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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30,
2025
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number
0-07674
First Financial Bankshares, Inc.
(Exact name of registrant as specified in its charter)
Texas
75-0944023
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
400 Pine Street
,
Abilene
,
Texas
79601
(Address of principal executive offices)
(Zip Code)
(
325
)
627-7155
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange
on which registered
Common Stock
, $0.01 par value
FFIN
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2of the Act). Yes ☐ No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The consolidated balance sheets of First Financial Bankshares, Inc. and Subsidiaries (the “Company” or “we”) at June 30, 2025 and 2024 (unaudited), and December 31, 2024, and the consolidated statements of earnings, comprehensive earnings (loss) and shareholders’ equity for the three and six-months ended June 30, 2025 and 2024 (unaudited), and the consolidated statements of cash flows for the six-months ended June 30, 2025 and 2024 (unaudited), and notes to consolidated financial statements (unaudited), follow on pages 4 through 42.
3
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED B
ALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
June 30,
December 31,
2025
2024
2024
(Unaudited)
ASSETS
CASH AND DUE FROM BANKS
$
264,000
$
263,262
$
259,996
FEDERAL FUNDS SOLD
8,750
2,800
—
INTEREST-BEARING DEMAND DEPOSITS IN BANKS
435,612
103,315
503,417
Total cash and cash equivalents
708,362
369,377
763,413
SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of
these securities was $
5,359,666
, $
5,132,451
, and $
5,155,305
as of
June 30, 2025 and 2024, and December 31, 2024, respectively)
4,886,548
4,573,024
4,617,759
LOANS:
Held-for-investment
8,074,944
7,519,733
7,913,098
Less—allowance for credit losses
(
102,792
)
(
95,170
)
(
98,325
)
Net loans held-for-investment
7,972,152
7,424,563
7,814,773
Held-for-sale ($
31,611
, $
19,393
, and $
7,793
, at fair value at
June 30, 2025 and 2024, and December 31, 2024, respectively)
33,233
19,668
8,235
BANK PREMISES AND EQUIPMENT, net
148,999
153,075
151,904
INTANGIBLE ASSETS, net
313,824
314,309
314,004
OTHER ASSETS
313,723
310,059
309,330
Total assets
$
14,376,841
$
13,164,075
$
13,979,418
LIABILITIES AND SHAREHOLDERS’ EQUITY
NONINTEREST-BEARING DEPOSITS
$
3,439,059
$
3,289,032
$
3,348,041
INTEREST-BEARING DEPOSITS
9,009,357
8,120,125
8,751,133
Total deposits
12,448,416
11,409,157
12,099,174
DIVIDENDS PAYABLE
27,206
25,708
25,753
REPURCHASE AGREEMENTS
48,026
138,950
61,416
BORROWINGS
22,153
23,703
135,603
TRADE DATE PAYABLE
24,965
—
—
OTHER LIABILITIES
68,723
47,531
50,912
Total liabilities
12,639,489
11,645,049
12,372,858
SHAREHOLDERS’ EQUITY:
COMMON STOCK — $
0.01
par value, authorized
200,000,000
shares;
143,077,619
,
142,848,909
, and
142,944,704
shares issued at
June 30, 2025 and 2024, and December 31, 2024, respectively
1,431
1,428
1,429
CAPITAL SURPLUS
694,273
685,209
689,338
RETAINED EARNINGS
1,415,104
1,273,946
1,340,082
TREASURY STOCK (shares at cost:
929,782
,
934,135
, and
929,735
at
June 30, 2025 and 2024, and December 31, 2024, respectively)
(
13,594
)
(
12,378
)
(
12,905
)
DEFERRED COMPENSATION
13,594
12,378
12,905
ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS), net
(
373,456
)
(
441,557
)
(
424,289
)
Total shareholders’ equity
1,737,352
1,519,026
1,606,560
Total liabilities and shareholders’ equity
$
14,376,841
$
13,164,075
$
13,979,418
See notes to consolidated financial statements.
4
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEM
ENTS OF EARNINGS—(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three-Months Ended June 30,
Six-Months Ended June 30,
2025
2024
2025
2024
INTEREST INCOME:
Interest and fees on loans
$
134,723
$
123,708
$
265,704
$
240,800
Interest on investment securities:
Taxable
25,242
19,912
50,277
39,864
Exempt from federal income tax
8,541
7,687
16,371
15,424
Interest on federal funds sold and interest-bearing demand
deposits in banks
4,304
2,366
7,568
7,079
Total interest income
172,810
153,673
339,920
303,167
INTEREST EXPENSE:
Interest on deposits
48,732
48,415
96,281
93,666
Interest on repurchase agreements and borrowings
348
1,985
1,120
5,987
Total interest expense
49,080
50,400
97,401
99,653
Net interest income
123,730
103,273
242,519
203,514
PROVISION FOR CREDIT LOSSES
3,132
5,888
6,660
6,695
Net interest income after provision for credit losses
120,598
97,385
235,859
196,819
NONINTEREST INCOME:
Trust fees
12,746
11,714
25,399
23,093
Service charges on deposit accounts
6,126
6,009
12,302
12,255
Debit card fees
5,218
5,145
10,185
10,036
Credit card fees
707
672
1,284
1,303
Gain on sale and fees on mortgage loans
4,126
3,687
6,958
6,815
Net gain (loss) on sale of foreclosed assets
200
(
58
)
165
(
58
)
Net gain on sale of other assets
6
2
6
2
Loan recoveries
810
664
1,384
1,219
Other noninterest income
2,934
3,433
5,420
5,986
Total noninterest income
32,873
31,268
63,103
60,651
NONINTEREST EXPENSE:
Salaries, commissions and employee benefits
42,575
37,472
84,717
74,155
Net occupancy expense
3,600
3,618
7,320
7,088
Equipment expense
2,478
2,233
4,799
4,470
FDIC insurance premiums
1,585
1,508
3,160
3,473
Debit card expense
3,308
3,242
6,680
6,300
Professional and service fees
2,730
2,828
5,381
5,224
Printing, stationery and supplies
473
425
955
872
Operational and other losses
720
769
1,260
1,923
Software amortization and expense
4,020
3,158
7,753
6,163
Amortization of intangible assets
86
157
181
314
Other noninterest expense
10,160
9,602
19,864
18,970
Total noninterest expense
71,735
65,012
142,070
128,952
EARNINGS BEFORE INCOME TAXES
81,736
63,641
156,892
128,518
INCOME TAX EXPENSE
15,078
11,156
28,888
22,636
NET EARNINGS
$
66,658
$
52,485
$
128,004
$
105,882
NET EARNINGS PER SHARE, BASIC
$
0.47
$
0.37
$
0.90
$
0.74
NET EARNINGS PER SHARE, DILUTED
$
0.47
$
0.37
$
0.89
$
0.74
DIVIDENDS PER SHARE
$
0.19
$
0.18
$
0.37
$
0.36
See notes to consolidated financial statements.
5
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE EARNINGS (LOSS) —(UNAUDITED)
(Dollars in thousands)
Three-Months Ended June 30,
Six-Months Ended June 30,
2025
2024
2025
2024
NET EARNINGS
$
66,658
$
52,485
$
128,004
$
105,882
OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS):
Change in unrealized gain (loss) on investment securities available-for-
sale, before income taxes
19,536
(
418
)
64,346
(
48,429
)
Reclassification adjustment for realized (gains) losses on investment
securities included in net earnings, before income taxes
—
—
—
—
Total other items of comprehensive earnings (loss)
19,536
(
418
)
64,346
(
48,429
)
Income tax benefit (expense) related to:
Change in unrealized gain (loss) on investment securities available-for-
sale
(
4,103
)
88
(
13,513
)
10,170
Reclassification adjustment for realized gains (losses) on investment
securities included in net earnings
Stock option exercises/
stock unit conversions/
restricted stock activity
(unaudited)
31,750
—
162
—
—
—
—
—
162
Cash dividends declared, $
0.18
per share (unaudited)
—
—
—
(
25,708
)
—
—
—
—
(
25,708
)
Change in unrealized gain (loss)
in investment securities
available-for-sale, net of related
income taxes (unaudited)
—
—
—
—
—
—
—
(
330
)
(
330
)
Shares purchased in connection
with directors’ deferred
compensation plan, net
(unaudited)
—
—
—
—
(
2,708
)
(
258
)
258
—
—
Stock-based compensation expense
(unaudited)
—
—
1,050
—
—
—
—
—
1,050
Balances at June 30, 2024 (unaudited)
142,848,909
$
1,428
$
685,209
$
1,273,946
(
934,135
)
$
(
12,378
)
$
12,378
$
(
441,557
)
$
1,519,026
Balances at March 31, 2025 (unaudited)
143,019,433
$
1,430
$
692,068
$
1,375,652
(
928,353
)
$
(
13,263
)
$
13,263
$
(
388,889
)
$
1,680,261
Net earnings (unaudited)
—
—
—
66,658
—
—
—
—
66,658
Stock option exercises/
stock unit conversions/
restricted stock activity
(unaudited)
58,186
1
674
—
—
—
—
—
675
Cash dividends declared, $
0.19
per share (unaudited)
—
—
—
(
27,206
)
—
—
—
—
(
27,206
)
Change in unrealized gain (loss)
in investment securities
available-for-sale, net of related
income taxes (unaudited)
—
—
—
—
—
—
—
15,433
15,433
Shares purchased in connection
with directors’ deferred
compensation plan, net
(unaudited)
—
—
—
—
(
1,429
)
(
331
)
331
—
—
Stock-based compensation expense
(unaudited)
—
—
1,531
—
—
—
—
—
1,531
Balances at June 30, 2025 (unaudited)
143,077,619
$
1,431
$
694,273
$
1,415,104
(
929,782
)
$
(
13,594
)
$
13,594
$
(
373,456
)
$
1,737,352
See notes to consolidated financial statements.
7
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF
SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per share amounts)
Common Stock
Capital
Retained
Treasury Stock
Deferred
Accumulated
Other
Comprehensive
Earnings
Total
Shareholders’
Shares
Amount
Surplus
Earnings
Shares
Amounts
Compensation
(Loss)
Equity
Balances at December 31, 2023
142,716,939
$
1,427
$
681,246
$
1,219,525
(
930,152
)
$
(
11,855
)
$
11,855
$
(
403,298
)
$
1,498,900
Net earnings (unaudited)
—
—
—
105,882
—
—
—
—
105,882
Stock option exercises/
stock unit conversions/
restricted stock activity
(unaudited)
131,970
1
1,784
—
—
—
—
—
1,785
Cash dividends declared,
$
0.36
per share (unaudited)
—
—
—
(
51,461
)
—
—
—
—
(
51,461
)
Change in unrealized gain
(loss) in investment
securities available-for-sale,
net of related income taxes
(unaudited)
—
—
—
—
—
—
—
(
38,259
)
(
38,259
)
Shares purchased in
connection with directors’
deferred compensation
plan, net (unaudited)
—
—
—
—
(
3,983
)
(
523
)
523
—
—
Stock-based compensation expense
(unaudited)
—
—
2,179
—
—
—
—
—
2,179
Balances at June 30, 2024 (unaudited)
142,848,909
$
1,428
$
685,209
$
1,273,946
(
934,135
)
$
(
12,378
)
$
12,378
$
(
441,557
)
$
1,519,026
Balances at December 31, 2024
142,944,704
$
1,429
$
689,338
$
1,340,082
(
929,735
)
$
(
12,905
)
$
12,905
$
(
424,289
)
$
1,606,560
Net earnings (unaudited)
—
—
—
128,004
—
—
—
—
128,004
Stock option exercises/
stock unit conversions/
restricted stock activity
(unaudited)
132,915
2
1,477
—
—
—
—
—
1,479
Cash dividends declared,
$
0.37
per share (unaudited)
—
—
—
(
52,982
)
—
—
—
—
(
52,982
)
Change in unrealized gain
(loss) in investment
securities available-for-sale,
net of related income taxes
(unaudited)
—
—
—
—
—
—
—
50,833
50,833
Shares purchased in
connection with directors’
deferred compensation
plan, net (unaudited)
—
—
—
—
(
47
)
(
689
)
689
—
—
Stock-based compensation expense
(unaudited)
—
—
3,458
—
—
—
—
—
3,458
Balances at June 30, 2025 (unaudited)
143,077,619
$
1,431
$
694,273
$
1,415,104
(
929,782
)
$
(
13,594
)
$
13,594
$
(
373,456
)
$
1,737,352
See notes to consolidated financial statements.
8
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATE
MENTS OF CASH FLOWS—(UNAUDITED)
(Dollars in thousands)
Six-Months Ended June 30,
2025
2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
$
128,004
$
105,882
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
6,462
6,452
Provision for credit losses
6,660
6,695
Securities premium amortization, net
19,416
22,653
(Gain) loss on sale of securities and other assets, net
(
171
)
56
Deferred federal income tax benefit
11,685
476
Stock-based compensation
3,458
2,179
Net tax benefit from stock-based compensation
200
128
Change in loans held-for-sale
(
24,200
)
(
5,270
)
Change in other assets
(
29,787
)
(
4,066
)
Change in other liabilities
16,374
9,269
Total adjustments
10,097
38,572
Net cash provided by operating activities
138,101
144,454
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Maturities
5,397,243
4,330,401
Purchases
(
5,596,052
)
(
4,241,825
)
Net increase in loans held-for-investment
(
163,111
)
(
371,161
)
Purchases of bank premises, equipment and software
(
4,687
)
(
8,892
)
Proceeds from sale of bank premises and equipment and other assets
1,103
56
Net cash used in investing activities
(
365,504
)
(
291,421
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits
91,018
(
146,554
)
Net increase in interest-bearing deposits
258,224
417,411
Net decrease in repurchase agreements and borrowings
(
126,840
)
(
241,428
)
Common stock transactions:
Proceeds from stock option exercises/stock unit conversions/restricted stock activity
1,479
1,785
Dividends paid
(
51,529
)
(
51,461
)
Net cash provided by (used in) financing activities
172,352
(
20,247
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(
55,051
)
(
167,214
)
CASH AND CASH EQUIVALENTS, beginning of period
763,413
536,591
CASH AND CASH EQUIVALENTS, end of period
$
708,362
$
369,377
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:
Interest paid
$
98,701
$
99,776
Federal income taxes paid
27,947
19,546
Investment securities purchased not settled
24,965
—
Transfer of loans to other real estate
490
656
See notes to consolidated financial statements.
9
FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FI
NANCIAL STATEMENTS (UNAUDITED)
Note 1 – Summary of Significant Accounting Policies
Nature of Operations
First Financial Bankshares, Inc., a Texas corporation (“Bankshares,” “Company,” “we” or “us”), is a financial holding company which owns all of the capital stock of First Financial Bank, which had
79
locations located in Texas as of
June 30, 2025
. The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in the market area in which First Financial Bank is located. In addition, the Company also owns First Financial Trust & Asset Management Company, First Financial Insurance Agency, Inc. (inactive), First Technology Services, Inc., FFB Investment Paris Fund, LLC, and FFB Portfolio Management, Inc.
Basis of Presentation
A summary of significant accounting policies of the Company and its subsidiaries applied in the preparation of the accompanying consolidated financial statements follows. The accounting principles followed by the Company and the methods of applying them are in conformity with both United States generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry.
The consolidated interim financial statements are unaudited, and certain information and disclosures in the notes to consolidated unaudited financial statements that are presented in accordance with GAAP have been condensed or omitted.
The Company evaluated subsequent events for potential recognition through the date the consolidated financial statements were issued.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include its allowance for credit losses and its valuation of financial instruments.
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.
Stock Repurchase
On July 23, 2024, the Company’s Board of Directors extended the authorization to repurchase up to
5,000,000
common shares through July 31, 2025. The prior authorization had been in place since July 27, 2021. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is
no
minimum number of shares that the Company is required to repurchase. Under a previous authorization effective through July 31, 2024, the Company repurchased and retired
101,337
shares (all during September 2023) at an average price of $
26.99
per share. There have been
no
repurchases during 2024 or 2025.
On July 22, 2025, the Company's Board of Directors extended the authorization to repurchase up to
5,000,000
common shares through July 31, 2026.
Other Recently Issued and Effective Authoritative Accounting Guidance
ASU 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method."
ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. The adoption of ASU 2023-02 is not expected to have a significant impact on the financial statements and was not early adopted.
ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures."
ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment's profit or loss and assets that are currently required annually. ASU 2023-07 became effective for our annual financial statements in 2024 and was effective for interim periods within fiscal years in 2025. The adoption of ASU 2023-07 did not have a significant impact on our financial statements.
ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”
ASU 2023-09 requires entities to disclose more detailed information in their reconciliation of their statutory tax rate to their effective tax rate to provide this incremental detail in a numerical, tabular format. The ASU also requires entities to disclose more detailed information about income taxes paid, including by jurisdiction; pretax income (or loss) from continuing operations; and income tax expense (or benefit). PBEs will be required to adopt the new requirements in annual reporting periods beginning
10
after December 15, 2024, and interim periods beginning after December 15, 2025. The adoption of ASU 2023-09 is not expected to have a significant impact on our financial statements.
ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures."
The guidance in ASU 2024-03 enhances the disclosures about an entity's expenses by requiring more detailed information about the types of expenses in commonly presented expense captions. This guidance is effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027. The adoption is not expected to have a material impact on our consolidated financial statements.
Investment Securities
Management classifies debt securities as held-to-maturity, available-for-sale, or trading based on its intent. Securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of securities at the time of purchase.
Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of securities in noninterest income.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than
90
days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the
three and six-months ended June 30, 2025 or 2024, respectively.
The Company records its available-for-sale securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings, and yield curves. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the marketplace as a result of the illiquid market, specific to the type of security.
The Company’s investment portfolio currently consists of obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis.
Allowance for Credit Losses – Available-for-Sale Securities
For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previously recognized allowances are charged-off and the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.
Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
At June 30, 2025 and 2024, and December 31, 2024
,
no
allowance for credit losses - available-for-sale securities was recorded.
Allowance for Credit Losses – Held-to-Maturity Securities
The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management’s best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
11
At June 30, 2025 and 2024, and December 31, 2024
, the Company held
no
securities that were classified as held-to-maturity.
Loans Held-for-Investment
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the consolidated balance sheets.
Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield.
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured.
Further information regarding our accounting policies related to past due loans, nonaccrual loans and loans to borrowers experiencing financial difficulty is presented in Note 3.
Acquired Loans
Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”).
PCD loans are defined as a loan or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration.
The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as nonaccrual as of the acquisition date and are collateral dependent are assessed for allowance on an individual basis. For PCD loans, an initial allowance is established on the acquisition date. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.
Non-PCD loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses as well as a fair value adjustment to the amortized cost of the loan and accreted into income over the life of the loan.
Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the non-credit discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. For non-PCD loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan.
Allowance for Credit Losses - Loans
The allowance for credit losses (“allowance” or “ACL”) is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans. The ACL represents an amount which, in management’s judgment, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.
12
The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors based on the risk perceived in concentrations of the loan portfolio, changes in economic conditions, early delinquencies, and factors related to credit administrations, including, among others, underwriting standards, loan-to-value ratios, and borrowers’ risk rating; and (3) individual allowances on loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable.
In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. Refer to Note 3 for more details on the Company’s portfolio segments.
The Company applies two methodologies to estimate the allowance on its pooled portfolio segments; discounted cash flows method and weighted average remaining life method. Allowance estimates on the following portfolio segments are calculated using the discounted cash flows method: C&I, Municipal, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE and Residential. Allowance estimates on the following portfolio segments are calculated using the remaining life method: Agriculture, Consumer Auto and Consumer Non-Auto. The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a one-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period, expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: Texas unemployment rate, Texas house price index and Texas retail sales index. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.
In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on an ongoing basis.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase management’s estimate of expected credit losses based upon the estimated level of risk within the risk factor. The various risk factors that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature, volume and size of a loan or the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit, and (ix) other factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or health pandemics.
Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
Allowance for Credit Losses - Off-Balance-Sheet/Reserve for Unfunded Commitments
The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. These obligations include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. At June 30, 2025, the Company’s reserve for unfunded commitments totaled
$
9,914,000
. The reserve for unfunded commitments totaled
$
7,433,000
at June 30, 2024 and
$
8,677,000
at December 31, 2024
, respectively. The reserve for unfunded commitments is included in other liabilities in the consolidated balance sheet.
13
Other Real Estate
Other real estate owned is foreclosed property held pending disposition and is initially recorded at fair value, less estimated costs to sell, and is included in other assets in the consolidated balance sheet. At foreclosure, if the fair value of the real estate, less estimated costs to sell, is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the ACL. Any subsequent reduction in value is recognized by a charge to income. Operating and holding expenses of such properties, net of related income, and gains/losses on their disposition are included in net gain (loss) on sale of foreclosed assets as incurred.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever is shorter.
Business Combinations, Goodwill and Other Intangible Assets
The Company accounts for all business combinations under the purchase method of accounting. Tangible and intangible assets and liabilities of the acquired entity are recorded at fair value. Intangible assets with finite useful lives represent the future benefit associated with the acquisition of the core deposits and are amortized over
seven years
, utilizing a method that approximates the expected attrition of the deposits. Goodwill with an indefinite life is not amortized, but rather tested annually for impairment as of June 30 each year. There was
no
impairment recorded during the
six-months ended June 30, 2025 or 2024
, respectively.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within
one to four days
from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of the cash received in connection with the transaction. The Company may be required to provide additional collateral based on the estimated fair value of the underlying securities.
Segment Reporting
The Company adopted Accounting Standards Update 2023-07 "Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures" on January 1, 2024. The Company has determined that its banking regions meet the aggregation criteria of ASC 280, since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas). The Company's Chief Executive Officer has been identified as the chief operating decision maker ("CODM").
The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on the net income calculated on the same basis as the net income reported in the Company's consolidated statements of earnings and other comprehensive earnings. The CODM is also regularly provided with expense information at a level that is consistent with that disclosed in the Company's consolidated statements of earnings and other comprehensive earnings.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of
90 days or less
, and federal funds sold.
Accumulated Other Comprehensive Earnings (Loss)
Unrealized net losses on the Company’s available-for-sale securities, net of applicable income taxes, totaled
$
373,456,000
,
$
441,557,000
and
$
424,289,000
at June 30, 2025, and 2024, and December 31, 2024
, respectively, are included in accumulated other comprehensive earnings (loss) as a separate component of shareholders' equity.
Income Taxes
The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. As of June 30, 2025, and 2024, and December 31, 2024, deferred tax assets totaled
$
113,810,000
,
$
123,407,000
and
$
116,999,000
, respectively, and were included in other assets on the consolidated balance sheets.
Stock Based Compensation
The
Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value using the Black-Scholes model of the shares at the grant date. The grant date fair value is amortized over the vesting period, which generally is three, five or six years. The Company also grants restricted stock and/or units for a fixed number of shares which generally vests over periods of one to three years, and performance stock units which vest over a three-year period based on Company performance metrics relative to a defined peer group. For stock option grants, the
14
exercise
price is established based on the closing trading price. No adjustments have been necessary to properly value the grant based on the terms or other conditions of the grants. Expense is recognized based on the fair value of the portion of stock-based payment awards that ultimately expected to vest, reduced for forfeitures based on grant-date fair value. See Note 8 for further information.
Advertising Costs
Advertising costs are expensed as incurred.
Per Share Data
Net earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The Company calculates dilutive EPS assuming all outstanding stock options to purchase common shares and unvested restricted stock shares and units have been exercised and/or vested at the beginning of the year (or the time of issuance, if later.) The dilutive effect of the outstanding options and
restricted stock is determined by application of the treasury stock method, whereby the proceeds from the exercised options and unearned compensation for both restricted stock and stock options are assumed to be used to purchase common shares at the average market price during the respective period. There were
360,000
and
364,000
anti-dilutive shares for the
three and six-months ended June 30, 2025 that were excluded from the computation of EPS. There were
407,000
and
412,000
anti-dilutive shares for the three and six-months ended June 30, 2024
, that were excluded from the computation of EPS.
The following table reconciles the computation of basic EPS to diluted EPS:
Net
Weighted
Earnings
Average
Per Share
(in thousands)
Shares
Amount
For the three-months ended June 30, 2025:
Net earnings per share, basic
$
66,658
143,023,544
$
0.47
Effect of stock options and stock grants
—
354,961
—
Net earnings per share, diluted
$
66,658
143,378,505
$
0.47
Net
Weighted
Earnings
Average
Per Share
(in thousands)
Shares
Amount
For the three-months ended June 30, 2024:
Net earnings per share, basic
$
52,485
142,814,363
$
0.37
Effect of stock options and stock grants
—
274,567
—
Net earnings per share, diluted
$
52,485
143,088,930
$
0.37
Net
Weighted
Earnings
Average
Per Share
(in thousands)
Shares
Amount
For the six-months ended June 30, 2025:
Net earnings per share, basic
$
128,004
142,986,734
$
0.90
Effect of stock options and stock grants
—
391,986
(
0.01
)
Net earnings per share, diluted
$
128,004
143,378,720
$
0.89
Net
Weighted
Earnings
Average
Per Share
(in thousands)
Shares
Amount
For the six-months ended June 30, 2024:
Net earnings per share, basic
$
105,882
142,769,518
$
0.74
Effect of stock options and stock grants
—
297,675
—
Net earnings per share, diluted
$
105,882
143,067,193
$
0.74
15
Note 2 - Securities
Debt securities have been classified in the consolidated balance sheets according to management’s intent.
The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of available-for-sale securities are as follows (dollars in thousands):
June 30, 2025
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost Basis
Holding Gains
Holding Losses
Fair Value
Securities available-for-sale:
U.S. Treasury securities
$
155,710
$
1
$
(
1,876
)
$
153,835
Obligations of states and political subdivisions
1,694,153
743
(
173,532
)
1,521,364
Residential mortgage-backed securities
2,708,501
3,521
(
300,148
)
2,411,874
Commercial mortgage-backed securities
704,579
6,875
(
4,436
)
707,018
Corporate bonds and other
96,723
10
(
4,276
)
92,457
Total securities available-for-sale
$
5,359,666
$
11,150
$
(
484,268
)
$
4,886,548
June 30, 2024
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost Basis
Holding Gains
Holding Losses
Fair Value
Securities available-for-sale:
U.S. Treasury securities
$
352,682
$
—
$
(
10,706
)
$
341,976
Obligations of states and political subdivisions
1,584,389
420
(
139,436
)
1,445,373
Residential mortgage-backed securities
2,705,508
71
(
389,494
)
2,316,085
Commercial mortgage-backed securities
362,004
—
(
11,982
)
350,022
Corporate bonds and other
127,868
—
(
8,300
)
119,568
Total securities available-for-sale
$
5,132,451
$
491
$
(
559,918
)
$
4,573,024
December 31, 2024
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
Cost Basis
Holding Gains
Holding Losses
Fair Value
Securities available-for-sale:
U.S. Treasury securities
$
278,155
$
2
$
(
4,595
)
$
273,562
Obligations of states and political subdivisions
1,578,749
338
(
138,842
)
1,440,245
Residential mortgage-backed securities
2,729,096
184
(
378,746
)
2,350,534
Commercial mortgage-backed securities
457,311
99
(
9,658
)
447,752
Corporate bonds and other
111,994
50
(
6,378
)
105,666
Total securities available-for-sale
$
5,155,305
$
673
$
(
538,219
)
$
4,617,759
The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at June 30, 2025 and 2024, and December 31, 2024, were computed by using scheduled amortization of balances and historical prepayment rates.
The carrying value and estimated fair value of available-for-sale securities at
June 30, 2025, by contractual and expected maturity, are shown below (dollars in thousands):
Carrying
Estimated
Value
Fair Value
Due within one year
$
282,480
$
279,764
Due after one year through five years
2,103,481
1,986,766
Due after five years through ten years
1,631,680
1,477,793
Due after ten years
1,342,025
1,142,225
Total
$
5,359,666
$
4,886,548
16
The following tables disclose as of
June 30, 2025 and 2024, and December 31, 2024
, the Company’s investment securities that have been in a continuous unrealized-loss position for less than
12 months
and for 12 or more months (dollars in thousands):
Less than 12 Months
12 Months or Longer
Total
June 30, 2025
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
U.S. Treasury securities
$
1,497
$
—
$
151,350
$
(
1,876
)
$
152,847
$
(
1,876
)
Obligations of states and political subdivisions
74,621
(
2,300
)
1,308,960
(
171,232
)
1,383,581
(
173,532
)
Residential mortgage-backed securities
166,062
(
1,315
)
2,011,749
(
298,833
)
2,177,811
(
300,148
)
Commercial mortgage-backed securities
7,194
(
130
)
181,352
(
4,306
)
188,546
(
4,436
)
Corporate bonds and other
—
—
87,513
(
4,276
)
87,513
(
4,276
)
Total
$
249,374
$
(
3,745
)
$
3,740,924
$
(
480,523
)
$
3,990,298
$
(
484,268
)
Less than 12 Months
12 Months or Longer
Total
June 30, 2024
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
U.S. Treasury securities
$
1,448
$
(
12
)
$
340,528
$
(
10,694
)
$
341,976
$
(
10,706
)
Obligations of states and political subdivisions
32,423
(
320
)
1,391,496
(
139,117
)
1,423,919
(
139,437
)
Residential mortgage-backed securities
80,096
(
462
)
2,183,346
(
389,031
)
2,263,442
(
389,493
)
Commercial mortgage-backed securities
92,487
(
928
)
257,535
(
11,054
)
350,022
(
11,982
)
Corporate bonds and other
—
—
104,031
(
8,300
)
104,031
(
8,300
)
Total
$
206,454
$
(
1,722
)
$
4,276,936
$
(
558,196
)
$
4,483,390
$
(
559,918
)
Less than 12 Months
12 Months or Longer
Total
December 31, 2024
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
Fair Value
Unrealized
Loss
U.S. Treasury securities
$
—
$
—
$
271,088
$
(
4,595
)
$
271,088
$
(
4,595
)
Obligations of states and political subdivisions
56,777
(
1,224
)
1,361,628
(
137,618
)
1,418,405
(
138,842
)
Residential mortgage-backed securities
198,385
(
4,990
)
2,048,727
(
373,756
)
2,247,112
(
378,746
)
Commercial mortgage-backed securities
196,640
(
2,249
)
190,189
(
7,409
)
386,829
(
9,658
)
Corporate bonds and other
4,871
(
44
)
95,840
(
6,334
)
100,711
(
6,378
)
Total
$
456,673
$
(
8,507
)
$
3,967,472
$
(
529,712
)
$
4,424,145
$
(
538,219
)
The number of investments in an unrealized loss position totaled
725
at June 30, 2025. We believe any unrealized losses in the U.S. treasury securities, obligations of state and political subdivisions, residential and commercial mortgage-backed and asset-backed investment securities, and corporate bonds and other at June 30, 2025 and 2024, and December 31, 2024, are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required on these securities at June 30, 2025 and 2024, and December 31, 2024. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Based on evaluations of impaired securities as of June 30, 2025, the Company does not intend to sell any impaired available-for-sale securities before fair value recovers to the current amortized cost, and it is more-likely-than-not that the Company will not be required to sell impaired securities before fair value recovers, which may be maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2025,
69.15
%
of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which
53.70
%
are guaranteed by the Texas Permanent School Fund.
Securities, carried at approximately
$
2,190,153,000
on June 30, 2025, were pledged as collateral for public or trust fund deposits, repurchase agreements, borrowings and for other purposes required or permitted by law.
During the three and six-months ended June 30, 2025 and 2024
, respectively, there were
no
sales of investment securities that were classified as available-for-sale. There were
no
gross realized security gains or losses from sales and calls during the
three and six-months ended June 30, 2025 and 2024.
The specific identification method was used to determ
ine cost in order to compute the realized gains and losses.
17
Note 3 – Loans Held-for-Investment and Allowance for Credit Losses
For the periods ended June 30, 2025 and 2024, and December 31, 2024, the following tables outline the Company’s loan portfolio by the ten portfolio segments where applicable.
Loans held-for-investment by portfolio segment are as follows (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Commercial:
C&I
$
1,202,151
$
1,141,990
$
1,176,993
Municipal
306,140
359,124
369,246
Total Commercial
1,508,291
1,501,114
1,546,239
Agricultural
86,133
86,186
95,543
Real Estate:
Construction & Development
1,172,834
986,394
1,054,603
Farm
302,969
318,597
339,665
Non-Owner Occupied CRE
746,341
815,713
805,566
Owner Occupied CRE
1,124,610
1,049,715
1,083,100
Residential
2,286,220
1,990,604
2,196,767
Total Real Estate
5,632,974
5,161,023
5,479,701
Consumer:
Auto
698,897
615,192
638,560
Non-Auto
148,649
156,218
153,055
Total Consumer
847,546
771,410
791,615
Total Loans
8,074,944
7,519,733
7,913,098
Less: Allowance for credit losses
(
102,792
)
(
95,170
)
(
98,325
)
Loans, net
$
7,972,152
$
7,424,563
$
7,814,773
Outstanding loan balances at June 30, 2025 and 2024, and December 31, 2024, are net of unearned income, including net deferred loan fees.
At June 30, 2025,
$
5,637,716,000
in loans held by our bank subsidiary were subject to blanket liens as security for a line of credit with the Federal Home Loan Bank of Dallas ("FHLB"). At June 30, 2025, this available line of credit was
$
2,186,315,000
. At June 30, 2025, there was
$
795,000,000
used on the line advance for undisbursed commitments (letters of credit) used to secure public funds.
The Company’s nonaccrual loans and loans still accruing and past due 90 days or more are as follows (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Nonaccrual loans
$
63,142
$
60,311
$
61,938
Loans still accruing and past due 90 days or more
77
231
287
Total nonperforming loans
$
63,219
$
60,542
$
62,225
18
The Company had
$
63,708,000
,
$
61,189,000
and
$
63,096,000
in nonaccrual, past due 90 days or more and still accruing, and foreclosed assets at June 30, 2025 and 2024, and December 31, 2024
, respectively.
Nonaccrual loans at
June 30, 2025 and 2024, and December 31, 2024, consisted of the following (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Commercial:
C&I
$
3,091
$
4,080
$
3,984
Municipal
17
—
—
Total Commercial
3,108
4,080
3,984
Agricultural
2,434
2,028
1,209
Real Estate:
Construction & Development
3,269
1,679
1,141
Farm
5,171
4,299
4,176
Non-Owner Occupied CRE
9,707
9,615
11,062
Owner Occupied CRE
27,337
31,606
30,074
Residential
11,073
5,984
9,348
Total Real Estate
56,557
53,183
55,801
Consumer:
Auto
833
710
638
Non-Auto
210
310
306
Total Consumer
1,043
1,020
944
Total
$
63,142
$
60,311
$
61,938
No
significant additional funds are committed to be advanced in connection with nonaccrual loans as of
June 30, 2025.
