded commitments
Ending balance - allowance for unfunded commitments
Total allowance for credit losses
At December 31, 2025, the ALL totaled $33.1 million, or 1.21% of total loans, and the ACL, which includes the reserve for unfunded lending commitments, totaled $34.8 million, or 1.27% of total loans. For the year ended December 31, 2025, the Company provisioned $1.1 million of the allowance for loan losses compared to a provision of $2.4 million for the year ended December 31, 2024. The increase in the provision for loan losses during 2025 and 2024 primarily reflected our loan growth during the year.
The following table presents the allocation of the allowance for loan losses as of December 31 for the years indicated.
December 31,
(dollars in thousands)
Amount
Loans
Amount
Loans
Amount
Loans
Amount
Loans
Amount
Loans
One-to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
The following table shows credit ratios at and for the periods indicated and each component of the ratio's calculation:
For the Years Ended December 31,
Allowance for loan losses as a percentage of total loans outstanding
Allowance for loan losses
Total loans outstanding
Nonaccrual loans as a percentage of total loans outstanding
Total nonaccrual loans
Total loans outstanding
Allowance for loan losses as a percentage of nonaccrual loans
Allowance for loan losses
Total nonaccrual loans
For the Years Ended December 31,
Net charge-offs during period to average loans outstanding:
One-to four family residential loans
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Home equity loans and lines
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Commercial real estate
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Construction and land
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Multi-family residential
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Commercial and industrial
Net charge-offs
Average loans outstanding
Net charge-offs during period to average loans outstanding:
Consumer
Net charge-offs
Average loans outstanding
Asset Quality
One of management’s key objectives has been, and continues to be, maintaining a high level of asset quality. In addition to maintaining credit standards for new loan originations, we proactively monitor loans and collection and workout processes of delinquent or problem loans. When a borrower fails to make a scheduled payment, we attempt to cure the deficiency by making personal contact with the borrower. Initial contacts are generally made within 10 days after the date payment is due. In most cases, deficiencies are promptly resolved. If the delinquency continues, late charges are assessed and additional efforts are made to collect the deficiency. All loans which are designated as “special mention,” classified or which are delinquent 90 days or more are reported to the Board of Directors of the Bank monthly. For loans where the collection of principal or interest payments is doubtful, the accrual of interest income . It is our policy, with certain limited exceptions, to accruing interest and reverse any interest accrued on any loan which is 90 days or more past due. On occasion, this action may be taken earlier if the financial condition of the borrower raises significant with regard to their ability to service the debt in accordance with the terms of the loan agreement. Interest income is not accrued on these loans until the borrower’s financial condition and payment record demonstrate an ability to service the debt.
Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis. Large groups of smaller balance, homogeneous loans are collectively evaluated for impairment. Loans collectively evaluated for impairment include smaller balance commercial loans, residential real estate loans and consumer loans. These loans are evaluated as a group because they have similar characteristics and performance experience. Larger (i.e., loans with balances of $500,000 or greater) commercial real estate loans, multi-family residential loans, construction and land loans and commercial and industrial loans are individually evaluated for impairment. Third party property valuations are obtained at the time of origination for real estate secured loans. When a determination is made that a loan has deteriorated to the point of becoming a problem loan, updated valuations may be ordered to help determine if there is impairment, which may lead to a recommendation for partial charge off or appropriate allowance allocation. Property valuations are ordered through, and are reviewed by, an appraisal officer at the Bank. The Bank typically orders an “as is” valuation for collateral property if a loan is in a loan classification. The Board of Directors is provided with monthly reports on individually evaluated loans.
At December 31, 2025 and 2024, loans identified as individually evaluated for expected losses were $6.2 million and $5.0 million, respectively. Due to the adoption of ASC 326, total loans identified as impaired and individually evaluated at December 31, 2025 included $1.2 million of acquired loans, of which none were acquired with deteriorated credit quality. For more information on the adoption of ASC 326, refer to Note 2 of the Consolidated Financial Statements in Item 8.
