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First Financial Bankshares
FFIN
#3331
Rank
NZ$7.29 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
NZ$50.94
Share price
0.48%
Change (1 day)
-18.64%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. First Financial Bankshares
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2024 Q2

First Financial Bankshares - 10-Q quarterly report FY2024 Q2


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2

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2024

 

☐

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:

 

 

 

 

Class

Outstanding at July 31, 2024

Common Stock, $0.01 par value per share

142,850,708

 

 

 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item

 

 

 

 

Page

 

 

1.

 

Financial Statements

 

 

3

 

 

 

Consolidated Balance Sheets – Unaudited

4

 

 

Consolidated Statements of Earnings – Unaudited

5

 

 

Consolidated Statements of Comprehensive Earnings (Loss) – Unaudited

6

 

 

Consolidated Statements of Shareholders’ Equity – Unaudited

 

7

 

 

Consolidated Statements of Cash Flows – Unaudited

9

 

 

Notes to Consolidated Financial Statements – Unaudited

10

 

 

 

 

 

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

 

 

 

 

 

3.

Quantitative and Qualitative Disclosures About Market Risk

60

 

 

 

 

 

4.

Controls and Procedures

61

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

1.

Legal Proceedings

62

 

 

 

 

 

1A.

Risk Factors

62

 

 

 

 

 

2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

 

 

 

 

 

3.

Defaults Upon Senior Securities

62

 

 

 

 

 

4.

Mine Safety Disclosures

62

 

 

 

 

 

5.

Other Information

62

 

 

 

 

 

6.

Exhibits

63

 

 

 

 

 

 

Signatures

64

 

 

 

 

 

 

2

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The consolidated balance sheets of First Financial Bankshares, Inc. and Subsidiaries (the “Company” or “we”) at June 30, 2024 and 2023 (unaudited), and December 31, 2023, and the consolidated statements of earnings, comprehensive earnings (loss) and shareholders’ equity for the three and six-months ended June 30, 2024 and 2023 (unaudited), and the consolidated statements of cash flows for the six-months ended June 30, 2024 and 2023 (unaudited), and notes to consolidated financial statements (unaudited), follow on pages 4 through 42.

3

 

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

CASH AND DUE FROM BANKS

 

$

263,262

 

 

$

255,018

 

 

$

281,354

 

FEDERAL FUNDS SOLD

 

 

2,800

 

 

 

—

 

 

 

—

 

INTEREST-BEARING DEMAND DEPOSITS IN BANKS

 

 

103,315

 

 

 

23,839

 

 

 

255,237

 

Total cash and cash equivalents

 

 

369,377

 

 

 

278,857

 

 

 

536,591

 

SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of
   these securities was $5,132,451, $5,687,352, and $5,243,681 as of
    June 30, 2024 and 2023, and December 31, 2023, respectively)

 

 

4,573,024

 

 

 

5,066,262

 

 

 

4,732,762

 

LOANS:

 

 

 

 

 

 

 

 

 

Held-for-investment

 

 

7,519,733

 

 

 

6,777,570

 

 

 

7,148,791

 

Less—allowance for credit losses

 

 

(95,170

)

 

 

(86,541

)

 

 

(88,734

)

 Net loans held-for-investment

 

 

7,424,563

 

 

 

6,691,029

 

 

 

7,060,057

 

Held-for-sale ($19,393, $18,089, and $11,077, at fair value at
      June 30, 2024 and 2023, and December 31, 2023, respectively)

 

 

19,668

 

 

 

19,220

 

 

 

14,253

 

BANK PREMISES AND EQUIPMENT, net

 

 

153,075

 

 

 

152,876

 

 

 

151,788

 

INTANGIBLE ASSETS, net

 

 

314,309

 

 

 

315,078

 

 

 

314,622

 

OTHER ASSETS

 

 

310,059

 

 

 

302,115

 

 

 

295,521

 

  Total assets

 

$

13,164,075

 

 

$

12,825,437

 

 

$

13,105,594

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

NONINTEREST-BEARING DEPOSITS

 

$

3,289,032

 

 

$

3,578,483

 

 

$

3,435,586

 

INTEREST-BEARING DEPOSITS

 

 

8,120,125

 

 

 

7,229,077

 

 

 

7,702,714

 

Total deposits

 

 

11,409,157

 

 

 

10,807,560

 

 

 

11,138,300

 

DIVIDENDS PAYABLE

 

 

25,708

 

 

 

25,714

 

 

 

25,712

 

REPURCHASE AGREEMENTS

 

 

138,950

 

 

 

559,479

 

 

 

381,928

 

BORROWINGS

 

 

23,703

 

 

 

28,177

 

 

 

22,153

 

OTHER LIABILITIES

 

 

47,531

 

 

 

37,274

 

 

 

38,601

 

Total liabilities

 

 

11,645,049

 

 

 

11,458,204

 

 

 

11,606,694

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

COMMON STOCK — ($0.01 par value, authorized 200,000,000 shares;
   142,848,909, 142,741,196, and 142,716,939 shares issued at
   June 30, 2024 and 2023, and December 31, 2023, respectively)

 

 

1,428

 

 

 

1,427

 

 

 

1,427

 

CAPITAL SURPLUS

 

 

685,209

 

 

 

680,676

 

 

 

681,246

 

RETAINED EARNINGS

 

 

1,273,946

 

 

 

1,175,410

 

 

 

1,219,525

 

TREASURY STOCK (shares at cost: 934,135, 927,608 and 930,152 at
   June 30, 2024 and 2023, and December 31, 2023, respectively)

 

 

(12,378

)

 

 

(11,466

)

 

 

(11,855

)

DEFERRED COMPENSATION

 

 

12,378

 

 

 

11,466

 

 

 

11,855

 

ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS), net

 

 

(441,557

)

 

 

(490,280

)

 

 

(403,298

)

Total shareholders’ equity

 

 

1,519,026

 

 

 

1,367,233

 

 

 

1,498,900

 

  Total liabilities and shareholders’ equity

 

$

13,164,075

 

 

$

12,825,437

 

 

$

13,105,594

 

 

See notes to consolidated financial statements.

4

 

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS—(UNAUDITED)

(Dollars in thousands, except per share amounts)

 

 

 

Three-Months Ended June 30,

 

 

Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

INTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

123,708

 

 

$

98,067

 

 

$

240,800

 

 

$

187,076

 

Interest on investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

19,912

 

 

 

20,033

 

 

 

39,864

 

 

 

40,815

 

Exempt from federal income tax

 

 

7,687

 

 

 

9,321

 

 

 

15,424

 

 

 

19,388

 

Interest on federal funds sold and interest-bearing demand
   deposits in banks

 

 

2,366

 

 

 

1,584

 

 

 

7,079

 

 

 

3,234

 

Total interest income

 

 

153,673

 

 

 

129,005

 

 

 

303,167

 

 

 

250,513

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

48,415

 

 

 

27,629

 

 

 

93,666

 

 

 

49,441

 

Interest on repurchase agreements and borrowings

 

 

1,985

 

 

 

5,510

 

 

 

5,987

 

 

 

8,920

 

Total interest expense

 

 

50,400

 

 

 

33,139

 

 

 

99,653

 

 

 

58,361

 

Net interest income

 

 

103,273

 

 

 

95,866

 

 

 

203,514

 

 

 

192,152

 

PROVISION FOR CREDIT LOSSES

 

 

5,888

 

 

 

5,573

 

 

 

6,695

 

 

 

8,354

 

Net interest income after provision for credit losses

 

 

97,385

 

 

 

90,293

 

 

 

196,819

 

 

 

183,798

 

NONINTEREST INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Trust fees

 

 

11,714

 

 

 

9,883

 

 

 

23,093

 

 

 

19,728

 

Service charges on deposit accounts

 

 

6,009

 

 

 

6,310

 

 

 

12,255

 

 

 

12,346

 

Debit card fees

 

 

5,145

 

 

 

6,720

 

 

 

10,036

 

 

 

11,656

 

Credit card fees

 

 

672

 

 

 

711

 

 

 

1,303

 

 

 

1,320

 

Gain on sale and fees on mortgage loans

 

 

3,687

 

 

 

3,534

 

 

 

6,815

 

 

 

6,508

 

Net gain on sale of available-for-sale securities

 

 

—

 

 

 

46

 

 

 

—

 

 

 

58

 

Net gain (loss) on sale of foreclosed assets

 

 

(58

)

 

 

(1

)

 

 

(58

)

 

 

33

 

Net gain on sale of other assets

 

 

2

 

 

 

—

 

 

 

2

 

 

 

930

 

Interest on loan recoveries

 

 

664

 

 

 

475

 

 

 

1,219

 

 

 

821

 

Other noninterest income

 

 

3,433

 

 

 

2,269

 

 

 

5,986

 

 

 

4,554

 

Total noninterest income

 

 

31,268

 

 

 

29,947

 

 

 

60,651

 

 

 

57,954

 

NONINTEREST EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, commissions and employee benefits

 

 

37,472

 

 

 

31,766

 

 

 

74,155

 

 

 

63,227

 

Net occupancy expense

 

 

3,618

 

 

 

3,423

 

 

 

7,088

 

 

 

6,853

 

Equipment expense

 

 

2,233

 

 

 

2,198

 

 

 

4,470

 

 

 

4,325

 

FDIC insurance premiums

 

 

1,508

 

 

 

1,417

 

 

 

3,473

 

 

 

3,071

 

Debit card expense

 

 

3,242

 

 

 

3,221

 

 

 

6,300

 

 

 

6,420

 

Professional and service fees

 

 

2,828

 

 

 

2,397

 

 

 

5,224

 

 

 

4,762

 

Printing, stationery and supplies

 

 

425

 

 

 

740

 

 

 

872

 

 

 

1,450

 

Operational and other losses

 

 

769

 

 

 

856

 

 

 

1,923

 

 

 

1,787

 

Software amortization and expense

 

 

3,158

 

 

 

2,519

 

 

 

6,163

 

 

 

4,830

 

Amortization of intangible assets

 

 

157

 

 

 

228

 

 

 

314

 

 

 

456

 

Other noninterest expense

 

 

9,602

 

 

 

8,848

 

 

 

18,970

 

 

 

17,688

 

Total noninterest expense

 

 

65,012

 

 

 

57,613

 

 

 

128,952

 

 

 

114,869

 

EARNINGS BEFORE INCOME TAXES

 

 

63,641

 

 

 

62,627

 

 

 

128,518

 

 

 

126,883

 

INCOME TAX EXPENSE

 

 

11,156

 

 

 

11,754

 

 

 

22,636

 

 

 

23,442

 

NET EARNINGS

 

$

52,485

 

 

$

50,873

 

 

$

105,882

 

 

$

103,441

 

NET EARNINGS PER SHARE, BASIC

 

$

0.37

 

 

$

0.36

 

 

$

0.74

 

 

$

0.72

 

NET EARNINGS PER SHARE, DILUTED

 

$

0.37

 

 

$

0.36

 

 

$

0.74

 

 

$

0.72

 

DIVIDENDS PER SHARE

 

$

0.18

 

 

$

0.18

 

 

$

0.36

 

 

$

0.35

 

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

NET EARNINGS

 

$

52,485

 

 

$

50,873

 

 

$

105,882

 

 

$

103,441

 

OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on investment securities available-for-
   sale, before income taxes

 

 

(418

)

 

 

(40,500

)

 

 

(48,429

)

 

 

56,954

 

Reclassification adjustment for realized (gains) losses on investment
   securities included in net earnings, before income taxes

 

 

—

 

 

 

(46

)

 

 

—

 

 

 

(58

)

Total other items of comprehensive earnings (loss)

 

 

(418

)

 

 

(40,546

)

 

 

(48,429

)

 

 

56,896

 

Income tax benefit (expense) related to:

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain (loss) on investment securities available-for-
   sale

 

 

88

 

 

 

8,506

 

 

 

10,170

 

 

 

(11,960

)

Reclassification adjustment for realized gains (losses) on investment
   securities included in net earnings

 

 

—

 

 

 

9

 

 

 

—

 

 

 

12

 

Total income tax benefit (expense)

 

 

88

 

 

 

8,515

 

 

 

10,170

 

 

 

(11,948

)

COMPREHENSIVE EARNINGS (LOSS)

 

$

52,155

 

 

$

18,842

 

 

$

67,623

 

 

$

148,389

 

 

See notes to consolidated financial statements.

 

6

 

6FIRST 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 March 31, 2023 (unaudited)

 

 

142,703,531

 

 

$

1,427

 

 

$

679,429

 

 

$

1,150,246

 

 

 

(927,789

)

 

$

(11,271

)

 

$

11,271

 

 

$

(458,249

)

 

$

1,372,853

 

Net earnings (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,873

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

50,873

 

Stock option exercises/
  stock unit conversions/
  restricted stock activity
   (unaudited)

 

 

37,665

 

 

 

—

 

 

 

215

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

215

 

Cash dividends declared, $0.18
   per share (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(25,709

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(25,709

)

Change in unrealized gain (loss)
   in investment securities
   available-for-sale, net of related
   income taxes (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(32,031

)

 

 

(32,031

)

Shares purchased in connection
   with directors’ deferred
   compensation plan, net
   (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

181

 

 

 

(195

)

 

 

195

 

 

 

—

 

 

 

—

 

Stock-based compensation expense
   (unaudited)

 

 

—

 

 

 

—

 

 

 

1,032

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,032

 

Balances at June 30, 2023 (unaudited)

 

 

142,741,196

 

 

$

1,427

 

 

$

680,676

 

 

$

1,175,410

 

 

 

(927,608

)

 

$

(11,466

)

 

$

11,466

 

 

$

(490,280

)

 

$

1,367,233

 

Balances at March 31, 2024 (unaudited)

 

 

142,817,159

 

 

$

1,428

 

 

$

683,997

 

 

$

1,247,169

 

 

 

(931,427

)

 

$

(12,120

)

 

$

12,120

 

 

$

(441,227

)

 

$

1,491,367

 

Net earnings (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

52,485

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

52,485

 

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

 

 

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, 2022

 

 

142,657,871

 

 

$

1,427

 

 

$

677,593

 

 

$

1,121,945

 

 

 

(929,210

)

 

$

(11,035

)

 

$

11,035

 

 

$

(535,228

)

 

$

1,265,737

 

Net earnings (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

103,441

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

103,441

 

Stock option exercises/
  stock unit conversions/
  restricted stock activity
   (unaudited)

 

 

83,325

 

 

 

—

 

 

 

1,098

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,098

 

Cash dividends declared,
   $0.35 per share (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(49,976

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(49,976

)

Change in unrealized gain
   (loss) in investment
   securities available-for-sale,
   net of related income taxes
   (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

44,948

 

 

 

44,948

 

Shares purchased in
   connection with directors’
   deferred compensation
   plan, net (unaudited)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,602

 

 

 

(431

)

 

 

431

 

 

 

—

 

 

 

—

 

Stock-based compensation expense
   (unaudited)

 

 

—

 

 

 

—

 

 

 

1,985

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1,985

 

Balances at June 30, 2023 (unaudited)

 

 

142,741,196

 

 

$

1,427

 

 

$

680,676

 

 

$

1,175,410

 

 

 

(927,608

)

 

$

(11,466

)

 

$

11,466

 

 

$

(490,280

)

 

$

1,367,233

 

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

 

 

See notes to consolidated financial statements.