Summary information on the allowance for credit losses for the
three and six-months ended June 30, 2025 and 2024, are outlined by portfolio segment in the following tables (dollars in thousands):
Three-Months Ended June 30, 2025
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Beginning balance
$
15,592
$
360
$
1,564
$
19,717
$
2,919
Provision for loan losses
2,502
1
(
665
)
2,368
(
135
)
Recoveries
100
—
38
2
—
Charge-offs
(
320
)
—
—
(
40
)
—
Ending balance
$
17,874
$
361
$
937
$
22,047
$
2,784
Three-Months Ended June 30, 2025 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Beginning balance
$
15,709
$
21,492
$
21,739
$
1,495
$
493
$
101,080
Provision for loan losses
(
1,456
)
(
239
)
(
130
)
199
(
13
)
2,432
Recoveries
5
5
22
129
168
469
Charge-offs
(
250
)
—
(
154
)
(
277
)
(
148
)
(
1,189
)
Ending balance
$
14,008
$
21,258
$
21,477
$
1,546
$
500
$
102,792
Three-Months Ended June 30, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Beginning balance
$
16,106
$
195
$
3,243
$
24,811
$
2,517
Provision for loan losses
(
790
)
44
(
1,359
)
(
1,300
)
385
Recoveries
177
—
46
—
—
Charge-offs
(
242
)
—
1
—
—
Ending balance
$
15,251
$
239
$
1,931
$
23,511
$
2,902
19
Three-Months Ended June 30, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Beginning balance
$
14,968
$
12,756
$
13,565
$
907
$
494
$
89,562
Provision for loan losses
(
1,951
)
8,260
2,112
406
103
5,910
Recoveries
24
38
2
89
24
400
Charge-offs
(
13
)
—
(
11
)
(
329
)
(
108
)
(
702
)
Ending balance
$
13,028
$
21,054
$
15,668
$
1,073
$
513
$
95,170
Six-Months Ended June 30, 2025
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Beginning balance
$
15,436
$
200
$
1,653
$
19,861
$
2,871
Provision for loan losses
2,656
161
(
790
)
2,224
(
88
)
Recoveries
193
—
74
2
1
Charge-offs
(
411
)
—
—
(
40
)
—
Ending balance
$
17,874
$
361
$
937
$
22,047
$
2,784
Six-Months Ended June 30, 2025 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-
Auto
Total
Beginning balance
$
14,664
$
21,413
$
20,488
$
1,186
$
553
$
98,325
Provision for loan losses
(
414
)
(
287
)
1,368
649
(
56
)
5,423
Recoveries
8
307
25
327
242
1,179
Charge-offs
(
250
)
(
175
)
(
404
)
(
616
)
(
239
)
(
2,135
)
Ending balance
$
14,008
$
21,258
$
21,477
$
1,546
$
500
$
102,792
Six-Months Ended June 30, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Beginning balance
$
15,698
$
195
$
1,281
$
28,553
$
2,914
Provision for loan losses
(
289
)
44
658
(
5,009
)
(
12
)
Recoveries
288
—
51
—
—
Charge-offs
(
446
)
—
(
59
)
(
33
)
—
Ending balance
$
15,251
$
239
$
1,931
$
23,511
$
2,902
Six-Months Ended June 30, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-
Auto
Total
Beginning balance
$
13,425
$
13,813
$
11,654
$
810
$
391
$
88,734
Provision for loan losses
(
415
)
7,161
3,925
790
313
7,166
Recoveries
31
80
100
201
71
822
Charge-offs
(
13
)
—
(
11
)
(
728
)
(
262
)
(
1,552
)
Ending balance
$
13,028
$
21,054
$
15,668
$
1,073
$
513
$
95,170
Additionally, the Company records a reserve for unfunded commitments in other liabilities, which totaled
$
9,914,000
,
$
7,433,000
and
$
8,677,000
at June 30, 2025 and 2024, and December 31, 2024
, respectively. The provision for loan losses of
$
2,432,000
for the three-months ended June 30, 2025 is combined with the provision for unfunded commitments of
$
700,000
and reported in the net aggregate of
$
3,132,000
under the provision for credit losses in the consolidated statement of earnings for the three-months ended June 30, 2025. The provision for loan losses of
$
5,423,000
for the six-months ended June 30, 2025 is combined with the provision for unfunded commitments of
$
1,237,000
and reported in the net aggregate of
$
6,660,000
under the provision for credit losses in the consolidated statement of earnings for the six-months ended June 30, 2025.
The
$
5,910,000
provision for loan losses for the three-months ended June 30, 2024 above is combined with the reversal of provision for unfunded commitments of
$
22,000
and reported in the aggregate of
$
5,888,000
under the provision for credit losses for the three-months ended June 30, 2024. The
$
7,166,000
provision for loan losses for the six-months ended June 30, 2024 above is combined with the reversal of provision for unfunded commitments of
$
471,000
and reported in the aggregate of
$
6,695,000
under the provision for credit losses for the six-months ended June 30, 2024.
20
The Company’s loans that are ind
ividually evaluated for credit losses (both collateral and non-collateral dependent) and their related allowances as of June 30, 2025 and 2024, and December 31, 2024, are summarized in the following tables by loan segment (dollars in thousands):
June 30, 2025
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance
Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses
Total Loans
Individually
Evaluated
for Credit
Losses
Related
Allowance
on Collateral
Dependent
Loans
Related
Allowance on
Non-Collateral
Dependent
Loans
Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses
Commercial:
C&I
$
115
$
2,976
$
37,718
$
40,809
$
896
$
6,261
$
7,157
Municipal
—
17
9,434
9,451
—
162
162
Total Commercial
115
2,993
47,152
50,260
896
6,423
7,319
Agricultural
474
1,960
519
2,953
340
172
512
Real Estate:
Construction & Development
1,767
1,502
13,351
16,620
190
1,250
1,440
Farm
1,190
3,981
5,150
10,321
282
280
562
Non-Owner Occupied CRE
7,052
2,655
30,419
40,126
1,117
2,856
3,973
Owner Occupied CRE
16,259
11,078
45,677
73,014
4,562
2,350
6,912
Residential
3,401
7,672
48,039
59,112
1,084
2,721
3,805
Total Real Estate
29,669
26,888
142,636
199,193
7,235
9,457
16,692
Consumer:
Auto
—
833
2,788
3,621
2
6
8
Non-Auto
—
210
828
1,038
1
2
3
Total Consumer
—
1,043
3,616
4,659
3
8
11
Total
$
30,258
$
32,884
$
193,923
$
257,065
$
8,474
$
16,060
$
24,534
June 30, 2024
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance
Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses
Total Loans
Individually
Evaluated
for Credit
Losses
Related
Allowance
on Collateral
Dependent
Loans
Related
Allowance on
Non-Collateral
Dependent
Loans
Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses
Commercial:
C&I
$
1,070
$
3,010
$
38,462
$
42,542
$
1,166
$
3,664
$
4,830
Municipal
—
—
559
559
—
—
—
Total Commercial
1,070
3,010
39,021
43,101
1,166
3,664
4,830
Agricultural
714
1,314
968
2,996
1,025
380
1,405
Real Estate:
Construction & Development
1,104
575
25,002
26,681
57
1,751
1,808
Farm
—
4,299
5,496
9,795
429
454
883
Non-Owner Occupied CRE
2,327
7,288
20,881
30,496
1,150
1,777
2,927
Owner Occupied CRE
2,316
29,290
35,847
67,453
5,566
3,018
8,584
Residential
2,820
3,164
28,659
34,643
245
1,503
1,748
Total Real Estate
8,567
44,616
115,885
169,068
7,447
8,503
15,950
Consumer:
Auto
—
710
2,373
3,083
1
5
6
Non-Auto
—
310
705
1,015
65
54
119
Total Consumer
—
1,020
3,078
4,098
66
59
125
Total
$
10,351
$
49,960
$
158,952
$
219,263
$
9,704
$
12,606
$
22,310
21
December 31, 2024
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance
Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance
Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses
Total Loans
Individually
Evaluated
for Credit
Losses
Related
Allowance
on Collateral
Dependent
Loans
Related
Allowance on
Non-Collateral
Dependent
Loans
Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses
Commercial:
C&I
$
854
$
3,130
$
25,778
$
29,762
$
1,463
$
3,042
$
4,505
Municipal
—
—
409
409
—
—
—
Total Commercial
854
3,130
26,187
30,171
1,463
3,042
4,505
Agricultural
743
466
3,002
4,211
220
945
1,165
Real Estate:
Construction & Development
732
409
10,033
11,174
26
465
491
Farm
412
3,764
6,412
10,588
23
427
450
Non-Owner Occupied CRE
6,668
4,394
28,832
39,894
1,406
2,852
4,258
Owner Occupied CRE
2,186
27,888
49,396
79,470
5,727
2,431
8,158
Residential
3,859
5,489
44,311
53,659
1,343
2,317
3,660
Total Real Estate
13,857
41,944
138,984
194,785
8,525
8,492
17,017
Consumer:
Auto
—
638
2,941
3,579
1
5
6
Non-Auto
—
306
799
1,105
51
73
124
Total Consumer
—
944
3,740
4,684
52
78
130
Total
$
15,454
$
46,484
$
171,913
$
233,851
$
10,260
$
12,557
$
22,817
The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of
June 30, 2025 and 2024, and December 31, 2024, are summarized in the following table by loan segment (dollars in thousands). Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.
June 30, 2025
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
7,157
$
162
$
512
$
1,440
$
562
Loans collectively evaluated for credit losses
10,717
199
425
20,607
2,222
Total
$
17,874
$
361
$
937
$
22,047
$
2,784
June 30, 2025 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
3,973
$
6,912
$
3,805
$
8
$
3
$
24,534
Loans collectively evaluated for credit losses
10,035
14,346
17,672
1,538
497
78,258
Total
$
14,008
$
21,258
$
21,477
$
1,546
$
500
$
102,792
June 30, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
4,830
$
—
$
1,405
$
1,808
$
883
Loans collectively evaluated for credit losses
10,421
239
526
21,703
2,019
Total
$
15,251
$
239
$
1,931
$
23,511
$
2,902
June 30, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
2,927
$
8,584
$
1,748
$
6
$
119
$
22,310
Loans collectively evaluated for credit losses
10,101
12,470
13,920
1,067
394
72,860
Total
$
13,028
$
21,054
$
15,668
$
1,073
$
513
$
95,170
22
December 31, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
4,505
$
—
$
1,165
$
491
$
450
Loans collectively evaluated for credit losses
10,931
200
488
19,370
2,421
Total
$
15,436
$
200
$
1,653
$
19,861
$
2,871
December 31, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
4,258
$
8,158
$
3,660
$
6
$
124
$
22,817
Loans collectively evaluated for credit losses
10,406
13,255
16,828
1,180
429
75,508
Total
$
14,664
$
21,413
$
20,488
$
1,186
$
553
$
98,325
The Company’s recorded investment in loans as of
June 30, 2025 and 2024, and December 31, 2024, related to the balance in the allowance for credit losses follows below (dollars in thousands):
June 30, 2025
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
40,809
$
9,451
$
2,953
$
16,620
$
10,321
Loans collectively evaluated for credit losses
1,161,342
296,689
83,180
1,156,214
292,648
Total
$
1,202,151
$
306,140
$
86,133
$
1,172,834
$
302,969
June 30, 2025 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
40,126
$
73,014
$
59,112
$
3,621
$
1,038
$
257,065
Loans collectively evaluated for credit losses
706,215
1,051,596
2,227,108
695,276
147,611
7,817,879
Total
$
746,341
$
1,124,610
$
2,286,220
$
698,897
$
148,649
$
8,074,944
June 30, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
42,542
$
559
$
2,996
$
26,681
$
9,795
Loans collectively evaluated for credit losses
1,099,448
358,565
83,190
959,713
308,802
Total
$
1,141,990
$
359,124
$
86,186
$
986,394
$
318,597
June 30, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
30,496
$
67,453
$
34,643
$
3,083
$
1,015
$
219,263
Loans collectively evaluated for credit losses
785,217
982,262
1,955,961
612,109
155,203
7,300,470
Total
$
815,713
$
1,049,715
$
1,990,604
$
615,192
$
156,218
$
7,519,733
December 31, 2024
C&I
Municipal
Agricultural
Construction
&
Development
Farm
Loans individually evaluated for credit losses
$
29,762
$
409
$
4,211
$
11,174
$
10,588
Loans collectively evaluated for credit losses
1,147,231
368,837
91,332
1,043,429
329,077
Total
$
1,176,993
$
369,246
$
95,543
$
1,054,603
$
339,665
December 31, 2024 (continued)
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Residential
Auto
Non-Auto
Total
Loans individually evaluated for credit losses
$
39,894
$
79,470
$
53,659
$
3,579
$
1,105
$
233,851
Loans collectively evaluated for credit losses
765,672
1,003,630
2,143,108
634,981
151,950
7,679,247
Total
$
805,566
$
1,083,100
$
2,196,767
$
638,560
$
153,055
$
7,913,098
23
From a credit risk standpoint, the Company rates its loans in one of five categories: (i) pass, (ii) special mention, (iii) substandard, (iv) doubtful or (v) loss (which are charged-off).
The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our ongoing monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).
Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.
Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.
Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on nonaccrual.