The following tables provide a summary of loans individually evaluated for expected losses as of the dates indicated.
December 31, 2025
(dollars in thousands)
Recorded Investment
Allowance for Loan Losses
Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
December 31, 2024
(dollars in thousands)
Recorded Investment
Allowance for Loan Losses
Allowance to Total Loans
Loans Individually Evaluated
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
Construction and land
Multi-family residential
Commercial and industrial
Consumer
Total
Federal regulations and our policies require that we utilize an internal asset classification system as a means of reporting problem and potential problem assets. We have incorporated an internal asset classification system, substantially consistent with Federal banking regulations, as a part of our credit monitoring system. Federal banking regulations set forth a classification scheme for problem and potential problem assets as “substandard,” “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “” have all of the inherent in those classified “” with the added characteristic that the present make “collection or in full,” on the basis of currently existing facts, conditions and values, “highly and improbable.” Assets classified as “” are those considered “” and of such little value that their continuance as assets without the establishment of a specific reserve is not warranted. In addition to classified assets, assets which do not currently the Bank to sufficient risk to be classified may be categorized as "special mention." Special mention assets have an existing that could cause future .
At December 31, 2025 and 2024, we had a total of $61.1 million and $35.8 million, respectively, in loans classified as substandard. We had no assets classified as doubtful or loss at either date. For additional information, see Note 5 to the Consolidated Financial Statements in Item 8.
A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Due to the adoption of ASC 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.
The following table sets forth the composition of the Company’s total nonperforming assets and troubled debt restructurings as of the dates indicated.
December 31,
(dollars in thousands)
Nonaccrual loans:
Real estate loans:
One- to four-family first mortgage
Home equity loans and lines
Commercial real estate
December 31,
(dollars in thousands)
Construction and land
Multi-family residential
Other loans:
Commercial and industrial
Consumer
Total nonaccrual loans
Accruing loans 90 days or more past due
Total nonperforming loans
Foreclosed assets and ORE
Total nonperforming assets
Performing troubled debt restructurings (1)
Total nonperforming assets and troubled debt restructurings
Nonperforming loans to total loans
Nonperforming loans to total assets
Nonaccrual loans to total loans
Nonperforming assets to total assets
Total loans outstanding
Total assets outstanding
(1) With the adoption of ASU 2022-02, effective January 1, 2023, TDR accounting has been eliminated.
Total nonperforming assets increased by $20.5 million, or 131.3%, to $36.1 million at December 31, 2025, compared to $15.6 million at December 31, 2024. The increase in NPAs during 2025 was primarily due to eight loan relationships totaling $21.5 million, which were put on nonaccrual during the year, partially offset by payoffs and paydowns. The ratio of nonperforming assets to total assets was 1.03% at December 31, 2025, compared to 0.45% at December 31, 2024.
As of December 31, 2025, total nonperforming loans were up $20.6 million, or 151.3%, from December 31, 2024. Foreclosed assets and Other real estate ("ORE") were down $81,000, or 4.0%, from December 31, 2024.
Investment Securities
The Company invests in securities pursuant to our Investment Policy, which has been approved by our Board of Directors. The Investment Policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate or credit risk and to provide and maintain liquidity. The Asset-Liability Committee (“ALCO”), comprised of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Risk Officer, Chief Banking Officer, Chief Administrative Officer, Director of Financial Management and Director of Retail, monitors investment activity and ensures that investments are consistent with the Investment Policy. The Board of Directors of the Company reviews investment activity monthly.
The investment securities portfolio decreased by an aggregate of $11.3 million, or 2.8%, during 2025. Securities available for sale made up 99.7% of the investment securities portfolio as of December 31, 2025. The following table sets forth the amortized cost and market value of our investment securities portfolio as of the dates indicated.
December 31,
(dollars in thousands)
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
Amortized
Cost
Market
Value
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale
Held to maturity:
Municipal bonds
Total held to maturity
Total investment securities
The following table sets forth the fixed versus adjustable rate profile of the investment securities portfolio as of the dates indicated. All amounts are shown at amortized cost.