8

 

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(UNAUDITED)

(Dollars in thousands)

 

 

 

Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net earnings

 

$

105,882

 

 

$

103,441

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

6,452

 

 

 

6,268

 

Provision for credit losses

 

 

6,695

 

 

 

8,354

 

Securities premium amortization, net

 

 

22,653

 

 

 

27,151

 

Gain (loss) on sale of securities and other assets, net

 

 

56

 

 

 

(1,021

)

Deferred federal income tax benefit

 

 

476

 

 

 

1,555

 

Stock-based compensation

 

 

2,179

 

 

 

1,985

 

Net tax benefit from stock-based compensation

 

 

128

 

 

 

187

 

Change in loans held-for-sale

 

 

(5,270

)

 

 

(7,167

)

Change in other assets

 

 

(4,066

)

 

 

8,331

 

Change in other liabilities

 

 

9,269

 

 

 

3,925

 

Total adjustments

 

 

38,572

 

 

 

49,568

 

Net cash provided by operating activities

 

 

144,454

 

 

 

153,009

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Activity in available-for-sale securities:

 

 

 

 

 

 

Sales

 

 

—

 

 

 

207,287

 

Maturities

 

 

4,330,401

 

 

 

233,935

 

Purchases

 

 

(4,241,825

)

 

 

(3,322

)

Net increase in loans held-for-investment

 

 

(371,161

)

 

 

(336,122

)

Purchases of bank premises, equipment and software

 

 

(8,892

)

 

 

(8,966

)

Proceeds from sale of bank premises and equipment and other assets

 

 

56

 

 

 

2,598

 

Net cash provided by (used in) investing activities

 

 

(291,421

)

 

 

95,410

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Net increase (decrease) in noninterest-bearing deposits

 

 

(146,554

)

 

 

(483,305

)

Net increase in interest-bearing deposits

 

 

417,411

 

 

 

285,358

 

Net increase (decrease) in repurchase agreements and borrowings

 

 

(241,428

)

 

 

(54,851

)

Common stock transactions:

 

 

 

 

 

 

Proceeds from stock option exercises/stock unit conversions/restricted stock activity

 

 

1,785

 

 

 

1,098

 

Dividends paid

 

 

(51,461

)

 

 

(48,540

)

Net cash provided by (used in) financing activities

 

 

(20,247

)

 

 

(300,240

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(167,214

)

 

 

(51,821

)

CASH AND CASH EQUIVALENTS, beginning of period

 

 

536,591

 

 

 

330,678

 

CASH AND CASH EQUIVALENTS, end of period

 

$

369,377

 

 

$

278,857

 

SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:

 

 

 

 

 

 

Interest paid

 

$

99,776

 

 

$

51,327

 

Federal income taxes paid

 

 

19,546

 

 

 

25,032

 

Transfer of loans to other real estate

 

 

656

 

 

 

190

 

 

See notes to consolidated financial statements.

9

 

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL 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, 2024. 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 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 the 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.

Other Recently Issued and Effective Authoritative Accounting Guidance

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance, and based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2020-04 did not have a significant impact on our financial statements.

ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance, and based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2021-01 did not have a significant impact on our financial statements.

 

10

 

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 will also require that an entity disclose current-period gross charge-offs by year of origination for financial receivables and net investment leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 became effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. The adoption of ASU 2022-02 did not have a significant impact on our financial statements.

ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. The adoption of ASU 2022-06 did not have a significant impact on our financial statements.

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. ASU 2023-02 has been early adopted by the Company as it relates to the qualifying investments that are generating New Market Tax Credits. The adoption of ASU 2023-02 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. Public business entities (PBEs) are required 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 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.

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, 2024 or 2023, 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

11

 

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, 2024 and 2023, and December 31, 2023, 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. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses.

At June 30, 2024 and 2023, and December 31, 2023, the Company held no securities that were classified as held-to-maturity.

Loans Held-for-Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.

Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured.

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.

12

 

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.

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

13

 

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, 2024 and 2023, and December 31, 2023, the Company’s reserve for unfunded commitments totaled $7,433,000, $9,448,000 and $7,903,000, respectively, which is included in other liabilities in the consolidated balance sheet.

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, 2024 or 2023, 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 has determined that its banking regions meet the aggregation criteria of the current authoritative accounting guidance since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas).

Statements of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of 90 days or less, and federal funds sold.

 

14

 

Accumulated Other Comprehensive Earnings (Loss)

Unrealized net losses on the Company’s available-for-sale securities, net of applicable income taxes, totaled $441,557,000, $490,280,000 and $403,298,000 at June 30, 2024, and 2023, and December 31, 2023, 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, 2024, and 2023, and December 31, 2023, deferred tax assets totaled $123,407,000, $133,016,000 and $110,800,000, 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 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.

 

15

 

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 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. There were 778,000 and 485,000 anti-dilutive shares for the three and six-months ended June 30, 2023 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, 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 three-months ended June 30, 2023:

 

 

 

 

 

 

 

 

 

Net earnings per share, basic

 

$

50,873

 

 

 

142,700,905

 

 

$

0.36

 

Effect of stock options and stock grants

 

 

—

 

 

 

386,650

 

 

 

—

 

Net earnings per share, diluted

 

$

50,873

 

 

 

143,087,555

 

 

$

0.36

 

 

 

 

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

 

 

 

 

Net

 

 

Weighted

 

 

 

 

 

 

Earnings

 

 

Average

 

 

Per Share

 

 

 

(in thousands)

 

 

Shares

 

 

Amount

 

For the six-months ended June 30, 2023:

 

 

 

 

 

 

 

 

 

Net earnings per share, basic

 

$

103,441

 

 

 

142,683,322

 

 

$

0.72

 

Effect of stock options and stock grants

 

 

—

 

 

 

344,181

 

 

 

—

 

Net earnings per share, diluted

 

$

103,441

 

 

 

143,027,503

 

 

$

0.72

 

 

 

16

 

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, 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

 

 

 

 

June 30, 2023

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost Basis

 

 

Holding Gains

 

 

Holding Losses

 

 

Fair Value

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

508,124

 

 

$

—

 

 

$

(24,348

)

 

$

483,776

 

Obligations of states and political subdivisions

 

 

1,859,193

 

 

 

405

 

 

 

(166,634

)

 

 

1,692,964

 

Residential mortgage-backed securities

 

 

2,875,699

 

 

 

2

 

 

 

(402,760

)

 

 

2,472,941

 

Commercial mortgage-backed securities

 

 

331,829

 

 

 

—

 

 

 

(17,442

)

 

 

314,387

 

Corporate bonds and other

 

 

112,507

 

 

 

—

 

 

 

(10,313

)

 

 

102,194

 

Total securities available-for-sale

 

$

5,687,352

 

 

$

407

 

 

$

(621,497

)

 

$

5,066,262

 

 

 

 

December 31, 2023

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost Basis

 

 

Holding Gains

 

 

Holding Losses

 

 

Fair Value

 

Securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

496,975

 

 

$

4

 

 

$

(14,745

)

 

$

482,234

 

Obligations of states and political subdivisions

 

 

1,621,405

 

 

 

934

 

 

 

(125,182

)

 

 

1,497,157

 

Residential mortgage-backed securities

 

 

2,716,968

 

 

 

7

 

 

 

(352,883

)

 

 

2,364,092

 

Commercial mortgage-backed securities

 

 

295,663

 

 

 

—

 

 

 

(11,339

)

 

 

284,324

 

Corporate bonds and other

 

 

112,670

 

 

 

—

 

 

 

(7,715

)

 

 

104,955

 

Total securities available-for-sale

 

$

5,243,681

 

 

$

945

 

 

$

(511,864

)

 

$

4,732,762

 

 

The Company did not hold any securities classified as held-to-maturity at June 30, 2024, June 30, 2023, or December 31, 2023.

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, 2024 and 2023, and December 31, 2023, were computed by using scheduled amortization of balances and historical prepayment rates.

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2024, by contractual and expected maturity, are shown below (dollars in thousands):

 

 

 

Amortized

 

 

Estimated

 

 

 

Cost Basis

 

 

Fair Value

 

Due within one year

 

$

304,065

 

 

$

299,230

 

Due after one year through five years

 

 

1,709,307

 

 

 

1,576,132

 

Due after five years through ten years

 

 

2,143,482

 

 

 

1,856,004

 

Due after ten years

 

 

975,597

 

 

 

841,658

 

Total

 

$

5,132,451

 

 

$

4,573,024

 

 

 

17

 

The following tables disclose as of June 30, 2024 and 2023, and December 31, 2023, 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, 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

 

June 30, 2023

 

Fair Value

 

 

Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

U.S. Treasury securities

 

$

47,498

 

 

$

1,614

 

 

$

436,278

 

 

$

22,734

 

 

$

483,776

 

 

$

24,348

 

Obligations of states and political subdivisions

 

 

137,728

 

 

 

1,838

 

 

 

1,457,431

 

 

 

164,796

 

 

 

1,595,159

 

 

 

166,634

 

Residential mortgage-backed securities

 

 

68,439

 

 

 

3,609

 

 

 

2,403,837

 

 

 

399,151

 

 

 

2,472,276

 

 

 

402,760

 

Commercial mortgage-backed securities

 

 

99,347

 

 

 

4,771

 

 

 

215,040

 

 

 

12,671

 

 

 

314,387

 

 

 

17,442

 

Corporate bonds and other

 

 

38,042

 

 

 

1,282

 

 

 

64,152

 

 

 

9,031

 

 

 

102,194

 

 

 

10,313

 

Total

 

$

391,054

 

 

$

13,114

 

 

$

4,576,738

 

 

$

608,383

 

 

$

4,967,792

 

 

$

621,497

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

December 31, 2023

 

Fair Value

 

 

Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

 

Fair Value

 

 

Unrealized
Loss

 

U.S. Treasury securities

 

$

3,477

 

 

$

7

 

 

$

477,306

 

 

$

14,738

 

 

$

480,783

 

 

$

14,745

 

Obligations of states and political subdivisions

 

 

11,855

 

 

 

34

 

 

 

1,427,975

 

 

 

125,148

 

 

 

1,439,830

 

 

 

125,182

 

Residential mortgage-backed securities

 

 

1,631

 

 

 

1

 

 

 

2,361,089

 

 

 

352,882

 

 

 

2,362,720

 

 

 

352,883

 

Commercial mortgage-backed securities

 

 

—

 

 

 

—

 

 

 

284,324

 

 

 

11,339

 

 

 

284,324

 

 

 

11,339

 

Corporate bonds and other

 

 

—

 

 

 

—

 

 

 

104,955

 

 

 

7,715

 

 

 

104,955

 

 

 

7,715

 

Total

 

$

16,963

 

 

$

42

 

 

$

4,655,649

 

 

$

511,822

 

 

$

4,672,612

 

 

$

511,864

 

 

The number of investments in an unrealized loss position totaled 828 at June 30, 2024. 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, 2024 and 2023, and December 31, 2023, 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, 2024 and 2023, and December 31, 2023. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2024, 66.94% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which 56.54% are guaranteed by the Texas Permanent School Fund.

Securities, carried at approximately $2,479,260,000 on June 30, 2024, 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-months ended June 30, 2024, there were no sales of investment securities that were classified as available-for-sale. During the three-months ended June 30, 2023, sales of investment securities that were classified as available-for-sale were $61,339,000. There were no gross realized security gains or losses from sales and calls during the second quarter of 2024. Gross realized security gains from sales and calls during the second quarter of 2023 totaled $596,000. Gross realized security losses from sales or calls during the second quarter of 2023 totaled $550,000.

During the six-months ended June 30, 2024, there were no sales of investment securities that were classified as available-for-sale. During the six-months ended June 30, 2023, sales of investment securities that were classified as available-for-sale were $207,287,000. There were no gross realized security gains or losses from sales and calls during the six-months ended June 30, 2024. Gross realized security gains from sales and calls during the six-months ended June 30, 2023 totaled $1,648,000. Gross realized security losses from sales or calls during the six-months ended June 30, 2023 totaled $1,590,000

The specific identification method was used to determine cost in order to compute the realized gains and losses.

 

18

 

Note 3 – Loans Held-for-Investment and Allowance for Credit Losses

For the periods ended June 30, 2024 and 2023, and December 31, 2023, 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,

 

 

 

2024

 

 

2023

 

 

2023

 

Commercial:

 

 

 

 

 

 

 

 

 

C&I

 

$

1,141,990

 

 

$

1,021,863

 

 

$

1,164,811

 

Municipal

 

 

359,124

 

 

 

215,977

 

 

 

214,850

 

Total Commercial

 

 

1,501,114

 

 

 

1,237,840

 

 

 

1,379,661

 

Agricultural

 

 

86,186

 

 

 

82,032

 

 

 

84,890

 

Real Estate:

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

986,394

 

 

 

915,221

 

 

 

963,158

 

Farm

 

 

318,597

 

 

 

335,644

 

 

 

344,954

 

Non-Owner Occupied CRE

 

 

815,713

 

 

 

811,347

 

 

 

827,969

 

Owner Occupied CRE

 

 

1,049,715

 

 

 

1,011,511

 

 

 

1,037,281

 

Residential

 

 

1,990,604

 

 

 

1,698,679

 

 

 

1,834,593

 

Total Real Estate

 

 

5,161,023

 

 

 

4,772,402

 

 

 

5,007,955

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

 

615,192

 

 

 

534,603

 

 

 

521,859

 

Non-Auto

 

 

156,218

 

 

 

150,693

 

 

 

154,426

 

Total Consumer

 

 

771,410

 

 

 

685,296

 

 

 

676,285

 

      Total Loans

 

 

7,519,733

 

 

 

6,777,570

 

 

 

7,148,791

 

Less: Allowance for credit losses

 

 

(95,170

)

 

 

(86,541

)

 

 

(88,734

)

    Loans, net

 

$

7,424,563

 

 

$

6,691,029

 

 

$

7,060,057

 

 

Outstanding loan balances at June 30, 2024 and 2023, and December 31, 2023, are net of unearned income, including net deferred loan fees.

At June 30, 2024, $5,136,239,000 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, 2024, this available line of credit was $2,026,305,000. At June 30, 2024, there was $786,500,000 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,

 

 

 

2024

 

 

2023

 

 

2023

 

Nonaccrual loans

 

$

60,311

 

 

$

28,672

 

 

$

33,609

 

Loans still accruing and past due 90 days or more

 

 

231

 

 

 

552

 

 

 

1,004

 

Total nonperforming loans

 

$

60,542

 

 

$

29,224

 

 

$

34,613

 

 

 

19

 

The Company had $61,189,000, $29,249,000 and $35,096,000 in nonaccrual, past due 90 days or more and still accruing, and foreclosed assets at June 30, 2024 and 2023, and December 31, 2023, respectively. Nonaccrual loans at June 30, 2024 and 2023, and December 31, 2023, consisted of the following (dollars in thousands):

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2023

 

Commercial:

 

 

 

 

 

 

 

 

 

C&I

 

$

4,080

 

 

$

4,818

 

 

$

4,132

 

Municipal

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial

 

 

4,080

 

 

 

4,818

 

 

 

4,132

 

Agricultural

 

 

2,028

 

 

 

133

 

 

 

155

 

Real Estate:

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

1,679

 

 

 

2,835

 

 

 

1,444

 

Farm

 

 

4,299

 

 

 

701

 

 

 

4,804

 

Non-Owner Occupied CRE

 

 

9,615

 

 

 

5,329

 

 

 

8,022

 

Owner Occupied CRE

 

 

31,606

 

 

 

7,308

 

 

 

6,822

 

Residential

 

 

5,984

 

 

 

6,769

 

 

 

7,649

 

Total Real Estate

 

 

53,183

 

 

 

22,942

 

 

 

28,741

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

 

710

 

 

 

649

 

 

 

464

 

Non-Auto

 

 

310

 

 

 

130

 

 

 

117

 

Total Consumer

 

 

1,020

 

 

 

779

 

 

 

581

 

Total

 

$

60,311

 

 

$

28,672

 

 

$

33,609

 

 

No significant additional funds are committed to be advanced in connection with nonaccrual loans as of June 30, 2024.