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at
June 30, 2025 (dollars in millions):
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
C&I
Risk rating:
Pass
$
417
$
409
$
161
$
107
$
27
$
40
$
—
$
1,161
Special mention
7
2
1
1
13
1
—
25
Substandard
8
2
3
3
—
—
—
16
Doubtful
—
—
—
—
—
—
—
—
Total
$
432
$
413
$
165
$
111
$
40
$
41
$
—
$
1,202
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Municipal
Risk rating:
Pass
$
28
$
96
$
25
$
73
$
11
$
63
$
—
$
296
Special mention
—
—
—
1
—
9
—
10
Substandard
—
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
—
Total
$
28
$
96
$
25
$
74
$
11
$
72
$
—
$
306
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
24
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Agricultural
Risk rating:
Pass
$
42
$
33
$
4
$
3
$
1
$
—
$
—
$
83
Special mention
—
—
—
—
—
—
—
—
Substandard
—
2
—
1
—
—
—
3
Doubtful
—
—
—
—
—
—
—
—
Total
$
42
$
35
$
4
$
4
$
1
$
—
$
—
$
86
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Construction & Development
Risk rating:
Pass
$
383
$
462
$
110
$
132
$
51
$
17
$
1
$
1,156
Special mention
—
—
—
—
—
—
—
—
Substandard
6
8
1
1
1
—
—
17
Doubtful
—
—
—
—
—
—
—
—
Total
$
389
$
470
$
111
$
133
$
52
$
17
$
1
$
1,173
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Farm
Risk rating:
Pass
$
35
$
70
$
37
$
59
$
56
$
36
$
—
$
293
Special mention
—
—
—
—
—
—
—
—
Substandard
—
1
—
4
1
4
—
10
Doubtful
—
—
—
—
—
—
—
—
Total
$
35
$
71
$
37
$
63
$
57
$
40
$
—
$
303
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Owner Occupied CRE
Risk rating:
Pass
$
77
$
111
$
72
$
213
$
120
$
113
$
—
$
706
Special mention
—
—
2
3
3
1
—
9
Substandard
13
1
1
3
9
4
—
31
Doubtful
—
—
—
—
—
—
—
—
Total
$
90
$
112
$
75
$
219
$
132
$
118
$
—
$
746
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
25
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Owner Occupied CRE
Risk rating:
Pass
$
116
$
161
$
119
$
264
$
166
$
226
$
—
$
1,052
Special mention
—
2
—
—
7
1
—
10
Substandard
1
5
8
31
10
8
—
63
Doubtful
—
—
—
—
—
—
—
—
Total
$
117
$
168
$
127
$
295
$
183
$
235
$
—
$
1,125
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Residential
Risk rating:
Pass
$
296
$
478
$
327
$
365
$
240
$
303
$
218
$
2,227
Special mention
—
2
1
1
2
2
—
8
Substandard
2
8
8
12
4
14
3
51
Doubtful
—
—
—
—
—
—
—
—
Total
$
298
$
488
$
336
$
378
$
246
$
319
$
221
$
2,286
Year-to-Date Gross Charge-Offs
$
—
$
—
$
1
$
—
$
—
$
—
$
—
$
1
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Auto
Risk rating:
Pass
$
210
$
273
$
91
$
91
$
25
$
6
$
—
$
696
Special mention
—
—
—
—
—
—
—
—
Substandard
—
1
1
1
—
—
—
3
Doubtful
—
—
—
—
—
—
—
—
Total
$
210
$
274
$
92
$
92
$
25
$
6
$
—
$
699
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
1
$
—
$
—
$
—
$
1
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Auto
Risk rating:
Pass
$
40
$
47
$
24
$
19
$
8
$
2
$
8
$
148
Special mention
—
—
—
—
—
—
—
—
Substandard
—
—
—
1
—
—
—
1
Doubtful
—
—
—
—
—
—
—
—
Total
$
40
$
47
$
24
$
20
$
8
$
2
$
8
$
149
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
26
June 30,
2025
2024
2023
2022
2021
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total Loans
Risk rating:
Pass
$
1,644
$
2,140
$
970
$
1,326
$
705
$
806
$
227
$
7,818
Special mention
7
6
4
6
25
14
—
62
Substandard
30
28
22
57
25
30
3
195
Doubtful
—
—
—
—
—
—
—
—
Total
$
1,681
$
2,174
$
996
$
1,389
$
755
$
850
$
230
$
8,075
Year-to-Date Gross Charge-Offs
$
—
$
—
$
1
$
1
$
—
$
—
$
—
$
2
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at June 30, 2024 (dollars in millions):
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
C&I
Risk rating:
Pass
$
340
$
431
$
201
$
65
$
29
$
33
$
—
$
1,099
Special mention
22
—
—
—
—
—
—
22
Substandard
11
3
2
2
1
2
—
21
Doubtful
—
—
—
—
—
—
—
—
Total
$
373
$
434
$
203
$
67
$
30
$
35
$
—
$
1,142
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
1
$
—
$
1
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Municipal
Risk rating:
Pass
$
148
$
31
$
80
$
14
$
9
$
76
$
—
$
358
Special mention
—
—
—
—
—
—
—
—
Substandard
—
—
—
1
—
—
—
1
Doubtful
—
—
—
—
—
—
—
—
Total
$
148
$
31
$
80
$
15
$
9
$
76
$
—
$
359
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Agricultural
Risk rating:
Pass
$
38
$
36
$
5
$
3
$
1
$
—
$
—
$
83
Special mention
—
—
—
—
—
—
—
—
Substandard
3
—
—
—
—
—
—
3
Doubtful
—
—
—
—
—
—
—
—
Total
$
41
$
36
$
5
$
3
$
1
$
—
$
—
$
86
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
27
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Construction & Development
Risk rating:
Pass
$
304
$
350
$
215
$
60
$
17
$
13
$
—
$
959
Special mention
6
2
2
—
—
—
—
10
Substandard
7
3
1
6
—
—
—
17
Doubtful
—
—
—
—
—
—
—
—
Total
$
317
$
355
$
218
$
66
$
17
$
13
$
—
$
986
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Farm
Risk rating:
Pass
$
63
$
51
$
78
$
68
$
22
$
27
$
—
$
309
Special mention
—
—
—
—
—
—
—
—
Substandard
—
1
4
—
5
—
—
10
Doubtful
—
—
—
—
—
—
—
—
Total
$
63
$
52
$
82
$
68
$
27
$
27
$
—
$
319
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Owner Occupied CRE
Risk rating:
Pass
$
118
$
88
$
241
$
165
$
72
$
102
$
—
$
786
Special mention
—
—
—
1
—
3
—
4
Substandard
1
1
1
3
5
15
—
26
Doubtful
—
—
—
—
—
—
—
—
Total
$
119
$
89
$
242
$
169
$
77
$
120
$
—
$
816
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Owner Occupied CRE
Risk rating:
Pass
$
62
$
148
$
293
$
200
$
105
$
175
$
—
$
983
Special mention
2
1
—
8
—
2
—
13
Substandard
1
2
32
4
2
13
—
54
Doubtful
—
—
—
—
—
—
—
—
Total
$
65
$
151
$
325
$
212
$
107
$
190
$
—
$
1,050
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
28
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Residential
Risk rating:
Pass
$
286
$
409
$
407
$
292
$
143
$
264
$
155
$
1,956
Special mention
—
1
2
2
1
2
1
9
Substandard
1
4
4
2
3
9
3
26
Doubtful
—
—
—
—
—
—
—
—
Total
$
287
$
414
$
413
$
296
$
147
$
275
$
159
$
1,991
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Auto
Risk rating:
Pass
$
215
$
155
$
166
$
53
$
17
$
6
$
—
$
612
Special mention
—
—
—
—
—
—
—
—
Substandard
—
—
1
2
—
—
—
3
Doubtful
—
—
—
—
—
—
—
—
Total
$
215
$
155
$
167
$
55
$
17
$
6
$
—
$
615
Year-to-Date Gross Charge-Offs
$
—
$
—
$
1
$
—
$
—
$
—
$
—
$
1
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Auto
Risk rating:
Pass
$
41
$
50
$
35
$
17
$
3
$
1
$
8
$
155
Special mention
—
—
—
—
—
—
—
—
Substandard
—
1
—
—
—
—
—
1
Doubtful
—
—
—
—
—
—
—
—
Total
$
41
$
51
$
35
$
17
$
3
$
1
$
8
$
156
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
June 30,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total Loans
Risk rating:
Pass
$
1,615
$
1,749
$
1,721
$
937
$
418
$
697
$
163
$
7,300
Special mention
30
4
4
11
1
7
1
58
Substandard
24
15
45
20
16
39
3
162
Doubtful
—
—
—
—
—
—
—
—
Total
$
1,669
$
1,768
$
1,770
$
968
$
435
$
743
$
167
$
7,520
Year-to-Date Gross Charge-Offs
$
—
$
—
$
1
$
—
$
—
$
1
$
—
$
2
29
The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at December 31, 2024 (dollars in millions):
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
C&I
Risk rating:
Pass
$
677
$
226
$
146
$
45
$
23
$
30
$
—
$
1,147
Special mention
7
—
1
—
1
—
—
9
Substandard
12
3
4
1
—
1
—
21
Doubtful
—
—
—
—
—
—
—
—
Total
$
696
$
229
$
151
$
46
$
24
$
31
$
—
$
1,177
Year-to-Date Gross Charge-Offs
$
—
$
1
$
—
$
—
$
—
$
—
$
—
$
1
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Municipal
Risk rating:
Pass
$
175
$
26
$
77
$
12
$
8
$
71
$
—
$
369
Special mention
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
Doubtful
—
—
—
—
—
—
—
—
Total
$
175
$
26
$
77
$
12
$
8
$
71
$
—
$
369
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Agricultural
Risk rating:
Pass
$
76
$
8
$
4
$
2
$
1
$
—
$
—
$
91
Special mention
—
—
—
—
—
—
—
—
Substandard
3
—
1
—
—
—
—
4
Doubtful
—
—
—
—
—
—
—
—
Total
$
79
$
8
$
5
$
2
$
1
$
—
$
—
$
95
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Construction & Development
Risk rating:
Pass
$
667
$
133
$
166
$
55
$
14
$
8
$
1
$
1,044
Special mention
1
—
—
—
—
—
—
1
Substandard
7
1
1
1
—
—
—
10
Doubtful
—
—
—
—
—
—
—
—
Total
$
675
$
134
$
167
$
56
$
14
$
8
$
1
$
1,055
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
30
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Farm
Risk rating:
Pass
$
114
$
42
$
72
$
60
$
18
$
23
$
—
$
329
Special mention
—
—
—
—
—
—
—
—
Substandard
1
1
4
—
4
1
—
11
Doubtful
—
—
—
—
—
—
—
—
Total
$
115
$
43
$
76
$
60
$
22
$
24
$
—
$
340
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Owner Occupied CRE
Risk rating:
Pass
$
166
$
86
$
242
$
133
$
58
$
81
$
—
$
766
Special mention
4
2
1
1
—
1
—
9
Substandard
10
2
3
6
7
3
—
31
Doubtful
—
—
—
—
—
—
—
—
Total
$
180
$
90
$
246
$
140
$
65
$
85
$
—
$
806
Year-to-Date Gross Charge-Offs
$
—
$
1
$
—
$
—
$
—
$
—
$
—
$
1
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Owner Occupied CRE
Risk rating:
Pass
$
170
$
128
$
270
$
177
$
99
$
160
$
—
$
1,004
Special mention
2
—
5
7
—
1
—
15
Substandard
1
14
30
10
1
8
—
64
Doubtful
—
—
—
—
—
—
—
—
Total
$
173
$
142
$
305
$
194
$
100
$
169
$
—
$
1,083
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Residential
Risk rating:
Pass
$
606
$
367
$
378
$
266
$
105
$
232
$
188
$
2,142
Special mention
1
1
1
3
—
2
—
8
Substandard
5
7
12
4
4
12
2
46
Doubtful
—
—
—
—
—
—
—
—
Total
$
612
$
375
$
391
$
273
$
109
$
246
$
190
$
2,196
Year-to-Date Gross Charge-Offs
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
31
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Auto
Risk rating:
Pass
$
338
$
122
$
126
$
38
$
10
$
2
$
—
$
636
Special mention
—
—
—
—
—
—
—
—
Substandard
1
1
1
1
—
—
—
4
Doubtful
—
—
—
—
—
—
—
—
Total
$
339
$
123
$
127
$
39
$
10
$
2
$
—
$
640
Year-to-Date Gross Charge-Offs
$
—
$
1
$
1
$
—
$
—
$
—
$
—
$
2
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Non-Auto
Risk rating:
Pass
$
68
$
35
$
25
$
14
$
2
$
1
$
7
$
152
Special mention
—
—
—
—
—
—
—
—
Substandard
—
—
1
—
—
—
—
1
Doubtful
—
—
—
—
—
—
—
—
Total
$
68
$
35
$
26
$
14
$
2
$
1
$
7
$
153
Year-to-Date Gross Charge-Offs
$
—
$
—
$
1
$
—
$
—
$
—
$
—
$
1
December 31,
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Total
Total Loans
Risk rating:
Pass
$
3,057
$
1,173
$
1,506
$
802
$
338
$
608
$
196
$
7,680
Special mention
15
3
8
11
1
4
—
42
Substandard
40
29
57
23
16
25
2
192
Doubtful
—
—
—
—
—
—
—
—
Total
$
3,112
$
1,205
$
1,571
$
836
$
355
$
637
$
198
$
7,914
Year-to-Date Gross Charge-Offs
$
—
$
3
$
2
$
—
$
—
$
—
$
—
$
5
32
At
June 30, 2025 and 2024, and December 31, 2024, the Company’s past due loans are as follows (dollars in thousands):
June 30, 2025
15-59
Days
Past
Due*
60-89
Days
Past
Due
Greater
Than 90
Days
Total Past
Due
Current
Total Loans
90 Days
Past Due
Still
Accruing
Commercial:
C&I
$
2,130
$
2,710
$
1,322
$
6,162
$
1,195,989
$
1,202,151
$
—
Municipal
225
—
—
225
305,915
306,140
—
Total Commercial
2,355
2,710
1,322
6,387
1,501,904
1,508,291
—
Agricultural
1,797
—
1,409
3,206
82,927
86,133
—
Real Estate:
Construction & Development
3,870
1,878
1,819
7,567
1,165,267
1,172,834
—
Farm
805
—
823
1,628
301,341
302,969
—
Non-Owner Occupied CRE
512
30
1,415
1,957
744,384
746,341
—
Owner Occupied CRE
1,083
162
1,034
2,279
1,122,331
1,124,610
77
Residential
16,316
2,989
2,006
21,311
2,264,909
2,286,220
—
Total Real Estate
22,586
5,059
7,097
34,742
5,598,232
5,632,974
77
Consumer:
Auto
1,162
82
22
1,266
697,631
698,897
—
Non-Auto
377
25
5
407
148,242
148,649
—
Total Consumer
1,539
107
27
1,673
845,873
847,546
—
Total
$
28,277
$
7,876
$
9,855
$
46,008
$
8,028,936
$
8,074,944
$
77
June 30, 2024
15-59
Days
Past
Due*
60-89
Days
Past Due
Greater
Than 90
Days
Total Past
Due
Current
Total Loans
90 Days
Past Due
Still
Accruing
Commercial:
C&I
$
4,953
$
593
$
1,060
$
6,606
$
1,135,384
$
1,141,990
$
—
Municipal
82
—
—
82
359,042
359,124
—
Total Commercial
5,035
593
1,060
6,688
1,494,426
1,501,114
—
Agricultural
1,158
997
119
2,274
83,912
86,186
—
Real Estate:
Construction & Development
11,086
1,144
545
12,775
973,619
986,394
—
Farm
2,055
—
95
2,150
316,447
318,597
95
Non-Owner Occupied CRE
2,208
—
—
2,208
813,505
815,713
—
Owner Occupied CRE
3,478
27
1,335
4,840
1,044,875
1,049,715
—
Residential
14,705
1,416
1,369
17,490
1,973,114
1,990,604
—
Total Real Estate
33,532
2,587
3,344
39,463
5,121,560
5,161,023
95
Consumer:
Auto
1,063
361
13
1,437
613,755
615,192
1
Non-Auto
354
135
149
638
155,580
156,218
135
Total Consumer
1,417
496
162
2,075
769,335
771,410
136
Total
$
41,142
$
4,673
$
4,685
$
50,500
$
7,469,233
$
7,519,733
$
231
33
December 31, 2024
15-59
Days
Past
Due*
60-89
Days
Past Due
Greater
Than 90
Days
Total Past
Due
Current
Total Loans
90 Days
Past Due
Still
Accruing
Commercial:
C&I
$
4,232
$
3,938
$
1,368
$
9,538
$
1,167,455
$
1,176,993
$
258
Municipal
349
36
—
385
368,861
369,246
—
Total Commercial
4,581
3,974
1,368
9,923
1,536,316
1,546,239
258
Agricultural
917
10
795
1,722
93,821
95,543
—
Real Estate:
Construction & Development
5,652
564
609
6,825
1,047,778
1,054,603
—
Farm
433
1,128
—
1,561
338,104
339,665
—
Non-Owner Occupied CRE
666
—
1,979
2,645
802,921
805,566
—
Owner Occupied CRE
3,151
246
1,145
4,542
1,078,558
1,083,100
—
Residential
15,779
2,131
2,147
20,057
2,176,710
2,196,767
29
Total Real Estate
25,681
4,069
5,880
35,630
5,444,071
5,479,701
29
Consumer:
Auto
1,227
141
—
1,368
637,192
638,560
—
Non-Auto
137
34
—
171
152,884
153,055
—
Total Consumer
1,364
175
—
1,539
790,076
791,615
—
Total
$
32,543
$
8,228
$
8,043
$
48,814
$
7,864,284
$
7,913,098
$
287
*
The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due.
Modifications of receivables to debtors experiencing financial difficulty
The Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, term extensions, interest rate reduction, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.
An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. During the six-months ended June 30, 2025 and 2024
, respectively, loan modifications made to borrowers experiencing financial difficulty was insignificant.
Note 4 - Loans Held-for-Sale
Loans held-for-sale totaled
$
33,233,000
,
$
19,668,000
and
$
8,235,000
at June 30, 2025 and 2024, and December 31, 2024, respectively. At June 30, 2025 and 2024, and December 31, 2024,
$
1,622,000
,
$
275,000
and
$
442,000
, respectively, are valued at the lower of cost or fair value, and the remaining amounts are valued under the fair value option.
These loans, which are sold on a servicing released basis, are valued using a market approach by utilizing either: (i) the fair value of the securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures (see Note 9). Interest income on mortgage loans held-for-sale is recognized based on the contractual rates and reflected in interest income on loans in the consolidated statements of earnings. The Company has no continuing ownership in any residential mortgage loans sold.
The Company originates certain mortgage loans for sale in the secondary market. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to six months, or if documentation is determined not to be in compliance with regulations. The Company’s historic losses as a result of these indemnities have been insignificant.
34
Note 5 - Derivative Financial Instruments
The Company enters into interest rate lock commitments (“IRLCs”) with customers to originate residential mortgage loans at a specific interest rate that are ultimately sold in the secondary market. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company.
The Company purchases forward mortgage-backed securities contracts to manage the changes in fair value associated with changes in interest rates related to a portion of the IRLCs. These instruments are typically entered into at the time the IRLC is made in the aggregate.
The fair values of IRLCs are based on current secondary market prices for underlying loans and estimated servicing value with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability (pull-through rate) net of estimated costs to originate the loan. The fair value of IRLCs is subject to change primarily due to changes in interest rates and the estimated pull-through rate. These commitments are classified as Level 3 in the fair value disclosures (see Note 9).
Forward mortgage-backed securities contracts are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract and these instruments are therefore classified as Level 2 in the fair value disclosures (see Note 9). The estimated fair values are subject to change primarily due to changes in interest rates. The impact of these forward contracts is included in gain on sale and fees on mortgage loans in the statement of earnings.
These financial instruments are not designated as hedging instruments for accounting purposes. All derivatives are carried at fair value in either other assets or other liabilities and are reflected in the gain on sale and fees on mortgage loans in the consolidated statement of earnings.
The following tables provide the outstanding notional balances and fair values of outstanding derivative positions (dollars in thousands):
June 30, 2025:
Outstanding
Notional
Balance
Asset
Derivative
Fair Value
Liability
Derivative
Fair Value
IRLCs
$
56,479
$
955
$
—
Forward mortgage-backed securities trades
92,000
—
584
June 30, 2024:
Outstanding
Notional
Balance
Asset
Derivative
Fair Value
Liability
Derivative
Fair Value
IRLCs
$
49,877
$
518
$
—
Forward mortgage-backed securities trades
67,000
—
4
December 31, 2024:
Outstanding
Notional
Balance
Asset
Derivative
Fair
Value
Liability
Derivative
Fair
Value
IRLCs
$
28,584
$
238
$
—
Forward mortgage-backed securities trades
38,500
84
—
35
Note 6 – Borrowings
Borrowings consisted of the following (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Securities sold under agreements with customers to repurchase
$
48,026
$
138,950
$
61,416
Federal funds purchased
1,100
2,650
14,550
Other borrowings
21,053
21,053
121,053
Total
$
70,179
$
162,653
$
197,019
Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which the Company pledges certain securities that have a fair value equal to at least the amount of the borrowings. The agreements mature daily and therefore the risk arising from a decline in the fair value of the collateral pledged is minimal. The securities pledged are mortgage-backed securities. These agreements do not include “right of set-off” provisions and therefore the Company does not offset such agreements for financial reporting purposes.
The Company renewed its loan agreement, effective
June 30, 2025
, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $
50,000,000
on a revolving line of credit. There was
no
outstanding balance under the line of credit as of
June 30, 2025.
During 2021, the Company began investing in qualifying Community Development Entities ("CDE") under the federal New Market Tax Credits ("NMTC") program. See Note 7 for further discussion of our activity and related balances on the consolidated balance sheets, including the $
21,053,000
in other borrowings shown above.
Note 7 - Income Taxes
Income tax expense was
$
15,078,000
for the second quarter of 2025 as compared to
$
11,156,000
for the same period in 2024. The Company’s effective tax rates on pretax income were
18.45
%
and
17.53
%
for the second quarters of 2025 and 2024, respectively. Income tax expense was
$
28,888,000
for the first
six months of 2025, as compared to
$
22,636,000
for the same period in 2024. The Company’s effective tax rates on pretax income were
18.41
%
and
17.61
%
for the first six months of 2025 and 2024, respectively.
The effective tax rates differ from the statutory federal tax rate of
21
% primarily due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distributions under our deferred compensation plan and vesting of equity awards, and NMTC benefits.