December 31,
(dollars in thousands)
Fixed rate:
Available for sale
Held to maturity
Total fixed rate
Adjustable rate:
Available for sale
Total adjustable rate
Total investment securities
The following table sets forth the amount of investment securities which mature during each of the periods indicated and the weighted average yields for each range of maturities as of December 31, 2025. No tax-exempt yields have been adjusted to a tax-equivalent basis. All amounts are shown at amortized cost.
Amounts as of December 31, 2025 which mature in:
(dollars in thousands)
One Year
or Less
After One Year
Through Five
Years
After Five Through
Ten Years
Over Ten
Years
Total
Available for sale:
U.S. agency mortgage-backed
Collateralized mortgage obligations
Municipal bonds
U.S. government agency
Corporate bonds
Total available for sale
Weighted average yield
Amounts as of December 31, 2025 which mature in:
(dollars in thousands)
One Year
or Less
After One Year
Through Five
Years
After Five Through
Ten Years
Over Ten
Years
Total
Held to maturity:
Municipal bonds
Total held to maturity
Weighted average yield
Total investment securities
Weighted average yield
The following table summarizes activity in the Company’s investment securities portfolio during 2025.
(dollars in thousands)
Available for Sale
Held to Maturity
Balance, December 31, 2024
Purchases
Principal maturities, prepayments and calls
Amortization of premiums and accretion of discounts
Increase in market value
Balance, December 31, 2025
As of December 31, 2025, the Company had a net unrealized loss on its available for sale investment securities portfolio of $23.4 million, compared to a net unrealized loss of $41.0 million as of December 31, 2024. Management has determined that the declines in the fair value of these securities were not attributable to credit losses. The Company has the intent and ability to hold the securities until maturity or until anticipated recovery.
Funding Sources
General
Deposits, loan repayments and prepayments, proceeds from investment securities sales, calls, maturities and paydowns, cash flows generated from operations and FHLB advances are our primary, ongoing sources of funds for use in lending, investing and for other general purposes.
Deposits
The Company offers a variety of deposit accounts with a range of interest rates and terms. Our deposits consist of checking, both interest-bearing and noninterest-bearing, money market, savings and certificate of deposit accounts.
The flow of deposits is influenced significantly by general economic conditions, changes in market interest rates and competition. Our deposits are obtained predominantly from the areas where our branch offices are located. We have historically relied primarily on a high level of customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competitors significantly affect our ability to attract and retain deposits.
Total deposits were $3.0 billion as of December 31, 2025, up $192.1 million, or 6.9%, compared to December 31, 2024. Certificates of deposits totaled $805.6 million as of December 31, 2025, up $71.7 million, or 9.8%, compared to December 31, 2024. The following table sets forth the composition of the Company’s deposits as of the dates indicated.
December 31,
Increase/(Decrease)
(dollars in thousands)
Amount
Percent
Demand deposit
Savings
Money market
NOW
Certificates of deposit
Total deposits
The following table shows the daily average balances of deposits by type and weighted-average rate paid for the periods indicated.
For the Years Ended December 31,
(dollars in thousands)
Average
Balance
Interest
Expense
Average
Rate Paid
Average
Balance
Interest
Expense
Average
Rate Paid
Average
Balance
Interest
Expense
Average
Rate Paid
Noninterest-bearing demand deposits
Interest-bearing deposits
Interest-bearing demand deposits
Savings
Money market accounts
Certificates of deposit
Total interest-bearing deposits
Total deposits
The total amount of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with FDIC regulations) were $885.4 million at December 31, 2025 and $813.6 million at December 31, 2024. Certificates of deposit in the amount of $250,000 and over increased $28.5 million, or 12.5%, from $228.4 million at December 31, 2024 to $256.9 million at December 31, 2025. The following table details the remaining maturity of large-denomination certificates of deposit of $250,000 and over as of the dates indicated.
December 31,
(dollars in thousands)
3 months or less
3 - 6 months
6 - 12 months
12 - 36 months
More than 36 months
Total certificates of deposit greater than $250,000
Subordinated Debt
On June 30, 2022, the Company issued $ 55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032 (the "Notes"). The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”), plus 282 basis points. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.