Summary information on the allowance for credit losses for the three and six-months ended June 30, 2024 and 2023, are outlined by portfolio segment in the following tables (dollars in thousands):

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

 

 

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

 

 

Three-Months Ended June 30, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Beginning balance

 

$

16,083

 

 

$

1,067

 

 

$

1,214

 

 

$

28,627

 

 

$

1,937

 

Provision for loan losses

 

 

988

 

 

 

(880

)

 

 

(153

)

 

 

339

 

 

 

867

 

Recoveries

 

 

113

 

 

 

—

 

 

 

21

 

 

 

—

 

 

 

—

 

Charge-offs

 

 

(654

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

    Ending balance

 

$

16,530

 

 

$

187

 

 

$

1,082

 

 

$

28,966

 

 

$

2,804

 

 

Three-Months Ended June 30, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-Auto

 

 

Total

 

Beginning balance

 

$

9,051

 

 

$

11,948

 

 

$

9,702

 

 

$

857

 

 

$

332

 

 

$

80,818

 

Provision for loan losses

 

 

4,398

 

 

 

610

 

 

 

167

 

 

 

99

 

 

 

87

 

 

 

6,522

 

Recoveries

 

 

22

 

 

 

14

 

 

 

12

 

 

 

101

 

 

 

36

 

 

 

319

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

(114

)

 

 

(228

)

 

 

(122

)

 

 

(1,118

)

    Ending balance

 

$

13,471

 

 

$

12,572

 

 

$

9,767

 

 

$

829

 

 

$

333

 

 

$

86,541

 

 

20

 

 

 

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

 

 

Six-Months Ended June 30, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Beginning balance

 

$

16,129

 

 

$

1,026

 

 

$

1,041

 

 

$

26,443

 

 

$

1,957

 

Provision for loan losses

 

 

924

 

 

 

(839

)

 

 

(181

)

 

 

2,423

 

 

 

847

 

Recoveries

 

 

165

 

 

 

—

 

 

 

222

 

 

 

100

 

 

 

—

 

Charge-offs

 

 

(688

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

    Ending balance

 

$

16,530

 

 

$

187

 

 

$

1,082

 

 

$

28,966

 

 

$

2,804

 

 

Six-Months Ended June 30, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-
Auto

 

 

Total

 

Beginning balance

 

$

9,075

 

 

$

9,928

 

 

$

9,075

 

 

$

845

 

 

$

315

 

 

$

75,834

 

Provision for loan losses

 

 

4,349

 

 

 

2,623

 

 

 

791

 

 

 

169

 

 

 

123

 

 

 

11,229

 

Recoveries

 

 

47

 

 

 

21

 

 

 

15

 

 

 

233

 

 

 

81

 

 

 

884

 

Charge-offs

 

 

—

 

 

 

—

 

 

 

(114

)

 

 

(418

)

 

 

(186

)

 

 

(1,406

)

    Ending balance

 

$

13,471

 

 

$

12,572

 

 

$

9,767

 

 

$

829

 

 

$

333

 

 

$

86,541

 

 

Additionally, the Company records a reserve for unfunded commitments in other liabilities, which totaled $7,433,000, $9,448,000 and $7,903,000 at June 30, 2024 and 2023, and December 31, 2023, respectively. The provision for loan losses of $5,910,000 for the three-months ended June 30, 2024 is combined with the reversal of the provision for unfunded commitments of $22,000 and reported in the net aggregate of $5,888,000 under the provision for credit losses in the consolidated statement of earnings for the three-months ended June 30, 2024. The provision for loan losses of $7,166,000 for the six-months ended June 30, 2024 is combined with the reversal of the provision for unfunded commitments of $471,000 and reported in the net aggregate of $6,695,000 under the provision for credit losses in the consolidated statement of earnings for the six-months ended June 30, 2024.

 

The $6,522,000 provision for loan losses for the three-months ended June 30, 2023 above is combined with the reversal of provision for unfunded commitments of $949,000 and reported in the aggregate of $5,573,000 under the provision for credit losses for the three-months ended June 30, 2023. The $11,229,000 provision for loan losses for the six-months ended June 30, 2023 above is combined with the reversal of provision for unfunded commitments of $2,875,000 and reported in the aggregate of $8,354,000 under the provision for credit losses for the six-months ended June 30, 2023.

 

21

 

The Company’s loans that are individually evaluated for credit losses (both collateral and non-collateral dependent) and their related allowances as of June 30, 2024 and 2023, and December 31, 2023, are summarized in the following tables by loan segment (dollars in thousands):

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

 

 

June 30, 2023

 

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

 

$

610

 

 

$

4,208

 

 

$

23,282

 

 

$

28,100

 

 

$

2,780

 

 

$

5,671

 

 

$

8,451

 

Municipal

 

 

—

 

 

 

—

 

 

 

1,507

 

 

 

1,507

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial

 

 

610

 

 

 

4,208

 

 

 

24,789

 

 

 

29,607

 

 

 

2,780

 

 

 

5,671

 

 

 

8,451

 

Agricultural

 

 

—

 

 

 

133

 

 

 

1,855

 

 

 

1,988

 

 

 

37

 

 

 

517

 

 

 

554

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

2,672

 

 

 

163

 

 

 

21,787

 

 

 

24,622

 

 

 

15

 

 

 

2,194

 

 

 

2,209

 

Farm

 

 

578

 

 

 

123

 

 

 

7,038

 

 

 

7,739

 

 

 

18

 

 

 

1,117

 

 

 

1,135

 

Non-Owner Occupied CRE

 

 

2,062

 

 

 

3,267

 

 

 

27,112

 

 

 

32,441

 

 

 

421

 

 

 

2,502

 

 

 

2,923

 

Owner Occupied CRE

 

 

5,643

 

 

 

1,665

 

 

 

31,870

 

 

 

39,178

 

 

 

299

 

 

 

1,769

 

 

 

2,068

 

Residential

 

 

4,283

 

 

 

2,486

 

 

 

29,923

 

 

 

36,692

 

 

 

261

 

 

 

1,611

 

 

 

1,872

 

Total Real Estate

 

 

15,238

 

 

 

7,704

 

 

 

117,730

 

 

 

140,672

 

 

 

1,014

 

 

 

9,193

 

 

 

10,207

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

29

 

 

 

620

 

 

 

1,571

 

 

 

2,220

 

 

 

1

 

 

 

2

 

 

 

3

 

Non-Auto

 

 

—

 

 

 

130

 

 

 

522

 

 

 

652

 

 

 

—

 

 

 

1

 

 

 

1

 

Total Consumer

 

 

29

 

 

 

750

 

 

 

2,093

 

 

 

2,872

 

 

 

1

 

 

 

3

 

 

 

4

 

     Total

 

$

15,877

 

 

$

12,795

 

 

$

146,467

 

 

$

175,139

 

 

$

3,832

 

 

$

15,384

 

 

$

19,216

 

 

 

22

 

December 31, 2023

 

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

 

$

1,322

 

 

$

2,810

 

 

$

18,633

 

 

$

22,765

 

 

$

1,363

 

 

$

4,495

 

 

$

5,858

 

Municipal

 

 

—

 

 

 

—

 

 

 

733

 

 

 

733

 

 

 

—

 

 

 

—

 

 

 

—

 

Total Commercial

 

 

1,322

 

 

 

2,810

 

 

 

19,366

 

 

 

23,498

 

 

 

1,363

 

 

 

4,495

 

 

 

5,858

 

Agricultural

 

 

57

 

 

 

98

 

 

 

1,304

 

 

 

1,459

 

 

 

50

 

 

 

700

 

 

 

750

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

758

 

 

 

686

 

 

 

22,545

 

 

 

23,989

 

 

 

148

 

 

 

2,253

 

 

 

2,401

 

Farm

 

 

—

 

 

 

4,804

 

 

 

1,362

 

 

 

6,166

 

 

 

937

 

 

 

57

 

 

 

994

 

Non-Owner Occupied CRE

 

 

1,919

 

 

 

6,103

 

 

 

29,117

 

 

 

37,139

 

 

 

700

 

 

 

2,984

 

 

 

3,684

 

Owner Occupied CRE

 

 

4,661

 

 

 

2,161

 

 

 

35,746

 

 

 

42,568

 

 

 

232

 

 

 

1,431

 

 

 

1,663

 

Residential

 

 

3,909

 

 

 

3,740

 

 

 

30,257

 

 

 

37,906

 

 

 

360

 

 

 

1,799

 

 

 

2,159

 

Total Real Estate

 

 

11,247

 

 

 

17,494

 

 

 

119,027

 

 

 

147,768

 

 

 

2,377

 

 

 

8,524

 

 

 

10,901

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

—

 

 

 

464

 

 

 

2,125

 

 

 

2,589

 

 

 

1

 

 

 

3

 

 

 

4

 

Non-Auto

 

 

—

 

 

 

117

 

 

 

782

 

 

 

899

 

 

 

—

 

 

 

60

 

 

 

60

 

Total Consumer

 

 

—

 

 

 

581

 

 

 

2,907

 

 

 

3,488

 

 

 

1

 

 

 

63

 

 

 

64

 

     Total

 

$

12,626

 

 

$

20,983

 

 

$

142,604

 

 

$

176,213

 

 

$

3,791

 

 

$

13,782

 

 

$

17,573

 

The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of June 30, 2024 and 2023, and December 31, 2023, 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, 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

 

 

June 30, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Loans individually evaluated for credit losses

 

$

8,451

 

 

$

—

 

 

$

554

 

 

$

2,209

 

 

$

1,135

 

Loans collectively evaluated for credit losses

 

 

8,079

 

 

 

187

 

 

 

528

 

 

 

26,757

 

 

 

1,669

 

Total

 

$

16,530

 

 

$

187

 

 

$

1,082

 

 

$

28,966

 

 

$

2,804

 

 

June 30, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-Auto

 

 

Total

 

Loans individually evaluated for credit losses

 

$

2,923

 

 

$

2,068

 

 

$

1,872

 

 

$

3

 

 

$

1

 

 

$

19,216

 

Loans collectively evaluated for credit losses

 

 

10,548

 

 

 

10,504

 

 

 

7,895

 

 

 

826

 

 

 

332

 

 

 

67,325

 

Total

 

$

13,471

 

 

$

12,572

 

 

$

9,767

 

 

$

829

 

 

$

333

 

 

$

86,541

 

 

 

23

 

December 31, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Loans individually evaluated for credit losses

 

$

5,858

 

 

$

—

 

 

$

750

 

 

$

2,401

 

 

$

994

 

Loans collectively evaluated for credit losses

 

 

9,840

 

 

 

195

 

 

 

531

 

 

 

26,152

 

 

 

1,920

 

Total

 

$

15,698

 

 

$

195

 

 

$

1,281

 

 

$

28,553

 

 

$

2,914

 

 

December 31, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-Auto

 

 

Total

 

Loans individually evaluated for credit losses

 

$

3,684

 

 

$

1,663

 

 

$

2,159

 

 

$

4

 

 

$

60

 

 

$

17,573

 

Loans collectively evaluated for credit losses

 

 

9,741

 

 

 

12,150

 

 

 

9,495

 

 

 

806

 

 

 

331

 

 

 

71,161

 

Total

 

$

13,425

 

 

$

13,813

 

 

$

11,654

 

 

$

810

 

 

$

391

 

 

$

88,734

 

 

The Company’s recorded investment in loans as of June 30, 2024 and 2023, and December 31, 2023, related to the balance in the allowance for credit losses follows below (dollars in thousands):

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

 

 

June 30, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Loans individually evaluated for credit losses

 

$

28,100

 

 

$

1,507

 

 

$

1,988

 

 

$

24,622

 

 

$

7,739

 

Loans collectively evaluated for credit losses

 

 

993,763

 

 

 

214,470

 

 

 

80,044

 

 

 

890,599

 

 

 

327,905

 

Total

 

$

1,021,863

 

 

$

215,977

 

 

$

82,032

 

 

$

915,221

 

 

$

335,644

 

 

June 30, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-Auto

 

 

Total

 

Loans individually evaluated for credit losses

 

$

32,441

 

 

$

39,178

 

 

$

36,692

 

 

$

2,220

 

 

$

652

 

 

$

175,139

 

Loans collectively evaluated for credit losses

 

 

778,906

 

 

 

972,333

 

 

 

1,661,987

 

 

 

532,383

 

 

 

150,041

 

 

 

6,602,431

 

Total

 

$

811,347

 

 

$

1,011,511

 

 

$

1,698,679

 

 

$

534,603

 

 

$

150,693

 

 

$

6,777,570

 

 

December 31, 2023

 

C&I

 

 

Municipal

 

 

Agricultural

 

 

Construction
&
Development

 

 

Farm

 

Loans individually evaluated for credit losses

 

$

22,765

 

 

$

733

 

 

$

1,459

 

 

$

23,989

 

 

$

6,166

 

Loans collectively evaluated for credit losses

 

 

1,142,046

 

 

 

214,117

 

 

 

83,431

 

 

 

939,169

 

 

 

338,788

 

Total

 

$

1,164,811

 

 

$

214,850

 

 

$

84,890

 

 

$

963,158

 

 

$

344,954

 

 

December 31, 2023 (continued)

 

Non-Owner
Occupied
CRE

 

 

Owner
Occupied
CRE

 

 

Residential

 

 

Auto

 

 

Non-Auto

 

 

Total

 

Loans individually evaluated for credit losses

 

$

37,139

 

 

$

42,568

 

 

$

37,906

 

 

$

2,589

 

 

$

899

 

 

$

176,213

 

Loans collectively evaluated for credit losses

 

 

790,830

 

 

 

994,713

 

 

 

1,796,687

 

 

 

519,270

 

 

 

153,527

 

 

 

6,972,578

 

Total

 

$

827,969

 

 

$

1,037,281

 

 

$

1,834,593

 

 

$

521,859

 

 

$

154,426

 

 

$

7,148,791

 

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).

 

24

 

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, 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

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

25

 

 

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

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

26

 

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

 

 

 

 

27

 

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, 2023 (dollars in millions):

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

C&I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

333

 

 

$

468

 

 

$

105

 

 

$

44

 

 

$

18

 

 

$

26

 

 

$

—

 

 

$

994

 

Special mention

 

 

8

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

10

 

Substandard

 

 

3

 

 

 

7

 

 

 

4

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

18

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

344

 

 

$

476

 

 

$

109

 

 

$

46

 

 

$

19

 

 

$

28

 

 

$

—

 

 

$

1,022

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

11

 

 

$

84

 

 

$

17

 

 

$

14

 

 

$

1

 

 

 

87

 

 

$

—

 

 

$

214

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

1

 

Substandard

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

11

 

 

$

84

 

 

$

18

 

 

$

14

 

 

$

2

 

 

$

87

 

 

$

—

 

 

$

216

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

30

 

 

$

42

 

 

$

5

 

 

$

2

 

 

$

1

 

 

 

—

 

 

$

—

 

 

$

80

 

Special mention

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Substandard

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

30

 

 

$

44

 

 

$

5

 

 

$

2

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

82

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Construction & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

242

 

 

$

498

 

 

$

103

 

 

$

24

 

 

$

11

 

 

$

12

 

 

$

—

 

 

$

890

 

Special mention

 

 

8

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

12

 

Substandard

 

 

4

 

 

 

8

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

13

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

254

 

 

$

510

 

 

$

104

 

 

$

24

 

 

$

11

 

 

$

12

 

 

$

—

 

 

$

915

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

28

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Farm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

63

 

 

$

126

 

 

$

78

 

 

$

26

 

 

$

9

 

 

$

26

 

 

$

—

 

 

$

328

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5

 

Substandard

 

 

—

 

 

 

1

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

3

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

63

 

 

$

127

 

 

$

79

 

 

$

31

 

 

$

9

 

 

$

27

 

 

$

—

 

 

$

336

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Non-Owner Occupied CRE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

101

 

 

$

234

 

 

$

185

 

 

$

125

 

 

$

46

 

 

$

88

 

 

$

—

 

 

$

779

 

Special mention

 

 

—

 

 

 

5

 

 

 

1

 

 

 

—

 

 

 

11

 

 

 

2

 

 

 

—

 

 

 

19

 

Substandard

 

 

—

 

 

 

1

 

 

 

4

 

 

 

1

 

 

 

2

 

 

 

5

 

 

 

—

 

 

 

13

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

101

 

 

$

240

 

 

$

190

 

 

$

126

 

 

$

59

 

 

$

95

 

 

$

—

 

 

$

811

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Owner Occupied CRE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

67

 

 

$

321

 

 

$

240

 

 

$

121

 

 

$

68

 

 

$

156

 

 

$

—

 

 

$

973

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

6

 

 

 

1

 

 

 

—

 

 

 

7

 

Substandard

 

 

2

 

 

 

5

 

 

 

1

 

 

 

1

 

 

 

6

 

 

 

17

 

 

 

—

 

 

 

32

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

69

 

 

$

326

 

 

$

241

 

 

$

122

 

 

$

80

 

 

$

174

 

 

$

—

 

 

$

1,012

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

228

 

 

$

461

 

 

$

335

 

 

$

172

 

 

$

73

 

 

$

255

 

 

$

138

 

 

$

1,662

 

Special mention

 

 

—

 

 

 

2

 

 

 

3

 

 

 

2

 

 

 

—

 

 

 

3

 

 

 

1

 

 

 

11

 

Substandard

 

 

1

 

 

 

6

 

 

 

4

 

 

 

3

 

 

 

2

 

 

 

8

 

 

 

2

 

 

 

26

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

229

 

 

$

469

 

 

$

342

 

 

$

177

 

 

$

75

 

 

$

266

 

 

$

141

 

 

$

1,699

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

29

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

110

 

 

$

265

 

 

$

99

 

 

$

39

 

 

$

16

 

 

$

4

 

 

$

—

 

 

$

533

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

1

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

110

 

 

$

266

 

 

$

100

 

 

$

39

 

 

$

16

 

 

$

4

 

 

$

—

 

 

$

535

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Non-Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

41

 

 

$

63

 

 

$

29

 

 

$

6

 

 

$

2

 

 

$

1

 

 

$

8

 

 

$

150

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

41

 

 

$

63

 

 

$

29

 

 

$

6

 

 

$

2

 

 

$

1

 

 

$

8

 

 

$

150

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

June 30,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Total Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

1,226

 

 

$

2,562

 

 