Low Income Housing Tax Credit Investments
- During 2021, the Company began investing in an affordable housing fund that will invest in real estate projects that qualify for the federal low-income housing tax credit ("LIHTC") program designed to promote private development of low income housing. The investments made by the fund will generate a return to the Company primarily through the realization of LIHTCs, and also through federal tax deductions generated from the ongoing operating losses from the investees of the fund. The Company's investment in the fund will be amortized through income tax expense using the proportional amortization method as related tax credits are utilized by the Company. The initial capital contribution commitment to the fund was for up to $
5,500,000
. In 2024 and 2025, the Company entered into new commitments for up to $
7,000,000
and $
5,000,000
, respectively, on new projects in other communities. Total contributions were
$
5,759,000
at June 30, 2025,
$
1,289,000
at June 30, 2024, and
$
3,925,000
at December 31, 2024, respectively, which is included in other assets on the consolidated balance sheet.
New Market Tax Credit Investments
- During 2021, the Company began investing in qualifying CDEs under the federal NMTC program. NMTC investments are made through the third-party CDEs which are qualified through the U.S. Department of Treasury and receive periodic allocation of amounts under the NMTC program. NMTCs are generated from qualified investments by the CDEs utilizing equity investments made by a taxpayer, like the Company. Through these equity investments, the Company will receive the
tax benefits from the NMTCs equal to
39
% of the qualified investment from the CDE to qualifying eligible projects over a seven year period. The Company's equity investments in the CDEs is amortized using the proportional amortization method and related tax credits are allocated to the Company. At
June 30, 2025, June 30, 2024, and December 31, 2024, the consolidated balance sheet of the Company included a
$
18,000,000
loan to the investee in loans and the
$
21,053,000
leveraged loan from the investee in other borrowings (see Note 6). At June 30, 2025 and 2024, and December 31, 2024, the consolidated balance sheet of the Company included CDE investments in other assets of
$
23,780,000
,
$
25,085,000
, and
$
24,433,000
, respectively.
36
Note 8 - Stock Based Compensation
On April 27, 2021, the Company’s shareholders approved the 2021 Omnibus Stock and Incentive Plan (“2021 Plan”) and reserved
2,500,000
shares of the Company’s common stock for issuance under this plan. At
June 30, 2025, the Company had
1,246,395
shares of stock remaining for issuance under the plan. The 2021 Plan supersedes all prior stock option and restricted stock plans with shares previously reserved for issuance under such plans cancelled.
Restricted Stock Units
Under the 2021 Plan, the Company grants restricted stock units under compensation arrangements for the benefit of employees and senior and executive officers. Restricted stock unit grants are subject to time-based vesting. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the service conditions set forth in the grant agreements.
The following table summarizes information about the changes in restricted stock units for the
six-months ended June 30, 2025 and 2024.
For the Six-Months Ended June 30,
2025
2024
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Balance at beginning of period
71,656
$
34.36
53,817
$
37.04
Grants
—
—
—
—
Vesting
—
—
—
—
Forfeited/expired
(
971
)
33.63
(
2,389
)
34.80
Balance at end of period
70,685
$
34.37
51,428
$
37.14
Performance Stock Units
Also under the 2021 Plan, the Company awards performance-based restricted stock units (“PSUs”) to employees and senior and executive officers. Under the terms of the award, the number of units that will vest and convert to shares of common stock will be based on the extent to which the Company achieves specific performance criteria during the fixed
three-year
performance period. The number of shares issued upon vesting will range from
0
% to
200
% of the PSUs granted. The PSUs vest at the end of a
three-year
period based on either
50
% each on average adjusted earnings per share growth and return on average assets, or
100
% return on average assets, as reported, adjusted for unusual gains/losses, merger expenses, and other items as approved by the compensation committee of the Company's board of directors. Performance for each period is measured relative to other U.S. publicly traded banks with $
10
billion to $
50
billion in assets. Compensation expense for the PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards.
The following table summarizes information about the changes in PSUs as of and for the
six-months ended June 30, 2025 and 2024.
For the Six-Months Ended June 30,
2025
2024
Performance-Based Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Performance-Based Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Balance at beginning of period
96,206
$
35.83
75,227
$
40.24
Grants
—
—
—
—
Performance adjustment
(1)
11,031
47.19
—
—
Vesting
(
33,104
)
47.19
(
20,532
)
48.91
Forfeited/expired
(
1,244
)
32.17
(
2,493
)
35.21
Balance at end of period
72,889
$
32.45
52,202
$
37.07
(1)
PSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met and the awards pay out at
100
%. PSU awards are settled with payouts ranging from
0
% to
200
% of the target award value based on the Company's performance relative to a predefined peer group over a fixed three-year performance period. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.
37
Restricted Stock Awards
Under the 2021 Plan, the Company grants restricted stock awards under compensation arrangements for the benefit of directors. Restricted stock awards are subject to time-based vesting. The total number of restricted stock awards granted represents the maximum number of shares of restricted stock eligible to vest based upon the service conditions set forth in the grant agreements.
The following table summarizes information about vested and unvested restricted stock.
For the Six-Months Ended June 30,
2025
2024
Restricted
Stock
Outstanding
Weighted
Average
Grant Date
Fair Value
Restricted
Stock
Outstanding
Weighted
Average
Grant Date
Fair Value
Balance at beginning of period
24,348
$
30.91
25,190
$
27.79
Grants
24,876
33.78
22,950
30.51
Vesting
(
24,348
)
30.91
(
25,190
)
27.79
Forfeited/expired
—
—
—
—
Balance at end of period
24,876
$
33.78
22,950
$
30.51
The total fair value of restricted stock vested for the six-months ended June 30, 2025 and 2024, was
$
1,670,000
and
$
1,418,000
, respectively.
The Company recorded restricted stock unit and performance-based restricted stock unit expense for employees of
$
658,000
and
$
391,000
for the three-months ended June 30, 2025 and 2024, respectively. The Company recorded restricted stock unit and performance-based restricted stock unit expense for employees of
$
1,723,000
and
$
860,000
for the
six-months ended June 30, 2025 and 2024, respectively. The Company recorded director expense related to these restricted stock awards of
$
204,000
and
$
175,000
, for the three-months ended June 30, 2025 and 2024, respectively. The Company recorded director expense related to these restricted stock awards of
$
397,000
and
$
350,000
, for the six-months ended June 30, 2025 and 2024, respectively.
As of June 30, 2025 and 2024, there were
$
3,620,000
and
$
2,478,000
, respectively, of total unrecognized compensation cost related to unvested restricted stock, restricted stock units and performance-based restricted stock units which is expected to be recognized over a weighted-average period of
0.98
years and
1.06
years, respectively. At June 30, 2025 and 2024, and December 31, 2024, there was
$
155,000
,
$
122,000
and
$
141,000
, respectively, accrued in other liabilities related to dividends declared to be paid upon vesting.
Stock Option Plans
Prior to the approval of the 2021 Plan, the 2012 Incentive Stock Option Plan (the “2012 Plan”) provided for the granting of options to employees of the Company at prices not less than market value at the date of the grant. The 2012 Plan provided that options granted vest and are exercisable after
two years
from the date of grant and vest at a rate of
20
% each year thereafter and have a
10-year
term.
The most recent grants from the 2021 Plan provided that
20
% of the options granted vest and are exercisable after one year from the date of grant and the remaining options vest and are exercisable at a rate of
20
% each year thereafter, or
33.3
% of the options granted are vested and exercisable after one year from the date of the grant and the remaining options are vested and exercisable at a rate of
33.3
% each year thereafter, and have a 10-year term.
Shares are issued under the 2012 Plan and the 2021 Plan from available authorized shares.
An analysis of stock option activity for the
six-months ended June 30, 2025 is presented in the table and narrative below:
Shares
Weighted-
Average Ex. Price
Outstanding, December 31, 2024
1,585,426
$
31.96
Granted
—
—
Exercised
(
76,273
)
20.02
Cancelled
(
54,055
)
34.08
Outstanding, June 30, 2025
1,455,098
32.51
Exercisable, June 30, 2025
874,166
$
29.39
The options outstanding at June 30, 2025 had exercise prices ranging between
$
16.95
and
$
48.91
. Stock options have been adjusted retroactively for the effects of stock dividends and splits.
The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees.
The Company recorded stock option expense totaling
$
669,000
and
$
485,000
for the three-months ended June 30, 2025 and 2024, respectively. The Company recorded stock option expense totaling
$
1,338,000
and
$
969,000
for the
six-months ended June 30, 2025 and 2024, respectively.
38
As of June 30, 2025, there was
$
3,861,000
of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of
1.06
years. The total fair value of shares vested during the six-months ended June 30, 2025 and 2024 was
$
416,000
and
$
521,000
, respectively.
Note 9 - Fair Value Disclosures
The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.
The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
•
Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•
Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Securities classified as available-for-sale and trading are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other items.
See Notes 4 and 5 related to the determination of fair value for loans held-for-sale, IRLCs and forward mortgage-backed securities trades.
There were
no
transfers between Level 2 and Level 3 during the
three and six-months ended June 30, 2025 and 2024, and the year ended December 31, 2024.
39
The following table summarizes the Company’s available-for-sale securities, loans held-for-sale, and derivatives which are measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):
June 30, 2025
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
Available-for-sale investment securities:
U.S. Treasury securities
$
153,835
$
—
$
—
$
153,835
Obligations of state and political subdivisions
—
1,521,364
—
1,521,364
Corporate bonds
—
87,949
—
87,949
Residential mortgage-backed securities
—
2,411,874
—
2,411,874
Commercial mortgage-backed securities
—
707,018
—
707,018
Other securities
4,508
—
—
4,508
Total
$
158,343
$
4,728,205
$
—
$
4,886,548
Loans held-for-sale
$
—
$
31,611
$
—
$
31,611
IRLCs
$
—
$
—
$
955
$
955
Forward mortgage-backed securities trades
$
—
$
(
584
)
$
—
$
(
584
)
June 30, 2024
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
Available-for-sale investment securities:
U.S. Treasury securities
$
341,976
$
—
$
—
$
341,976
Obligations of states and political subdivisions
—
1,445,373
—
1,445,373
Corporate bonds
—
99,627
—
99,627
Residential mortgage-backed securities
—
2,316,085
—
2,316,085
Commercial mortgage-backed securities
—
350,022
—
350,022
Other securities
19,941
—
—
19,941
Total
$
361,917
$
4,211,107
$
—
$
4,573,024
Loans held-for-sale
$
—
$
19,393
$
—
$
19,393
IRLCs
$
—
$
—
$
518
$
518
Forward mortgage-backed securities trades
$
—
$
(
4
)
$
—
$
(
4
)
December 31, 2024
Level 1
Inputs
Level 2
Inputs
Level 3
Inputs
Total Fair
Value
Available-for-sale investment securities:
U.S. Treasury securities
$
273,562
$
—
$
—
$
273,562
Obligations of state and political subdivisions
—
1,440,245
—
1,440,245
Corporate bonds
—
101,238
—
101,238
Residential mortgage-backed securities
—
2,350,534
—
2,350,534
Commercial mortgage-backed securities
—
447,752
—
447,752
Other securities
4,428
—
—
4,428
Total
$
277,990
$
4,339,769
$
—
$
4,617,759
Loans held-for-sale
$
—
$
7,793
$
—
$
7,793
IRLCs
$
—
$
—
$
238
$
238
Forward mortgage-backed securities trades
$
—
$
84
$
—
$
84
The following table summarizes the Company’s loans held-for-sale at fair value and the net unrealized gains as of the balance sheet dates shown below (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Unpaid principal balance on loans held-for-sale
$
30,656
$
18,929
$
7,636
Net unrealized gains on loans held-for-sale
955
464
157
Loans held-for-sale at fair value
$
31,611
$
19,393
$
7,793
40
The following table summarizes the Company’s gains on sale and fees of mortgage loans for the
three and six-months ended June 30, 2025 and 2024 (dollars in thousands):
Three-Months Ended
June 30,
Six-Months Ended
June 30,
2025
2024
2025
2024
Realized gain on sale and fees on mortgage loans*
$
3,587
$
3,779
$
6,140
$
6,359
Change in fair value on loans held-for-sale and IRLCs
921
(
179
)
1,486
172
Change in forward mortgage-backed securities trades
(
382
)
87
(
668
)
284
Total gain on sale of mortgage loans
$
4,126
$
3,687
$
6,958
$
6,815
*
This includes gains on loans held-for-sale carried under the fair value method and lower of cost or market.
No
residential mortgage loans held-for-sale were 90 days or more past due or considered nonaccrual as of
June 30, 2025, June 30, 2024, or December 31, 2024
.
No
significant credit losses were recognized on mortgage loans held-for-sale for the
three and six-months ended June 30, 2025 and 2024.
Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include other real estate owned, goodwill and other intangible assets, and other non-financial long-lived assets. Non-financial assets measured at fair value on a non-recurring basis during the six-months ended June 30, 2025 and 2024, respectively, include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were re-measured at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or specia
l use type of the property. Such discounts vary by appraisal based on the above factors but generally range from
5
% to
25
% of the appraised value. Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were
no
significant other real estate owned properties that were re-measured subsequent to their initial transfer to other real estate owned during the
three and six-months ended June 30, 2025 and 2024.
At June 30, 2025 and 2024, and December 31, 2024, other real estate owned totaled
$
370,000
,
$
629,000
, and
$
811,000
, respectively.
The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
Cash and due from banks, federal funds sold, interest-bearing deposits in banks and accrued interest receivable and payable are liquid in nature and considered Levels 1 or 2 of the fair value hierarchy.
Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarchy.
The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.
41
The estimated fair values and carrying values of all financial instruments under current authoritative guidance were as follows (dollars in thousands).
June 30,
December 31,
2025
2024
2024
Carrying Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Fair Value
Hierarchy
Cash and due from banks
$
264,000
$
264,000
$
263,262
$
263,262
$
259,996
$
259,996
Level 1
Federal funds sold
8,750
8,750
2,800
2,800
—
—
Level 1
Interest-bearing demand deposits
in banks
435,612
435,612
103,315
103,315
503,417
503,417
Level 1
Available-for-sale securities
4,886,548
4,886,548
4,573,024
4,573,024
4,617,759
4,617,759
Levels 1
and 2
Loans held-for-investment, net of
allowance for credit losses
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” “could,” “may,” or “would” and similar expressions, as they relate to us or our management, identify forward-looking statements. These forward-looking statements are based on information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited, to those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, under the heading “Risk Factors,” and the following:
•
general economic conditions, including our local, state and national real estate markets and employment trends;
•
the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”);
•
effect of severe weather conditions, including hurricanes, tornadoes, flooding and droughts;
•
volatility and disruption in national and international financial and commodity markets;
•
government intervention in the U.S. financial system including the effects of recent legislative, tax, accounting, tariffs, and regulatory actions and reforms, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Jumpstart Our Business Startups Act, the Consumer Financial Protection Bureau (“CFPB”), the Inflation Reduction Act of 2022, the capital ratios of Basel III as adopted by the federal banking authorities and the Tax Cuts and Jobs Act;
•
political or social unrest and economic instability;
•
the ability of the federal government to address the national economy;
•
changes in our competitive environment from other financial institutions and financial service providers;
•
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 (“PCAOB”), the Financial Accounting Standards Board (“FASB”) and other accounting standard setters;
•
effect of a pandemic, epidemic, or highly contagious disease, on our Company, the communities where we have our branches, the state of Texas and the United States, related to the economy and overall financial stability, including disruptions to supply channels and labor availability;
•
government and regulatory responses to a pandemic, epidemic, or highly contagious disease;
•
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply;
•
the costs, effects and results of regulatory examinations, investigations or reviews and the ability to obtain required regulatory approvals;
•
changes in the demand for loans, including loans originated for sale in the secondary market;
•
fluctuations in the value of collateral securing our loan portfolio and in the level of the allowance for credit losses;
•
the accuracy of our estimates of future credit losses;
•
the accuracy of our estimates and assumptions regarding the performance of our securities portfolio, including securities with a current unrealized loss;
•
inflation, interest rate, market and monetary fluctuations;
•
soundness of other financial institutions with which we have transactions;
•
changes in consumer spending, borrowing and savings habits;
•
changes in commodity prices (e.g., oil and gas, cattle, and wind energy);
•
our ability to attract deposits, maintain and/or increase market share;
•
changes in our liquidity position, including a result of a reduction in the amount of sources of liquidity we currently have;
•
fluctuations in the market value and liquidity of the investment securities we have classified as held-for-sale ("HFS"), including the effects of changes in market interest rates;
•
changes in the reliability of our vendors, internal control system or information systems;
•
cyber-attacks on our technology information systems, including fraud from our customers and external third-party vendors;
•
our ability to attract and retain qualified employees;
43
•
acquisitions and integration of acquired businesses;
•
the possible impairment of goodwill and other intangibles associated with our acquisitions;
•
consequences of continued bank mergers and acquisitions in our market area, resulting in fewer but much larger and stronger competitors;
•
expansion of operations, including branch openings, new product offerings and expansion into new markets;
•
changes in our compensation and benefit plans;
•
acts of God or of war or terrorism;
•
the impact of changes to the global climate and its effect on our operations and customers;
•
potential risk of environmental liability associated with lending activities;
•
the rise of Artificial Intelligence as a commonly used resource; and
•
our success at managing the risk involved in the foregoing items.
In addition, financial markets and global supply chains may continue to be adversely affected by the current or anticipated impact of military conflict, including the current Russian invasion of Ukraine, the Israel-Palestine conflict and other world events, terrorism or other geopolitical events.
Such forward-looking statements reflect the current views of our management with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategies and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise (except as required by law).
Introduction
As a financial holding company, we generate most of our revenue from interest on loans and investments, trust fees, gain on sale of mortgage loans and service charges and fees on deposit accounts. Our primary source of funding for our loans and investments are deposits held by our bank subsidiary, First Financial Bank. Our largest expenses are interest on deposits and salaries and related employee benefits. We measure our performance by calculating our return on average assets, return on average equity, regulatory capital ratios, net interest margin and efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax equivalent basis and noninterest income.
The following discussion and analysis of operations and financial condition should be read in conjunction with the financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as those included in the Company’s 2024 Annual Report on Form 10-K.