The carrying value of subordinated debt was $54.7 million and $54.5 million at December 31, 2025 and December 31, 2024, respectively. The subordinated debt was recorded net of issuance costs, which is being amortized using the straight-line method over five years.
Other Borrowings
On March 12, 2023, the Federal Reserve Board created the Bank Term Funding Program ("BTFP"), which offers loans to banks with a term up to one year with no prepayment penalty. The loans are secured by pledging qualifying securities and are valued at par for collateral purposes. The Bank participated in the BTFP during 2024 and paid off the loan before December 31, 2024. The average balance of other borrowings, which included the BTFP loan in 2024 was $4.3 million during 2025, down $124.4 million from 2024.
Federal Home Loan Bank Advances
Advances from the FHLB may be obtained by the Company upon the security of the common stock it owns in the FHLB and certain real estate loans and investment securities, provided certain standards related to creditworthiness have been met. Such advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Advances from the FHLB may be either short-term, maturities of one year or less, or long-term, maturities in excess of one year.
The Company had no short-term FHLB advances as of December 31, 2025, down $137.2 million, or 100.0%, compared to $137.2 million as of December 31, 2024. Long-term FHLB advances totaled $3.0 million as of December 31, 2025, down $35.3 million, or 92.1%, compared to $38.3 million as of December 31, 2024.
Average FHLB advances were $83.7 million during 2025, up $26.7 million, or 46.9%, from 2024.
Shareholders’ Equity
Shareholders’ equity provides a source of permanent funding, allows for future growth and provides the Company with a cushion to withstand unforeseen adverse developments. At December 31, 2025, shareholders’ equity totaled $435.1 million, up $39.0 million, or 9.8%, compared to $396.1 million at December 31, 2024. The increase was primarily due to the Company’s earnings for the year ended December 31, 2025 and a reduction in accumulated other comprehensive loss, partially offset by shareholders' dividends and repurchases of shares of the Company's common stock.
RESULTS OF OPERATIONS
Net income in 2025 was $46.1 million, up $9.6 million, or 26.5%, compared to 2024. Diluted earnings per share ("EPS") for 2025 was $5.87, up $1.32, or 29.0%, from 2024. For the year ended December 31, 2025, the Company provisioned $1.1 million to the allowance for loan losses compared to a provision of $2.4 million for the year ended December 31, 2024.
Net income in 2024 was $36.4 million, down $3.8 million, or 9.5%, compared to 2023. Diluted EPS for 2024 was $4.55, down $0.44, or 8.8% from 2023. For the year ended December 31, 2024, the Company provisioned $2.4 million to the allowance for loan losses compared to a provision of $2.3 million for the year ended December 31, 2023.
Net Interest Income
Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. Our net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s net interest spread was 3.20%, 2.84% and 3.20% for the years ended December 31, 2025, 2024, and 2023, respectively.
Net interest income totaled $133.3 million in 2025, up $13.0 million, or 10.8%, compared to $120.3 million in 2024. The increase was primarily due to a decline in cost of interest-bearing liabilities and an increase in average yield earned on interest-earning assets. Total interest expense decreased $4.0 million, or 6.2%, in 2025 compared to 2024 primarily related to the absence of interest expense associated with the BTFP loan, which paid off in 2024, partially offset by an increase in FHLB borrowing interest during 2025. The average cost of total interest-bearing deposits decreased by 13 basis points to 2.53% in 2025.
In 2024, net interest income totaled $120.3 million, down $430,000, or 0.4%, compared to $120.7 million in 2023. The decrease in net interest income for 2024 compared to 2023 was primarily due to the cost and increase in average interest-bearing liabilities outpacing the yield and increase in average interest-earning assets. Total interest expense increased $21.5 million, or 50.1%, in 2024 compared to 2023 primarily related to higher deposit costs during 2024 compared to 2023. The average cost of total interest-bearing deposits in 2024 totaled 2.66%, up 110 basis points from 2023.