$

1,196

 

 

$

573

 

 

$

245

 

 

$

655

 

 

$

146

 

 

$

6,603

 

Special mention

 

 

16

 

 

 

13

 

 

 

4

 

 

 

7

 

 

 

19

 

 

 

6

 

 

 

1

 

 

 

66

 

Substandard

 

 

10

 

 

 

30

 

 

 

17

 

 

 

7

 

 

 

10

 

 

 

33

 

 

 

2

 

 

 

109

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

1,252

 

 

$

2,605

 

 

$

1,217

 

 

$

587

 

 

$

274

 

 

$

694

 

 

$

149

 

 

$

6,778

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

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, 2023 (dollars in millions):

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

C&I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

720

 

 

$

276

 

 

$

73

 

 

$

36

 

 

$

14

 

 

$

23

 

 

$

—

 

 

$

1,142

 

Special mention

 

 

1

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

3

 

Substandard

 

 

12

 

 

 

2

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

2

 

 

 

—

 

 

 

20

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

733

 

 

$

279

 

 

$

75

 

 

$

37

 

 

$

16

 

 

$

25

 

 

$

—

 

 

$

1,165

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

30

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

25

 

 

$

83

 

 

$

15

 

 

$

10

 

 

$

1

 

 

$

80

 

 

$

—

 

 

$

214

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

25

 

 

$

83

 

 

$

16

 

 

$

10

 

 

$

1

 

 

$

80

 

 

$

—

 

 

$

215

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Agricultural

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

63

 

 

$

15

 

 

$

4

 

 

$

1

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

84

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

64

 

 

$

15

 

 

$

4

 

 

$

1

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

85

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Construction & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

515

 

 

$

311

 

 

$

78

 

 

$

20

 

 

$

9

 

 

$

6

 

 

$

—

 

 

$

939

 

Special mention

 

 

8

 

 

 

2

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10

 

Substandard

 

 

9

 

 

 

4

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

14

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

532

 

 

$

317

 

 

$

79

 

 

$

20

 

 

$

9

 

 

$

6

 

 

$

—

 

 

$

963

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Farm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

101

 

 

$

111

 

 

$

73

 

 

$

24

 

 

$

8

 

 

$

22

 

 

$

—

 

 

$

339

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

5

 

 

 

—

 

 

 

1

 

 

 

—

 

 

 

6

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

101

 

 

$

111

 

 

$

73

 

 

$

29

 

 

$

8

 

 

$

23

 

 

$

—

 

 

$

345

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

31

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Non-Owner Occupied CRE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

167

 

 

$

232

 

 

$

172

 

 

$

106

 

 

$

41

 

 

$

73

 

 

$

—

 

 

$

791

 

Special mention

 

 

—

 

 

 

5

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

—

 

 

 

8

 

Substandard

 

 

2

 

 

 

1

 

 

 

2

 

 

 

7

 

 

 

13

 

 

 

4

 

 

 

—

 

 

 

29

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

169

 

 

$

238

 

 

$

175

 

 

$

113

 

 

$

54

 

 

$

79

 

 

$

—

 

 

$

828

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Owner Occupied CRE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

154

 

 

$

305

 

 

$

217

 

 

$

114

 

 

$

62

 

 

$

142

 

 

$

—

 

 

$

994

 

Special mention

 

 

1

 

 

 

1

 

 

 

4

 

 

 

—

 

 

 

1

 

 

 

1

 

 

 

—

 

 

 

8

 

Substandard

 

 

3

 

 

 

6

 

 

 

4

 

 

 

—

 

 

 

7

 

 

 

15

 

 

 

—

 

 

 

35

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

158

 

 

$

312

 

 

$

225

 

 

$

114

 

 

$

70

 

 

$

158

 

 

$

—

 

 

$

1,037

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Residential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

477

 

 

$

415

 

 

$

313

 

 

$

158

 

 

$

67

 

 

$

229

 

 

$

138

 

 

$

1,797

 

Special mention

 

 

1

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

—

 

 

 

3

 

 

 

1

 

 

 

11

 

Substandard

 

 

4

 

 

 

4

 

 

 

3

 

 

 

3

 

 

 

3

 

 

 

7

 

 

 

3

 

 

 

27

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

482

 

 

$

421

 

 

$

318

 

 

$

163

 

 

$

70

 

 

$

239

 

 

$

142

 

 

$

1,835

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

195

 

 

$

212

 

 

$

74

 

 

$

26

 

 

$

10

 

 

$

2

 

 

$

—

 

 

$

519

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

—

 

 

 

1

 

 

 

1

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

195

 

 

$

213

 

 

$

75

 

 

$

27

 

 

$

10

 

 

$

2

 

 

$

—

 

 

$

522

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1

 

 

32

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Non-Auto

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

71

 

 

$

47

 

 

$

22

 

 

$

4

 

 

$

1

 

 

$

1

 

 

$

7

 

 

$

153

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Substandard

 

 

1

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

1

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

72

 

 

$

47

 

 

$

22

 

 

$

4

 

 

$

1

 

 

$

1

 

 

$

7

 

 

$

154

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

December 31,

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

2019

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Total

 

Total Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Risk rating:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

2,488

 

 

$

2,007

 

 

$

1,041

 

 

$

499

 

 

$

214

 

 

$

578

 

 

$

145

 

 

$

6,972

 

Special mention

 

 

11

 

 

 

11

 

 

 

7

 

 

 

2

 

 

 

2

 

 

 

6

 

 

 

1

 

 

 

40

 

Substandard

 

 

32

 

 

 

18

 

 

 

14

 

 

 

17

 

 

 

24

 

 

 

29

 

 

 

3

 

 

 

137

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

2,531

 

 

$

2,036

 

 

$

1,062

 

 

$

518

 

 

$

240

 

 

$

613

 

 

$

149

 

 

$

7,149

 

Year-to-Date Gross Charge-Offs

 

$

—

 

 

$

1

 

 

$

1

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

2

 

 

At June 30, 2024 and 2023, and December 31, 2023, the Company’s past due loans are as follows (dollars in thousands):

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

 

June 30, 2023

 

15-59
Days
Past
Due*

 

 

60-89
Days
Past Due

 

 

Greater
Than 90
Days

 

 

Total Past
Due

 

 

Current

 

 

Total Loans

 

 

90 Days
Past Due
Still
Accruing

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C&I

 

$

3,734

 

 

$

722

 

 

$

1,651

 

 

$

6,107

 

 

$

1,015,756

 

 

$

1,021,863

 

 

$

3

 

Municipal

 

 

215

 

 

 

—

 

 

 

—

 

 

 

215

 

 

 

215,762

 

 

 

215,977

 

 

 

—

 

Total Commercial

 

 

3,949

 

 

 

722

 

 

 

1,651

 

 

 

6,322

 

 

 

1,231,518

 

 

 

1,237,840

 

 

 

3

 

Agricultural

 

 

580

 

 

 

1,024

 

 

 

15

 

 

 

1,619

 

 

 

80,413

 

 

 

82,032

 

 

 

—

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

14,390

 

 

 

2,062

 

 

 

—

 

 

 

16,452

 

 

 

898,769

 

 

 

915,221

 

 

 

—

 

Farm

 

 

776

 

 

 

205

 

 

 

372

 

 

 

1,353

 

 

 

334,291

 

 

 

335,644

 

 

 

—

 

Non-Owner Occupied CRE

 

 

1,395

 

 

 

—

 

 

 

2,988

 

 

 

4,383

 

 

 

806,964

 

 

 

811,347

 

 

 

—

 

Owner Occupied CRE

 

 

3,356

 

 

 

3,818

 

 

 

—

 

 

 

7,174

 

 

 

1,004,337

 

 

 

1,011,511

 

 

 

—

 

Residential

 

 

7,265

 

 

 

2,210

 

 

 

1,301

 

 

 

10,776

 

 

 

1,687,903

 

 

 

1,698,679

 

 

 

520

 

Total Real Estate

 

 

27,182

 

 

 

8,295

 

 

 

4,661

 

 

 

40,138

 

 

 

4,732,264

 

 

 

4,772,402

 

 

 

520

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

574

 

 

 

118

 

 

 

14

 

 

 

706

 

 

 

533,897

 

 

 

534,603

 

 

 

—

 

Non-Auto

 

 

135

 

 

 

18

 

 

 

65

 

 

 

218

 

 

 

150,475

 

 

 

150,693

 

 

 

29

 

Total Consumer

 

 

709

 

 

 

136

 

 

 

79

 

 

 

924

 

 

 

684,372

 

 

 

685,296

 

 

 

29

 

          Total

 

$

32,420

 

 

$

10,177

 

 

$

6,406

 

 

$

49,003

 

 

$

6,728,567

 

 

$

6,777,570

 

 

$

552

 

 

December 31, 2023

 

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

 

$

8,789

 

 

$

1,624

 

 

$

1,700

 

 

$

12,113

 

 

$

1,152,698

 

 

$

1,164,811

 

 

$

141

 

Municipal

 

 

102

 

 

 

—

 

 

 

—

 

 

 

102

 

 

 

214,748

 

 

 

214,850

 

 

 

—

 

Total Commercial

 

 

8,891

 

 

 

1,624

 

 

 

1,700

 

 

 

12,215

 

 

 

1,367,446

 

 

 

1,379,661

 

 

 

141

 

Agricultural

 

 

850

 

 

 

246

 

 

 

4

 

 

 

1,100

 

 

 

83,790

 

 

 

84,890

 

 

 

—

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

8,887

 

 

 

2,115

 

 

 

1,856

 

 

 

12,858

 

 

 

950,300

 

 

 

963,158

 

 

 

863

 

Farm

 

 

1,024

 

 

 

195

 

 

 

—

 

 

 

1,219

 

 

 

343,735

 

 

 

344,954

 

 

 

—

 

Non-Owner Occupied CRE

 

 

3,565

 

 

 

—

 

 

 

—

 

 

 

3,565

 

 

 

824,404

 

 

 

827,969

 

 

 

—

 

Owner Occupied CRE

 

 

2,818

 

 

 

240

 

 

 

1,823

 

 

 

4,881

 

 

 

1,032,400

 

 

 

1,037,281

 

 

 

—

 

Residential

 

 

12,293

 

 

 

828

 

 

 

2,816

 

 

 

15,937

 

 

 

1,818,656

 

 

 

1,834,593

 

 

 

—

 

Total Real Estate

 

 

28,587

 

 

 

3,378

 

 

 

6,495

 

 

 

38,460

 

 

 

4,969,495

 

 

 

5,007,955

 

 

 

863

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

1,482

 

 

 

251

 

 

 

24

 

 

 

1,757

 

 

 

520,102

 

 

 

521,859

 

 

 

—

 

Non-Auto

 

 

341

 

 

 

51

 

 

 

—

 

 

 

392

 

 

 

154,034

 

 

 

154,426

 

 

 

—

 

Total Consumer

 

 

1,823

 

 

 

302

 

 

 

24

 

 

 

2,149

 

 

 

674,136

 

 

 

676,285

 

 

 

—

 

          Total

 

$

40,151

 

 

$

5,550

 

 

$

8,223

 

 

$

53,924

 

 

$

7,094,867

 

 

$

7,148,791

 

 

$

1,004

 

 

* 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

 

On January 1, 2023, the Company adopted the accounting guidance in ASU 2022-02, which eliminates the recognition and measurement of a troubled debt restructuring ("TDR). Due to the removal of the TDR designation, 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, 2024 and 2023, respectively, loan modifications made to borrowers experiencing financial difficulty was insignificant.

 

 

 

34

 

Note 4 - Loans Held-for-Sale

Loans held-for-sale totaled $19,668,000, $19,220,000 and $14,253,000 at June 30, 2024 and 2023, and December 31, 2023, respectively. At June 30, 2024 and 2023, and December 31, 2023, $275,000, $1,131,000 and $3,176,000, 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.

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, 2024:

 

Outstanding
Notional
Balance

 

 

Asset
Derivative
Fair Value

 

 

Liability
Derivative
Fair Value

 

IRLCs

 

$

49,877

 

 

$

518

 

 

$

—

 

Forward mortgage-backed securities trades

 

 

67,000

 

 

 

—

 

 

 

4

 

 

June 30, 2023:

 

Outstanding
Notional
Balance

 

 

Asset
Derivative
Fair Value

 

 

Liability
Derivative
Fair Value

 

IRLCs

 

$

47,824

 

 

$

455

 

 

$

—

 

Forward mortgage-backed securities trades

 

 

66,000

 

 

 

160

 

 

 

—

 

 

December 31, 2023:

 

Outstanding
Notional
Balance

 

 

Asset
Derivative
Fair
Value

 

 

Liability
Derivative
Fair
Value

 

IRLCs

 

$

28,956

 

 

$

427

 

 

$

—

 

Forward mortgage-backed securities trades

 

 

35,000

 

 

 

—

 

 

 

288

 

 

 

35

 

 

Note 6 – Borrowings

Borrowings consisted of the following (dollars in thousands):

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2023

 

Securities sold under agreements with customers to repurchase

 

$

138,950

 

 

$

559,478

 

 

$

381,928

 

Federal funds purchased

 

 

2,650

 

 

 

7,125

 

 

 

1,100

 

Other borrowings

 

 

21,053

 

 

 

21,053

 

 

 

21,053

 

Total

 

$

162,653

 

 

$

587,656

 

 

$

404,081

 

 

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, 2023, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25,000,000 on a revolving line of credit. There was no outstanding balance under the line of credit as of June 30, 2024.

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 $11,156,000 for the second quarter of 2024 as compared to $11,754,000 for the same period in 2023. The Company’s effective tax rates on pretax income were 17.53% and 18.77% for the second quarters of 2024 and 2023, respectively. Income tax expense was $22,636,000 for the first six months of 2024 as compared to $23,442,000 for the same period in 2023. The Company’s effective tax rates on pretax income were 17.61% and 18.48% for the first six months of 2024 and 2023, 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. Contributions were $1,289,000 at June 30, 2024, and $218,000 at June 30, 2023, and $615,000 at December 31, 2023, 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, 2024, June 30, 2023, and December 31, 2023, 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, 2024 and 2023, and December 31, 2023, the consolidated balance sheet of the Company included CDE investments in other assets of $25,085,000, $26,281,000, and $25,738,000, 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, 2024, the Company had 1,614,517 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, senior and executive officers and directors. 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, 2024 and 2023.

 

 

 

For the Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

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

 

 

53,817

 

 

$

37.04

 

 

 

39,657

 

 

$

47.83

 

Grants

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Vesting

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Forfeited/expired

 

 

(2,389

)

 

 

34.80

 

 

 

(2,888

)

 

 

47.87

 

Balance at end of period

 

 

51,428

 

 

$

37.14

 

 

 

36,769

 

 

$

47.83

 

Performance Stock Units

Also under the 2021 Plan, the Company awards performance-based restricted stock units (“PSUs”) to employees, senior and executive officers, and directors. 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 50% each on average adjusted earnings per share growth and 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, 2024 and 2023.

 

 

 

For the Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

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

 

 

75,227

 

 

$

40.24

 

 

 

47,082

 

 

$

48.00

 

Grants

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Vesting

 

 

(20,532

)

 

 

48.91

 

 

 

—

 

 

 

—

 

Forfeited/expired

 

 

(2,493

)

 

 

35.21

 

 

 

(3,456

)

 

 

48.04

 

Balance at end of period

 

 

52,202

 

 

$

37.07

 

 

 

43,626

 

 

$

48.00

 

 

37

 

Restricted Stock Awards

Under the 2021 Plan, the Company grants restricted stock awards under compensation arrangements for the benefit of employees, senior and executive officers and 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,

 

 

 

2024

 

 

2023

 

 

 

Restricted
Stock
Outstanding

 

 

Weighted
Average
Grant Date
Fair Value

 

 

Restricted
Stock
Outstanding

 

 

Weighted
Average
Grant Date
Fair Value

 

Balance at beginning of period

 

 

25,190

 

 

$

27.79

 

 

 

24,813

 

 

$

36.21

 

Grants

 

 

22,950

 

 

 

30.51

 

 

 

25,190

 

 

 

27.79

 

Vesting

 

 

(25,190

)

 

 

27.79

 

 

 

(17,682

)

 

 

38.54

 

Forfeited/expired

 

 

—

 

 

 

—

 

 

 

(1,105

)

 

 

29.70

 

Balance at end of period

 

 

22,950

 

 

$

30.51

 

 

 

31,216

 

 

$

28.25

 

 

The total fair value of restricted stock vested for the six-months ended June 30, 2024 and 2023, was $1,418,000 and $510,000, respectively.