Critical Accounting Policies
We prepare consolidated financial statements based on generally accepted accounting principles (“GAAP”) and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions.
We deem a policy critical if (i) the accounting estimate requires us to make assumptions about matters that are highly uncertain at the time we make the accounting estimate; and (ii) different estimates that reasonably could have been used in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on the financial statements.
We deem our most critical accounting policies to be (i) our allowance for credit losses and our provision for credit losses and (ii) our valuation of financial instruments. We have other significant accounting policies and continue to evaluate the materiality of their impact on our consolidated financial statements, but we believe these other policies either do not generally require us to make estimates and judgments that are difficult or subjective, or it is less likely they would have a material impact on our reported results for a given period. A discussion of (i) our allowance for credit losses and our provision for credit losses and (ii) our valuation of financial instruments is included in Note 1 to our Consolidated Financial Statements beginning on page 10.
Stock Repurchase
On July 23, 2024, the Company's Board of Directors re-authorized the repurchase of up to 5 million common shares through July 31, 2025. The prior authorization had been in place since July 27, 2021. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is no minimum number of shares that the Company is required to repurchase. Under the authorization effective through July 31, 2024, the Company repurchased and retired 101,337 shares (all during September 2023) at an average price of $26.99 per share. There have been no repurchases during 2024 or 2025.
On July 22, 2025, the Company's Board of Directors extended the authorization to repurchase up to 5 million common shares through July 31, 2026.
44
Results of Operations
Performance Summary
. Net earnings for the second quarter of 2025 were $66.66 million, an increase of 27.00% when compared to earnings of $52.49 million for the second quarter of 2024. Diluted earnings per share was $0.47 for the second quarter of 2025 and $0.37 for the second quarter of 2024.
The return on average assets was 1.89% for the second quarter of 2025, as compared to 1.61% for the second quarter of 2024. The return on average equity was 15.82% for the second quarter of 2025, as compared to 14.43% for the second quarter of 2024.
Net earnings for the six-months ended June 30, 2025 were $128.00 million, an increase of 20.89% when compared to earnings of $105.88 million for the six-months ended June 30, 2024. Diluted earnings per share was $0.89 for the first six months of 2025 and $0.74 for the first six months of 2024.
The return on average assets was 1.83% for the first six months of 2025, as compared to 1.62% for the first six months of 2024. The return on average equity was 15.48% for the first six months of 2025, as compared to 14.43% for the first six months of 2024.
Net Interest Income
. Net interest income is the difference between interest income on earning assets and interest expense on liabilities incurred to fund those assets. Our earning assets consist primarily of loans and investment securities. Our liabilities to fund those assets consist primarily of noninterest-bearing and interest-bearing deposits.
Tax-equivalent net interest income was $126.66 million for the second quarter of 2025, as compared to $105.85 million for the same period last year. The increase in tax equivalent net interest income for the second quarter of 2025 compared to the same quarter in 2024 was largely attributable to the increases in average loans, interest-bearing demand deposits in non-affiliated banks and taxable securities. Average earning assets were $13.34 billion for the second quarter of 2025, as compared to $12.23 billion during the second quarter of 2024. The increase of $1.11 billion in average earning assets for the second quarter of 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $640.04 million, (ii) an increase in short-term investments of $223.89 million and (iii) an increase in taxable investment securities of $219.34 million. Average interest-bearing liabilities were $9.00 billion for the second quarter of 2025, as compared to $8.26 billion in the same period in 2024. The yield on earning assets increased 14 basis points while the rate paid on interest-bearing liabilities decreased 27 basis points for the second quarter of 2025 when compared to the second quarter of 2024.
Tax-equivalent net interest income was $248.15 million for the first six months of 2025, as compared to $208.66 million for the same period last year. The increase in tax equivalent net interest income for the first six months of 2025 when compared to the same period in 2024 was largely attributable to increases in average loans and taxable securities and a decrease in repurchase agreements. Average earning assets were $13.25 billion for the first six months of 2025, as compared to $12.30 billion during the first six months of 2024. The increase of $953.98 million in average earning assets for the six-months ended June 30, 2025 when compared to the same period in 2024 was primarily a result of (i) an increase in loans of $694.04 million and (ii) an increase in taxable investment securities of $174.43 million. Average interest-bearing liabilities were $9.01 billion for the first six months of 2025, as compared to $8.29 billion in the same period in 2024. The yield on earning assets increased 22 basis points while the rate paid on interest-bearing liabilities decreased 24 basis points for the six-months ended June 30, 2025 compared to the six-months ended June 30, 2024.
45
Table 1 allocates the change in tax-equivalent net interest income between the amount of change attributable to volume and to rate.
Table 1 - Changes in Interest Income and Interest Expense (dollars in thousands):
Three-Months Ended June 30, 2025
Compared to Three-Months Ended June 30, 2024
Six-Months Ended June 30, 2025
Compared to Six-Months Ended June 30, 2024
Change Attributable to
Total
Change Attributable to
Total
Volume
Rate
Change
Volume
Rate
Change
Short-term investments
$
3,213
$
(1,275
)
$
1,938
$
2,331
$
(1,842
)
$
489
Taxable investment securities
1,344
3,986
5,330
2,099
8,314
10,413
Tax-exempt investment securities (1)
199
882
1,081
13
1,186
1,199
Loans (1) (2)
10,738
403
11,141
22,976
2,155
25,131
Interest income
15,494
3,996
19,490
27,419
9,813
37,232
Interest-bearing deposits
5,454
(5,138
)
316
11,239
(8,625
)
2,614
Repurchase agreements
(1,409
)
(265
)
(1,674
)
(3,545
)
(482
)
(4,027
)
Borrowings
14
23
37
(540
)
(300
)
(840
)
Interest expense
4,059
(5,380
)
(1,321
)
7,154
(9,407
)
(2,253
)
Net interest income
$
11,435
$
9,376
$
20,811
$
20,265
$
19,220
$
39,485
(1)
Computed on a tax-equivalent basis assuming a marginal tax rate of 21%.
(2)
Nonaccrual loans are included in loans.
The net interest margin, on a tax equivalent basis, was 3.81% for the second quarter of 2025, an increase of 33 basis points from the same period in 2024. The net interest margin, on a tax equivalent basis, for the first six-months of 2025 was 3.78%, an increase of 37 basis points from the same period in 2024. The net interest margin has expanded during the past year primarily due to (i) a shift in asset mix from lower yielding investment securities to higher yielding loans and investment securities, (ii) strong growth in deposits that has enabled the Company to deploy those funds into the higher yielding loan and securities portfolio and (iii) increased loan yields due to new and renewing loans and variable rate loans repricing higher. The Federal Reserve began aggressively increasing interest rates in March 2022 and continuing into 2023 with increases of 25 basis points in February, March, May, and July 2023. Most recently, the Federal Reserve decreased interest rates 50 basis points in September 2024, and 25 basis points in November and December 2024, respectively, resulting in a target rate range of 4.25% to 4.50% at June 30, 2025.
There are $1.03 billion of municipal and related deposits which are indexed to short-term treasury rates which have fluctuated with the changes in the applicable rate index. Average municipal and related deposits totaled $1.57 billion and $1.51 billion for the six-months ended June 30, 2025 and 2024, respectively, with an average rate paid of 3.43% and 3.98%, for the respective six-months then ended.
46
The net interest margin, which measures tax-equivalent net interest income as a percentage of average earning assets, is illustrated in Table 2.
Table 2 - Average Balances and Average Yields and Rates (dollars in thousands, except percentages):
Three-Months Ended June 30,
2025
2024
Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Assets
Short-term investments (1)
$
388,761
$
4,304
4.44
%
$
164,867
$
2,366
5.77
%
Taxable investment securities (2)
3,470,028
25,242
2.91
3,250,684
19,912
2.45
Tax-exempt investment securities (2)(3)
1,433,498
10,811
3.02
1,404,706
9,730
2.77
Loans (3)(4)
8,045,340
135,378
6.75
7,405,297
124,237
6.75
Total earning assets
13,337,627
$
175,735
5.28
%
12,225,554
$
156,245
5.14
%
Cash and due from banks
218,015
226,889
Bank premises and equipment, net
149,321
152,414
Other assets
246,380
251,818
Goodwill and other intangible assets, net
313,865
314,394
Allowance for credit losses
(100,946
)
(89,796
)
Total assets
$
14,164,262
$
13,081,273
Liabilities and Shareholders’ Equity
Interest-bearing deposits
$
8,923,737
$
48,730
2.19
%
$
8,020,247
$
48,414
2.43
%
Repurchase agreements
54,482
221
1.63
212,590
1,895
3.59
Borrowings
26,557
128
1.93
22,932
91
1.60
Total interest-bearing liabilities
9,004,776
$
49,079
2.19
%
8,255,769
$
50,400
2.46
%
Noninterest-bearing deposits
3,383,851
3,289,906
Other liabilities
85,745
72,464
Total liabilities
12,474,372
11,618,139
Shareholders’ equity
1,689,890
1,463,134
Total liabilities and shareholders’ equity
$
14,164,262
$
13,081,273
Net interest income (tax equivalent)
$
126,656
$
105,845
Rate Analysis:
Interest income/earning assets
5.28
%
5.14
%
Interest expense/earning assets
(1.47
)
(1.66
)
Net interest margin
3.81
%
3.48
%
(1)
Short-term investments are comprised of federal funds sold, interest-bearing deposits in banks and interest-bearing time deposits in banks.
(2)
Average balances include unrealized gains and losses on available-for-sale securities.
(3)
Includes tax equivalent yield adjustment of approximately $2.93 million and $2.57 million in the second quarters of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.
47
Six-Months Ended June 30,
2025
2024
Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Assets
Short-term investments (1)
$
341,461
$
7,568
4.47
%
$
256,879
$
7,079
5.54
%
Taxable investment securities (2)
3,487,932
50,277
2.88
3,313,504
39,864
2.41
Tax-exempt investment securities (2)(3)
1,420,541
20,723
2.92
1,419,606
19,524
2.75
Loans (3)(4)
7,999,398
266,977
6.73
7,305,361
241,846
6.66
Total earning assets
13,249,332
$
345,545
5.26
%
12,295,350
$
308,313
5.04
%
Cash and due from banks
222,224
236,835
Bank premises and equipment, net
150,099
151,865
Other assets
241,767
246,397
Goodwill and other intangible assets, net
313,908
314,471
Allowance for credit losses
(99,662
)
(89,266
)
Total assets
$
14,077,668
$
13,155,652
Liabilities and Shareholders’ Equity
Interest-bearing deposits
$
8,903,004
$
96,280
2.18
%
$
7,949,170
$
93,666
2.37
%
Repurchase agreements
54,203
430
1.60
265,014
4,457
3.38
Borrowings
50,426
690
2.76
77,947
1,530
3.95
Total interest-bearing liabilities
9,007,633
$
97,400
2.18
%
8,292,131
$
99,653
2.42
%
Noninterest-bearing deposits
3,325,170
3,318,332
Other liabilities
77,030
69,300
Total liabilities
12,409,833
11,679,763
Shareholders’ equity
1,667,835
1,475,889
Total liabilities and shareholders’ equity
$
14,077,668
$
13,155,652
Net interest income (tax equivalent)
$
248,145
$
208,660
Rate Analysis:
Interest income/earning assets
5.26
%
5.04
%
Interest expense/earning assets
(1.48
)
(1.63
)
Net interest margin
3.78
%
3.41
%
(1)
Short-term investments are comprised of federal funds sold, interest-bearing deposits in banks and interest-bearing time deposits in banks.
(2)
Average balances include unrealized gains and losses on available-for-sale securities.
(3)
Includes tax equivalent yield adjustment of approximately $5.63 million and $5.15 million in the first six months of 2025 and 2024, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.
Noninterest Income
. Noninterest income for the second quarter of 2025 was $32.87 million, an increase of $1.61 million, when compared to $31.27 million in the same quarter of 2024. Trust fee income increased to $12.75 million for the second quarter of 2025 compared to $11.71 million for the second quarter of 2024, driven by the increase in market value of trust assets managed to $11.46 billion at June 30, 2025, compared to $10.24 billion at June 30, 2024. Mortgage related income increased to $4.13 million for the second quarter of 2025 compared to $3.69 million in the second quarter of 2024, as overall origination volume and margins have improved from the prior periods. Other noninterest income decreased $499 thousand to $2.93 million for the second quarter of 2025 compared to $3.43 million in the second quarter of 2024 due to the recognition of a $723 thousand one-time BOLI settlement payment recognized in the second quarter of 2024.
Noninterest income for the first six months of 2025 was $63.10 million, an increase of $2.45 million, when compared to $60.65 million in the same period in 2024. Trust fee income increased to $25.40 million for the first six months of 2025 compared to $23.09 million for the first six months of 2024 driven by the increase in market value of trust assets managed. Other noninterest income decreased $566 thousand to $5.42 million for the first half of 2025 compared to $5.99 million in the first half of 2024 due to the recognition of a $723 thousand one-time BOLI settlement payment recognized in the second quarter of 2024.
48
Table 3 - Noninterest Income (dollars in thousands):
Three-Months Ended June 30,
Six-Months Ended June 30,
2025
Increase
(Decrease)
2024
2025
Increase
(Decrease)
2024
Trust fees
$
12,746
$
1,032
$
11,714
$
25,399
$
2,306
$
23,093
Service charges on deposit accounts
6,126
117
6,009
12,302
47
12,255
Debit card fees
5,218
73
5,145
10,185
149
10,036
Credit card fees
707
35
672
1,284
(19
)
1,303
Gain on sale and fees on mortgage loans
4,126
439
3,687
6,958
143
6,815
Net gain (loss) on sale of foreclosed assets
200
258
(58
)
165
223
(58
)
Net gain on sale of assets
6
4
2
6
4
2
Loan recoveries
810
146
664
1,384
165
1,219
Other:
Check printing fees
33
10
23
57
23
34
Safe deposit rental fees
170
(6
)
176
422
(17
)
439
Credit life fees
464
2
462
694
5
689
Brokerage commissions
383
(63
)
446
773
(65
)
838
Wire transfer fees
459
2
457
875
(20
)
895
Miscellaneous income
1,425
(444
)
1,869
2,599
(492
)
3,091
Total other
2,934
(499
)
3,433
5,420
(566
)
5,986
Total Noninterest Income
$
32,873
$
1,605
$
31,268
$
63,103
$
2,452
$
60,651
Noninterest Expense
. Total noninterest expense for the second quarter of 2025 was $71.74 million, compared to $65.01 million for the same period of 2024. An important measure in determining whether a financial institution effectively manages noninterest expense is the efficiency ratio, which is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. Lower ratios indicate better efficiency since more income is generated with a lower noninterest expense total. Our efficiency ratio was 44.97% for the second quarter of 2025 compared to 47.41% for the same quarter in 2024.
Salaries, commissions and employee benefits for the second quarter of 2025 totaled $42.58 million, compared to $37.47 million for the same period in 2024. The increase from prior year is primarily a result of merit-based and market driven pay increases, an increase of $838 thousand in profit sharing accruals, an increase of $519 thousand in officer incentive accruals and a $452 thousand increase in stock-based compensation. The increase in profit sharing and incentive accruals are directly related to the increase in net income over the prior year.
All other categories of noninterest expense for the second quarter of 2025 totaled $29.16 million, compared to $27.54 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended June 30, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and expense.
Total noninterest expense for the first six months of 2025 was $142.07 million, compared to $128.95 million for the same period of 2024. Our efficiency ratio was 45.65% for the first six months of 2025 compared to 47.88% during the same period in 2024.
Salaries, commissions and employee benefits for the first six months of 2025 totaled $84.72 million, compared to $74.16 million for the same period in 2024. The increase from prior year is primarily a result of merit-based and market driven pay increases, an increase of $2.14 million in profit sharing accruals, an increase of $1.17 million in officer incentive accruals and a $1.23 million increase in stock-based compensation. The increase in profit sharing and incentive accruals are directly related to the increase in net income over prior year.
All other categories of noninterest expense for the first six months of 2025 totaled $57.35 million, compared to $54.80 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the six-months ended June 30, 2025 increased when compared to the same period in 2024 largely due to increases in software amortization and expense and debit card expenses partially offset by a decrease in operational other losses.
49
Table 4 - Noninterest Expense (dollars in thousands):
Three-Months Ended June 30,
Six-Months Ended June 30,
2025
Increase
(Decrease)
2024
2025
Increase
(Decrease)
2024
Salaries, commissions and incentives (excluding mortgage)
$
29,702
$
3,426
$
26,276
$
58,363
$
6,830
$
51,533
Mortgage salaries and incentives
2,778
482
2,296
4,640
344
4,296
Medical
2,836
(400
)
3,236
6,014
(827
)
6,841
Profit sharing
2,741
838
1,903
5,726
2,143
3,583
401(k) match expense
1,106
119
987
2,247
272
1,975
Payroll taxes
2,085
187
1,898
4,666
568
4,098
Stock based compensation
1,327
451
876
3,061
1,232
1,829
Total salaries and employee benefits
42,575
5,103
37,472
84,717
10,562
74,155
Net occupancy expense
3,600
(18
)
3,618
7,320
232
7,088
Equipment expense
2,478
245
2,233
4,799
329
4,470
FDIC insurance premiums
1,585
77
1,508
3,160
(313
)
3,473
Debit card expense
3,308
66
3,242
6,680
380
6,300
Professional and service fees
2,730
(98
)
2,828
5,381
157
5,224
Printing, stationery and supplies
473
48
425
955
83
872
Operational and other losses
720
(49
)
769
1,260
(663
)
1,923
Software amortization and expense
4,020
862
3,158
7,753
1,590
6,163
Amortization of intangible assets
86
(71
)
157
181
(133
)
314
Other:
Data processing fees
667
72
595
1,347
134
1,213
Postage
382
17
365
895
145
750
Advertising
770
29
741
1,546
90
1,456
Correspondent bank service charges
283
50
233
576
103
473
Telephone
644
(130
)
774
1,279
(340
)
1,619
Public relations and business development
883
158
725
1,786
322
1,464
Directors’ fees
864
158
706
1,738
333
1,405
Audit and accounting fees
551
22
529
1,087
149
938
Legal fees and other related costs
325
(580
)
905
653
(513
)
1,166
Regulatory exam fees
236
(79
)
315
473
(156
)
629
Travel
640
184
456
1,055
216
839
Courier expense
335
(2
)
337
668
24
644
Other real estate owned
31
50
(19
)
28
(5
)
33
Other miscellaneous expense
3,549
609
2,940
6,733
392
6,341
Total other
10,160
558
9,602
19,864
894
18,970
Total Noninterest Expense
$
71,735
$
6,723
$
65,012
$
142,070
$
13,118
$
128,952
Balance Sheet Review
Loans
. The portfolio is comprised of loans made to businesses, professionals, individuals, and farm and ranch operations located in the primary trade areas served by our subsidiary bank. As of June 30, 2025, total loans held-for-investment were $8.07 billion, an increase of $161.85 million, as compared to December 31, 2024.