The Company’s net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.03%, 3.71%, and 3.89% during the years ended December 31, 2025, 2024, and 2023, respectively.
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income to the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average monthly balances during the indicated periods. Taxable equivalent (“TE”) yields have been calculated using a marginal tax rate of 21%.
For the Years Ended December 31,
(dollars in thousands)
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
Average
Balance
Interest
Average
Yield/
Rate
Interest-earning assets:
Loans receivable (1)
Investment securities (TE)
Taxable
Tax-exempt
Total investment securities
Other interest-earning assets
Total interest-earning assets (TE)
Noninterest-earning assets
Total assets
Interest-bearing liabilities:
Deposits:
Savings, checking and money market
Certificates of deposit
Total interest-bearing deposits
Other borrowings
Subordinated debt
FHLB advances
Total interest-bearing liabilities
Noninterest-bearing liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest-earning assets
Net interest income; net interest spread (TE)
Net interest margin (TE)
(1) Nonperforming loans are included in the respective average loan balances, net of deferred fees, discounts and loans in process. Acquired loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the respective loans.
The following table displays the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between (i) changes attributable to volume (changes in average volume between periods times prior year rate), (ii) changes attributable to rate (changes in average rate between periods times prior year volume) and (iii) total increase (decrease).
2025 Compared to 2024
Change Attributable To
2024 Compared to 2023
Change Attributable To
(dollars in thousands)
Rate
Volume
Total Increase (Decrease)
Rate
Volume
Total Increase (Decrease)
Interest income:
Loans receivable
Investment securities
Other interest-earning assets
Total interest income
Interest expense:
Savings, checking and money market accounts
Certificates of deposit
Other borrowings
Subordinated debt
FHLB advances
Total interest expense
Increase (decrease) in net interest income
Interest income includes interest income earned on earning assets as well as applicable loan fees earned. Interest income that would have been earned on nonaccrual loans had they been on accrual status is not included in the data reported above.
Provision for Loan Losses
For the year ended December 31, 2025, the Company provisioned $1.1 million to the allowance for loan losses compared to a provision of $2.4 million and $2.3 million for 2024 and 2023, respectively. The provision for loan losses during 2025 reflected our assessment of the change in expected losses due primarily to loan growth during the year.
Net charge-offs were $908,000 for 2025, compared to net charge-offs of $1.0 million and $103,000 for 2024 and 2023, respectively. Net loan charge-offs for 2025 were primarily attributable to commercial and industrial, consumer, and construction and land loans. Net loan charge-offs during 2024 were primarily attributable to commercial and industrial, consumer, and construction and land loans.
Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Allowance for Credit Losses" provides additional information on the changes in the ALL and ACL.
Noninterest Income
The following table illustrates the primary components of noninterest income for the years indicated.
(dollars in thousands)
Percent Increase (Decrease)
Percent Increase (Decrease)
Noninterest income:
Service fees and charges
Bank card fees
Gain on sale of loans, net
Income from bank-owned life insurance
Loss on sale of securities, net
Gain (loss) on sale of assets, net
Other income
Total noninterest income
2025 compared to 2024
Noninterest income for 2025 totaled $15.5 million, up $836,000, or 5.7%, compared to 2024. Gain on sale of loans for 2025 increased $390,000, or 83.0%, compared to 2024, primarily due to an increase in sales of SBA loans in 2025 compared to 2024.
Service fees and charges for 2025 increased $382,000, or 7.5%, compared to 2024, primarily due to an increase in service fees on deposit accounts in 2025 compared to 2024.
Bank card fees for 2025 increased $73,000, or 1.1%, compared to 2024, primarily due to an increase in credit card fees in 2025 compared to 2024.
2024 compared to 2023
Noninterest income for 2024 totaled $14.6 million, down $11,000, or 0.1%, compared to 2023. Income from bank card fees for 2024 was down $526,000, or 7.5%, from 2023, primarily due to to decreased transaction activity by our cardholders.