The Company recorded restricted stock unit, performance-based restricted stock unit and restricted stock award expense for employees of $391,000 and $420,000 for the three-months ended June 30, 2024 and 2023, respectively. The Company recorded restricted stock unit, performance-based restricted stock unit and restricted stock award expense for employees of $860,000 and $779,000 for the six-months ended June 30, 2024 and 2023, respectively. The Company recorded director expense related to these restricted stock grants of $175,000 and $167,000, for the three-months ended June 30, 2024 and 2023, respectively. The Company recorded director expense related to these restricted stock grants of $350,000 and $317,000, for the six-months ended June 30, 2024 and 2023, respectively.

As of June 30, 2024 and 2023, there were $2,478,000 and $2,689,000, 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 1.06 years and 1.08 years, respectively. At June 30, 2024 and 2023, and December 31, 2023, there was $122,000, $92,000 and $124,000, 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 exercised after one year from the date of the grant and the remaining options are vested and exercised 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, 2024 is presented in the table and narrative below:​​​​​​​

 

 

 

Shares

 

 

Weighted-
Average Ex. Price

 

Outstanding, December 31, 2023

 

 

1,552,249

 

 

$

30.45

 

Granted

 

 

—

 

 

 

—

 

Exercised

 

 

(91,414

)

 

 

20.54

 

Cancelled

 

 

(54,795

)

 

 

33.42

 

Outstanding, June 30, 2024

 

 

1,406,040

 

 

 

30.97

 

Exercisable, June 30, 2024

 

 

850,354

 

 

$

26.23

 

 

The options outstanding at June 30, 2024 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 $485,000 and $445,000 for the three-months ended June 30, 2024 and 2023, respectively. The Company recorded stock option expense totaling $969,000 and $889,000 for the six-months ended June 30, 2024 and 2023, respectively.

38

 

As of June 30, 2024, there was $4,232,000 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 1.33 years. The total fair value of shares vested during the six-months ended June 30, 2024 and 2023 was $521,000 and $1,048,000, 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, 2024 and 2023, and the year ended December 31, 2023.

 

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, 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 state 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

)

 

June 30, 2023

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total Fair
Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

483,776

 

 

$

—

 

 

$

—

 

 

$

483,776

 

Obligations of states and political subdivisions

 

 

—

 

 

 

1,692,964

 

 

 

—

 

 

 

1,692,964

 

Corporate bonds

 

 

—

 

 

 

98,280

 

 

 

—

 

 

 

98,280

 

Residential mortgage-backed securities

 

 

—

 

 

 

2,472,941

 

 

 

—

 

 

 

2,472,941

 

Commercial mortgage-backed securities

 

 

—

 

 

 

314,387

 

 

 

—

 

 

 

314,387

 

Other securities

 

 

3,914

 

 

 

—

 

 

 

—

 

 

 

3,914

 

        Total

 

$

487,690

 

 

$

4,578,572

 

 

$

—

 

 

$

5,066,262

 

Loans held-for-sale

 

$

—

 

 

$

18,089

 

 

$

—

 

 

$

18,089

 

IRLCs

 

$

—

 

 

$

—

 

 

$

455

 

 

$

455

 

Forward mortgage-backed securities trades

 

$

—

 

 

$

160

 

 

$

—

 

 

$

160

 

 

December 31, 2023

 

Level 1
Inputs

 

 

Level 2
Inputs

 

 

Level 3
Inputs

 

 

Total Fair
Value

 

Available-for-sale investment securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$

482,234

 

 

$

—

 

 

$

—

 

 

$

482,234

 

Obligations of state and political subdivisions

 

 

—

 

 

 

1,497,157

 

 

 

—

 

 

 

1,497,157

 

Corporate bonds

 

 

—

 

 

 

100,471

 

 

 

—

 

 

 

100,471

 

Residential mortgage-backed securities

 

 

—

 

 

 

2,364,092

 

 

 

—

 

 

 

2,364,092

 

Commercial mortgage-backed securities

 

 

—

 

 

 

284,324

 

 

 

—

 

 

 

284,324

 

Other securities

 

 

4,484

 

 

 

—

 

 

 

—

 

 

 

4,484

 

        Total

 

$

486,718

 

 

$

4,246,044

 

 

$

—

 

 

$

4,732,762

 

Loans held-for-sale

 

$

—

 

 

$

11,077

 

 

$

—

 

 

$

11,077

 

IRLCs

 

$

—

 

 

$

—

 

 

$

427

 

 

$

427

 

Forward mortgage-backed securities trades

 

$

—

 

 

$

(288

)

 

$

—

 

 

$

(288

)

 

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,

 

 

 

2024

 

 

2023

 

 

2023

 

Unpaid principal balance on loans held-for-sale

 

$

18,929

 

 

$

17,730

 

 

$

10,757

 

Net unrealized gains on loans held-for-sale

 

 

464

 

 

 

359

 

 

 

320

 

Loans held-for-sale at fair value

 

$

19,393

 

 

$

18,089

 

 

$

11,077

 

 

 

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, 2024 and 2023 (dollars in thousand):

 

 

Three-Months Ended
June 30,

 

 

Six-Months Ended
June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Realized gain on sale and fees on mortgage loans*

 

$

3,779

 

 

$

3,429

 

 

$

6,359

 

 

$

6,288

 

Change in fair value on loans held-for-sale and IRLCs

 

 

(179

)

 

 

(389

)

 

 

172

 

 

 

145

 

Change in forward mortgage-backed securities trades

 

 

87

 

 

 

494

 

 

 

284

 

 

 

75

 

Total gain on sale of mortgage loans

 

$

3,687

 

 

$

3,534

 

 

$

6,815

 

 

$

6,508

 

 

* 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, 2024, June 30, 2023, or December 31, 2023. No significant credit losses were recognized on mortgage loans held-for-sale for the three and six-months ended June 30, 2024 and 2023.

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, 2024 include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were re-measured at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from 5% to 25% of the appraised value. Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were no other real estate owned properties that were re-measured subsequent to their initial transfer to other real estate owned during the three and six-months ended June 30, 2024 and 2023.

At June 30, 2024 and 2023, and December 31, 2023, other real estate owned totaled $629,000, $15,000, and $483,000, 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,

 

 

 

 

 

2024

 

 

2023

 

 

2023

 

 

 

 

 

Carrying Value

 

 

Estimated
Fair Value

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

Carrying
Value

 

 

Estimated
Fair Value

 

 

Fair Value
Hierarchy

Cash and due from banks

 

$

263,262

 

 

$

263,262

 

 

$

255,018

 

 

$

255,018

 

 

$

281,354

 

 

$

281,354

 

 

Level 1

Federal funds sold

 

 

2,800

 

 

 

2,800

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

Level 1

Interest-bearing demand deposits
   in banks

 

 

103,315

 

 

 

103,315

 

 

 

23,839

 

 

 

23,839

 

 

 

255,237

 

 

 

255,237

 

 

Level 1

Available-for-sale securities

 

 

4,573,024

 

 

 

4,573,024

 

 

 

5,066,262

 

 

 

5,066,262

 

 

 

4,732,762

 

 

 

4,732,762

 

 

Levels 1
and 2

Loans held-for-investment, net of
   allowance for credit losses

 

 

7,424,563

 

 

 

7,438,802

 

 

 

6,691,029

 

 

 

6,672,348

 

 

 

7,060,057

 

 

 

7,036,722

 

 

Level 3

Loans held-for-sale

 

 

19,668

 

 

 

19,686

 

 

 

19,220

 

 

 

19,264

 

 

 

14,253

 

 

 

14,378

 

 

Level 2

Accrued interest receivable

 

 

61,847

 

 

 

61,847

 

 

 

56,236

 

 

 

56,236

 

 

 

58,544

 

 

 

58,544

 

 

Level 2

Deposits with stated maturities

 

 

969,802

 

 

 

969,750

 

 

 

893,429

 

 

 

891,181

 

 

 

938,980

 

 

 

938,534

 

 

Level 2

Deposits with no stated maturities

 

 

10,439,355

 

 

 

10,439,355

 

 

 

9,914,131

 

 

 

9,914,131

 

 

 

10,199,320

 

 

 

10,199,320

 

 

Level 1

Repurchase Agreements

 

 

138,950

 

 

 

138,950

 

 

 

559,479

 

 

 

559,479

 

 

 

381,928

 

 

 

381,928

 

 

Level 2

Borrowings

 

 

23,703

 

 

 

23,703

 

 

 

28,177

 

 

 

28,177

 

 

 

22,153

 

 

 

22,153

 

 

Level 2

Accrued interest payable

 

 

10,092

 

 

 

10,092

 

 

 

8,155

 

 

 

8,155

 

 

 

10,215

 

 

 

10,215

 

 

Level 2

IRLCs

 

 

518

 

 

 

518

 

 

 

455

 

 

 

455

 

 

 

427

 

 

 

427

 

 

Level 3

Forward mortgage-backed securities
   trades asset (liability)

 

 

(4

)

 

 

(4

)

 

 

160

 

 

 

160

 

 

 

(288

)

 

 

(288

)

 

Level 2

 

 

42

 

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, 2023, 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 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, including the coronavirus (“COVID”), 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, including COVID;
•
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 2023 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.

 

44

 

Recent Developments

Effective April 22, 2024, First Financial Bank and First Financial Trust and Asset Management Company converted their charters to a Texas state banking association and a Texas chartered trust company, respectively. The Bank is now a Texas banking association chartered and regulated by the Texas Department of Banking and Trust Company is now a Texas trust company chartered and regulated by the Texas Department of Banking. The Bank will continue to be a member bank of the Federal Reserve system and maintain FDIC deposit insurance.

Results of Operations

Performance Summary. Net earnings for the second quarter of 2024 were $52.49 million compared to earnings of $50.87 million for the second quarter of 2023. Diluted earnings per share was $0.37 for the second quarter of 2024 and $0.36 for the second quarter of 2023.

The return on average assets was 1.61% for the second quarter of 2024, as compared to 1.58% for the second quarter of 2023. The return on average equity was 14.43% for the second quarter of 2024 as compared to 14.89% for the second quarter of 2023.

Net earnings for the six-months ended June 30, 2024 were $105.88 million compared to earnings of $103.44 million for the six-months ended June 30, 2023. Diluted earnings per share was $0.74 for the first six months of 2024 and $0.72 for the first six months of 2023.

The return on average assets was 1.62% for the first six months of 2024, as compared to 1.62% for the first six months of 2023. The return on average equity was 14.43% for the first six-months of 2024, as compared to 15.58% for the same period in 2023.

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 $105.85 million for the second quarter of 2024, as compared to $98.82 million for the same period last year. The increase in 2024 tax equivalent net interest income compared to 2023 was largely attributable to the change in the mix of interest earning assets primarily derived from an increase in average loans offset by a decrease in taxable and tax-exempt investment securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. Average earning assets were $12.23 billion for the second quarter of 2024, as compared to $12.05 billion during the second quarter of 2023. The increase of $178.07 million in average earning assets for the second quarter of 2024 when compared to the same period in 2023 was primarily a result of (i) an increase in loans of $722.02 million, offset by (ii) a decrease in tax-exempt securities of $248.71 million, and (iii) a decrease in taxable investment securities of $338.70 million. Average interest-bearing liabilities were $8.26 billion for the second quarter of 2024, as compared to $7.75 billion in the same period in 2023. The yield on earning assets increased 75 basis points while the rate paid on interest-bearing liabilities increased 75 basis points for the second quarter of 2024 compared to the second quarter of 2023.

Tax-equivalent net interest income was $208.66 million for the six-months ended June 30, 2024 as compared to $198.23 million for the same period in 2023. The increase in 2024 tax equivalent net interest income compared to 2023 was largely attributable to the change in the mix of interest earning assets primarily derived from an increase in average loans offset by a decrease in taxable and tax-exempt investment securities. Additionally, the rates received on loans continued to increase along with the rates paid on deposits. Average earning assets were $12.30 billion for the six-months ended June 30, 2024, as compared to $12.06 billion during the same period last year. The increase of $237.08 million in average earning assets for the six-months ended June 30, 2024 when compared to the same period in 2023 was primarily a result of (i) an increase in loans of $713.05 million, offset by (ii) a decrease in tax-exempt securities of $282.10 million, and (iii) a decrease in taxable investment securities of $317.09 million. Average interest-bearing liabilities were $8.29 billion for the six-months ended June 30, 2024, as compared to $7.73 billion in the same period in 2023. The yield on earning assets increased 75 basis points while the rate paid on interest-bearing liabilities increased 90 basis points for the six-months ended June 30, 2024 as compared to the six-months ended June 30, 2023.

 

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, 2024
Compared to Three-Months Ended June 30, 2023

 

 

Six-Months Ended June 30, 2024
Compared to Six-Months Ended June 30, 2023

 

 

 

Change Attributable to

 

 

Total

 

 

Change Attributable to

 

 

Total

 

 

 

Volume

 

 

Rate

 

 

Change

 

 

Volume

 

 

Rate

 

 

Change

 

Short-term investments

 

$

568

 

 

$

215

 

 

$

783

 

 

$

2,982

 

 

$

863

 

 

$

3,845

 

Taxable investment securities

 

 

(1,890

)

 

 

1,770

 

 

 

(120

)

 

 

(3,565

)

 

 

2,614

 

 

 

(951

)

Tax-exempt investment securities (1)

 

 

(1,775

)

 

 

(294

)

 

 

(2,069

)

 

 

(4,068

)

 

 

(950

)

 

 

(5,018

)

Loans (1) (2)

 

 

10,646

 

 

 

15,050

 

 

 

25,696

 

 

 

20,335

 

 

 

33,509

 

 

 

53,844

 

Interest income

 

 

7,549

 

 

 

16,741

 

 

 

24,290

 

 

 

15,684

 

 

 

36,036

 

 

 

51,720

 

Interest-bearing deposits

 

 

3,857

 

 

 

16,928

 

 

 

20,785

 

 

 

6,235

 

 

 

37,990

 

 

 

44,225

 

Repurchase agreements

 

 

(2,476

)

 

 

422

 

 

 

(2,054

)

 

 

(3,763

)

 

 

1,226

 

 

 

(2,537

)

Borrowings

 

 

(1,314

)

 

 

(156

)

 

 

(1,470

)

 

 

(373

)

 

 

(23

)

 

 

(396

)

Interest expense

 

 

67

 

 

 

17,194

 

 

 

17,261

 

 

 

2,099

 

 

 

39,193

 

 

 

41,292

 

Net interest income

 

$

7,482

 

 

$

(453

)

 

$

7,029

 

 

$

13,585

 

 

$

(3,157

)

 

$

10,428

 

 

(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 3.48% for the second quarter of 2024, an increase of 19 basis points from the same period in 2023. The net interest margin, on a tax equivalent basis, for the first six-months of 2024 was 3.41%, an increase of 9 basis points from the same period in 2023. The net interest margin has expanded during the past year primarily due to (i) a shift in asset mix from investment securities to higher yielding loans, (ii) increased loan yields due to 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, respectively, resulting in a target rate range of 5.25% to 5.50% at June 30, 2024. Loan rates on variable loans have increased as the majority of such loans are indexed to the applicable prime rate (currently 8.50% at June 30, 2024).