As compared to year-end 2024 balances, total real estate loans increased $153.27 million, total consumer loans increased $55.93 million, total commercial loans decreased $37.95 million, and agricultural loans decreased $9.41 million. Loans averaged $8.05 billion for the second quarter of 2025, an increase of $640.04 million over the prior year second quarter average balances. Loans averaged $8.00 billion for the first six months of 2025, an increase of $694.04 million from the prior year six-month period average balances.
Loan portfolio segments include C&I, Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, Residential, Consumer Auto and Consumer Non-Auto. This segmentation allows for a more precise pooling of loans with similar credit risk characteristics and credit monitor procedures for the Company’s calculation of its allowance for credit losses.
50
Table 5 outlines the composition of the Company’s held-for-investment loans by portfolio segment.
Table 5 - Composition of Loans Held-for-Investment (dollars in thousands):
June 30,
December 31,
2025
2024
2024
Commercial:
C&I
$
1,202,151
$
1,141,990
$
1,176,993
Municipal
306,140
359,124
369,246
Total Commercial
1,508,291
1,501,114
1,546,239
Agricultural
86,133
86,186
95,543
Real Estate:
Construction & Development
1,172,834
986,394
1,054,603
Farm
302,969
318,597
339,665
Non-Owner Occupied CRE
746,341
815,713
805,566
Owner Occupied CRE
1,124,610
1,049,715
1,083,100
Residential
2,286,220
1,990,604
2,196,767
Total Real Estate
5,632,974
5,161,023
5,479,701
Consumer:
Auto
698,897
615,192
638,560
Non-Auto
148,649
156,218
153,055
Total Consumer
847,546
771,410
791,615
Total
$
8,074,944
$
7,519,733
$
7,913,098
Loans held-for-sale, consisting of secondary market mortgage loans, totaled $33.23 million, $19.67 million, and $8.24 million at June 30, 2025 and 2024, and December 31, 2024, respectively. At June 30, 2025 and 2024, and December 31, 2024, $1.62 million, $275 thousand and $442 thousand, respectively, are valued using the lower of cost or fair value, and the remaining amounts are valued under the fair value option.
Commercial real estate loans (owner and non-owner occupied CRE) represent 23.17% of the Company's total loan portfolio as of June 30, 2025. Non-owner occupied CRE represents $746.34 million, or 9.24%, of the Company's total loan portfolio as of June 30, 2025. The properties securing this portfolio are diverse as to geographic location in Texas as well as industry type. Collateral for CRE loans is located throughout the Company’s markets in central west Texas, the Dallas-Fort Worth metroplex and southeast Texas with less than 3% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/manufacturing at approximately 17.40% and multifamily at approximately 7.62% as of June 30, 2025. All additional property CRE portfolio type categories are below the identified concentration levels. Credit underwriting standards are periodically reviewed and adjusted based upon observations from our ongoing monitoring of economic conditions in our lending areas. In response to the current interest rate environment and increases in benchmark rates, the Company has enhanced stress testing and loan review activities to mitigate interest rate reset risk with a specific emphasis on borrowers’ abilities to absorb the impact of higher interest rates on loans.
51
The following tables summarize maturity information of our loan portfolio as of June 30, 2025. The tables also presents the portion of loans that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index.
Maturity Distribution and Interest Sensitivity of Loans at June 30, 2025 (dollars in thousands):
Total Loans Held-for-Investment:
Due in One Year or Less
After One but Within Five Years
After Five but Within Fifteen Years
After Fifteen Years
Total
Commercial:
C&I
$
533,861
$
533,694
$
120,581
$
14,015
$
1,202,151
Municipal
64,950
57,037
121,002
63,151
306,140
Total Commercial
598,811
590,731
241,583
77,166
1,508,291
Agricultural
68,815
15,486
1,832
—
86,133
Real Estate:
Construction & Development
521,020
268,717
255,610
127,487
1,172,834
Farm
25,628
30,292
148,674
98,375
302,969
Non-Owner Occupied CRE
82,122
227,794
337,869
98,556
746,341
Owner Occupied CRE
43,352
304,863
566,842
209,553
1,124,610
Residential
190,932
160,352
829,985
1,104,951
2,286,220
Total Real Estate
863,054
992,018
2,138,980
1,638,922
5,632,974
Consumer:
Auto
6,252
667,771
24,874
—
698,897
Non-Auto
35,343
83,534
26,558
3,214
148,649
Total Consumer
41,595
751,305
51,432
3,214
847,546
Total
$
1,572,275
$
2,349,540
$
2,433,827
$
1,719,302
$
8,074,944
% of Total Loans
19.47
%
29.10
%
30.14
%
21.29
%
100.00
%
Loans with fixed interest rates:
Due in One Year or Less
After One but Within Five Years
After Five but Within Fifteen Years
After Fifteen Years
Total
Commercial:
C&I
$
105,438
$
312,473
$
10,804
$
565
$
429,280
Municipal
3,622
56,713
91,350
15,179
166,864
Total Commercial
109,060
369,186
102,154
15,744
596,144
Agricultural
6,191
10,270
176
—
16,637
Real Estate:
Construction & Development
215,152
121,909
35,368
9,978
382,407
Farm
11,202
20,118
68,302
16,453
116,075
Non-Owner Occupied CRE
53,997
129,596
32,498
4,149
220,240
Owner Occupied CRE
22,925
168,763
22,856
3,656
218,200
Residential
131,405
127,899
479,338
175,643
914,285
Total Real Estate
434,681
568,285
638,362
209,879
1,851,207
Consumer:
Auto
6,252
667,771
24,874
—
698,897
Non-Auto
34,032
82,713
26,115
502
143,362
Total Consumer
40,284
750,484
50,989
502
842,259
Total
$
590,216
$
1,698,225
$
791,681
$
226,125
$
3,306,247
% of Total Loans
7.31
%
21.03
%
9.80
%
2.80
%
40.94
%
52
Loans with variable interest rates:
Due in One Year or Less
After One but Within Five Years
After Five but Within Fifteen Years
After Fifteen Years
Total
Commercial:
C&I
$
428,423
$
221,221
$
109,777
$
13,450
$
772,871
Municipal
61,328
324
29,652
47,972
139,276
Total Commercial
489,751
221,545
139,429
61,422
912,147
Agricultural
62,624
5,216
1,656
—
69,496
Real Estate:
Construction & Development
305,868
146,808
220,242
117,509
790,427
Farm
14,426
10,174
80,372
81,922
186,894
Non-Owner Occupied CRE
28,125
98,198
305,371
94,407
526,101
Owner Occupied CRE
20,427
136,100
543,986
205,897
906,410
Residential
59,527
32,453
350,647
929,308
1,371,935
Total Real Estate
428,373
423,733
1,500,618
1,429,043
3,781,767
Consumer:
Auto
—
—
—
—
—
Non-Auto
1,311
821
443
2,712
5,287
Total Consumer
1,311
821
443
2,712
5,287
Total
$
982,059
$
651,315
$
1,642,146
$
1,493,177
$
4,768,697
% of Total Loans
12.16
%
8.07
%
20.34
%
18.49
%
59.06
%
Of the $4.77 billion of variable interest rate loans shown above, loans totaling $2.25 billion mature or reprice over the next twelve months. Of this amount, approximately $1.99 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $254.12 million being subject to floors above or ceilings below the current index.
Asset Quality
. Our loan portfolio is subject to periodic reviews by our centralized independent loan review group, engaged third-parties, as well as periodic examinations by bank regulatory agencies. Loans are placed on nonaccrual status when, in the judgment of management, the collectability of principal or interest under the original terms becomes doubtful. Nonaccrual, past due 90 days or more and still accruing, and foreclosed assets were $63.71 million at June 30, 2025, as compared to $61.19 million at June 30, 2024 and $63.10 million at December 31, 2024. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.79% at June 30, 2025, 0.81% at June 30, 2024, and 0.80% at December 31, 2024. As a percent of total assets, these assets were 0.44% at June 30, 2025, as compared to 0.46% at June 30, 2024 and 0.45% at December 31, 2024, respectively. We believe the level of these assets to be manageable and are not aware of any material classified credits not properly disclosed as nonperforming at June 30, 2025.
Table 6 – Nonaccrual, Past Due 90 Days or More and Still Accruing, and Foreclosed Assets (dollars in thousands, except percentages):
June 30,
December 31,
2025
2024
2024
Nonaccrual loans
$
63,142
$
60,311
$
61,938
Loans still accruing and past due 90 days or more
77
231
287
Total nonperforming loans
63,219
60,542
62,225
Foreclosed assets
489
647
871
Total nonperforming assets
$
63,708
$
61,189
$
63,096
As a % of loans held-for-investment and foreclosed assets
0.79
%
0.81
%
0.80
%
As a % of total assets
0.44
0.46
0.45
We record interest payments received on nonaccrual loans as reductions of principal. Prior to the loans being placed on nonaccrual, we recognized interest income on these loans of approximately $1.11 million for the year ended December 31, 2024. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2024, such income would have been approximately $5.35 million. Such amounts for the 2025 and 2024 interim periods were not significant.
Allowance for Credit Losses
. The allowance for credit losses is the amount we determine as of a specific date to be appropriate to absorb current expected credit losses on existing loans. For a discussion of our methodology, see our accounting policies in Note 1 to the Consolidated Financial Statements (unaudited).
The provision for loan losses of $2.43 million for the three-months ended June 30, 2025 is combined with the provision for unfunded commitments of $700 thousand and reported in the net aggregate of $3.13 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2025. The provision for loan losses of $5.42 million for the six-months ended June 30, 2025 is combined with the provision for unfunded commitments of $1.24 million and reported in the net aggregate of $6.66 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2025.
53
The provision for loan losses of $5.91 million for the three-months ended June 30, 2024 is combined with the reversal of provision for unfunded commitments of $22 thousand and reported in the aggregate of $5.89 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2024. The provision for loan losses of $7.17 million for the six-months ended June 30, 2024 is combined with the reversal of provision for unfunded commitments of $470 thousand and reported in the aggregate of $6.70 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2024.
As a percent of average loans, net loan charge-offs were 0.04% for the second quarter of 2025, as compared to net loan charge-offs of 0.02% for the second quarter of 2024. As a percent of average loans, net loan charge-offs were 0.02% for the first six months of 2025 and 2024, respectively. The allowance for credit losses as a percent of loans held-for-investment was 1.27% as of June 30, 2025, as compared to 1.27% for June 30, 2024 and 1.24% for December 31, 2024, respectively.
Table 7 - Loan Loss Experience and Allowance for Credit Losses (dollars in thousands, except percentages):
Three-Months Ended
June 30,
Six-Months Ended
June 30,
2025
2024
2025
2024
Allowance for credit losses at period-end
$
102,792
$
95,170
$
102,792
$
95,170
Loans held-for-investment at period-end
8,074,944
7,519,733
8,074,944
7,519,733
Average loans for period
8,045,340
7,405,297
7,999,398
7,305,361
Net charge-offs (recoveries)/average
loans (annualized)
0.04
%
0.02
%
0.02
%
0.02
%
Allowance for loan losses/period-end
loans held-for-investment
1.27
%
1.27
%
1.27
%
1.27
%
Allowance for loan losses/nonaccrual
loans and past due 90 days still accruing
162.60
%
157.20
%
162.60
%
157.20
%
Interest-Bearing Demand Deposits in Banks.
The Company had interest-bearing deposits in banks of $435.61 million at June 30, 2025 compared to $103.32 million at June 30, 2024 and $503.42 million at December 31, 2024, respectively. At June 30, 2025, interest-bearing deposits in banks included $410.75 million maintained at the Federal Reserve Bank of Dallas and $24.86 million on deposit with the FHLB.
Available-for-Sale Securities
. At June 30, 2025, securities with a fair value of $4.89 billion were classified as securities available-for-sale. As compared to December 31, 2024, the available-for-sale portfolio at June 30, 2025 reflected (i) an increase of $320.61 million in mortgage-backed securities, (ii) an increase of $81.12 million in obligations of states and political subdivisions, (iii) a decrease of $119.73 million in U.S. Treasury securities, and (iv) a decrease of $13.21 million in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by purchases and calls or maturities, and changes in unrealized losses during the first six months of 2025. Our mortgage related securities are backed by GNMA, FNMA or FHLMC, or are collateralized by securities backed by these agencies.
See the below table and Note 2 to the Consolidated Financial Statements (unaudited) for additional disclosures relating to the maturities and fair values of the investment portfolio at June 30, 2025 and 2024, and December 31, 2024.
Table 8 - Maturities and Yields of Available-for-Sale Securities Held at June 30, 2025 (dollars in thousands, except percentages):
Maturing by Contractual Maturity
One Year
or Less
After One Year
Through
Five Years
After Five Years
Through
Ten Years
After
Ten Years
Total
Available-for-Sale:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
U.S. Treasury securities
$
153,835
1.67
%
$
—
—
%
$
—
—
%
$
—
—
%
$
153,835
1.67
%
Obligations of states and
political subdivisions
60,214
4.00
325,915
2.66
392,367
3.14
742,868
2.78
1,521,364
2.90
Corporate bonds and other
securities
24,388
2.63
68,069
2.39
—
—
—
—
92,457
2.45
Mortgage-backed securities
41,327
3.35
1,592,782
2.89
1,085,426
2.98
399,357
2.25
3,118,892
2.84
Total
$
279,764
2.50
%
$
1,986,766
2.83
%
$
1,477,793
3.02
%
$
1,142,225
2.59
%
$
4,886,548
2.82
%
All yields are computed on a tax-equivalent basis assuming a marginal tax rate of 21%. Yields on available-for-sale securities are based on amortized cost. Maturities of mortgage-backed securities are based on contractual maturities and could differ due to prepayments of underlying mortgages. Maturities of other securities are reported at the earlier of maturity date or call date.
As of June 30, 2025, the investment portfolio had an overall tax equivalent yield of 2.82%, a weighted average life of 7.28 and modified duration of 5.94 years.
Deposits
. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $12.45 billion as of June 30, 2025, as compared to $11.41 billion as of June 30, 2024 and $12.10 billion as of December 31, 2024.
54
Table 9 provides a breakdown of average deposits and rates paid over the three and six month periods ended June 30, 2025 and 2024, respectively.
Table 9 - Composition of Average Deposits (dollars in thousands, except percentages):
For the Three-Months Ended June 30,
2025
2024
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Noninterest-bearing deposits
$
3,383,851
—%
$
3,289,906
—%
Interest-bearing deposits:
Interest-bearing checking
4,558,476
2.15
3,998,548
2.27
Savings and money market accounts
3,468,149
1.99
3,078,836
2.24
Time deposits under $250,000
557,080
3.06
594,278
3.60
Time deposits of $250,000 or more
340,032
3.35
348,585
3.99
Total interest-bearing deposits
8,923,737
2.19
%
8,020,247
2.43
%
Total average deposits
$
12,307,588
$
11,310,153
Total cost of deposits
1.59
%
1.72
%
For the Six-Months Ended June 30,
2025
2024
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Noninterest-bearing deposits
$
3,325,170
—%
$
3,318,332
—%
Interest-bearing deposits:
Interest-bearing checking
4,589,915
2.13
3,941,659
2.18
Savings and money market accounts
3,408,133
1.98
3,068,966
2.20
Time deposits under $250,000
561,345
3.12
594,530
3.57
Time deposits of $250,000 or more
343,611
3.37
344,015
3.94
Total interest-bearing deposits
8,903,004
2.18
%
7,949,170
2.37
%
Total average deposits
$
12,228,174
$
11,267,502
Total cost of deposits
1.59
%
1.67
%
The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $4.03 billion as of June 30, 2025.
Borrowings.
Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $22.15 million, $23.70 million and $135.60 million at June 30, 2025 and 2024, and December 31, 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $26.56 million and $22.93 million in the second quarters of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 1.93% and 1.60% for the second quarters of 2025 and 2024, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $50.43 million and $77.95 million in the first half of 2025 and 2024, respectively. The weighted average interest rates paid on these borrowings were 2.76% and 3.95% for the first half of 2025 and 2024, respectively.
Repurchase Agreements.
Securities sold under repurchase agreements of $48.03 million, $138.95 million and $61.42 million at June 30, 2025 and 2024, and December 31, 2024, respectively. Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which we pledge certain securities that have a fair value equal to at least the amount of the short-term borrowings. The average balances of securities sold under repurchase agreements were $54.48 million and $212.59 million for the second quarters of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.63% and 3.59% for the second quarters of 2025 and 2024, respectively. The average balances of securities sold under repurchase agreements were $54.20 million and $265.01 million for the first six months of 2025 and 2024, respectively. The average rates paid on securities sold under repurchase agreements were 1.60% and 3.38% for the first six months of 2025 and 2024, respectively. The average balances of securities sold under repurchase agreements has decreased from the prior year as customers have moved funds to IntraFi deposit accounts.
