Home Bancshares Inc: Form 10-Q for the period ended Jun 30, 2025

The following discussion should be read in conjunction with our Form 10-K, filed with the Securities and Exchange Commission on February 27, 2025, which includes the audited financial statements for the year ended December 31, 2024. Unless the context requires otherwise, the terms "Company," "us," "we," and "our" refer to Home BancShares, Inc. on a consolidated basis.

General

We are a bank holding company headquartered in Conway, Arkansas, offering a broad array of financial services through our wholly-owned bank subsidiary, Centennial Bank (sometimes referred to as "Centennial" or the "Bank"). As of June 30, 2025, we had, on a consolidated basis, total assets of $22.91 billion, loans receivable, net of allowance for credit losses, of $14.90 billion, total deposits of $17.49 billion, and stockholders’ equity of $4.09 billion.

We generate the majority of our revenue from interest on loans and investments, service charges, and mortgage banking income. Deposits and Federal Home Loan Bank ("FHLB") and other borrowed funds are our primary sources of funding. Our largest expenses are interest on our funding sources, salaries and related employee benefits and occupancy and equipment. We measure our performance by calculating our return on average common equity, return on average assets and net interest margin. We also measure our performance by our efficiency ratio, which is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a non-GAAP measure and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding adjustments such as merger and acquisition expenses and/or certain gains, losses and other non-interest income and expenses.

Table 1: Key Financial Measures

(Dollars in thousands, except per share data)

(1) See Table 25 for the non-GAAP tabular reconciliation.

(2) See Table 29 for the non-GAAP tabular reconciliation.

Overview

Results of Operations for the Three Months Ended June 30, 2025 and 2024

Our net income increased $16.9 million, or 16.6%, to $118.4 million for the three-month period ended June 30, 2025, from $101.5 million for the same period in 2024. On a diluted earnings per share basis, our earnings were $0.60 per share for the three-month period ended June 30, 2025 compared to $0.51 per share for the three-month period ended June 30, 2024. During the three months ended June 30, 2025, the Company recorded $3.0 million in provision for credit losses on loans. In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate. During the three months ended June 30, 2025, the Company recorded $3.5 million in special income from equity investments, $1.5 million in income from an FDIC assessment reduction, $1.2 million in BOLI death benefits, $983,000 gain on sale of bank premises and equipment and $885,000 in legal fee reimbursements. These items were partially offset by $3.3 million in legal claims expense and a $238,000 decrease in the fair value of marketable securities.

Total interest expense decreased $16.3 million, or 14.1%, and non-interest income increased $8.3 million, or 19.4%. This was partially offset by an $8.2 million, or 2.5%, decrease in total interest income and a $2.9 million, or 2.5%, increase in non-interest expense. The decrease in interest expense was primarily due to an $8.7 million, or 61.1%, decrease in interest on FHLB and other borrowed funds and a $7.3 million, or 7.6%, decrease in interest on deposits. The increase in non-interest income was primarily due to a $6.8 million, or 102.2%, increase in other income and a $2.0 million, or 18.4%, increase in other service charges and fees. Included within other income was the $3.5 million in special income from equity investments. The decrease in interest income resulted from a $6.3 million, or 15.6%, decrease in investment interest income and a $3.6 million, or 28.8%, decrease in interest income on deposits at other banks, which were partially offset by a $1.7 million, or 0.6%, increase in loan interest income. The increase in non-interest expense was primarily due to a $3.9 million, or 6.4%, increase in salaries and employee benefits expense, which were partially offset by a $571,000, or 6.4%, decrease in data processing expense and a $385,000, or 2.7%, decrease in occupancy and equipment expense.

