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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.11pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
+0.11pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
closing+2
unexpected+2
failure+1
litigation+1
difficult+1
Positive rising
advances+3
best+3
greater+2
beautiful+2
gain+1
MD&A (Item 7)
23,023 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Cautionary Notice Regarding Forward-Looking Statements
Statements and financial discussion and analysis contained in this Annual Report on Form 10-K that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and involve a number of risks and uncertainties, many of which are beyond the Company’s control. Forward-looking statements can be identified by words such as “believes,” “intends,” “expects,” “plans,” “will” and similar references to future periods. Many possible events or factors could affect the future financial results and performance of the Company and could cause such results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:
changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or reduced demand for credit, including the result and effect on the Company’s loan portfolio and allowance for credit ;
adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, the Company’s stock price, liquidity and regulatory responses to these developments (including increases in the cost of the Company’s deposit insurance assessments);
the Company’s ability to effectively manage its liquidity risk and the availability of capital and funding;
volatility in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations;
prolonged periods of high inflation and their effects on the Company’s business, profitability and stock price;
changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio;
changes in local economic and business conditions, including fluctuations in the price of oil, natural gas and other commodities, which adversely affect the Company’s customers and their ability to transact profitable business with the Company, including the ability of the Company’s borrowers to repay their loans according to their terms or a change in the value of the related collateral;
the potential impacts of climate change;
increased competition for deposits and loans adversely affecting balances, rates and terms;
the risks relating to the pending acquisition of Stellar Bancorp, Inc. and the recent acquisitions of American and Southwest including, without limitation: the risk that the Stellar acquisition will not close; the diversion of management's time on issues related to the acquisitions and integration; unexpected transaction costs, including the costs of integrating operations; the risk that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies; the risk of deposit and customer attrition; regulatory enforcement and litigation risk; unexpected operating and other costs; the risk of customer and employee loss and business disruptions; increased competitive pressures and solicitations of customers by competitors;
the timing, impact and other uncertainties of any future acquisitions, including the pending acquisition of Stellar, and the Company’s ability to identify suitable future acquisition candidates, the success or failure in the integration of their operations, and the ability to enter new markets successfully and capitalize on growth opportunities;
the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and the potential to reduce anticipated benefits from such mergers or combinations;
the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations;
increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio;
the concentration of the Company’s loan portfolio in loans collateralized by residential and commercial real estate;
the failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses, including such assumptions related to potential or recent acquisitions;
changes in the availability of funds resulting in increased costs or reduced liquidity;
a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company’s securities portfolio;
increased asset levels and changes in the composition of assets and the resulting impact on the Company’s capital levels and regulatory capital ratios;
the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedlydifficult or expensive but necessary technological changes;
the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels;
government intervention in the U.S. financial system;
changes in statutes and government regulations or their interpretations applicable to financial holding companies and the Company’s present and future banking and other subsidiaries, including changes in tax requirements and tax rates;
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;
the Company’s ability to identify and address cybersecurity risks such as data security breaches, malware, “denial of service” attacks, “hacking”, and identity theft, a failure of which could disrupt business and result in significant losses or adverse effects to the Company’s reputation;
poor performance by, or breach of the operational or security systems of, third-party vendors and other service providers;
risks related to the use of new technologies, including artificial intelligence and machine learning;
exposure to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to the Company under that relationship or under any other arrangement;
the failure of analytical and forecasting models and tools used by the Company to estimate expected credit losses and to measure the fair value of financial instruments;
additional risks from new lines of businesses or new products and services;
risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions, including those related to cybersecurity breaches, intellectual property or fiduciary responsibilities;
the failure of the Company’s enterprise risk management framework to identify or address risks adequately;
potential risk of environmental liability associated with lending activities;
changes in trade policies by the United States or other countries, such as the imposition of tariffs or retaliatory tariffs or other trade barriers;
acts of terrorism, an outbreak of hostilities, or other international or domestic calamities, civil unrest, insurrections, other political, economic or diplomatic developments, including those caused by public health issues, outbreaks of diseases and pandemics, weather or other acts of God and other matters beyond the Company’s control; and
other risks and uncertainties described in this Annual Report on Form 10-K or in the Company’s other reports and documents filed with the Securities and Exchange Commission.
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. However, the Company cautions that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. Therefore, the Company cautionsagainst placing undue reliance on its forward-looking statements. The forward-looking statements speak only as of the date the statements are made. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Company’s balance sheets and statements of income. This section should be read in conjunction with the Company’s consolidated
financial statements and accompanying notes and other detailed information appearing elsewhere in this Annual Report on Form 10‑K.
Overv iew
The Company generates the majority of its revenues from interest income on loans, service charges and fees on customer accounts and income from investment in securities. The Company also earns revenues from various additional products and services it provides, including trust services, mortgage lending, brokerage, credit card and independent sales organization sponsorship operations. The Company’s revenues are partially offset by interest expense paid on deposits and other borrowings and noninterest expenses such as administrative and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is the Company’s largest source of revenue. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin.
Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continual internal growth. Each banking center is operated as a separate profit center, maintaining separate data with respect to its net interest income, efficiency ratio, deposit growth, loan growth and overall profitability. The Company also focuses on maintaining efficiency and stringent cost control practices and policies. The Company has centralized many of its critical operations, such as data processing and loan and deposit processing. Management believes that this centralized infrastructure can accommodate substantial additional growth while enabling the Company to minimize operational costs through certain economies of scale. The Company also intends to continue to seek expansion opportunities. The Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For more information about the Company’s segment reporting, refer to Note 1 to the consolidated financial statements.
Net income was $542.8 million, $479.4 million and $419.3 million for the years ended December 31, 2025, 2024 and 2023, respectively, and diluted earnings per share were $5.72, $5.05 and $4.51, respectively, for these same periods. Net income and net income per diluted common share for the year ended December 31, 2025, were impacted by an increase in net interest income, lower merger related provision and expenses, and lower regulatory assessments and FDIC insurance, partially offset by a decrease in net gain on sale or write-up of securities. Net income and net income per diluted common share for the year ended December 31, 2024 were impacted by an increase in net interest income, a decrease in the FDIC special assessment of $16.3 million, a gain on Visa Class B-1 stock exchange net of investment securities sales of $11.2 million, a decrease in merger related provision for credit losses of $9.5 million, a decrease in merger related expenses of $10.7 million, and increases in noninterest income and noninterest expense related to nine months of Lone Star Bank operations.
The Company posted returns on average assets of 1.42%, 1.21% and 1.08% and returns on average common equity of 7.14%, 6.56% and 6.03% for the years ended December 31, 2025, 2024 and 2023, respectively. The Company’s efficiency ratio was 44.55% in 2025, 48.43% in 2024 and 50.26% in 2023. The efficiency ratio is calculated by dividing total noninterest expense (excluding net gains and losses on the sale, write-down or write-up of assets and securities) by the sum of net interest income and noninterest income. Because the ratio is a measure of revenues and expenses resulting from the Company’s lending activities and fee-based banking services, net gains and losses on the sale of assets and securities are not included. Additionally, taxes are not part of this calculation.
Total assets were $38.46 billion at December 31, 2025 , a decrease of $1.10 billion or 2.8% compared with $39.57 billion at December 31, 2024. Total deposits were $28.48 billion at December 31, 2025, an increase of $101.1 million or 0.4% compared with $28.38 billion at December 31, 2024. Total loans were $21.81 billion at December 31, 2025, a decrease of $343.8 million or 1.6% compared with $22.15 billion at December 31, 2024. At December 31, 2025, the Company had $137.5 million in nonperforming loans, and its allowance for credit losses on loans was $333.7 million compared with $75.8 million in nonperforming loans and an allowance for credit losses on loans of $351.8 million at December 31, 2024. Shareholders’ equity was $7.62 billion and $7.44 billion at December 31, 2025 and 2024, respectively.
Recent Acquisition
Acquisition of Lone Star State Bancshares, Inc. — Effective April 1, 2024, the Company completed the merger of Lone Star State Bancshares, Inc. (“Lone Star”) into the Company and the subsequent merger of its wholly owned subsidiary, Lone Star State Bank of West Texas (“Lone Star Bank”), into the Bank (collectively, the “Lone Star Merger”). Lone Star operated five full-service banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. Pursuant to the terms of the definitive agreement, the Company issued 2,376,182 shares of its common stock plus approximately $64.1 million in cash for all outstanding shares of Lone Star. This resulted in goodwill of $106.7 million as of December 31, 2025, which reflected all final subsequent fair value adjustments. Goodwill represents the excess of the total
purchase price paid over the fair value of the assets acquired, net of the fair value of liabilities assumed. Additionally, the Company recognized $17.7 million of core deposit intangibles related to the Lone Star Merger. In October 2024, the Company completed the operational conversion of Lone Star Bank.
Subsequent Events
Acquisition of American Bank Holding Corporation — On January 1, 2026, the Company completed the merger of American Bank Holding Corporation (“American”) into the Company and the subsequent merger of its wholly owned subsidiary American Bank, N.A. (“American Bank”), into the Bank (collectively, the “ American Merger”). American Bank operated 18 banking offices and 2 loan production offices in South and Central Texas including its main office in Corpus Christi, and banking offices in San Antonio, Austin, Victoria and the greater Corpus Christi area including Port Aransas and Rockport and a loan production office in Houston, Texas. Pursuant to the terms of the definitive agreement, the Company issued 4,439,938 shares of its common stock for all outstanding shares of American common stock in the first quarter of 2026.
Acquisition of Southwest Bancshares, Inc. — On February 1, 2026, the Company completed the merger of Southwest Bancshares, Inc. (“Southwest”) into the Company and the subsequent merger of its wholly owned subsidiary Texas Partners Bank (“Texas Partners”), into the Bank (collectively, the “Southwest Merger”). Texas Partners operated 11 banking offices in Central Texas including its main office in San Antonio, and banking offices in the San Antonio area, Austin and the Hill Country. Pursuant to the terms of the definitive agreement, the Company issued 4,094,974 shares of its common stock for all outstanding shares of Southwest common stock in the first quarter of 2026.