Interest Rate Risk
Interest rate risk results when the maturity or repricing intervals of interest-earning assets and interest-bearing liabilities are different. Our exposure to interest rate risk is managed primarily through our strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of changes in market interest rates. We use no off-balance-sheet financial instruments to manage interest rate risk.
Our subsidiary bank has an asset liability management committee that monitors interest rate risk and compliance with investment policies. The subsidiary bank utilizes an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with
55
changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income and net income over the next twelve months. The model measures the impact on net interest income relative to a base case scenario of hypothetical fluctuations in interest rates over the next twelve months. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing and the re-pricing and maturity characteristics of the existing and projected balance sheet.
The following analysis depicts the estimated impact on net interest income of immediate changes in interest rates at the specified levels for the periods presented.
Percentage change in net interest income:
Change in interest rates:
June 30,
December 31,
(in basis points)
2025
2024
2024
+400
3.66%
9.75%
0.92%
+300
2.81%
7.28%
0.70%
+200
2.05%
5.08%
0.64%
+100
1.20%
2.66%
0.42%
-100
(0.94)%
(4.24)%
(3.08)%
-200
(2.24)%
(8.55)%
(6.50)%
-300
(4.56)%
(12.43)%
(8.10)%
-400
(6.28)%
(14.05)%
(7.42)%
The results for the net interest income simulations as of June 30, 2025 and 2024, and December 31, 2024 resulted in an asset sensitive position. These are good faith estimates and assume that the composition of our interest sensitive assets and liabilities existing at each year-end will remain constant over the relevant twelve-month measurement period and that changes in market interest rates are instantaneous and sustained across the yield curve regardless of duration of pricing characteristics on specific assets or liabilities. Also, this analysis does not contemplate any actions that we might undertake in response to changes in market interest rates. We believe these estimates are not necessarily indicative of what actually could occur in the event of immediate interest rate increases or decreases of this magnitude. As interest-bearing assets and liabilities reprice in different time frames and proportions to market interest rate movements, various assumptions must be made based on historical relationships of these variables in reaching any conclusion. Since these correlations are based on competitive and market conditions, we anticipate that our future results will likely be different from the foregoing estimates, and such differences could be material.
Should we be unable to maintain a reasonable balance of maturities and repricing of our interest-earning assets and our interest-bearing liabilities, we could be required to dispose of our assets in an unfavorable manner or pay a higher than market rate to fund our activities. Our asset liability management committee oversees and monitors this risk.
The fair value of our investment securities classified as available-for-sale totaled $4.89 billion at June 30, 2025. During the six months ended June 30, 2025, the corresponding unrealized loss before taxes on the portfolio of $537.55 million at December 31, 2024, changed to an unrealized loss before taxes of $473.12 million at June 30, 2025, which is recorded net of taxes in accumulated other comprehensive earnings (loss) in shareholders' equity. The unrealized gains or losses, net of taxes, on the portfolio are excluded from the calculation of all regulatory capital ratios. The changes in the fair value were driven by changes in interest rates based on expected actions by the Federal Reserve Board and other market conditions. The overall valuation of the portfolio is most correlated to the 5-year U.S. Treasury rates based on the composition and duration of the portfolio. At June 30, 2025, the 5-year U.S. Treasury rate was 3.80% compared to 4.39% at December 31, 2024, representing a 59 basis point decrease during the first six months of 2025. As of June 30, 2025, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $249.72 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $221.37 million before taxes. We believe that we have the ability to hold these securities based on our overall liquidity and intent to hold the portfolio.
Capital and Liquidity
Capital.
We evaluate capital resources by our ability to maintain adequate regulatory capital ratios to do business in the banking industry. Issues related to capital resources arise primarily when we are growing at an accelerated rate but not retaining a significant amount of our profits or when we experience significant asset quality deterioration.
Total shareholders’ equity was $1.74 billion, or 12.08% of total assets at June 30, 2025, as compared to $1.52 billion, or 11.54% of total assets at June 30, 2024, and $1.61 billion, or 11.49% of total assets at December 31, 2024. Included in shareholders' equity at June 30, 2025, and 2024, and December 31, 2024 were $373.46 million, $441.56 million and $424.29 million, respectively, in unrealized losses on investment securities available-for-sale, net of related income taxes, although such amount is excluded from and does not impact regulatory capital. For the second quarter of 2025, total shareholders' equity averaged $1.69 billion, or 11.93% of average assets, as compared to $1.46 billion, or 11.18% of average assets, during the same period in 2024. For the first six months of 2025, total shareholders’ equity averaged $1.67 billion, or 11.85% of average assets, as compared to $1.48 billion or 11.22% of average assets, during the same period in 2024.
Banking regulators measure capital adequacy by means of the risk-based capital ratios and the leverage ratio under the Basel III rules and prompt corrective action regulations. The risk-based capital rules provide for the weighting of assets and off-balance-sheet commitments and contingencies according to prescribed risk categories. Regulatory capital is then divided by risk-weighted assets to determine the risk-adjusted capital ratios. The leverage ratio is computed by dividing shareholders’ equity less intangible assets by quarter-to-date average assets less intangible assets.
56
Beginning in January 2015, under the Basel III rules, the implementation of the capital conservation buffer was effective for the Company starting at the 0.625% level and increasing 0.625% each year thereafter, until it reached 2.50% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and requires increased capital levels for the purpose of capital distributions and other payments. Failure to meet the amount of the buffer will result in restrictions on the Company’s ability to make capital distributions, including dividend payments and stock repurchases, and to pay discretionary bonuses to executive officers.
As of June 30, 2025 and 2024, and December 31, 2024, we had a total risk-based capital ratio of 20.35%, 19.55% and 20.00%, a Tier 1 capital to risk-weighted assets ratio of 19.16%, 18.42% and 18.83%, a common equity Tier 1 to risk-weighted assets ratio of 19.16%, 18.42% and 18.83% and a Tier 1 leverage ratio of 12.61%, 12.40% and 12.49%, respectively. The regulatory capital ratios as of June 30, 2025 and 2024, and December 31, 2024 were calculated under Basel III rules.
The regulatory capital ratios of the Company and Bank under the Basel III regulatory capital framework are as follows:
Actual
Minimum Capital
Required-Basel III
Required to be
Considered Well-
Capitalized
As of June 30, 2025:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital to Risk-Weighted Assets:
Consolidated
$
1,924,206
20.35
%
$
992,889
10.50
%
$
945,609
10.00
%
First Financial Bank
$
1,789,680
18.98
%
$
990,221
10.50
%
$
943,068
10.00
%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,811,499
19.16
%
$
803,768
8.50
%
$
567,365
6.00
%
First Financial Bank
$
1,676,973
17.78
%
$
801,608
8.50
%
$
754,454
8.00
%
Common Equity Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,811,499
19.16
%
$
661,926
7.00
%
$
—
N/A
First Financial Bank
$
1,676,973
17.78
%
$
660,148
7.00
%
$
612,994
6.50
%
Leverage Ratio:
Consolidated
$
1,811,499
12.61
%
$
378,244
4.00
%
$
—
N/A
First Financial Bank
$
1,676,973
11.72
%
$
377,227
4.00
%
$
471,534
5.00
%
Actual
Minimum Capital
Required-Basel III
Required to be
Considered Well-
Capitalized
As of June 30, 2024:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital to Risk-Weighted Assets:
Consolidated
$
1,762,906
19.55
%
$
946,614
10.50
%
$
901,537
10.00
%
First Financial Bank
$
1,603,635
17.84
%
$
943,812
10.50
%
$
898,869
10.00
%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,660,303
18.42
%
$
766,306
8.50
%
$
540,922
6.00
%
First Financial Bank
$
1,501,032
16.70
%
$
764,038
8.50
%
$
719,095
8.00
%
Common Equity Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,660,303
18.42
%
$
631,076
7.00
%
$
—
N/A
First Financial Bank
$
1,501,032
16.70
%
$
629,208
7.00
%
$
584,265
6.50
%
Leverage Ratio:
Consolidated
$
1,660,303
12.40
%
$
360,615
4.00
%
$
—
N/A
First Financial Bank
$
1,501,032
11.27
%
$
359,547
4.00
%
$
449,434
5.00
%
Actual
Minimum Capital
Required Basel III
Required to be
Considered Well-
Capitalized
As of December 31, 2024:
Amount
Ratio
Amount
Ratio
Amount
Ratio
Total Capital to Risk-Weighted Assets:
Consolidated
$
1,838,118
20.00
%
$
965,103
10.50
%
$
919,146
10.00
%
First Financial Bank
$
1,698,590
18.53
%
$
962,524
10.50
%
$
916,689
10.00
%
Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,731,116
18.83
%
$
781,274
8.50
%
$
551,487
6.00
%
First Financial Bank
$
1,591,588
17.36
%
$
779,186
8.50
%
$
733,351
8.00
%
Common Equity Tier 1 Capital to Risk-Weighted Assets:
Consolidated
$
1,731,116
18.83
%
$
643,402
7.00
%
$
—
N/A
First Financial Bank
$
1,591,588
17.36
%
$
641,682
7.00
%
$
595,848
6.50
%
Leverage Ratio:
Consolidated
$
1,731,116
12.49
%
$
367,658
4.00
%
$
—
N/A
First Financial Bank
$
1,591,588
11.53
%
$
366,676
4.00
%
$
458,345
5.00
%
57
In connection with the adoption of the Basel III regulatory capital framework, our subsidiary bank made the election to continue to exclude accumulated other comprehensive income from available-for-sale securities (“AOCI”) from capital in connection with its quarterly financial filing and, in effect, to retain the AOCI treatment under the prior capital rules.
Liquidity.
Liquidity is our ability to meet cash demands as they arise. Such needs can develop from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The potential need for liquidity arising from these types of financial instruments is represented by the contractual notional amount of the instrument. Asset liquidity is provided by cash and assets which are readily marketable, or which will mature in the near future. Liquid assets include cash, federal funds sold, and short-term investments in time deposits in banks. Liquidity is also provided by access to funding sources, which include core depositors and correspondent banks that maintain accounts with and sell federal funds to our subsidiary bank. Other sources of funds include our ability to borrow from short-term sources, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and other borrowings (see below) and an unfunded $50.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2027 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $175.00 million. At June 30, 2025, there were no amounts drawn on these lines of credit. Our subsidiary bank also has (i) an available line of credit with the FHLB totaling $2.19 billion at June 30, 2025, secured by portions of our loan portfolio and certain investment securities, and (ii) access to the Federal Reserve Bank of Dallas lending program secured by portions of certain investment securities. At June 30, 2025, there was $795.00 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.
The Company renewed and amended its loan agreement, effective June 30, 2025, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $50.00 million on a revolving line of credit. Prior to June 30, 2027, interest is paid quarterly at
The Wall Street Journal
Prime Rate and the line of credit matures June 30, 2027. If a balance exists at June 30, 2027, the principal balance converts to a term facility payable quarterly over five years and interest is paid quarterly at
The Wall Street Journal
Prime Rate. The line of credit is unsecured. Among other provisions in the credit agreement, we must satisfy certain financial covenants during the term of the loan agreement, including, without limitation, covenants that require us to maintain certain capital, loan loss reserve, non-performing asset and cash flow coverage ratios. In addition, the credit agreement contains certain operational covenants, which among others, restricts the payment of dividends above 55% of consolidated net income, limits the incurrence of debt (excluding any amounts acquired in an acquisition) and prohibits the disposal of assets except in the ordinary course of business. Since 1995, we have historically declared dividends as a percentage of our consolidated net income in a range of 36% (low) in 2021 and 2020 to 53% (high) in 2003 and 2006. The Company was in compliance with the financial and operational covenants at June 30, 2025. There was no outstanding balance under the line of credit as of June 30, 2025.
In addition, we anticipate that future acquisitions of financial institutions, expansion of branch locations or offerings of new products could also place a demand on our cash resources. Available cash and cash equivalents at our parent company which totaled $96.62 million at June 30, 2025, investment securities which totaled $2.12 million at June 30, 2025 and mature over 5 to 6 years, available dividends from our subsidiaries which totaled $331.26 million at June 30, 2025, utilization of available lines of credit, and future debt or equity offerings are expected to be the source of funding for these potential acquisitions or expansions.
Our liquidity position is continuously monitored and adjustments are made to the balance between sources and uses of funds as deemed appropriate. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed potentially problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs. As of June 30, 2025, management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources or operations. We are monitoring closely the impact to the financial system due to the recent failures of several banks. Given the diversified core deposit base and relatively low loan to deposit ratios maintained at our subsidiary bank, we consider our current liquidity position to be adequate to meet our short-term and long-term liquidity needs. In addition, management is not aware of any regulatory recommendations regarding liquidity that would have a material adverse effect on us.
Off-Balance Sheet (“OBS”)/Reserve for Unfunded Commitments.
We are a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of our customers. These financial instruments include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in our consolidated balance sheets. At June 30, 2025, the Company’s reserve for unfunded commitments totaled $9.91 million which is recorded in other liabilities.
Our exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for unfunded lines of credit, commitments to extend credit and standby letters of credit is represented by the contractual notional amount of these instruments. We generally use the same credit policies in making commitments and conditional obligations as we do for on-balance-sheet instruments.
Unfunded lines of credit and commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, as we deem necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment and income-producing commercial properties.
58
Standby letters of credit are conditional commitments we issue to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The average collateral value held on letters of credit usually exceeds the contract amount.
Table 10 – Commitments as of June 30, 2025 and 2024 (dollars in thousands):
Total Notional Amounts Committed
June 30,
2025
2024
Unfunded lines of credit
$
1,272,453
$
1,259,793
Unfunded commitments to extend credit
980,261
892,130
Standby letters of credit
61,087
48,087
Total commercial commitments
$
2,313,801
$
2,200,010
We believe we have no other OBS arrangements or transactions with unconsolidated, special purpose entities that would expose us to liability that is not reflected on the face of the financial statements. The above table does not include balances related to the Company’s IRLC and forward mortgage-backed security trades. Total commercial commitments were $2.31 billion at June 30, 2025, compared to $2.20 billion at June 30, 2024, and $2.17 billion at December 31, 2024.
Parent Company Funding
. Our ability to fund various operating expenses, dividends, and cash acquisitions is generally dependent on our own earnings (without giving effect to our subsidiaries), cash reserves and funds derived from our subsidiaries. These funds historically have been produced by intercompany dividends and management fees that are limited to reimbursement of actual expenses. We anticipate that our recurring cash sources will continue to include dividends and management fees from our subsidiaries. At June 30, 2025, $331.26 million was available for the payment of intercompany dividends by our subsidiaries without the prior approval of regulatory agencies. Our subsidiaries paid aggregate dividends of $52.50 million and $25.50 million for the six-months ended June 30, 2025 and 2024, respectively.
Dividends
. Our long-term dividend policy is to pay cash dividends to our shareholders of approximately 35% to 40% of annual net earnings while maintaining adequate capital to support growth. We are also restricted by a loan covenant within our line of credit agreement with Frost Bank to dividend no greater than 55% of net income, as defined in such loan agreement. The cash dividend payout ratios have amounted to 41.39% and 48.60% of net earnings for the first six months of 2025 and 2024, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.
Our bank subsidiary, which was a national banking association until April 22, 2024, and a member of the Federal Reserve System, was required by federal law to obtain the prior approval of the OCC to declare and pay dividends if the total of all dividends declared in any calendar year would exceed the total of (i) such bank’s net profits (as defined and interpreted by regulation) for that year plus (ii) its retained net profits (as defined and interpreted by regulation) for the preceding two calendar years, less any required transfers to surplus.
To pay dividends, we and our subsidiary bank must maintain adequate capital above regulatory guidelines and comply with the general requirements applicable to a Texas corporation. Generally, a Texas corporation may not pay a dividend to its shareholders if (i) after giving effect to the dividend, the corporation would be insolvent, or (ii) the amount of the dividend would exceed the surplus of the corporation. In addition, if the applicable regulatory authority believes that a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), the authority may require, after notice and hearing, that such bank cease and desist from the unsafe practice. As a member bank, First Financial Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the bank's net income (as reportable in its Reports of Condition and Income) during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve Board.
The Federal Reserve Board, the FDIC, the Texas Department of Banking, and the OCC have each indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice. The Federal Reserve Board, the Texas Department of Banking, the OCC and the FDIC expect that bank holding companies and insured banks should generally only pay dividends out of current operating earnings.
Item 3. Quantitative and Qualita
tive Disclosures About Market Risk.
Management considers interest rate risk to be a significant market risk for the Company. See “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk” for disclosure regarding this market risk.
59
Item 4. Contr
ols and Procedures.
As of June 30, 2025, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934). Our management, which includes our principal executive officer and our principal financial officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our principal executive officer and principal financial officer have concluded, based on our evaluation of our disclosure controls and procedures, that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025.
Subsequent to our evaluation, there were no significant changes in internal controls over financial reporting or other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
60
PART II - OTHER I
NFORMATION
Item 1. Leg
al Proceedings.
From time to time, we and our subsidiaries are parties to lawsuits arising in the ordinary course of our banking business. However, there are no material pending legal proceedings to which we, our subsidiaries, or any of their properties, are currently subject.
Item 1A. Ri
sk Factors.
There has been no material change in the risk factors previously disclosed under Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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101.SCH
—
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104
—
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* Filed herewith
+ Furnished herewith. This Exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
++ Management contract or compensatory plan or arrangement.
62
SIGNA
TURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST FINANCIAL BANKSHARES, INC.
Date: August 1, 2025
By:
/s/ F. Scott Dueser
F. Scott Dueser
Chairman of the Board and Chief Executive Officer
Date: August 1, 2025
By:
/s/ Michelle S. Hickox
Michelle S. Hickox
Executive Vice President and Chief Financial Officer
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