Gain on sale of loans for 2024 decreased $346,000, or 42.4%, compared to 2023, primarily due to less sales of SBA loans in 2024 compared to 2023.
Other income for 2024 increased $371,000, or 36.8%, compared to 2023 primarily due to derivative fee income and an increase in Small Business Investment Company ("SBIC") income.
Noninterest Expense
The following table illustrates the primary components of noninterest expense for the years indicated.
(dollars in thousands)
Percent Increase (Decrease)
Percent Increase (Decrease)
Noninterest expense:
Compensation and benefits
Occupancy
Marketing and advertising
Data processing and communication
Professional services
Forms, printing and supplies
Franchise and shares tax
Regulatory fees
Foreclosed assets, net
Amortization of acquisition intangible
(Reversal) provision for credit losses on unfunded commitments
Other expenses
Total noninterest expense
2025 compared to 2024
Noninterest expense for 2025 totaled $89.6 million, up $2.3 million, or 2.6%, from 2024.
Compensation and benefits expense for 2025 was up $2.1 million, or 4.2%, compared to 2024, primarily due to increased salaries and compensation expense.
Other expenses for 2025 were up $1.2 million, or 22.1%, compared to 2024, primarily due to a write-off of an acquired SBA accounts receivable for guarantees in 2025.
Foreclosed assets, net for 2025 was up $736,000, or 215.8%, compared to 2024, primarily due to increased write-offs of foreclosed assets and related expenses in 2025.
In 2025, the Company recorded a $1.1 million reversal of provision for credit losses on unfunded commitments, compared to a $106,000 provision in 2024, primarily due to lower unfunded commitment levels and lower funding rate estimates based on observed historical funding in 2025.
2024 compared to 2023
Noninterest expense for 2024 totaled $87.3 million, up $4.4 million, or 5.4%, from 2023.
Compensation and benefits expense for 2024 was up $2.4 million, or 4.9%, compared to 2023, primarily due to increased salaries and compensation expense.
Data processing and communication for 2024 was up $869,000, or 9.3%, compared to 2023, primarily due to increases in cost of maintenance contracts in 2024.
Occupancy expense for 2024 was up $457,000, or 4.7%, compared to 2023, primarily due to an additional lease in our Houston market.
In 2024, the Company recorded a $341,000 expenses related to foreclosed assets, compared to a $547,000 reversal in 2023, primarily due to a $769,000 recovery of a previous loss on a foreclosed asset.
Provision for credit losses on unfunded commitments decreased $395,000, or 78.8%, compared to 2023, primarily due to a decrease in funding commitments.
Income Taxes
For the years ended December 31, 2025, 2024 and 2023, the Company incurred income tax expense of $12.0 million, $8.8 million and $9.9 million, respectively. The Company’s effective tax rate was 20.6%, 19.4%, and 19.8% for 2025, 2024 and 2023, respectively.
The Company's effective tax rate in 2025 increased compared to 2024 due to variances in items that are non-taxable or non-deductible. The Company's effective tax rate in 2024 decreased compared to 2023 due to variances in items that are non-taxable or non-deductible. See Note 15 to the Consolidated Financial Statements in Item 8 for additional information concerning our income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are from deposits, amortization of loans, loan prepayments and the maturity of loans, investment securities and other investments and other funds provided from operations. While scheduled payments from the amortization of loans and investment securities and maturing investment securities are relatively predictable sources of funds, deposit flows and loan prepayments can be greatly influenced by general interest rates, economic conditions and competition. We also maintain excess funds in short-term, interest-bearing assets that provide additional liquidity.
We use our liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At December 31, 2025, certificates of deposit maturing within the next 12 months totaled $781.2 million. Based upon historical experience, we anticipate that a significant portion of the maturing certificates of deposit will be redeposited with us.