Pending Acquisition of Stellar Bancorp, Inc. — On January 28, 2026, the Company and Stellar Bancorp, Inc. (“Stellar”) jointly announced the signing of a definitive merger agreement whereby Stellar, the parent company of Stellar Bank (“Stellar Bank”), will merge with and into the Company and Stellar Bank will merge with and into the Bank. Stellar Bank operates 52 banking offices in greater Houston and Beaumont, Texas and surrounding areas. Under the terms and subject to the conditions of the definitive agreement, the Company will issue 0.3803 shares of its common stock and $11.36 in cash for each outstanding share of Stellar common stock. Based on the closing price of the Company’s common stock of $72.90 on January 27, 2026, the total consideration was valued at approximately $2.00 billion. The transaction is subject to customary closing conditions, including the receipt of regulatory approvals.
Critical Accou nting Estimates
The preparation of financial statements in conformity with GAAP requires the Company to establish accounting policies and make estimates that affect amounts reported in the consolidated financial statements. An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the consolidated financial statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. The Company’s accounting policies are described in detail in Note 1 to the consolidated financial statements, appearing elsewhere in this Annual Report on Form 10-K. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity:
Business Combinations — Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, “ Business Combinations. ” A business combination occurs when the Company acquires net assets that constitute a business and obtains control over that business. Business combinations are effected through the transfer of consideration consisting of cash and/or common stock and are accounted for using the acquisition method. Accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values at the acquisition date. Determining the fair value of assets and liabilities, especially the loan portfolio, is a process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values becomes available. The results of operations of an acquired entity are included in the Company’s consolidated results from the acquisition date, and prior periods are not restated.
Allowance for Credit Losses — The allowance for credit losses is accounted for in accordance with FASB ASC Topic 326, “ Financial Instruments-Credit Losses” (“CECL”), which uses an expected loss methodology that is referred to as the current expected credit loss methodology. CECL requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected . The allowance for credit losses is an allowance available for losses on loans and held-to-maturity securities that is deducted from the amortized cost basis to estimate the net amount expected to be collected. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. All losses are charged to the allowance when the loss actually occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery.
The Company’s allowance for credit losses consists of two elements: (1) specific valuation allowances based on expected losses on impaired loans and certain purchased credit-deteriorated loans (“PCD”); and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company. Based on an evaluation of the portfolio, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers factors such as historical lifetime loan loss experience, the amount of nonperforming assets and related collateral, the volume, growth and composition of the portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the portfolio through its internal loan review process and other relevant factors. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Charge-offs occur when loans are deemed to be uncollectible. Based on this evaluation, management has established an allowance for credit losses that it believes is management’s best estimate of current expected credit losses in the Company’s loan portfolio.
The Company evaluates all restructurings, including restructurings for borrowers experiencing financial difficulty, to determine whether they result in a new loan or a continuation of an existing loan. In accordance with ASC 326, the Company only establishes a specific reserve for modifications to borrowers experiencing financial difficulty when the loan is identified as impaired. The effect of most modifications of loans made to borrowers who are experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The Company adjusts the terms of loans for certain borrowers when it believes such changes will help its customers manage their loan obligations and increase the collectability of the loans. Modifications to borrowers experiencing financial difficulty may include but are not limited to changes in committed loan amount, interest rate, amortization, note maturity, borrower, guarantor, collateral, forbearance, forgiveness of principal or interest, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The approval of modifications of loans for borrowers experiencing financial difficulty are handled on a case-by-case basis. For further discussion of the methodology used in the determination of the allowance for credit losses, see “Accounting for Acquired Loans and the Allowance for Acquired Credit Losses”, “Financial Condition—Allowance for Credit Losses” sections below and Note 1 and Note 5 to the consolidated financial statements.
Accounting for Acquired Loans and the Allowance for Acquired Credit Losses — The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity were recorded at their fair values at the acquisition date. These fair value estimates associated with acquired loans, based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof. For further discussion of the methodology used in the determination of the allowance for credit losses for acquired loans, see “Accounting for Acquired Loans and the Allowance for Acquired Credit Losses” in Note 1 to the consolidated financial statements and “Financial Condition—Allowance for Credit Losses on Loans” below.
Goodwill and Intangible Assets— Goodwill and intangible assets that have indefinite useful lives are subject to an impairment test at least annually, or more often, if events or circumstances indicate that it is more likely than not that the fair value of the Company’s reporting unit is below the carrying value of its equity. Under FASB ASC Topic 350-20, “Intangibles—Goodwill and Other—Goodwill,” companies have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform step one of the annual test for goodwill impairment. An entity has an unconditional option to bypass the qualitative assessment described in the following paragraph for any reporting unit in any period and proceed directly to performing the first step of the goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired.
The Company had no intangible assets with indefinite useful lives at December 31, 2025. Core deposit intangible assets that are subject to amortization are being amortized on a non-pro rata basis over the years expected to be benefited, which the Company believes is between ten and fifteen years. These core deposit intangible assets are reviewed for impairment if circumstances indicate their value may not be recoverable based on a comparison of fair value to carrying value. The Company performs an evaluation annually, and more frequently if a triggering event occurs, of whether any impairment of the goodwill and other intangibles has occurred. Based on the Company’s annual goodwill impairment test as of October 1, 2025, management does not believe any of its goodwill is impaired as of December 31, 2025, because the fair value of the Company’s equity exceeded its carrying value. While the Company believes no impairment existed at December 31, 2025, under accounting standards applicable at that date, different conditions or assumptions, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation and financial condition or future results of operations.
Results of Operations
Net Interest Income
The Company’s operating results depend primarily on its net interest income, which is the difference between interest income on interest-earning assets, including securities and loans, and interest expense incurred on interest-bearing liabilities, including deposits and other borrowed funds. Interest rate fluctuations, as well as changes in the amount and type of earning assets and liabilities, combine to affect net interest income. The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.”
2025 versus 2024 . Net interest income before the provision for credit losses for 2025 was $1.08 billion compared with $1.03 billion for 2024, an increase of $55.0 million or 5.4%. The change was primarily due to a decrease in the average balances and average rates on other borrowings and a decrease in the average rates on interest-bearing deposits, partially offset by a decrease in the average balances and average rates on federal funds sold and other earning assets, a decrease in the average balances on investment securities, a decrease in the average rates on loans and a decrease in loan discount accretion of $5.1 million. Interest income was $1.57 billion in 2025, a decrease of $53.4 million or 3.3% compared with 2024. Interest income on loans was $1.30 billion for 2025, a decrease of $17.7 million or 1.3% compared with 2024, primarily due to a decrease in the average rates on loans and a decrease in loan discount accretion of $5.1 million. The Company had $22.7 million of total outstanding net accretable discounts on Non-PCD loans and PCD loans at December 31, 2025. Interest income on securities was $230.7 million during 2025, a decrease of $16.0 million or 6.5% compared with 2024, primarily due to a decrease in the average balances on investment securities. Average interest-bearing liabilities decreased $1.32 billion or 5.9% during 2025 compared with 2024. The average rate on interest-bearing liabilities decreased from 2.69% to 2.34% during the same time period, resulting in a decrease in interest expense of $108.4 million. The total cost of funds decreased to 1.61% during 2025 compared to 1.87% during 2024.
Net interest margin, defined as net interest income divided by average interest-earning assets, was 3.22% on a tax equivalent basis for 2025, an increase of 29 basis points compared with 2.93% for 2024.
2024 versus 2023 . Net interest income before the provision for credit losses for 2024 was $1.03 billion compared with $956.4 million for 2023, an increase of $70.1 million or 7.3%. The change was primarily due to an increase in the average balances and average rates on loans and on federal funds sold and other earning assets, an increase in loan discount accretion of $9.4 million and a decrease in the average balance and rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits. Interest income was $1.62 billion in 2024, an increase of $179.2 million or 12.4% compared with 2023. Interest income on loans was $1.31 billion for 2024, an increase of $164.2 million or 14.3% compared with 2023, primarily due to an increase in the average balances and average rates on loans. The Company had $35.2 million of total outstanding net accretable discounts on Non-PCD loans and PCD loans at December 31, 2024. Interest income on securities was $246.7 million during 2024, a decrease of $36.6 million or 12.9% compared with 2023, primarily due to a decrease in the average balances on investment securities. Average interest-bearing liabilities increased $699.4 million or 3.3% during 2024 compared with 2023. The average rate on interest-bearing liabilities increased from 2.27% to 2.69% during the same time period, resulting in an increase in interest expense of $109.1 million. The total cost of funds increased to 1.87% during 2024 compared to 1.54% during 2023.
Net interest margin, defined as net interest income divided by average interest-earning assets, was 2.93% on a tax equivalent basis for 2024, an increase of 15 basis points compared with 2.78% for 2023.
The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. Except as indicated in the footnotes, no tax-equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the table as loans carrying a zero yield.
Years Ended December 31,
Average
Outstanding
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Outstanding
Balance (1)
Interest
Earned/
Paid
Average
Yield/
Rate
(Dollars in thousands)
Assets
Interest-earning assets:
Loans held for sale
Loans held for investment
Loans held for investment - Warehouse Purchase Program
Total loans
Investment securities
Federal funds sold and other earning assets
Total interest-earning assets
Allowance for credit losses on loans
Noninterest-earning assets
Total assets
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits
Savings and money market deposits
Certificates and other time deposits
Federal funds purchased and other borrowings
Securities sold under repurchase agreements
Subordinated debentures
Total interest-bearing liabilities
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits
Allowance for credit losses on off-balance sheet credit exposures
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
Net interest rate spread
Net interest income and margin (1)
Net interest income and margin (tax equivalent) (2)
The net interest margin is equal to net interest income divided by average interest-earning assets.
In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates for the years ended December 31, 2025, 2024 and 2023.
The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes in interest income and interest expense related to purchase accounting adjustments and changes attributable to both rate and volume which cannot be segregated have been allocated to rate.