There are $951.90 million of municipal and related deposits which are indexed to short-term treasury rates which have continued to increase with the changes in the applicable rate index. Average municipal and related deposits totaled $1.51 billion and $1.48 billion for the six-months ended June 30, 2024 and 2023, respectively, with an average rate paid of 3.98% and 2.62%, 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,

 

 

 

2024

 

 

2023

 

 

 

Average
Balance

 

 

Income/
Expense

 

 

Yield/
Rate

 

 

Average
Balance

 

 

Income/
Expense

 

 

Yield/
Rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments (1)

 

$

164,867

 

 

$

2,366

 

 

 

5.77

%

 

$

121,410

 

 

$

1,583

 

 

 

5.23

%

Taxable investment securities (2)

 

 

3,250,684

 

 

 

19,912

 

 

 

2.45

 

 

 

3,589,381

 

 

 

20,032

 

 

 

2.23

 

Tax-exempt investment securities (2)(3)

 

 

1,404,706

 

 

 

9,730

 

 

 

2.77

 

 

 

1,653,418

 

 

 

11,799

 

 

 

2.85

 

Loans (3)(4)

 

 

7,405,297

 

 

 

124,237

 

 

 

6.75

 

 

 

6,683,276

 

 

 

98,541

 

 

 

5.91

 

Total earning assets

 

 

12,225,554

 

 

$

156,245

 

 

 

5.14

%

 

 

12,047,485

 

 

$

131,955

 

 

 

4.39

%

Cash and due from banks

 

 

226,889

 

 

 

 

 

 

 

 

 

222,220

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

152,414

 

 

 

 

 

 

 

 

 

152,712

 

 

 

 

 

 

 

Other assets

 

 

251,818

 

 

 

 

 

 

 

 

 

232,881

 

 

 

 

 

 

 

Goodwill and other intangible assets, net

 

 

314,394

 

 

 

 

 

 

 

 

 

315,192

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(89,796

)

 

 

 

 

 

 

 

 

(80,721

)

 

 

 

 

 

 

Total assets

 

$

13,081,273

 

 

 

 

 

 

 

 

$

12,889,769

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

8,020,247

 

 

$

48,414

 

 

 

2.43

%

 

$

7,037,677

 

 

$

27,629

 

 

 

1.57

%

Repurchase agreements

 

 

212,590

 

 

 

1,895

 

 

 

3.59

 

 

 

570,071

 

 

 

3,949

 

 

 

2.78

 

Borrowings

 

 

22,932

 

 

 

91

 

 

 

1.60

 

 

 

145,000

 

 

 

1,561

 

 

 

4.32

 

Total interest-bearing liabilities

 

 

8,255,769

 

 

$

50,400

 

 

 

2.46

%

 

 

7,752,748

 

 

$

33,139

 

 

 

1.71

%

Noninterest-bearing deposits

 

 

3,289,906

 

 

 

 

 

 

 

 

 

3,704,143

 

 

 

 

 

 

 

Other liabilities

 

 

72,464

 

 

 

 

 

 

 

 

 

62,227

 

 

 

 

 

 

 

Total liabilities

 

 

11,618,139

 

 

 

 

 

 

 

 

 

11,519,118

 

 

 

 

 

 

 

Shareholders’ equity

 

 

1,463,134

 

 

 

 

 

 

 

 

 

1,370,651

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

13,081,273

 

 

 

 

 

 

 

 

$

12,889,769

 

 

 

 

 

 

 

Net interest income (tax equivalent)

 

 

 

 

$

105,845

 

 

 

 

 

 

 

 

$

98,816

 

 

 

 

Rate Analysis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income/earning assets

 

 

 

 

 

 

 

 

5.14

%

 

 

 

 

 

 

 

 

4.39

%

Interest expense/earning assets

 

 

 

 

 

 

 

 

(1.66

)

 

 

 

 

 

 

 

 

(1.10

)

Net interest margin

 

 

 

 

 

 

 

 

3.48

%

 

 

 

 

 

 

 

 

3.29

%

 

(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 $2.57 million and $2.95 million in the second quarters of 2024 and 2023, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.

 

 

47

 

 

 

Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Balance

 

 

Income/
Expense

 

 

Yield/
Rate

 

 

Average
Balance

 

 

Income/
Expense

 

 

Yield/
Rate

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments (1)

 

$

256,879

 

 

$

7,079

 

 

 

5.54

%

 

$

133,662

 

 

$

3,234

 

 

 

4.87

%

Taxable investment securities (2)

 

 

3,313,504

 

 

 

39,864

 

 

 

2.41

 

 

 

3,630,591

 

 

 

40,815

 

 

 

2.25

 

Tax-exempt investment securities (2)(3)

 

 

1,419,606

 

 

 

19,524

 

 

 

2.75

 

 

 

1,701,707

 

 

 

24,542

 

 

 

2.88

 

Loans (3)(4)

 

 

7,305,361

 

 

 

241,846

 

 

 

6.66

 

 

 

6,592,310

 

 

 

188,002

 

 

 

5.75

 

Total earning assets

 

 

12,295,350

 

 

$

308,313

 

 

 

5.04

%

 

 

12,058,270

 

 

$

256,593

 

 

 

4.29

%

Cash and due from banks

 

 

236,835

 

 

 

 

 

 

 

 

 

232,160

 

 

 

 

 

 

 

Bank premises and equipment, net

 

 

151,865

 

 

 

 

 

 

 

 

 

153,017

 

 

 

 

 

 

 

Other assets

 

 

246,397

 

 

 

 

 

 

 

 

 

230,712

 

 

 

 

 

 

 

Goodwill and other intangible assets, net

 

 

314,471

 

 

 

 

 

 

 

 

 

315,300

 

 

 

 

 

 

 

Allowance for credit losses

 

 

(89,266

)

 

 

 

 

 

 

 

 

(78,436

)

 

 

 

 

 

 

Total assets

 

$

13,155,652

 

 

 

 

 

 

 

 

$

12,911,023

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing deposits

 

$

7,949,170

 

 

$

93,666

 

 

 

2.37

%

 

$

7,058,979

 

 

$

49,441

 

 

 

1.41

%

Repurchase agreements

 

 

265,014

 

 

 

4,457

 

 

 

3.38

 

 

 

573,672

 

 

 

6,994

 

 

 

2.46

 

Borrowings

 

 

77,947

 

 

 

1,530

 

 

 

3.95

 

 

 

96,680

 

 

 

1,926

 

 

 

4.02

 

Total interest-bearing liabilities

 

 

8,292,131

 

 

$

99,653

 

 

 

2.42

%

 

 

7,729,331

 

 

$

58,361

 

 

 

1.52

%

Noninterest-bearing deposits

 

 

3,318,332

 

 

 

 

 

 

 

 

 

3,781,876

 

 

 

 

 

 

 

Other liabilities

 

 

69,300

 

 

 

 

 

 

 

 

 

61,134

 

 

 

 

 

 

 

Total liabilities

 

 

11,679,763

 

 

 

 

 

 

 

 

 

11,572,341

 

 

 

 

 

 

 

Shareholders’ equity

 

 

1,475,889

 

 

 

 

 

 

 

 

 

1,338,682

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

 

$

13,155,652

 

 

 

 

 

 

 

 

$

12,911,023

 

 

 

 

 

 

 

Net interest income (tax equivalent)

 

 

 

 

$

208,660

 

 

 

 

 

 

 

 

$

198,232

 

 

 

 

Rate Analysis:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income/earning assets

 

 

 

 

 

 

 

 

5.04

%

 

 

 

 

 

 

 

 

4.29

%

Interest expense/earning assets

 

 

 

 

 

 

 

 

(1.63

)

 

 

 

 

 

 

 

 

(0.97

)

Net interest margin

 

 

 

 

 

 

 

 

3.41

%

 

 

 

 

 

 

 

 

3.32

%

 

(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 $5.15 million and $6.08 million in the first six months of 2024 and 2023, respectively, using an effective tax rate of 21% for both periods.
(4)
Includes nonaccrual loans.

Noninterest Income. Noninterest income for the second quarter of 2024 was $31.27 million compared to $29.95 million in the same quarter of 2023. Trust fees increased to $11.71 million for the second quarter of 2024 compared to $9.88 million for the second quarter of 2023, driven by the increase in market value of trust assets managed to $10.24 billion at June 30, 2024, compared to $9.28 billion at June 30, 2023. Debit card fees decreased to $5.15 million for the second quarter of 2024 compared with $6.72 million for the second quarter of 2023, due to annual incentives of $1.53 million that were recognized during the second quarter of 2023. Annual incentives are being recognized throughout the year in 2024. Mortgage related income increased to $3.69 million for the second quarter of 2024 compared to $3.53 million in the second quarter of 2023 due to a slight increase in mortgage loans originated.

Noninterest income for the first six months of 2024 was $60.65 million compared to $57.95 million in the same period of 2023. Trust fees increased to $23.09 million for the first six months of 2024 compared to $19.73 million for the first six months of 2023, driven by the increase in market value of trust assets managed to $10.24 billion at June 30, 2024, compared to $9.28 billion at June 30, 2023. Debit card fees decreased to $10.04 million for the first six months of 2024 compared with $11.66 million for the first six months of 2023, due to annual incentives of $1.53 million that were recognized during the second quarter of 2023. Annual incentives are being recognized throughout the year in 2024. Mortgage related income increased to $6.82 million for the first six months of 2024 compared to $6.51 million in the same period in 2023 due to a slight increase in mortgage loans originated.

 

 

48

 

Table 3 - Noninterest Income (dollars in thousands):

 

 

 

Three-Months Ended June 30,

 

 

Six-Months Ended June 30,

 

 

 

2024

 

 

Increase
(Decrease)

 

 

2023

 

 

2024

 

 

Increase
(Decrease)

 

 

2023

 

Trust fees

 

$

11,714

 

 

$

1,831

 

 

$

9,883

 

 

$

23,093

 

 

$

3,365

 

 

$

19,728

 

Service charges on deposit accounts

 

 

6,009

 

 

 

(301

)

 

 

6,310

 

 

 

12,255

 

 

 

(91

)

 

 

12,346

 

Debit card fees

 

 

5,145

 

 

 

(1,575

)

 

 

6,720

 

 

 

10,036

 

 

 

(1,620

)

 

 

11,656

 

Credit card fees

 

 

672

 

 

 

(39

)

 

 

711

 

 

 

1,303

 

 

 

(17

)

 

 

1,320

 

Gain on sale and fees on mortgage loans

 

 

3,687

 

 

 

153

 

 

 

3,534

 

 

 

6,815

 

 

 

307

 

 

 

6,508

 

Net gain on sale of available-for-sale securities

 

 

—

 

 

 

(46

)

 

 

46

 

 

 

—

 

 

 

(58

)

 

 

58

 

Net gain (loss) on sale of foreclosed assets

 

 

(58

)

 

 

(57

)

 

 

(1

)

 

 

(58

)

 

 

(91

)

 

 

33

 

Net gain on sale of assets

 

 

2

 

 

 

2

 

 

 

—

 

 

 

2

 

 

 

(928

)

 

 

930

 

Interest on loan recoveries

 

 

664

 

 

 

189

 

 

 

475

 

 

 

1,219

 

 

 

398

 

 

 

821

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Check printing fees

 

 

23

 

 

 

1

 

 

 

22

 

 

 

34

 

 

 

(8

)

 

 

42

 

Safe deposit rental fees

 

 

176

 

 

 

(11

)

 

 

187

 

 

 

439

 

 

 

(28

)

 

 

467

 

Credit life fees

 

 

462

 

 

 

328

 

 

 

134

 

 

 

689

 

 

 

414

 

 

 

275

 

Brokerage commissions

 

 

446

 

 

 

70

 

 

 

376

 

 

 

838

 

 

 

104

 

 

 

734

 

Wire transfer fees

 

 

457

 

 

 

40

 

 

 

417

 

 

 

895

 

 

 

91

 

 

 

804

 

Miscellaneous income

 

 

1,869

 

 

 

736

 

 

 

1,133

 

 

 

3,091

 

 

 

859

 

 

 

2,232

 

Total other

 

 

3,433

 

 

 

1,164

 

 

 

2,269

 

 

 

5,986

 

 

 

1,432

 

 

 

4,554

 

          Total Noninterest Income

 

$

31,268

 

 

$

1,321

 

 

$

29,947

 

 

$

60,651

 

 

$

2,697

 

 

$

57,954

 

 

Noninterest Expense. Total noninterest expense for the second quarter of 2024 was $65.01 million, compared to $57.61 million for the same period of 2023. 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 47.41% for the second quarter of 2024 compared to 44.74% for the same quarter in 2023.

 

Salaries, commissions and employee benefits for the second quarter of 2024 totaled $37.47 million, compared to $31.77 million for the same period in 2023. The net increase was primarily a result of merit-based and market driven pay increases, performance-based incentive accruals, an increase of $1.93 million in profit sharing expense and an increase of $1.33 million in medical insurance expense.

 

All other categories of noninterest expense for the second quarter of 2024 totaled $27.54 million, compared to $25.85 million in the same quarter a year ago. Noninterest expense, excluding salary related costs, for the three-months ended June 30, 2024 increased largely due to increases in software amortization and expense, legal expenses and professional and service fees when compared to the same period in 2023.

 

Total noninterest expense for the first six months of 2024 was $128.95 million, compared to $114.87 million for the same period of 2023. Our efficiency ratio was 47.88% for the first six months of 2024 compared to 44.84% for the same period in 2023.

 

Salaries, commissions and employee benefits for the first six months of 2024 totaled $74.16 million, compared to $63.23 million for the same period in 2023. The net increase was primarily a result of merit-based and market driven pay increases, performance based incentive accruals, an increase of $3.58 million in profit sharing expense and an increase of $2.62 million in medical insurance expense.

 

All other categories of noninterest expense for the six-months ended June 30, 2024 totaled $54.80 million, compared to $51.64 million in the same period a year ago. Noninterest expense, excluding salary related costs, for the six-months ended June 30, 2024 increased largely due to increases in software amortization and expense, legal expenses, professional and service fees and FDIC insurance fees. An additional $440 thousand was accrued in the first quarter of 2024 for the FDIC special assessment over the Company's regular accrual.

 

 

 

 

49

 

Table 4 - Noninterest Expense (dollars in thousands):

 

 

 

Three-Months Ended June 30,

 

 

Six-Months Ended June 30,

 

 

 

2024

 

 

Increase
(Decrease)

 

 

2023

 

 

2024

 

 

Increase
(Decrease)

 

 

2023

 

Salaries, commissions and incentives (excluding mortgage)

 

$

26,276

 

 

$

2,246

 

 

$

24,030

 

 

$

51,533

 

 

$

4,173

 

 

$

47,360

 

Mortgage salaries and incentives

 

 

2,296

 

 

 

84

 

 

 

2,212

 

 

 

4,296

 

 

 

187

 

 

 

4,109

 

Medical

 

 

3,236

 

 

 

1,331

 

 

 

1,905

 

 

 

6,841

 

 

 

2,617

 

 

 

4,224

 

Profit sharing

 

 

1,903

 

 

 

1,933

 

 

 

(30

)

 

 

3,583

 

 

 

3,583

 

 

 

—

 

401(k) match expense

 

 

987

 

 

 

23

 

 

 

964

 

 

 

1,975

 

 

 

42

 

 

 

1,933

 

Payroll taxes

 

 

1,898

 

 

 

78

 

 

 

1,820

 

 

 

4,098

 

 

 

164

 

 

 

3,934

 

Stock based compensation

 

 

876

 

 

 

11

 

 

 

865

 

 

 

1,829

 

 

 

162

 

 

 

1,667

 

Total salaries and employee benefits

 

 

37,472

 

 

 

5,706

 

 

 

31,766

 

 

 

74,155

 

 

 

10,928

 

 

 

63,227

 

Net occupancy expense

 

 

3,618

 

 

 

195

 

 

 

3,423

 

 

 

7,088

 

 

 

235

 

 

 

6,853

 

Equipment expense

 

 

2,233

 

 

 

35

 

 

 

2,198

 

 

 

4,470

 

 

 

145

 

 

 

4,325

 

FDIC insurance premiums

 

 

1,508

 

 

 

91

 

 

 

1,417

 

 

 

3,473

 

 

 

402

 

 

 

3,071

 

Debit card expense

 

 

3,242

 

 

 

21

 

 

 

3,221

 

 

 

6,300

 

 

 

(120

)

 

 

6,420

 

Professional and service fees

 

 

2,828

 

 

 

431

 

 

 

2,397

 

 

 

5,224

 

 

 

462

 

 

 

4,762

 

Printing, stationery and supplies

 

 

425

 

 

 

(315

)

 

 

740

 

 

 

872

 

 

 

(578

)

 

 

1,450

 

Operational and other losses

 

 

769

 

 

 

(87

)

 

 

856

 

 

 

1,923

 

 

 

136

 

 

 

1,787

 

Software amortization and expense

 

 

3,158

 

 

 

639

 

 

 

2,519

 

 

 

6,163

 

 

 

1,333

 

 

 

4,830

 

Amortization of intangible assets

 

 

157

 

 

 

(71

)

 

 

228

 

 

 

314

 

 

 

(142

)

 

 

456

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Data processing fees

 

 

595

 

 

 

104

 

 

 

491

 

 

 

1,213

 

 

 

227

 

 

 

986

 

Postage

 

 

365

 

 

 

20

 

 

 

345

 

 

 

750

 

 

 

32

 

 

 

718

 

Advertising

 

 

741

 

 

 

(148

)

 

 

889

 

 

 

1,456

 

 

 

(26

)

 

 

1,482

 

Correspondent bank service charges

 

 

233

 

 

 

12

 

 

 

221

 

 

 

473

 

 

 

37

 

 

 

436

 

Telephone

 

 

774

 

 

 

(20

)

 

 

794

 

 

 

1,619

 

 

 

(5

)

 

 

1,624

 

Public relations and business development

 

 

725

 

 

 

(175

)

 

 

900

 

 

 

1,464

 

 

 

(318

)

 

 

1,782

 

Directors’ fees

 

 

706

 

 

 

80

 

 

 

626

 

 

 

1,405

 

 

 

113

 

 

 

1,292

 

Audit and accounting fees

 

 

529

 

 

 

(113

)

 

 

642

 

 

 

938

 

 

 

(326

)

 

 

1,264

 

Legal fees and other related costs

 

 

905

 

 

 

536

 

 

 

369

 

 

 

1,166

 

 

 

555

 

 

 

611

 

Regulatory exam fees

 

 

315

 

 

 

5

 

 

 

310

 

 

 

629

 

 

 

8

 

 

 

621

 

Travel

 

 

456

 

 

 

(16

)

 

 

472

 

 

 

839

 

 

 

(78

)

 

 

917

 

Courier expense

 

 

337

 

 

 

22

 

 

 

315

 

 

 

644

 

 

 

51

 

 

 

593

 

Other real estate owned

 

 

(19

)

 

 

(30

)

 

 

11

 

 

 

33

 

 

 

22

 

 

 

11

 

Other miscellaneous expense

 

 

2,940

 

 

 

477

 

 

 

2,463

 

 

 

6,341

 

 

 

990

 

 

 

5,351

 

Total other

 

 

9,602

 

 

 

754

 

 

 

8,848

 

 

 

18,970

 

 

 

1,282

 

 

 

17,688

 

Total Noninterest Expense

 

$

65,012

 

 

$

7,399

 

 

$

57,613

 

 

$

128,952

 

 

$

14,083

 

 

$

114,869

 

 

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, 2024, total loans held-for-investment were $7.52 billion, an increase of $370.94 million, as compared to December 31, 2023.