In addition to cash flows from loan and securities payments and prepayments as well as from sales of available for sale securities, we have significant borrowing capacity available to fund liquidity needs. In recent years, we have utilized borrowings as a cost efficient addition to deposits as a source of funds. Our borrowings consist of advances from the FHLB, of which we are a member. Under terms of the collateral agreement with the FHLB, we may pledge residential mortgage loans and mortgage-backed securities as well as our stock in the FHLB as collateral for such advances. For the year ended December 31, 2025, the average balance of our outstanding FHLB advances was $83.7 million. At December 31, 2025, we had $3.0 million in outstanding FHLB advances and $1.3 billion in additional FHLB advances available to us.
Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, the Company maintains a strategy of investing in various lending and investment security products. The Company uses its sources of funds primarily to meet its ongoing commitments and fund loan commitments. The Company has been able to generate sufficient cash through its deposits, as well as borrowings, and anticipates it will continue to have sufficient funds to meet its liquidity requirements.
ASSET/ LIABILITY MANAGEMENT AND MARKET RISK
The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations.
Our interest rate sensitivity is also monitored by management through the use of models which generate estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of December 31, 2025.
Shift in Interest Rates
(in bps)
% Change in Projected
Net Interest Income
The actual impact of changes in interest rates will depend on many factors. These factors include the Company’s ability to achieve expected growth in interest-earning assets and maintain a desired mix of interest-earning assets and interest-bearing liabilities, the actual timing of asset and liability repricing, the magnitude of interest rate changes and corresponding movement in interest rate spreads and the level of success of asset/liability management strategies.
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from the interest rate risk, which is inherent in our lending and deposit taking activities. To that end, management actively monitors and manages interest rate risk exposure. In addition to market risk, our primary risk is credit risk on our loan portfolio. We attempt to manage credit risk through our loan underwriting and oversight policies.
The principal objective of our interest rate risk management function is to evaluate the interest rate risk embedded in certain balance sheet accounts, determine the level of risk appropriate given our business strategy, operating environment, capital and liquidity requirements, performance objectives and interest rate environment and manage the risk consistent with approved guidelines. We seek to manage our exposure to risks from changes in interest rates while at the same time trying to improve our net interest spread. We monitor interest rate risk as such risk relates to our operating strategies. ALCO is responsible for reviewing our asset/liability and investment policies and interest rate risk position. ALCO meets at least quarterly. The extent of the movement of interest rates is an uncertainty that could have a negative impact on future earnings.
We primarily have utilized the following strategies in our efforts to manage interest rate risk:
• we have increased our originations of shorter term loans, particularly commercial real estate and commercial and industrial loans;
• we generally sell our conforming long-term (30-year) fixed-rate one- to four--family residential mortgage loans into the secondary market; and
• we have invested in securities, consisting primarily of mortgage-backed securities and collateral mortgage obligations, with relatively short average lives, generally three to five years, and we maintain adequate amounts of liquid assets.
In addition to the strategies above, on occasion the Company has entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During 2025 and 2024, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 14. Derivatives and Hedging Activities of the Consolidated Financial Statements in Item 8 for more information on the effects of the derivative financial instruments on the consolidated financial statements.
To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. The Company’s exposure to credit losses from these financial instruments is represented by their contractual amounts.
The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and the undisbursed portion of construction loans as of December 31 of the years indicated.
Contract Amount
(dollars in thousands)
Standby letters of credit
Available portion of lines of credit
Undisbursed portion of loans in process
Commitments to originate loans
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. 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 be drawn upon, the total commitment amounts generally represent future cash requirements.
Unfunded commitments under commercial lines of credit and revolving credit lines are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.
The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and the undisbursed portion of construction loans as of December 31, 2025.
(dollars in thousands)
Less
Than One
Year
One to
Three
Years
Three to
Five
Years
Over Five
Years
Total
Unused commercial lines of credit
Unused personal lines of credit
Undisbursed portion of loans in process
Standby letters of credit
Commitments to originate loans
Total
The Company has utilized leasing arrangements to support the ongoing activities of the Company. The required payments under such commitments and other contractual cash commitments as of December 31, 2025 are shown in the following table.
(dollars in thousands)
Thereafter
Total
Operating leases
Certificates of deposit
Subordinated debt
Long-term FHLB advances
Total