Years Ended December 31,
Increase
(Decrease)
Due to Change in
Increase
(Decrease)
Due to Change in
Volume
Rate
Total
Volume
Rate
Total
(Dollars in thousands)
Interest-earning assets:
Loans held for sale
Loans held for investment
Loans held for investment - Warehouse Purchase Program
Securities
Federal funds sold and other temporary investments
Total (decrease) increase in interest income
Interest-bearing liabilities:
Interest-bearing demand deposits
Savings and money market accounts
Certificates of deposit
Other borrowings
Securities sold under repurchase agreements
Subordinated debentures
Total (decrease) increase in interest expense
Increase in net interest income
Provision for Credit Losses
The Company’s provision for credit losses is established through charges to income to bring the Company’s allowance for credit losses on loans and off-balance sheets credit exposures to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Allowance for Credit Losses” and “Financial Condition—Allowance for Credit Losses on Off-Balance Sheet Credit Exposures”. The allowance for credit losses on loans at December 31, 2025, was $333.7 million, or 1.53% of total loans and 1.63% of total loans excluding Warehouse Purchase Program loans. The allowance for credit losses on loans at December 31, 2024, was $351.8 million, or 1.59% of total loans and 1.67% of total loans excluding Warehouse Purchase Program loans. Acquired loans were recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected default rates, loss given defaults and recovery rates, with no carryover of any existing allowance for credit losses. The allowance for credit losses on off-balance sheet credit exposures was $37.6 million at December 31, 2025 and 2024. There was no provision for credit losses for the year ended December 31, 2025, compared with $9.1 million for the year ended December 31, 2024, and $18.5 million for the year ended December 31, 2023. The $9.1 million provision was due to loans acquired in the Lone Star Merger and consisted of a $7.9 million provision for credit losses on loans and a $1.2 million provision for credit losses on off-balance sheet credit exposures. The $18.5 million provision was made as a result of the loans acquired in the merger of First Bancshares of Texas, Inc., and consisted of a $12.0 million provision for credit losses on loans and a $6.5 million provision for credit losses on off-balance sheet credit exposures.
Net charge-offs for the years ended December 31, 2025, 2024 and 2023 were $18.1 million, $14.6 million and $38.0 million, respectively. For the year ended December 31, 2025, $18.9 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Noninterest Income
The Company’s primary sources of recurring noninterest income are credit, debit and ATM card income, nonsufficient funds (“NSF”) fees, and service charges on deposit accounts. Additionally, the Company generates recurring noninterest income from its various additional products and services, including trust services, mortgage lending and brokerage. Noninterest income does not include loan origination fees, which are recognized over the life of the related loan as an adjustment to yield using the interest method. For the year ended December 31, 2025, noninterest income totaled $168.3 million, an increase of $2.5 million or 1.5%, compared with 2024. This increase was primarily due to increases in other noninterest income and service charges on deposit accounts, partially offset by a decrease in net gain on sale or write-up of securities.
For the year ended December 31, 2024, noninterest income totaled $165.8 million, an increase of $12.5 million or 8.2%, compared with 2023. This increase was primarily due to a gain on Visa Class B-1 stock exchange net of investment securities sales of $11.2 million and increases in service charges on deposit accounts, partially offset by a decrease in other noninterest income.
The following table presents, for the periods indicated, the major categories of noninterest income:
Years Ended December 31,
(Dollars in thousands)
Nonsufficient funds (NSF) fees
Credit card, debit card and ATM card income
Service charges on deposit accounts
Trust income
Mortgage income
Brokerage income
Bank owned life insurance income
Net gain on sale or write-down of assets
Net gain on sale or write-up of securities
Other
Total noninterest income
Noninterest Expense
For the year ended December 31, 2025, noninterest expense totaled $556.2 million, a decrease of $14.4 million or 2.5% compared with 2024. The change was primarily due to lower regulatory assessments and FDIC insurance, a reversal of the 2024 FDIC special assessment, a decrease in other noninterest expense and a decrease in merger related expenses.
For the year ended December 31, 2024, noninterest expense totaled $570.6 million, an increase of $13.9 million or 2.5% compared with 2023. The change was primarily due to an increase in salaries and benefits, an increase in credit and debit card, data processing and software amortization and additional expenses related to the Lone Star Merger, partially offset by a decrease in the FDIC special assessment of $16.3 million and a decrease in merger related expenses of $10.7 million.
The following table presents, for the periods indicated, the major categories of noninterest expense:
Years Ended December 31,
(Dollars in thousands)
Salaries and employee benefits (1)
Non-staff expenses:
Net occupancy and equipment
Credit and debit card, data processing and software amortization
Regulatory assessments and FDIC insurance
Core deposit intangibles amortization
Depreciation
Communications (2)
Net other real estate expense (income) (3)
Merger related expenses
Other
Total noninterest expense
Total salaries and employee benefits include $12.1 million, $12.8 million and $12.2 million in 2025, 2024 and 2023, respectively, in stock-based compensation expense.
Communications expense includes telephone, data circuits, postage, and courier expenses.
Net other real estate expense consists of rental expense, rental income and gains and losses on sales of real estate.
Salaries and Employee Benefits . Salaries and employee benefits were $353.1 million for the year ended December 31, 2025, compared with $352.4 million for the year ended December 31, 2024. Salaries and employee benefits were $352.4 million for the year ended December 31, 2024, an increase of $23.9 million or 7.3% compared with 2023, primarily as a result of the Lone Star Merger. The number of full-time equivalent associates employed by the Company was 3,941, 3,916 and 3,850 at December 31, 2025, 2024 and 2023, respectively. Total salaries and benefits for the year ended December 31, 2025, included $12.1 million in stock‑based compensation expense compared with $12.8 million and $12.2 million recorded for the years ended December 31, 2024 and 2023, respectively.
Net Occupancy and Equipment. Net occupancy and equipment expense was $37.1 million for the year ended December 31, 2025, an increase of $1.3 million compared with $35.8 million for the year ended December 31, 2024. Net occupancy and equipment expense was $35.8 million for the year ended December 31, 2024, compared with $35.5 million for the year ended December 31, 2023.
Credit and Debit Card, Data Processing and Software Amortization . Credit and debit card, data processing and software amortization expenses were $48.6 million for the year ended December 31, 2025, an increase of $1.3 million or 2.8% compared with 2024. Credit and debit card, data processing and software amortization expenses were $47.3 million for the year ended December 31, 2024, an increase of $5.7 million or 13.8% compared with 2023, primarily due to an increase in software maintenance expense, data processing costs and the Lone Star Merger.
Regulatory Assessments and FDIC Insurance . Regulatory assessments and FDIC insurance assessments were $18.1 million for the year ended December 31, 2025, a decrease of $9.3 million or 33.9% compared with the year ended December 31, 2024, due to a decrease in the FDIC special assessment and a reversal of the 2024 FDIC special assessment. Regulatory assessments and FDIC insurance assessments were $27.4 million for the year ended December 31, 2024, a decrease of $12.8 million or 31.9% compared with the year ended December 31, 2023, due to a decrease in the FDIC special assessment.
Core Deposit Intangibles Amortization . Core deposit intangibles (“CDI”) amortization was $14.4 million for the year ended December 31, 2025, a decrease of $1.2 million or 7.8% compared with the year ended December 31, 2024. CDI amortization was $15.7 million for the year ended December 31, 2024, an increase of $3.0 million or 23.6% compared with the year ended December 31, 2023, primarily due to the Lone Star Merger.
Merger Related Expenses . Merger related expenses were $330 thousand for the year ended December 31, 2025, a decrease of $4.1 million compared with the year ended December 31, 2024. Merger related expenses were $4.4 million for the year ended December 31, 2024, a decrease of $10.7 million, primarily due to lower merger related expenses for the Lone Star Merger.
Efficiency Ratio
The Company’s efficiency ratio is a supplemental financial measure utilized in management’s internal evaluation of the Company and is not calculated based on GAAP. A GAAP-based efficiency ratio is calculated by dividing total noninterest expense, excluding credit loss provisions, by net interest income plus total noninterest income, as shown in the Consolidated Statements of Income. The Company’s efficiency ratio, as calculated and used by the Company, excludes from noninterest income the net gains and losses on the sale of securities and assets, which can vary widely from period to period. Taxes are not included in either calculation. The Company believes this non-GAAP financial measure provides information useful to investors by excluding certain items that may not be indicative of its core net operating earnings and business outlook. This non-GAAP financial measure should not be considered a substitute for, nor of greater importance than, the GAAP basis financial measure. Because a non-GAAP financial measure is not standardized, it may not be possible to compare this financial measure with other companies’ non-GAAP financial measures having the same or a similar name. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.
The Company’s efficiency ratio calculated pursuant to GAAP was 44.50% for the year ended December 31, 2025, compared with 47.85% for the year ended December 31, 2024 and 50.17% for the year ended December 31, 2023. The efficiency ratio, as used by the Company, excluding net gains and losses on the sale, write-down or write-up of assets and securities, was 44.55% for the year ended December 31, 2025, compared with 48.43% for the year ended December 31, 2024 and 50.26% for the year ended December 31, 2023.
Income Taxes
The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of nondeductible expenses. Income tax expense was $150.7 million for the year ended December 31, 2025, an increase of $17.5 million or 13.1% compared with $133.3 million for the year ended December 31, 2024. Income tax expense was $133.3 million for the year ended December 31, 2024, an increase of $18.1 million or 15.7% compared with $115.1 million for the year ended December 31, 2023. The effective tax rate for the years ended December 31, 2025, 2024 and 2023 was 21.7%, 21.8% and 21.5%, respectively. The effective income tax rates differed from the U.S. statutory rate of 21% during 2025, 2024 and 2023 primarily due to the effect of tax-exempt income from loans, securities and bank owned life insurance (“BOLI”) offset by the effect of state taxes.
Enactment of the One Big Beautiful Bill Act — On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB Act”), which included certain modifications to U.S. tax law, was enacted. The Company has completed its initial evaluation of the provisions of the OBBB Act and has concluded that it did not have a material impact on the Company's income tax provision for the year ended December 31, 2025.
Financial Condition
Loan Portfolio
At December 31, 2025, total loans were $21.81 billion, a decrease of $343.8 million or 1.6% compared with $22.15 billion at December 31, 2024. Loans at December 31, 2025, included $14.2 million of loans held for sale and $1.30 billion of Warehouse Purchase Program loans. At December 31, 2025, total loans were 76.6% of deposits and 56.7% of total assets. At December 31, 2024, total loans were $22.15 billion, an increase of $968.7 million or 4.6% compared with $21.18 billion at December 31, 2023. Loans at December 31, 2024 included $10.7 million of loans held for sale and $1.08 billion of Warehouse Purchase Program loans. At December 31, 2024, total loans were 78.0% of deposits and 56.0% of total assets.