As compared to year-end 2023 balances, total real estate loans increased $153.07 million, total consumer loans increased $95.13 million, total commercial loans increased $121.45 million, and agricultural loans increased $1.30 million. Loans averaged $7.41 billion for the second quarter of 2024, an increase of $722.02 million over the prior year second quarter average balances. Loans averaged $7.31 billion for the first six months of 2024, an increase of $713.05 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,

 

 

 

2024

 

 

2023

 

 

2023

 

Commercial:

 

 

 

 

 

 

 

 

 

C&I

 

$

1,141,990

 

 

$

1,021,863

 

 

$

1,164,811

 

Municipal

 

 

359,124

 

 

 

215,977

 

 

 

214,850

 

Total Commercial

 

 

1,501,114

 

 

 

1,237,840

 

 

 

1,379,661

 

Agricultural

 

 

86,186

 

 

 

82,032

 

 

 

84,890

 

Real Estate:

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

986,394

 

 

 

915,221

 

 

 

963,158

 

Farm

 

 

318,597

 

 

 

335,644

 

 

 

344,954

 

Non-Owner Occupied CRE

 

 

815,713

 

 

 

811,347

 

 

 

827,969

 

Owner Occupied CRE

 

 

1,049,715

 

 

 

1,011,511

 

 

 

1,037,281

 

Residential

 

 

1,990,604

 

 

 

1,698,679

 

 

 

1,834,593

 

Total Real Estate

 

 

5,161,023

 

 

 

4,772,402

 

 

 

5,007,955

 

Consumer:

 

 

 

 

 

 

 

 

 

Auto

 

 

615,192

 

 

 

534,603

 

 

 

521,859

 

Non-Auto

 

 

156,218

 

 

 

150,693

 

 

 

154,426

 

Total Consumer

 

 

771,410

 

 

 

685,296

 

 

 

676,285

 

Total

 

$

7,519,733

 

 

$

6,777,570

 

 

$

7,148,791

 

 

 

Loans held-for-sale, consisting of secondary market mortgage loans, totaled $19.67 million, $19.22 million, and $14.25 million at June 30, 2024 and 2023, and December 31, 2023, respectively. At June 30, 2024 and 2023, and December 31, 2023, $275 thousand, $1.13 million and $3.18 million, 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 24.81% of the Company's total loan portfolio as of June 30, 2024. Non-owner occupied CRE represents $815.71 million, or 10.85%, of the Company's total loan portfolio as of June 30, 2024. 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 1% of properties located outside of the state. The largest concentrations in the CRE portfolio as to type are industrial/warehouse at approximately 15.25% and multifamily at approximately 8.74% as of June 30, 2024. All additional property type categories are 5% or less of the CRE portfolio. 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, 2024. 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, 2024 (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

 

$

449,804

 

 

$

553,489

 

 

$

113,991

 

 

$

24,706

 

 

$

1,141,990

 

Municipal

 

 

116,515

 

 

 

68,157

 

 

 

117,444

 

 

 

57,008

 

 

 

359,124

 

Total Commercial

 

 

566,319

 

 

 

621,646

 

 

 

231,435

 

 

 

81,714

 

 

 

1,501,114

 

Agricultural

 

 

67,646

 

 

 

16,589

 

 

 

1,951

 

 

 

—

 

 

 

86,186

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

415,905

 

 

 

228,631

 

 

 

225,098

 

 

 

116,760

 

 

 

986,394

 

Farm

 

 

20,957

 

 

 

39,080

 

 

 

152,790

 

 

 

105,770

 

 

 

318,597

 

Non-Owner Occupied CRE

 

 

105,001

 

 

 

202,883

 

 

 

395,655

 

 

 

112,174

 

 

 

815,713

 

Owner Occupied CRE

 

 

52,775

 

 

 

296,483

 

 

 

499,324

 

 

 

201,133

 

 

 

1,049,715

 

Residential

 

 

157,345

 

 

 

116,972

 

 

 

790,780

 

 

 

925,507

 

 

 

1,990,604

 

Total Real Estate

 

 

751,983

 

 

 

884,049

 

 

 

2,063,647

 

 

 

1,461,344

 

 

 

5,161,023

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

7,019

 

 

 

577,327

 

 

 

30,846

 

 

 

—

 

 

 

615,192

 

Non-Auto

 

 

37,378

 

 

 

88,519

 

 

 

24,334

 

 

 

5,987

 

 

 

156,218

 

Total Consumer

 

 

44,397

 

 

 

665,846

 

 

 

55,180

 

 

 

5,987

 

 

 

771,410

 

Total

 

$

1,430,345

 

 

$

2,188,130

 

 

$

2,352,213

 

 

$

1,549,045

 

 

$

7,519,733

 

% of Total Loans

 

 

19.02

%

 

 

29.10

%

 

 

31.28

%

 

 

20.60

%

 

 

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

 

$

75,592

 

 

$

314,747

 

 

$

12,416

 

 

$

N/A

 

 

$

402,755

 

Municipal

 

 

3,180

 

 

 

67,490

 

 

 

87,380

 

 

 

10,744

 

 

 

168,794

 

Total Commercial

 

 

78,772

 

 

 

382,237

 

 

 

99,796

 

 

 

10,744

 

 

 

571,549

 

Agricultural

 

 

4,854

 

 

 

11,949

 

 

 

121

 

 

 

—

 

 

 

16,924

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

167,998

 

 

 

140,566

 

 

 

39,398

 

 

 

4,675

 

 

 

352,637

 

Farm

 

 

6,006

 

 

 

31,036

 

 

 

86,163

 

 

 

6,762

 

 

 

129,967

 

Non-Owner Occupied CRE

 

 

37,405

 

 

 

143,754

 

 

 

72,469

 

 

 

7,349

 

 

 

260,977

 

Owner Occupied CRE

 

 

31,387

 

 

 

168,137

 

 

 

36,996

 

 

 

3,935

 

 

 

240,455

 

Residential

 

 

88,171

 

 

 

92,227

 

 

 

492,866

 

 

 

118,602

 

 

 

791,866

 

Total Real Estate

 

 

330,967

 

 

 

575,720

 

 

 

727,892

 

 

 

141,323

 

 

 

1,775,902

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

7,019

 

 

 

577,327

 

 

 

30,846

 

 

 

—

 

 

 

615,192

 

Non-Auto

 

 

33,979

 

 

 

87,837

 

 

 

24,033

 

 

 

3,218

 

 

 

149,067

 

Total Consumer

 

 

40,998

 

 

 

665,164

 

 

 

54,879

 

 

 

3,218

 

 

 

764,259

 

Total

 

$

455,591

 

 

$

1,635,070

 

 

$

882,688

 

 

$

155,285

 

 

$

3,128,634

 

% of Total Loans

 

 

6.06

%

 

 

21.74

%

 

 

11.74

%

 

 

2.07

%

 

 

41.61

%

 

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

 

$

374,212

 

 

$

238,742

 

 

$

101,575

 

 

$

24,706

 

 

$

739,235

 

Municipal

 

 

113,335

 

 

 

667

 

 

 

30,064

 

 

 

46,264

 

 

 

190,330

 

Total Commercial

 

 

487,547

 

 

 

239,409

 

 

 

131,639

 

 

 

70,970

 

 

 

929,565

 

Agricultural

 

 

62,792

 

 

 

4,640

 

 

 

1,830

 

 

 

—

 

 

 

69,262

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction & Development

 

 

247,907

 

 

 

88,065

 

 

 

185,700

 

 

 

112,085

 

 

 

633,757

 

Farm

 

 

14,951

 

 

 

8,044

 

 

 

66,627

 

 

 

99,008

 

 

 

188,630

 

Non-Owner Occupied CRE

 

 

67,596

 

 

 

59,129

 

 

 

323,186

 

 

 

104,825

 

 

 

554,736

 

Owner Occupied CRE

 

 

21,388

 

 

 

128,346

 

 

 

462,328

 

 

 

197,198

 

 

 

809,260

 

Residential

 

 

69,174

 

 

 

24,745

 

 

 

297,914

 

 

 

806,905

 

 

 

1,198,738

 

Total Real Estate

 

 

421,016

 

 

 

308,329

 

 

 

1,335,755

 

 

 

1,320,021

 

 

 

3,385,121

 

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auto

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Non-Auto

 

 

3,399

 

 

 

682

 

 

 

301

 

 

 

2,769

 

 

 

7,151

 

Total Consumer

 

 

3,399

 

 

 

682

 

 

 

301

 

 

 

2,769

 

 

 

7,151

 

Total

 

$

974,754

 

 

$

553,060

 

 

$

1,469,525

 

 

$

1,393,760

 

 

$

4,391,099

 

% of Total Loans

 

 

12.96

%

 

 

7.36

%

 

 

19.54

%

 

 

18.53

%

 

 

58.39

%

Of the $4.39 billion of variable interest rate loans shown above, loans totaling $1.82 billion mature or reprice over the next twelve months. Of this amount, approximately $1.49 billion will reprice immediately upon changes in the underlying index rate (primarily U.S. prime rate) with the remaining $329.70 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 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 $61.19 million at June 30, 2024, as compared to $29.25 million at June 30, 2023 and $35.10 million at December 31, 2023. As a percent of loans held-for-investment and foreclosed assets, these assets were 0.81% at June 30, 2024, 0.43% at June 30, 2023, and 0.49% at December 31, 2023. As a percent of total assets, these assets were 0.46% at June 30, 2024, as compared to 0.23% at June 30, 2023 and 0.27% at December 31, 2023, 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, 2024.

 

53

 

Table 6 – Nonaccrual, Past Due 90 Days or More and Still Accruing, and Foreclosed Assets (dollars in thousands, except percentages):

 

 

 

June 30,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

2023

 

Nonaccrual loans

 

$

60,311

 

 

$

28,672

 

 

$

33,609

 

Loans still accruing and past due 90 days or more

 

 

231

 

 

 

552

 

 

 

1,004

 

Total nonperforming loans

 

 

60,542

 

 

 

29,224

 

 

 

34,613

 

Foreclosed assets

 

 

647

 

 

 

25

 

 

 

483

 

Total nonperforming assets

 

$

61,189

 

 

$

29,249

 

 

$

35,096

 

As a % of loans held-for-investment and foreclosed assets

 

 

0.81

%

 

 

0.43

%

 

 

0.49

%

As a % of total assets

 

 

0.46

 

 

 

0.23

 

 

 

0.27

 

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 $913 thousand for the year ended December 31, 2023. If interest on these loans had been recognized on a full accrual basis during the year ended December 31, 2023, such income would have been approximately $3.22 million. Such amounts for the 2024 and 2023 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 $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 net 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 net aggregate of $6.70 million under the provision for credit losses on the consolidated statements of earnings for the six-months ended June 30, 2024.

The provision for loan losses of $6.52 million for the three-months ended June 30, 2023 is combined with the reversal of provision for unfunded commitments of $949 thousand and reported in the aggregate of $5.57 million under the provision for credit losses in the consolidated statements of earnings for the three-months ended June 30, 2023. The provision for loan losses of $11.23 million for the six-months ended June 30, 2023 is combined with the reversal of provision for unfunded commitments of $2.88 million and reported in the net aggregate of $8.35 million under the provision for credit losses in the consolidated statements of earnings for the six-months ended June 30, 2023.

As a percent of average loans, net loan charge-offs were 0.02% for the second quarter of 2024, as compared to net loan charge-offs of 0.05% for the second quarter of 2023. As a percent of average loans, net loan charge-offs were 0.02% for the first six months of 2024, as compared to net loan charge-offs of 0.02% for the first six months of 2023. The allowance for credit losses as a percent of loans held-for-investment was 1.27% as of June 30, 2024, as compared to 1.28% as of June 30, 2023 and 1.24% as of December 31, 2023, 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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Allowance for credit losses at period-end

 

$

95,170

 

 

$

86,541

 

 

$

95,170

 

 

$

86,541

 

Loans held-for-investment at period-end

 

 

7,519,733

 

 

 

6,777,570

 

 

 

7,519,733

 

 

 

6,777,570

 

Average loans for period

 

 

7,405,297

 

 

 

6,683,276

 

 

 

7,305,361

 

 

 

6,592,310

 

Net charge-offs (recoveries)/average
   loans (annualized)

 

 

0.02

%

 

 

0.05

%

 

 

0.02

%

 

 

0.02

%

Allowance for loan losses/period-end
   loans held-for-investment

 

 

1.27

%

 

 

1.28

%

 

 

1.27

%

 

 

1.28

%

Allowance for loan losses/nonaccrual
   loans, past due 90 days still accruing
   and restructured loans

 

 

157.20

%

 

 

296.13

%

 

 

157.20

%

 

 

296.13

%

 

Interest-Bearing Demand Deposits in Banks. The Company had interest-bearing deposits in banks of $103.32 million at June 30, 2024 compared to $23.84 million at June 30, 2023 and $255.24 million at December 31, 2023, respectively. At June 30, 2024, interest-bearing deposits in banks included $87.79 million maintained at the Federal Reserve Bank of Dallas and $15.52 million on deposit with the FHLB.

Available-for-Sale Securities. At June 30, 2024, securities with a fair value of $4.57 billion were classified as securities available-for-sale. As compared to December 31, 2023, the available-for-sale portfolio at June 30, 2024 reflected (i) a decrease of $140.26 million in U.S. Treasury securities, (ii) a decrease of $51.78 million in obligations of states and political subdivisions, (iii) an increase of $17.69 million in mortgage-backed securities, and (iv) an increase of $14.61 million in corporate bonds and other securities. Fluctuations in the available-for-sale securities portfolio balances were primarily driven by calls and maturities, and changes in unrealized losses during the first six months of 2024. Our mortgage related securities are backed by GNMA, FNMA or FHLMC, or are collateralized by securities backed by these agencies.

54

 

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, 2024 and 2023, and December 31, 2023.

Table 8 - Maturities and Yields of Available-for-Sale Securities Held at June 30, 2024 (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

 

$

191,965

 

 

 

2.04

%

 

$

150,011

 

 

 

1.68

%

 

$

—

 

 

 

—

%

 

$

—

 

 

 

—

%

 

$

341,976

 

 

 

1.88

%

Obligations of states and
   political subdivisions

 

 

6,871

 

 

 

4.38

 

 

 

392,277

 

 

 

2.93

 

 

 

634,675

 

 

 

2.34

 

 

 

411,550

 

 

 

2.74

 

 

 

1,445,373

 

 

 

2.62

 

Corporate bonds and other
   securities

 

 

19,940

 

 

 

2.60

 

 

 

77,064

 

 

 

2.75

 

 

 

22,564

 

 

 

1.76

 

 

 

 

 

 

—

 

 

 

119,568

 

 

 

2.54

 

Mortgage-backed securities

 

 

80,454

 

 

 

2.27

 

 

 

956,780

 

 

 

2.30

 

 

 

1,198,765

 

 

 

2.08

 

 

 

430,108

 

 

 

2.89

 

 

 

2,666,107

 

 

 

2.29

 

Total

 

$

299,230

 

 

 

2.19

%

 

$

1,576,132

 

 

 

2.42

%

 

$

1,856,004

 

 

 

2.17

%

 

$

841,658

 

 

 

2.82

%

 

$

4,573,024

 

 

 

2.37

%

 

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, 2024, the investment portfolio had an overall tax equivalent yield of 2.37%, a weighted average life of 7.22 and modified duration of 5.95 years.