The following table summarizes the Company’s total loan portfolio by type of loan as of the dates indicated:
December 31,
Amount
Percent
Amount
Percent
(Dollars in thousands)
Commercial and industrial
Warehouse purchase program
Real estate:
Construction, land development and other land loans
1-4 family residential (1)
Home equity
Commercial real estate (including multi-family residential) (2)
Farmland
Agriculture
Consumer
Other
Total loans (3)
Includes loans held for sale of $14.2 million and $10.7 million at December 31, 2025, and 2024, respectively.
Commercial real estate loans include approximately $1.95 billion and $2.06 billion of owner-occupied loans for the years ended December 31, 2025 and 2024 respectively.
Includes net fair value discounts on acquired loans of $22.7 million and $35.2 million at December 31, 2025 and 2024, respectively.
The Company separates its loan portfolio into two general categories of loans: (1) “originated loans,” which are loans originated by the Company and made pursuant to the Company’s loan policy and procedures in effect at the time the loan was made, and (2) “acquired loans,” which are loans acquired in a business combination and recorded at fair value at the acquisition date. Those acquired loans that are renewed or substantially modified after the date of the business combination are referred to as “re-underwritten acquired loans.” If a renewal or substantial modification of an acquired loan is underwritten by the Company with a new credit analysis, the loan may no longer be categorized as an acquired loan. For example, acquired loans to one borrower may be combined into a new loan with a new loan number and categorized as an originated loan. Acquired loans with a fair value discount or premium at the date of the business combination that remained at the reporting date are referred to as “fair-valued acquired loans.” All fair-valued acquired loans are further categorized into “PCD Loans” and “Non-PCD loans.” Acquired loans with evidence of more than insignificant credit quality deterioration as of the acquisition date when compared to the origination date are classified as PCD loans.
The following tables summarize the Company’s originated and acquired loan portfolios broken out into originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans as of the dates indicated.
December 31, 2025
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD Loans
PCD Loans
Total Loans
(Dollars in thousands)
Residential mortgage loans held for sale
Commercial and industrial
Warehouse purchase program
Real estate:
Construction, land development and other land loans
1-4 family residential (including home equity)
Commercial real estate (including multi-family residential)
Farmland
Agriculture
Consumer and other
Total loans held for investment
Total
December 31, 2024
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD Loans
PCD Loans
Total Loans
(Dollars in thousands)
Residential mortgage loans held for sale
Commercial and industrial
Warehouse purchase program
Real estate:
Construction, land development and other land loans
1-4 family residential (including home equity)
Commercial real estate (including multi-family residential)
Farmland
Agriculture
Consumer and other
Total loans held for investment
Total
The Company offers a broad range of short to medium-term commercial loans, primarily collateralized, to businesses for working capital (including inventory and receivables), business expansion (including acquisitions of real estate and improvements) and the purchase of equipment and machinery. Historically, the Company has originated loans for its own account, including loans in the 1-4 family residential category, and has not securitized its loans. However, the Company does originate longer-term residential mortgage loans for sale into the secondary market. The purpose of a particular loan generally determines its structure.
Loans to borrowers with aggregate debt relationships over $1.0 million and below $5.0 million are evaluated and acted upon on a daily basis by two of the company-wide designated senior credit officers. Loans to borrowers with aggregate debt relationships above $5.0 million are evaluated and acted upon by an officers’ loan committee that meets weekly.
Commercial and Industrial Loans . In nearly all cases, the Company’s commercial loans are made in the Company’s market areas and are underwritten based on the borrower’s ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. As a general practice, term loans are secured by any available real estate, equipment or other assets owned by the borrower. Both working capital and term loans are typically supported by a personal guaranty of a principal. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these loans as well as the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.
Included in commercial loans are (1) commitments to oil and gas producers largely secured by proven, developed and producing reserves and (2) commitments to service, equipment and midstream companies secured mainly by accounts receivable, inventory and equipment. Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party and verified by the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base. As of December 31, 2025 , the Company had $111.0 million in funded commitments outstanding to oil and gas production companies and $151.7 million in unfunded commitments, for a total of $262.7 million. This compares with funded commitments to oil and gas production companies of $280.3 million and $163.8 million in unfunded commitments, for a total of $444.2 million as of December 31, 2024. Total unfunded commitments to producers include letters of credit issued in lieu of oil well plugging bonds. As of December 31, 2025 , the Company had $328.6 million in funded commitments outstanding to service companies and $137.8 million in unfunded commitments, for a total of $466.4 million. This compares with funded commitments to service companies of $265.7 million and $138.7 million in unfunded commitments, for a total of $404.4 million as of December 31, 2024.
Commercial Real Estate . The Company makes commercial real estate loans collateralized by owner-occupied and nonowner-occupied real estate to finance the purchase of real estate. The Company’s commercial real estate loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed rates) and amortize over a 15- to 25-year period. Payments on loans secured by nonowner-occupied properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition, in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the financial condition of the borrower and guarantor. Loans to hotels and restaurants are primarily included in commercial real estate loans.
1-4 Family Residential Loans . The Company’s lending activities also include the origination of 1-4 family residential mortgage loans (including home equity loans) collateralized by owner-occupied and nonowner-occupied residential properties located in the Company’s market areas. The Company offers a variety of mortgage loan portfolio products which generally are amortized over five to 30 years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value. The Company requires mortgage title insurance, as well as hazard, wind and/or flood insurance as appropriate. The Company prefers to retain residential mortgage loans for its own account rather than selling them into the secondary market. By doing so, the Company incurs interest rate risk as well as the risks associated with non-payments on such loans. The Company’s mortgage department also offers a variety of mortgage loan products which are generally amortized over 30 years, including FHA and VA loans, which are sold to secondary market investors.
Construction, Land Development and Other Land Loans . The Company makes loans to finance the construction of residential and nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have variable interest rates. The Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Company’s construction lending activities, with heightened analysis of construction and/or development costs. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, the Company may not be able to recover all of the unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Although the Company has underwriting procedures designed to
identify what it believes to be acceptable levels of risks in construction lending, these procedures may not prevent losses from the risks described above.
Warehouse Purchase Program. The Warehouse Purchase Program allows unaffiliated mortgage originators (“Clients”) to close 1-4 family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors. The Company’s Clients are strategically targeted for their experienced management teams and analyzed for the expected profitability of each Client’s business model over the long term. The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards as required by United States government-sponsored enterprise agencies, “Agencies” such as Federal National Mortgage Association (“Fannie Mae”), private investors to which the mortgage loans are ultimately sold and/or mortgage insurers.
At December 31, 2025 , the Company had 29 mortgage banking company customers with aggregate uncommitted facilities (“Facilities”) of $2.15 billion and an actual aggregate outstanding balance of $1.30 billion; and the Clients’ individual Facilities ranged in size from $3.0 million to $250.0 million. A Facility is often supported by a payment guaranty of the Client’s owners holding significant ownership positions, along with non-interest-bearing compensating balance deposits in line with the Facility amount. Typical covenants include minimum tangible net worth, maximum leverage and minimum liquidity. As loans age, the Company requires loan curtailments to reduce the Company’s risk if an individual mortgage loan is not timely purchased by an investor. The average mortgage loan being purchased by the Company reflects a blend of Agency and private investor underwriting guidelines. At December 31, 2025 , the Company’s mortgage warehouse portfolio had an average loan-to-value ratio (LTV) of 75%, an average credit score of 677 and an average loan size of $339 thousand. The Company’s purchases under these Facilities are priced using a combined base rate and a risk premium set for both product type (Prime, Jumbo, etc.) and age of the loan.
Although not subject to any legally binding commitment, when the Company makes a purchase decision, it acquires a 100% participation interest in the mortgage loans originated by its Clients. Individual mortgage loans are warehoused in the Company’s portfolio only for a short duration, averaging less than 30 days. When instructed by a Client that a warehoused loan has been sold to an investor, the Company delivers the note to the investor that pays the Company, which in turn remits the net sales proceeds to the Client.
Agriculture Loans . The Company provides agriculture loans for short-term livestock and crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture borrowers primarily based on their historical profitability, level of experience in their particular industry segment, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks.
Consumer Loans . Consumer loans made by the Company include direct “A”-credit automobile loans, recreational vehicle loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 180 months and vary based upon the nature of collateral and size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, personal bankruptcy or death. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
Loan Maturities . The contractual maturity ranges of the Company’s loan portfolio, excluding loans held for sale of $14.2 million and Warehouse Purchase Program loans of $1.30 billion, by type of loan and the amount of such loans with predetermined interest rates and variable rates in each maturity range as of December 31, 2025, are summarized in the following table. Contractual maturities are based on contractual amounts outstanding and do not include net loan purchase discounts of $22.7 million.
One Year or Less
After One Year
Through Five Years
After Five Years
Through Fifteen
Years
After Fifteen Years
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Construction, land development and other land loans
1-4 family residential (includes home equity)
Commercial (includes multi-family residential)
Agriculture (includes farmland)
Consumer and other
Total
Loans with a predetermined interest rate
Loans with a variable interest rate
Total
The following table presents information regarding loans with contractual maturities of one year or more with a predetermined interest rate or a variable interest rate by type of loan at December 31, 2025.
Loans with a
predetermined
interest rate
Loans with a
variable
interest rate
Total
(Dollars in thousands)
Commercial and industrial
Real estate:
Construction, land development and other land loans
1-4 family residential (includes home equity)
Commercial (includes multi-family residential)
Agriculture (includes farmland)
Consumer and other
Total
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, accruing loans 90 days or more past due, repossessed assets and real estate which has been acquired through foreclosure and is awaiting disposition.
The Company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers, and the Company also monitors its delinquency levels for any negative or adverse trends. Nevertheless, the Company’s loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.
As part of the on-going monitoring of the Company’s loan portfolio and the methodology for calculating the allowance for credit losses on loans, management grades each loan from 1 to 9. For certain loans in risk grades 7 to 9, a specific reserve may be required when calculating the allowance for credit losses on loans.