Deposits. Deposits held by our subsidiary bank represent our primary source of funding. Total deposits were $11.41 billion as of June 30, 2024, as compared to $10.81 billion as of June 30, 2023 and $11.14 billion as of December 31, 2023.

Table 9 provides a breakdown of average deposits and rates paid over the three and six month periods ended June 30, 2024 and 2023, respectively.

Table 9 - Composition of Average Deposits (dollars in thousands, except percentages):

 

 

 

Three-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Balance

 

 

Average
Rate

 

 

Average
Balance

 

 

Average
Rate

 

Noninterest-bearing deposits

 

$

3,289,906

 

 

—%

 

 

$

3,704,143

 

 

—%

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking

 

 

3,998,548

 

 

 

2.27

 

 

 

3,277,300

 

 

 

1.16

 

Savings and money market accounts

 

 

3,078,836

 

 

 

2.24

 

 

 

2,955,374

 

 

 

1.63

 

Time deposits under $250,000

 

 

594,278

 

 

 

3.60

 

 

 

293,988

 

 

 

4.94

 

Time deposits of $250,000 or more

 

 

348,585

 

 

 

3.99

 

 

 

511,015

 

 

 

1.96

 

  Total interest-bearing deposits

 

 

8,020,247

 

 

 

2.43

%

 

 

7,037,677

 

 

 

1.57

%

Total average deposits

 

$

11,310,153

 

 

 

 

 

$

10,741,820

 

 

 

 

Total cost of deposits

 

 

 

 

 

1.72

%

 

 

 

 

 

1.03

%

 

 

 

For the Six-Months Ended June 30,

 

 

 

2024

 

 

2023

 

 

 

Average
Balance

 

 

Average
Rate

 

 

Average
Balance

 

 

Average
Rate

 

Noninterest-bearing deposits

 

$

3,318,332

 

 

—%

 

 

$

3,781,876

 

 

—%

 

Interest-bearing deposits:

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking

 

 

3,941,659

 

 

 

2.18

 

 

 

3,381,983

 

 

 

1.07

 

Savings and money market accounts

 

 

3,068,966

 

 

 

2.20

 

 

 

2,950,400

 

 

 

1.48

 

Time deposits under $250,000

 

 

344,015

 

 

 

6.18

 

 

 

266,960

 

 

 

4.27

 

Time deposits of $250,000 or more

 

 

594,530

 

 

 

2.28

 

 

 

459,636

 

 

 

1.84

 

Total interest-bearing deposits

 

 

7,949,170

 

 

 

2.37

%

 

 

7,058,979

 

 

 

1.41

%

Total average deposits

 

$

11,267,502

 

 

 

 

 

$

10,840,855

 

 

 

 

Total cost of deposits

 

 

 

 

 

1.67

%

 

 

 

 

 

0.92

%

 

The estimated amount of uninsured and uncollateralized deposits including related accrued and unpaid interest is approximately $5.26 billion as of June 30, 2024.

 

55

 

Borrowings. Included in borrowings were federal funds purchased, advances from the FHLB and other borrowings of $23.70 million, $28.18 million and $22.15 million at June 30, 2024 and 2023, and December 31, 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $22.93 million and $145.00 million in the second quarters of 2024 and 2023, respectively. The weighted average interest rates paid on these borrowings were 1.60% and 4.32% for the second quarters of 2024 and 2023, respectively. The average balance of federal funds purchased, advances from the FHLB and other borrowings were $77.95 million and $96.68 million in the first six months of 2024 and 2023, respectively. The weighted average interest rates paid on these borrowings were 3.95% and 4.02% for the first six months of 2024 and 2023, respectively.

 

Repurchase Agreements. Securities sold under repurchase agreements of $138.95 million, $559.48 million and $381.93 million at June 30, 2024 and 2023, and December 31, 2023, 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 $212.59 million and $570.07 million for the second quarters of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.59% and 2.78% for the second quarters of 2024 and 2023, respectively. The average balances of securities sold under repurchase agreements were $265.01 million and $573.67 million for the first six months of 2024 and 2023, respectively. The average rates paid on securities sold under repurchase agreements were 3.38% and 2.46% for the first six months of 2024 and 2023, 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 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)

 

2024

 

2023

 

2023

 +400

 

9.75%

 

0.51%

 

7.17%

 +300

 

7.28%

 

0.28%

 

5.36%

 +200

 

5.08%

 

0.59%

 

3.87%

 +100

 

2.66%

 

0.84%

 

2.11%

 -100

 

(4.24)%

 

(1.84)%

 

(2.72)%

 -200

 

(8.55)%

 

(3.88)%

 

(5.54)%

 -300

 

(12.43)%

 

(4.27)%

 

(8.70)%

 -400

 

(14.05)%

 

(4.00)%

 

(9.65)%

 

The results for the net interest income simulations as of June 30, 2024 and 2023, and December 31, 2023 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 $4.57 billion at June 30, 2024. During the six months ended June 30, 2024, the corresponding unrealized loss before taxes on the portfolio of $510.92 million at December 31, 2023, changed to an unrealized loss before taxes of $559.43 million at June 30, 2024, 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

56

 

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, 2024, the 5-year U.S. Treasury rate was 4.33% compared to 3.84% at December 31, 2023, representing a 49 basis point increase during the first six months of 2024. As of June 30, 2024, an increase of 100 basis points in the 5-year U.S. Treasury rate would result in an increase to unrealized losses by approximately $228 million before taxes, while a 100 basis point decrease in the same rate would result in a decrease to unrealized losses by approximately $189 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 $1.52 billion, or 11.54% of total assets at June 30, 2024, as compared to $1.37 billion, or 10.66% of total assets at June 30, 2023, and $1.50 billion, or 11.44% of total assets at December 31, 2023. Included in shareholders' equity at June 30, 2024, and 2023, and December 31, 2023 were $441.56 million, $490.28 million and $403.30 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 2024, total shareholders’ equity averaged $1.46 billion, or 11.18% of average assets, as compared to $1.37 billion, or 10.63% of average assets, during the same period in 2023. For the first six months of 2024, total shareholders' equity averaged $1.48 billion, or 11.22% of average assets, as compared to $1.34 billion, or 10.37% of average assets, during the same period in 2023.

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.

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, 2024 and 2023, and December 31, 2023, we had a total risk-based capital ratio of 19.55%, 19.62% and 19.62%, a Tier 1 capital to risk-weighted assets ratio of 18.42%, 18.48% and 18.50%, a common equity Tier 1 to risk-weighted assets ratio of 18.42%, 18.48% and 18.50% and a Tier 1 leverage ratio of 12.40%, 11.81% and 12.06%, respectively. The regulatory capital ratios as of June 30, 2024 and 2023, and December 31, 2023 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, 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

%

 

57

 

 

 

Actual

 

 

Minimum Capital
Required-Basel III

 

 

Required to be
Considered Well-
Capitalized

 

As of June 30, 2023:

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total Capital to Risk-Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,651,966

 

 

 

19.62

%

 

$

884,219

 

 

 

10.50

%

 

$

842,114

 

 

 

10.00

%

First Financial Bank

 

$

1,489,982

 

 

 

17.73

%

 

$

882,320

 

 

 

10.50

%

 

$

840,304

 

 

 

10.00

%

Tier 1 Capital to Risk-Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,555,976

 

 

 

18.48

%

 

$

715,797

 

 

 

8.50

%

 

$

505,268

 

 

 

6.00

%

First Financial Bank

 

$

1,393,992

 

 

 

16.59

%

 

$

714,259

 

 

 

8.50

%

 

$

672,243

 

 

 

8.00

%

Common Equity Tier 1 Capital to Risk-Weighted Assets:

 

Consolidated

 

$

1,555,976

 

 

 

18.48

%

 

$

589,480

 

 

 

7.00

%

 

$

—

 

 

N/A

 

First Financial Bank

 

$

1,393,992

 

 

 

16.59

%

 

$

588,213

 

 

 

7.00

%

 

$

546,198

 

 

 

6.50

%

Leverage Ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,555,976

 

 

 

11.81

%

 

$

336,845

 

 

 

4.00

%

 

$

—

 

 

N/A

 

First Financial Bank

 

$

1,393,992

 

 

 

10.62

%

 

$

336,122

 

 

 

4.00

%

 

$

420,152

 

 

 

5.00

%

 

 

 

Actual

 

 

Minimum Capital
Required Basel III

 

 

Required to be
Considered Well-
Capitalized

 

As of December 31, 2023:

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

Total Capital to Risk-Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,697,999

 

 

 

19.62

%

 

$

908,870

 

 

 

10.50

%

 

$

865,590

 

 

 

10.00

%

First Financial Bank

 

$

1,518,365

 

 

 

17.59

%

 

$

906,541

 

 

 

10.50

%

 

$

863,372

 

 

 

10.00

%

Tier 1 Capital to Risk-Weighted Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,601,361

 

 

 

18.50

%

 

$

735,752

 

 

 

8.50

%

 

$

519,354

 

 

 

6.00

%

First Financial Bank

 

$

1,421,727

 

 

 

16.47

%

 

$

733,866

 

 

 

8.50

%

 

$

690,698

 

 

 

8.00

%

Common Equity Tier 1 Capital to Risk-Weighted Assets:

 

Consolidated

 

$

1,601,361

 

 

 

18.50

%

 

$

605,913

 

 

 

7.00

%

 

 

—

 

 

N/A

 

First Financial Bank

 

$

1,421,727

 

 

 

16.47

%

 

$

604,361

 

 

 

7.00

%

 

$

561,192

 

 

 

6.50

%

Leverage Ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

1,601,361

 

 

 

12.06

%

 

$

346,236

 

 

 

4.00

%

 

 

—

 

 

N/A

 

First Financial Bank

 

$

1,421,727

 

 

 

10.75

%

 

$

345,349

 

 

 

4.00

%

 

$

431,686

 

 

 

5.00

%

 

In connection with the adoption of the Basel III regulatory capital framework, our subsidiary bank made the election to continue to exclude accumulated other comprehensive income from available-for-sale securities (“AOCI”) from capital in connection with its quarterly financial filing and, in effect, to retain the AOCI treatment under the prior capital rules.

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 $25.00 million revolving line of credit established with Frost Bank, a nonaffiliated bank, which matures on June 30, 2025 (see next paragraph). Our subsidiary bank also has federal funds purchased lines of credit with two non-affiliated banks totaling $130.00 million. At June 30, 2024, 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 $2.03 billion at June 30, 2024, 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, 2024, there was $786.50 million used on the FHLB line advance for undisbursed commitments (letters of credit) used to secure public funds.

The Company renewed its loan agreement, effective June 30, 2023, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $25.00 million on a revolving line of credit. Prior to June 30, 2025, interest is paid quarterly at The Wall Street Journal Prime Rate and the line of credit matures June 30, 2025. If a balance exists at June 30, 2025, 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, 2024. There was no outstanding balance under the line of credit as of June 30, 2024.

58

 

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 $119.16 million at June 30, 2024, investment securities which totaled $2.14 million at June 30, 2024 and mature over 6 to 7 years, available dividends from our subsidiaries which totaled $331.64 million at June 30, 2024, 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, 2024, 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, 2024, the Company’s reserve for unfunded commitments totaled $7.43 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.

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, 2024 (dollars in thousands):

 

 

 

Total Notional
Amounts
Committed

 

Unfunded lines of credit

 

$

1,259,793

 

Unfunded commitments to extend credit

 

 

892,130

 

Standby letters of credit

 

 

48,087

 

Total commercial commitments

 

$

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 $2.20 billion at June 30, 2024, compared to $2.02 billion at June 30, 2023, and $1.92 billion at December 31, 2023.

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, 2024, $331.64 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 $25.50 million and $64.00 million for the six-months ended June 30, 2024 and 2023, 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 48.60% and 48.31% of net earnings for the first six months of 2024 and 2023, respectively. Given our current capital position, projected earnings and asset growth rates, we do not anticipate any significant change in our current dividend policy.

59

 

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. The Federal Reserve, the FDIC, 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, 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 Qualitative 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.

 

60

 

Item 4. Controls and Procedures.

As of June 30, 2024, 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, 2024.

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.

 

61

 

PART II - OTHER INFORMATION

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. Risk 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, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable

 

Item 3. Defaults Upon Senior Securities.

Not Applicable

Item 4. Mine Safety Disclosures.

Not Applicable

Item 5. Other Information.

Not Applicable

62

 

Item 6. Exhibits.

 

 

 

 

3.1

—

Amended and Restated Certificate of Formation (incorporated by reference from Exhibit 3.1 of the Registrant’s Form 10-Q filed July 30, 2019).

 

 

 

3.2

—

Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K filed April 3, 2020).

 

 

 

3.3

—

Amendment to the Amended and Restated Bylaws of the Registrant, dated July 27, 2021 (incorporated by reference from Exhibit 3.3 to the Registrant's Form 10-Q filed August 2, 2021).

 

 

 

4.1

—

Specimen certificate of First Financial Common Stock (incorporated by reference from Exhibit 3 of the Registrant’s Amendment No. 1 to Form 8-A filed on Form 8-A/A No. 1 on January 7, 1994).

 

 

 

4.2

—

Description of Registrant’s Securities (incorporated by reference from Exhibit 4.2 of the Registrant’s Form 10-K filed February 23, 2024).

 

 

 

 

10.1

 

 

—

 

2012 Incentive Stock Option Plan (incorporated by reference from Appendix A of the Registrant’s Definitive Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 filed March 1, 2012).++

 

 

 

10.2

—

2021 Omnibus Stock and Incentive Plan as Amended (incorporated by reference from Exhibit 10 of the Registrant’s Form 8-K filed April 28, 2021).++

 

 

 

 

 

 

 

 

10.3

 

 

—

 

Promissory Note, dated June 30, 2023, between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed July 7, 2023).

 

 

 

 

 

 

 

 

10.4

 

 

—

 

Amended and Restated Loan Agreement, dated June 30, 2023, by and between First Financial Bankshares, Inc. and Frost Bank (incorporated by reference from Exhibit 10.2 of the Registrant's Form 8-K filed July 7, 2023).

 

 

 

 

 

 

 

10.5

—

2015 Restricted Stock Plan as Amended and Restated April 28, 2020 (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed May 1, 2020).++

 

 

 

10.6

—

Form of Executive Recognition Agreement (incorporated by reference from Exhibit 10.1 of the Registrant’s Form 8-K filed August 10, 2022).++

 

 

 

10.7

—

First Financial Bankshares, Inc. Supplemental Executive Retirement Plan, as amended and restated effective July 26, 2022 (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed July 29, 2022.)++

 

 

 

 

 

 

 

 

10.8

 

 

—

 

Confidential Separation and Release Agreement , dated January 9, 2023, by and between the Company and James R. Gordon (incorporated by reference from Exhibit 10.1 of the Registrant's Form 8-K filed January 11, 2023).++

 

 

 

 

 

 

 

31.1

—

Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Executive Officer of First Financial Bankshares, Inc.*

 

 

 

31.2

—

Rule 13a-14(a) / 15(d)-14(a) Certification of Chief Financial Officer of First Financial Bankshares, Inc.*

 

 

 

 

32.1

 

 

—

 

Section 1350 Certification of Chief Executive Officer of First Financial Bankshares, Inc.+

 

 

 

 

 

 

 

 

32.2

 

 

—

 

Section 1350 Certification of Chief Financial Officer of First Financial Bankshares, Inc.+

 

 

 

 

 

 

 

 

101.INS

 

 

—

 

Inline XBRL Instance Document.- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.*

 

 

 

 

 

 

 

 

101.SCH

 

 

—

 

Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents.*

 

 

 

 

 

 

 

 

104

 

 

—

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith

+ Furnished herewith. This Exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

++ Management contract or compensatory plan or arrangement.

 

 

 

 

63

 

SIGNATURES

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: July 31, 2024

 

By:

/s/ F. Scott Dueser

 

 

 

F. Scott Dueser

 

 

 

Chairman of the Board, President and Chief Executive Officer

 

 

 

 

Date: July 31, 2024

 

By:

/s/ Michelle S. Hickox

 

 

 

Michelle S. Hickox

 

 

 

Executive Vice President and

 

 

 

Chief Financial Officer, Secretary and Treasurer

 

64

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