The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. 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, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
With respect to potential problem loans, an evaluation of borrower overall financial condition is made, together with an appraisal for loans collateralized by real estate, to determine the need, if any, for possible write-downs or appropriate additions to the allowance for credit losses on loans.
The following table presents information regarding past due loans and nonperforming assets at the dates indicated.
December 31,
(Dollars in thousands)
Nonaccrual loans (1)(2)
Accruing loans 90 or more days past due
Total nonperforming loans
Repossessed assets
Other real estate
Total nonperforming assets
Nonperforming assets to total loans and other real estate
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate
Nonaccrual loans to total loans
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans
ASU 2022-02 became effective for the Company on January 1, 2023.
There were no nonperforming Warehouse Purchase Program loans or Warehouse Purchase Program lines of credit for the periods presented.
The following tables present information regarding past due loans and nonperforming assets differentiated among originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans at the dates indicated:
December 31, 2025
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD Loans
PCD Loans
Total Loans
(Dollars in thousands)
Nonaccrual loans
Accruing loans 90 or more days past due
Total nonperforming loans
Repossessed assets
Other real estate
Total nonperforming assets
Nonperforming assets to total loans and other real estate by category
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate by category
Nonaccrual loans to total loans
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans
December 31, 2024
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD
Loans
PCD Loans
Total Loans
(Dollars in thousands)
Nonaccrual loans
Accruing loans 90 or more days past due
Total nonperforming loans
Repossessed assets
Other real estate
Total nonperforming assets
Nonperforming assets to total loans and other real estate by category
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate by category
Nonaccrual loans to total loans
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans
The Company had $150.8 million in nonperforming assets at December 31, 2025, compared with $81.5 million at December 31, 2024 and $72.7 million at December 31, 2023. The nonperforming assets consisted of 449 separate credits or other real estate properties at December 31, 2025, compared with 368 at December 31, 2024 and 292 at December 31, 2023. The Company had $137.2 million, $73.6 million and $68.7 million in nonaccrual loans at December 31, 2025, 2024 and 2023, respectively.
At December 31, 2025, of the total nonperforming assets, $105.0 million resulted from originated loans, $19.2 million resulted from re-underwritten acquired loans, $6.4 million resulted from Non-PCD loans and $20.2 million resulted from PCD loans. At December 31, 2024, of the total nonperforming assets, $51.6 million resulted from originated loans, $4.2 million resulted from re-underwritten acquired loans, $8.0 million resulted from Non-PCD loans and $17.7 million resulted from PCD loans.
Nonperforming assets were 0.69% and 0.37% of total loans and other real estate at December 31, 2025 and 2024, respectively. The allowance for credit losses on loans as a percentage of total nonperforming loans was 242.7% at December 31, 2025 and 463.9% at December 31, 2024.
Allowance for Credit Losses
The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
Years Ended December 31,
(Dollars in thousands)
Average loans outstanding
Gross loans outstanding at end of period
Allowance for credit losses on loans at beginning of period
Initial allowance on loans purchased with credit deterioration
Provision for credit losses
Charge-offs:
Commercial and industrial
Real estate and agriculture
Consumer and other
Recoveries:
Commercial and industrial
Real estate and agriculture
Consumer and other
Net charge-offs (1)
Allowance for credit losses on loans at end of period
Ratio of allowance to end of period loans
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program loans
Ratio of net charge-offs to average loans
Ratio of allowance to end of period nonperforming loans
Ratio of allowance to end of period nonaccrual loans
There was no net charge-off activity on Warehouse Purchase Program loans during the periods presented.
The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses that it believes is management’s best estimate of current expected credit losses on the Company’s loan portfolio as of December 31, 2025. The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, and (4) provision releases returned to earnings that decrease the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.
The Company’s allowance for credit losses on loans consists of two components: (1) a specific valuation allowance based on expected lifetime losses on specifically identified loans and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company.
In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan. The specific reserves are determined on an individual loan basis. Loans for which specific reserves are provided are excluded from the general valuation allowance described below.
In connection with this review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include:
for 1-4 family residential mortgage loans, borrower’s ability to repay the loan, including a consideration of the debt to income ratio and employment and income stability, the loan to value ratio, and the age, condition and marketability of collateral;
for commercial mortgage loans and multifamily residential loans, the debt service coverage ratio (income from the property in excess of operating expenses compared to loan payment requirements), operating results of the owner in the case of owner-occupied properties, the loan to value ratio, the age and condition of the collateral and the volatility of income, property value and future operating results typical of properties of that type;
for construction, land development and other land loans, the perceived feasibility of the project including the ability to sell developed lots or improvements constructed for resale or the ability to lease property constructed for lease, the quality and nature of contracts for presale or prelease, if any, experience and ability of the developer and loan to value ratio;
for commercial and industrial loans, the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral;
for the Warehouse Purchase Program, the capitalization and liquidity of the mortgage banking client, the operating experience, the Client’s satisfactory underwriting of purchased loans and the consistent timeliness by the Client of loan resale to investors;
for agriculture real estate loans, the experience and financial capability of the borrower, projected debt service coverage of the operations of the borrower and loan to value ratio; and
for non-real estate agriculture loans, the operating results, experience and financial capability of the borrower, historical and expected market conditions and the value, nature and marketability of collateral.
In addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors.
In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to cover expected losses in other categories.
A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired loans and PCD loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans.
Changes in the Company’s asset quality are reflected in the allowance in several ways. Specific reserves that are calculated on a loan-by-loan basis and the qualitative assessment of all other loans reflect current changes in the credit quality of the loan portfolio. Historical lifetime credit losses, on the other hand, are based on an open-pool (“cumulative loss rate”) methodology, which is then applied to estimate lifetime credit losses in the loan portfolio. A deterioration in the credit quality of the loan portfolio in the current period would increase the historical lifetime loss rate to be applied in future periods, just as an improvement in credit quality would decrease the historical lifetime loss rate.
The allowance for credit losses is further determined by the size of the loan portfolio subject to the allowance methodology and environmental factors that include Company-specific risk indicators and general economic conditions, both of which are constantly changing. The Company evaluates the economic and portfolio-specific factors on a quarterly basis to determine a qualitative component of the general valuation allowance. The factors include current economic metrics, reasonable and supportable forecasted economic metrics, business conditions, delinquency trends, credit concentrations, nature and volume of the portfolio and other adjustments for items not covered by specific reserves and historical lifetime loss experience. Management’s assessment of qualitative factors is a statistically based approach to determine the loss rate adjustment associated with such factors. Based on the Company’s actual historical lifetime loan loss experience relative to economic and loan portfolio-specific factors at the time the losses occurred, management is able to identify the expected level of lifetime losses as of the date of measurement. The correlation of historical loss experience with current and forecasted economic conditions provides an estimate of lifetime losses that has not been previously factored into the general valuation allowance by the determination of specific reserves and lifetime historical losses. Additionally, the Company considers qualitative factors not easily quantified and the possibility of model imprecision.
Utilizing the aggregation of specific reserves, historical loss experience and a qualitative component, management is able to determine the valuation allowance to reflect the full lifetime loss.
The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity were recorded at their fair values at the acquisition date. These fair value estimates associated with acquired loans, and based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
Non-PCD loans that were not deemed impaired subsequent to the acquisition date are considered non-impaired and are evaluated as part of the general valuation allowance. Non-PCD loans that have deteriorated to an impaired status subsequent to acquisition are evaluated for a specific reserve on a quarterly basis which, when identified, is added to the allowance for credit losses. The Company reviews impaired Non-PCD loans on a loan-by-loan basis and determines the specific reserve based on the difference between the recorded investment in the loan and one of three factors: expected future cash flows, observable market price or fair value of the collateral. Because essentially all of the Company’s impaired Non-PCD loans have been collateral-dependent, the amount of the specific reserve historically has been determined by comparing the fair value of the collateral securing the Non-PCD loan with the recorded investment in such loan. In the future, the Company will continue to analyze impaired Non-PCD loans on a loan-by-loan basis and may use an alternative measurement method to determine the specific reserve, as appropriate and in accordance with applicable accounting standards.
PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans may be required. PCD loans were recorded at their acquisition date fair values based on expected cash flows with a reserve established for the estimate of expected future cash flows. The Company’s estimates of loan fair values at the acquisition date may be adjusted for a period of up to one year as the Company continues to evaluate its estimate of expected future cash flows at the acquisition date. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses.
As described in the section captioned “Critical Accounting Estimates” above, the Company’s determination of the allowance for credit losses involves a high degree of judgment and complexity. The Company’s analysis of qualitative, or environmental, factors on pools of loans with common risk characteristics, in combination with the quantitative historical lifetime loss information and specific reserves, provides the Company with an estimate of lifetime losses. The allowance must reflect changes in the balance of loans subject to the allowance methodology, as well as the estimated lifetime losses associated with those loans.
The following table shows the allocation of the allowance for credit losses among various categories of loans and certain other information as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to cover expected losses from any loan category.
December 31,
Amount
Percent of Loans to Total Loans (1)
Amount
Percent of Loans to Total Loans (1)
Amount
Percent of Loans to Total Loans (1)
(Dollars in thousands)
Balance of allowance for credit losses on loans applicable to:
Commercial and industrial
Real estate
Agriculture and agriculture real estate
Consumer and other
Total allowance for credit losses on loans
Loans outstanding as a percentage of total loans, excluding Warehouse Purchase Program loans.
The Company further disaggregates its allowance for credit losses to distinguish between the portion of the allowance attributed to originated loans and the portion attributed to acquired loans.
The following tables present, as of and for the periods indicated, information regarding the allowance for credit losses on loans differentiated between originated loans and acquired loans, which includes re-underwritten acquired loans, Non-PCD loans and PCD loans. Reported net charge-offs may include those from Non-PCD loans and PCD loans, but only if the total charge-off required is greater than the remaining discount.
As of and for the Year Ended December 31, 2025
Originated Loans
Acquired Loans
Total
(Dollars in thousands)
Average loans outstanding
Gross loans outstanding at end of period
Allowance for credit losses on loans at beginning of period
Provision for credit losses
Charge-offs:
Commercial and industrial
Real estate and agriculture
Consumer and other
Recoveries:
Commercial and industrial
Real estate and agriculture
Consumer and other
Net charge-offs (1)
Allowance for credit losses on loans at end of period
Ratio of allowance to end of period loans
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program loans
Ratio of net charge-offs to average loans
Ratio of allowance to end of period nonperforming loans
Ratio of allowance to end of period nonaccrual loans
As of and for the Year Ended December 31, 2024
Originated Loans
Acquired Loans
Total
(Dollars in thousands)
Average loans outstanding
Gross loans outstanding at end of period
Allowance for credit losses on loans at beginning of period
Initial allowance on loans purchased with credit deterioration
Provision for credit losses
Charge-offs:
Commercial and industrial
Real estate and agriculture
Consumer and other
Recoveries:
Commercial and industrial
Real estate and agriculture
Consumer and other
Net charge-offs (1)
Allowance for credit losses on loans at end of period
Ratio of allowance to end of period loans
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program loans
Ratio of net charge-offs to average loans
Ratio of allowance to end of period nonperforming loans
Ratio of allowance to end of period nonaccrual loans
There was no net charge-off activity on Warehouse Purchase Program loans during the periods presented.
The Company had gross charge-offs on originated loans of $21.4 million during the year ended December 31, 2025, compared with $10.0 million during the year ended December 31, 2024. Partially offsetting these charge-offs were recoveries on originated loans of $3.5 million for the year ended December 31, 2025, compared with $1.8 million for the year ended December 31, 2024. Total charge-offs for the year ended December 31, 2025, were $24.5 million, partially offset by total recoveries of $6.4 million. Total charge-offs for the year ended December 31, 2024, were $20.2 million, partially offset by total recoveries of $5.7 million.
The following table shows the allocation of the net charge-offs and net recoveries among various categories of loans as of the dates indicated.
December 31,
Amount
Percent of Net Charge-offs to Average Loans
Amount
Percent of Net Charge-offs to Average Loans
(Dollars in thousands)
Balance of net (charge-offs) recoveries applicable to:
Commercial and industrial
Real estate:
Construction, land development and other land loans
1-4 family residential (including home equity)
Commercial real estate (including multi-family residential)
Agriculture (includes farmland)
Consumer and other
Total net charge-offs
The following tables show the allocation of the allowance for credit losses among various categories of loans disaggregated between originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans at the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to cover expected losses from any loan category, regardless of whether allocated to an originated loan or an acquired loan.
December 31, 2025
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD Loans
PCD Loans
Total Allowance
Percent of Loans to Total Loans (1)
(Dollars in thousands)
Balance of allowance for credit losses on loans applicable to:
Commercial and industrial
Real estate
Agriculture and agriculture real estate
Consumer and other
Total allowance for credit losses on loans
December 31, 2024
Acquired Loans
Originated Loans
Re-Underwritten Acquired Loans
Non-PCD Loans
PCD Loans
Total Allowance
Percent of Loans to Total Loans (1)
(Dollars in thousands)
Balance of allowance for credit losses on loans applicable to:
Commercial and industrial
Real estate
Agriculture and agriculture real estate
Consumer and other
Total allowance for credit losses on loans
Loans outstanding as a percentage of total loans, excluding Warehouse Purchase Program loans.
At December 31, 2025, the allowance for credit losses on loans totaled $333.7 million or 1.53% of total loans, including acquired loans with discounts, a decrease of $18.1 million or 5.1% compared to the allowance for credit losses on loans totaling $351.8 million or 1.59% of total loans, including acquired loans with discounts, at December 31, 2024. Net charge-offs were $18.1 million for the year ended December 31, 2025. For the year ended December 31, 2025, $18.9 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
At December 31, 2024, the allowance for credit losses on loans totaled $351.8 million or 1.59% of total loans, including acquired loans with discounts, an increase of $19.4 million or 5.8% compared to the allowance for credit losses on loans totaling $332.4 million or 1.57% of total loans, including acquired loans with discounts, at December 31, 2023, primarily due to the Lone Star Merger. Net charge-offs were $14.6 million for the year ended December 31, 2024. Net charge-offs for the year ended December 31, 2024 included $3.4 million related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. Additionally, reserves on PCD loans increased by $26.1 million due to Day One accounting for PCD loans at the time of the Lone Star Merger. Further, $15.4 million of reserves on resolved PCD loans were released to the general reserve.
At December 31, 2025, $231.3 million of the allowance for credit losses on loans was attributable to originated loans compared with $227.2 million of the allowance at December 31, 2024, an increase of $4.0 million or 1.8%. At December 31, 2025, $38.4 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $32.3 million of the allowance at December 31, 2024, an increase of $6.1 million or 19.0%. At December 31, 2025, $15.7 million of the allowance for credit losses on loans was attributable to Non-PCD loans compared with $25.0 million of the allowance at December 31, 2024, a decrease of $9.2 million or 37.1%. At December 31, 2025, $48.4 million of the allowance for credit losses on loans attributable to PCD loans compared with $67.4 million of the allowance at December 31, 2024, a decrease of $19.0 million or 28.2%.
At December 31, 2025 and 2024, the Company had $22.7 million and $35.2 million, respectively, of total outstanding net accretable discounts on Non-PCD and PCD loans.
The Company believes that the allowance for credit losses on loans represent management’s best estimate of current expected credit losses on the Company’s loan portfolio at December 31, 2025. Nevertheless, the Company could sustain losses in future periods that could be substantial in relation to the size of the allowance at December 31, 2025.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancelable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of December 31, 2025 and 2024, the Company had $37.6 million in allowance for credit losses on off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet.
The following table represents a rollforward of the allowance for credit losses on off-balance sheet credit exposures as of the dates indicated.
Year Ended December 31,
(Dollars in thousands)
Balance at beginning of period
Provision for credit losses on off-balance sheet credit exposures
Balance at end of period
Securities
The Company uses its securities portfolio to manage interest rate risk and as a source of income and liquidity for cash requirements. At December 31, 2025, the carrying amount of investment securities totaled $10.61 billion, a decrease of $481.0 million or 4.3% compared with $11.09 billion at December 31, 2024. At December 31, 2025, securities represented 27.6% of total assets compared with 28.0% of total assets at December 31, 2024.
At the date of purchase, the Company is required to classify debt and equity securities into one of three categories: held to maturity, trading or available for sale. At each reporting date, the appropriateness of the classification is reassessed. Investments in debt securities are classified as held to maturity and measured at amortized cost in the financial statements only if management has the positive intent and ability to hold those securities to maturity. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading and measured at fair value in the financial statements with unrealized gains and losses included in earnings. Investments not classified as either held to maturity or trading are classified as available for sale and measured at fair value in the financial statements with unrealized gains and losses reported, net of tax, in a separate component of shareholders’ equity until realized.
The following table summarizes the carrying value by classification of securities as of the dates shown:
December 31,
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Amortized Cost
Fair Value
(Dollars in thousands)
Available for Sale
Corporate debt securities
Collateralized mortgage obligations
Mortgage-backed securities
Total
Held to Maturity
U.S. Government agencies
States and political subdivisions
Corporate debt securities
Collateralized mortgage obligations
Mortgage-backed securities
Total
The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under CECL.
Available for sale securities . For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairmentloss (“credit loss”) and the noncredit portion of the impairmentloss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis, and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.
As of December 31, 2025, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of
the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2025, management believes that there is no potential for credit losses on available for sale securities.
Held to maturity securities . The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Fannie Mae or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae and Freddie Mac issued securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of December 31, 2025, the Company’s municipal securities represent 0.7% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Accordingly, as of December 31, 2025, management believes that there is no potential for material credit losses on held to maturity securities.
The following table summarizes the contractual maturity of securities and their weighted average yields as of December 31, 2025. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. The weighted average life of the Company’s securities portfolio was 4.31 years, with a modified duration of 3.68 years at December 31, 2025. Available for sale securities are shown at fair value and held to maturity securities are shown at amortized cost. For purposes of the table below, tax-exempt states and political subdivisions are calculated on a tax equivalent basis.
December 31, 2025
Within One Year
After One Year but Within Five Years
After Five Years but Within Ten Years
After Ten Years
Total
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Total
Yield
(Dollars in thousands)
U.S. Government agencies
States and political subdivisions
Corporate debt securities
Collateralized mortgage obligations
Mortgage-backed securities
Total
The contractual maturity of mortgage-backed securities and collateralized mortgage obligations is not a reliable indicator of their expected life because borrowers have the right to prepay their obligations at any time with or without call or prepayment penalties. Mortgage-backed securities monthly pay downs cause the average lives of the securities to be much different than their stated lives. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and consequently, the average life of this security will be lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security.
At December 31, 2025 and 2024, the Company did not own securities of any one issuer (other than the U.S. government and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity at such respective dates.
The average tax equivalent yield of the securities portfolio was 2.26% as of December 31, 2025, compared with 2.05% and 2.07% as of December 31, 2024 and 2023, respectively. The average tax equivalent yield on the securities portfolio is based upon expected prepayment speeds, other industry standard projections and on a 21% tax rate in 2025, 2024 and 2023.
The average yield excluding the tax equivalent adjustment was 2.16% for the year ended December 31, 2025, compared with 2.07% for the year ended December 31, 2024, and 2.06% for the year ended December 31, 2023. The overall change in the average securities portfolio over the comparable periods was primarily due to maturities, principal amortization, prepayments and sales of investment securities during the year ended December 31, 2025.
Mortgage-backed securities are securities that have been developed by pooling a number of real estate mortgages and which are principally issued by federal agencies such as Ginnie Mae, Fannie Mae and Freddie Mac. These securities are deemed to have high credit ratings, and minimum regular monthly cash flows of principal and interest are guaranteed by the issuing agencies.
Unlike U.S. Treasury and U.S. government agency securities, which have a lump sum payment at maturity, mortgage-backed securities provide cash flows from regular principal and interest payments and principal prepayments throughout the lives of the securities. Premiums and discounts on mortgage-backed securities are amortized over the expected life of the security and may be impacted by prepayments. As such, mortgage-backed securities which are purchased at a premium will generally suffer decreasing net yields as interest rates drop because homeowners tend to refinance their mortgages resulting in prepayments and an acceleration of premium amortization. Securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment as prepayments result in an acceleration of discount accretion. At December 31, 2025, 82.4% of the mortgage-backed securities held by the Company had contractual final maturities of more than ten years with a weighted average life of 4.67 years. As noted above, contractual maturities are not a reliable indicator of expected life because of borrower prepayment rights.
Collateralized mortgage obligations (“CMOs”) are bonds that are backed by pools of mortgages. The pools can be Ginnie Mae, Fannie Mae or Freddie Mac pools or they can be private-label pools. CMOs are designed so that the mortgage collateral will generate a cash flow sufficient to provide for the timely repayment of the bonds. So long as the collateral cash flow is adequate to meet scheduled bond payments, the mortgage collateral pool can be structured to accommodate various desired bond repayment schedules. This is accomplished by dividing the bonds into classes to which payments on the underlying mortgage pools are allocated in different order. The bond’s cash flow, for example, can be dedicated to one class of bondholders at a time, thereby increasing call protection to bondholders. In private-label CMOs, losses on underlying mortgages are directed to the most junior of all classes and then to the classes above in order of increasing seniority, which means that the senior classes have enough credit protection to be given the highest credit rating by the rating agencies.
Visa Class B-1 Stock Exchange . During the second quarter of 2024, the Bank tendered all of its shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock, pursuant to the terms and subject to the conditions of the public offering of Visa to exchange its Class B-1 common stock for a combination of shares of its Class B-2 common stock and Class C common stock, which expired on May 3, 2024. The Company recorded a gain of $20.6 million during the second quarter of 2024 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. In the exchange, the Bank received 48,492 shares of Class B-2 stock, recorded at zero cost basis, and 19,245 shares of Class C common stock and has subsequently sold all shares of Class C stock.
Deposits
The Company’s lending and investing activities are primarily funded by deposits. The Company offers a variety of deposit accounts having a wide range of interest rates and terms including demand, savings, money market and time accounts. The Company relies primarily on competitive pricing policies and customer service to attract and retain these deposits.
Total deposits at December 31, 2025, were $28.48 billion, an increase of $101.1 million compared with $28.38 billion at December 31, 2024. Total deposits at December 31, 2024, were $28.38 billion, an increase of $1.20 billion or 4.4% compared with $27.18 billion at December 31, 2023, primarily due to the Lone Star Merger acquired deposits. Noninterest-bearing deposits at December 31, 2025, were $9.47 billion compared with $9.80 billion at December 31, 2024, a decrease of $330.5 million. Noninterest-bearing deposits at December 31, 2024 were $9.80 billion compared with $9.78 billion at December 31, 2023, an increase of $21.9 million. Interest-bearing deposits at December 31, 2025, were $19.01 billion, an increase of $431.7 million or 2.3% compared with $18.58 billion at December 31, 2024. Interest-bearing deposits at December 31, 2024, were $18.58 billion, an increase of $1.18 billion or 6.8% compared with $17.40 billion at December 31, 2023.
The daily average balances and weighted average rates paid on deposits for each of the years ended December 31, 2025, 2024 and 2023 are presented below:
Years Ended December 31,
Average Balance
Average Rate
Average Balance
Average Rate
Average Balance
Average Rate
(Dollars in thousands)
Interest-bearing checking
Regular savings
Money market savings
Time deposits
Total interest-bearing deposits
Noninterest-bearing deposits
Total deposits
The Company’s ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2025, 2024 and 2023 was 34.2%, 34.8% and 37.4%, respectively.
The following table sets forth the amount of the Company’s certificates of deposit that are $250,000 or greater by time remaining until maturity at December 31, 2025 (dollars in thousands):
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
Total uninsured deposits, including certificates of deposits, were $12.45 billion and $11.88 billion at December 31, 2025 and 2024, respectively.
Other Borrowings
The Company utilizes borrowings to supplement deposits to fund its lending and investment activities. Borrowings consist of funds from the Federal Home Loan Bank of Dallas (“FHLB”), securities sold under repurchase agreements and in 2024, the Federal Reserve Board Bank Term Funding Program (“BTFP”).
The following table presents the Company’s borrowings at December 31, 2025 and 2024:
FHLB Advances
Securities Sold Under Repurchase Agreements
Bank Term Funding Program
(Dollars in thousands)
December 31, 2025
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
December 31, 2024
Amount outstanding at year-end
Weighted average interest rate at year-end
Maximum month-end balance during the year
Average balance outstanding during the year
Weighted average interest rate during the year
FHLB advances and long-term notes payable —The Company has an available line of credit with the FHLB of Dallas, which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At December 31, 2025, the Company had total borrowing capacity of $7.58 billion under this line. FHLB advances of $1.95 billion were outstanding at December 31, 2025, with a weighted average interest rate of 3.63%. At December 31, 2025, the Company had no FHLB long-term notes payable balance outstanding.
Securities sold under repurchase agreements with Company customers —At December 31, 2025, the Company had $201.2 million in securities sold under repurchase agreements compared with $221.9 million at December 31, 2024, a decrease of $20.7 million or 9.3%, with weighted average interest rates paid of 2.35% and 2.70% for the years ended December 31, 2025 and 2024, respectively. Repurchase agreements are generally settled on the following business day. All securities sold under repurchase agreements are collateralized by certain pledged securities.
Bank Term Funding Program — During the second quarter of 2023, the Bank began participating in the BTFP, which ceased extending new loans as of March 11, 2024. Under the BTFP program, eligible depository institutions could obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. At December 31, 2025 and 2024, the Company had no BTFP balance outstanding.
Interest Rate Sensitivity and Market Risk
The Company’s asset liability and funds management policy provides management with the guidelines for effective funds management, and the Company has established a measurement system for monitoring its net interest rate sensitivity position. The Company manages its sensitivity position within established guidelines.
As a financial institution, the Company’s primary component of market risk is interest rate volatility. Fluctuations in interest rates ultimately will impact both (1) the level of income and expense recorded on most of the Company’s assets and liabilities and (2) the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income, a loss of current fair market values, or both. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while maximizing income.
The Company primarily manages its exposure to interest rates by structuring its balance sheet in the ordinary course of business. The Company does not employ material amounts of instruments such as leveraged derivatives, interest rate swaps, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of the Company’s operations, with the exception of how commodity prices may impact the Company’s borrowers’ ability to repay loans, the Company is not subject to foreign exchange or commodity price risk. The Company is not involved in trading assets for its own account.
The Company’s exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”), which consists of senior officers of the Company, in accordance with policies approved by the Company’s Board of Directors. The ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management uses two methodologies to manage interest rate risk: (1) an analysis of relationships between interest-earning assets and interest-bearing liabilities; and (2) an interest rate shock simulation model. The Company has traditionally managed its business to minimize its overall exposure to changes in interest rates.
The Company primarily uses an interest rate risk simulation model to evaluate the interest rate sensitivity of net interest income and the balance sheet. Contractual maturities and repricing opportunities of loans are incorporated in the model as are prepayment assumptions, maturity data and call options within the investment portfolio. Assumptions based on past experience are incorporated into the model for nonmaturity deposit accounts. Interest rate shocks are applied to a static balance sheet to estimate the potential impact on net interest income and the aggregated market value of the balance sheet. As of December 31, 2025, these interest rate shocks consisted of instantaneous and parallel shifts in the yield curve moving from – 400 basis points to + 400 basis points, in 100 basis-point increments. The forecasted net interest income assuming no change in interest rates is compared to the forecasted net interest income in the shocks to measure the sensitivity of the Company’s earnings to changes in interest rates. Other simulations are run on a regular basis that include the gradual and rapid ramping of interest rates, yield curve twists and changes in the balance sheet composition.
The following table summarizes the simulated change in net interest income at the 12-month horizon, considering the balance sheet composition as of December 31, 2025 and 2024:
Percent Change in Net Interest Income
Change in Interest Rates (Basis Points)
December 31, 2025
December 31, 2024
Base
The Company continues to manage its asset sensitivity within the scope of its risk tolerances and changing market conditions. At December 31, 2025, a projected 200 basis point increase in rates resulted in a projected increase in net interest income of 3.5% compared with a projected 1.0% increase in net interest income at December 31, 2024. During 2025, the Company continued to reduce the size of its fixed-rate investment portfolio. The Company was also able to gradually decrease the volume of its short-term
borrowings during the year. With market interest rates generally falling during 2025, these balance sheet shifts were the primary factors causing the Company’s increased asset sensitivity as of December 31, 2025.
The results are significantly influenced by the behavior of demand, money market and savings deposits and the overall balance sheet composition during such rate fluctuations. The Company has found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis. The assumptions incorporated into the model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.
Liquidity
Liquidity involves the Company’s ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate the Company on an ongoing basis and manage unexpected events. During 2025 and 2024, the Company’s liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Additionally, the Company utilized advances from the FHLB of Dallas.
The Company has an available line of credit with the FHLB, which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At December 31, 2025, the Company had total borrowing capacity of $7.6 billion under this line. FHLB advances of $2.0 billion were outstanding at December 31, 2025, with a weighted average interest rate of 3.63%. At December 31, 2025, the Company had no FHLB long-term notes payable balance outstanding.
The Company has the ability to borrow on a collateralized basis from the Federal Reserve Discount Window. The discount window allows depository institutions to manage liquidity on a short-term basis and borrowings are usually no longer than 90 days. As of December 31, 2025, the Company had $7.8 billion available in borrowings with no borrowings outstanding.
The Company has available access to purchase funds from correspondent banks, and has been utilized on occasion to take advantage of investment opportunities, however, the Company does not generally rely on this external funding source.
The following table illustrates, during the years presented, the mix of the Company’s funding sources and the average assets in which those funds are invested as a percentage of the Company’s average total assets for the periods indicated. Average assets totaled $38.28 billion for 2025 compared with $39.60 billion for 2024.
Source of Funds:
Deposits:
Noninterest-bearing
Interest-bearing
Securities sold under repurchase agreements
Other borrowings
Other noninterest-bearing liabilities
Shareholders’ equity
Total
Uses of Funds:
Loans
Securities
Federal funds sold and other interest-earning assets
Other noninterest-earning assets
Total
Average noninterest-bearing deposits to average deposits
Average loans to average deposits
The Company’s largest source of funds is deposits, and the Company’s principal uses of funds are loans and securities. The Company does not expect a change in the source or use of its funds in the foreseeable future. The Company’s average deposits decreased 0.1% for the year ended December 31, 2025, compared with the year ended December 31, 2024. The Company’s average loans increased 0.1% for the year ended December 31, 2025, compared with the year ended December 31, 2024. The Company predominantly invests excess deposits in government-backed securities until the funds are needed to fund loan growth. The Company’s securities portfolio has a weighted average life of 4.31 years and a modified duration of 3.68 years at December 31, 2025.
As of December 31, 2025, the Company had outstanding $3.52 billion in commitments to extend credit, $95.3 million in commitments associated with outstanding standby letters of credit and $808.2 million in commitments associated with unused capacity on Warehouse Purchase Program loans. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
As of December 31, 2025, the Company had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
As of December 31, 2025, the Company had cash and cash equivalents of $1.75 billion compared with $1.97 billion at December 31, 2024, a decrease of $224.7 million or 11.4%. The decrease was primarily due to net repayments of other short-term borrowings of $1.25 billion, payments of cash dividends of $221.4 million, repurchase of common stock of $157.2 million and a net decrease in securities sold under repurchase agreements of $20.7 million, partially offset by net cash provided by operating activities of $550.0 million, net proceeds from maturities, sales and principal paydowns of investment securities of $465.2 million, net proceeds from the repayment of loans of $324.1 million and cash provided by an increase in deposits of $101.2 million.
Share Repurchases
On January 26, 2026, the Company announced a stock repurchase program under which the Company could repurchase up to 5%, or approximately 4.87 million shares, of its outstanding common stock over a one-year period expiring on January 26, 2027, at the discretion of management. Under the stock repurchase program, the Company may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. Repurchases under this program may also be made in transactions outside the safe harbor during a pending merger, acquisition or similar transaction. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Shares of stock repurchased are held as authorized but unissued shares. The Company is not obligated to purchase any particular number of shares, and the Company may suspend, modify or terminate the program at any time and for any reason without prior notice.
On January 21, 2025, the Company announced a stock repurchase program under which the Company could repurchase up to 5%, or approximately 4.8 million shares, of its outstanding common stock over a one-year period expiring on January 21, 2026, at the discretion of management. The Company repurchased approximately 2.3 million shares of its common stock at an average weighted price of $67.04 per share during the year ended December 31, 2025.
On January 16, 2024, the Company announced a stock repurchase program under which the Company could repurchase up to 5%, or approximately 4.7 million shares, of its outstanding common stock over a one-year period expiring on January 16, 2025, at the discretion of management. The Company repurchased approximately 1.2 million shares of its common stock at an average weighted price of $60.35 per share during the year ended December 31, 2024.
Contractual Obligations
The Company’s contractual obligations and other commitments to make future payments (other than deposit obligations and securities sold under repurchase agreements) as of December 31, 2025, are summarized below.
Federal Home Loan Bank Borrowings
The Company’s future cash payments associated with its contractual obligations pursuant to its FHLB advances as of December 31, 2025, is summarized below.
1 year or less
More than 1 year but less than 3 years
3 years or more but less than 5 years
5 years or more
Total
(Dollars in thousands)
FHLB advances
Off-Balance Sheet Items
In the normal course of business, the Company enters into various transactions that, in accordance with GAAP, are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Company’s commitments associated with outstanding standby letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit expiring by period as of December 31, 2025, are summarized below. Since commitments associated with letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit may expire unused, the amounts shown may not necessarily reflect the actual future cash funding requirements.
1 year or less
More than 1 year but less than 3 years
3 years or more but less than 5 years
5 years or more
Total
(Dollars in thousands)
Standby letters of credit
Unused capacity on Warehouse Purchase Program loans
Commitments to extend credit
Total
Standby Letters of Credit . Standby letters of credit are written conditional commitments issued by the Company to guarantee the payment by or performance of a customer to a third party. If the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount of the commitment. If the commitment is funded, the Company would be entitled to seek recovery from the customer. The Company’s policies generally require that standby letter of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
Unused Capacity on Warehouse Purchase Program Loans . For Warehouse Purchase Program loans, the Company has established a maximum purchase facility amount, but reserves the right, at any time, to refuse to buy any mortgage loans offered for sale by its mortgage originator clients for any reason.
Commitments to Extend Credit . The Company enters into contractual commitments to extend credit, normally with fixed expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the Company’s commitments to extend credit are contingent upon customers maintaining specific credit standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for credit losses.
Allowance for Credit Losses on Off-balance Sheet Credit Exposures . The Company records an allowance for credit losses on off-balance sheet credit exposure that is adjusted through an entry to provision for credit losses on the Company’s consolidated statement of income. At December 31, 2025 and 2024, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $37.6 million.
Leases
The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial and the Company has one sublease arrangement. Sublease income for the years ended December 31, 2025, 2024 and 2023 was $3.3 million, $3.4 million and $3.1 million, respectively. As of December 31, 2025, operating lease ROU assets and lease liabilities were approximately $28.1 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.
As of December 31, 2025, the weighted average remaining lease terms of the Company’s operating leases were 5.9 years. The weighted average discount rate used to determine the lease liabilities as of December 31, 2025, for the Company’s operating leases was 3.2%. Cash paid for the Company’s operating leases for the years ended December 31, 2025, 2024 and 2023 was $11.6 million, $11.5 million and $12.0 million, respectively. During the year ended December 31, 2025, the Company obtained $3.5 million in ROU assets in exchange for lease liabilities for nine operating leases.
The Company’s future undiscounted cash payments associated with its operating leases as of December 31, 2025, are summarized below (dollars in thousands).
Thereafter
Total undiscounted lease payments
It is expected that in the normal course of business, expiring leases will be renewed or replaced by leases on other property or equipment.
Rent expense under all operating lease obligations aggregated approximately $11.6 million, $11.5 million, and $12.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Capital Resources
Capital management consists of providing equity to support the Company’s current and future operations. The Company is subject to capital adequacy requirements imposed by the Federal Reserve Board, and the Bank is subject to capital adequacy requirements imposed by the FDIC. Both the Federal Reserve Board and the FDIC have adopted risk-based capital requirements for assessing bank holding company and bank capital adequacy. These standards define capital and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk.
The Company is subject to the Basel III Capital Rules, which require the Company to maintain a capital conservation buffer, composed entirely of common equity tier 1 capital (“CET1”), of 2.5%, effectively resulting in minimum ratios of (1) CET1 to risk-weighted assets of 7.0%, (2) Tier 1 capital to risk-weighted assets of 8.5%, (3) total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of 10.5% and (4) Tier 1 capital to average quarterly assets as reported on consolidated financial statements (known as the “leverage ratio”) of 4.0%. The Bank is subject to capital adequacy guidelines of the FDIC that are substantially similar to the Federal Reserve Board’s guidelines. Also pursuant to FDICIA, the FDIC has promulgated regulations setting the levels at which an insured institution such as the Bank would be considered “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “criticallyundercapitalized.” Under the FDIC’s regulations, the Bank is classified “well-capitalized” for purposes of prompt corrective action.
The CET1, Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets include total assets, excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet items. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, excluding goodwill and other intangible assets. Banking institutions that fail to meet the effective minimum ratios will be subject to constraints on capital distributions, including dividends and share repurchases, and certain discretionary executive compensation. The severity of the constraints depends on the amount of the shortfall and the institution’s “eligible retained income” (that is, four-quarter trailing net income, net of distributions and tax effects not reflected in net income).
As of December 31, 2025, the Company’s ratio of CET1 to risk-weighted assets was 17.55%, Tier 1 capital to risk-weighted assets was 17.55%, total capital to risk-weighted assets was 18.80% and Tier 1 capital to average quarterly assets (leverage ratio) was 11.93%.
It is important to note that Warehouse Purchase Program loan volumes can increase significantly on the last day of the month, potentially leading to a significant difference between the ending and average balance of Warehouse Purchase Program loans for a given period. At December 31, 2025, Warehouse Purchase Program loans totaled $1.30 billion, compared to an average balance of $1.13 billion. Because the capital ratios above are calculated using ending risk-weighted assets and Warehouse Purchase Program loans are risk-weighted at 100%, the end-of-period increase in these balances can significantly impact the Company’s reported capital ratios.
Total shareholders’ equity increased to $7.62 billion at December 31, 2025, compared with $7.44 billion at December 31, 2024, an increase of $177.6 million or 2.4%. The increase was primarily the result of net income of $542.8 million, partially offset by dividend payments of $221.4 million and common stock repurchases of $157.2 million.
The following table provides a comparison of the Company’s and the Bank’s leverage and risk-weighted capital ratios as of December 31, 2025, to the minimum and well-capitalized regulatory standards:
Minimum Required For Capital Adequacy Purposes
Minimum Required Plus Capital Conservation Buffer
To Be Categorized As Well Capitalized Under Prompt Corrective Action Provisions
Actual Ratio at December 31, 2025
The Company
CET1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Leverage ratio
The Bank
CET1 capital ratio
Tier 1 risk-based capital ratio
Total risk-based capital ratio
Leverage ratio
The Federal Reserve Board may require the Company to maintain a leverage ratio above the required minimum.
The FDIC may require the Bank to maintain a leverage ratio above the required minimum.
ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK
For information regarding the market risk of the Company’s financial instruments, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Interest Rate Sensitivity and Market Risk. The Company’s principal market risk exposure is to changes in interest rates.
ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA
The financial statements, the report thereon, the notes thereto and supplementary data commence at page 77 of this Annual Report on Form 10-K.
The following table presents certain unaudited consolidated quarterly financial information concerning the Company’s results of operations for each of the two years indicated below. The information should be read in conjunction with the historical consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Annual Report on Form 10-K.
CONSOLIDATED QUARTERLY FINANCIAL DATA OF THE COMPANY
Quarter Ended 2025
December 31
September 30
June 30
March 31
(Dollars in thousands, except per share data)
(unaudited)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision
Noninterest income
Noninterest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share (1) :
Basic
Diluted
Quarter Ended 2024
December 31
September 30
June 30
March 31
(Dollars in thousands, except per share data)
(unaudited)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision
Noninterest income
Noninterest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share (1) :
Basic
Diluted
Earnings per share are computed independently for each of the quarters presented and therefore may not total earnings per share for the year.