Our net interest margin increased from 4.27% for the three-month period ended June 30, 2024 to 4.44% for the three-month period ended June 30, 2025. The yield on interest earning assets was 6.42% and 6.56% for the three months ended June 30, 2025 and 2024, respectively, and average interest earning assets decreased from $20.21 billion to $20.08 billion. The decrease in average interest earning assets is primarily due to a $116.1 million decrease in average interest-bearing balances due from banks and a $422.0 million decrease in average investment securities, partially offset by a $406.9 million increase in average loans receivable. For the three months ended June 30, 2025 and 2024, we recognized $1.2 million and $1.9 million, respectively, in total net accretion for acquired loans and deposits. We recognized $516,000 in event income for the three-months ended June 30, 2025 compared to $1.7 million for the three-months ended June 30, 2024. The reduction in accretion was dilutive to the net interest margin by three basis points. The cost of interest bearing liabilities decreased from 3.15% for the three-months ended June 30, 2024 to 2.73% for the three-months ended June 30, 2025, and average interest-bearing liabilities decreased from $14.75 billion to $14.58 billion. The decrease in average interest-bearing liabilities is primarily due to a $734.1 million decrease in FHLB and other borrowed funds, which was partially offset by a $576.6 million increase in average interest-bearing deposits. During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million, primarily related to the Bank Term Funding Program ("BTFP") advance, which was dilutive to the net interest margin by approximately 10 basis points. The Company paid off the advance in November 2024. The overall increase in the net interest margin was due to a decrease in interest expense resulting from a decrease in interest rates paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities and an increase the average balance of interest-earning assets, which was partially offset by a decrease in interest income due to a reduction in asset yields.

Our efficiency ratio was 41.68% for the three months ended June 30, 2025, compared to 43.17% for the same period in 2024. For the second quarter of 2025, our efficiency ratio, as adjusted (non-GAAP), was 42.01%, compared to 42.59% reported for the second quarter of 2024. (See Table 29 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 2.08% for the three months ended June 30, 2025, compared to 1.79% for the same period in 2024. (See Table 26 for the related non-GAAP financial measures and tabular reconciliation). Our annualized return on average common equity was 11.77% and 10.73% for the three months ended June 30, 2025, and 2024, respectively. (See Table 27 for the related non-GAAP financial measures and tabular reconciliation).

Results of Operations for the Six Months Ended June 30, 2025 and 2024

Our net income increased $32.0 million, or 15.9%, to $233.6 million for the six-month period ended June 30, 2025, from $201.6 million for the same period in 2024. On a diluted earnings per share basis, our earnings were $1.18 per share for the six-month period ended June 30, 2025 compared to $1.00 per share for the six-month period ended June 30, 2024. During the six months-ended June 30, 2025, the Company recorded $3.0 million in provision for credit losses on loans. In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate. During the six months ended June 30, 2025, the Company recorded $7.4 million in special income from equity investments, $1.5 million in income from an FDIC assessment reduction, $1.2 million in BOLI death benefits, $983,000 gain on sale of bank premises and equipment, $885,000 in legal fee reimbursements and a $204,000 increase in the fair value of marketable securities, which was partially offset by $3.3 million in legal claims expense.

Total interest expense decreased $30.8 million, or 13.5%, and non-interest income increased $11.9 million, or 14.1%. This was partially offset by a $12.6 million, or 1.9%, decrease in total interest income and a $4.3 million, or 1.9%, increase in non-interest expense. The decrease in interest expense was primarily due to an $17.1 million, or 59.9%, decrease in interest on FHLB and other borrowed funds and a $13.0 million, or 6.9%, decrease in interest on deposits. The increase in non-interest income was primarily due to a $10.9 million, or 77.4%, increase in other income. Included within other income was the $7.4 million in special income from equity investments. The decrease in interest income resulted from a $12.2 million, or 15.0%, decrease in investment interest income and a $7.5 million, or 32.6%, decrease in interest income on deposits at other banks, which was partially offset by a $7.2 million, or 1.3%, increase in loan interest income. The increase in non-interest expense was primarily due to a $4.8 million, or 4.0%, increase in salaries and employee benefits expense and a $1.1 million, or 2.0%, increase in other operating expenses, which was partially offset by a $1.2 million, or 6.4%, decrease in data processing expense.

Our net interest margin increased from 4.20% for the six-month period ended June 30, 2024 to 4.44% for the six-month period ended June 30, 2025. The yield on interest earning assets was 6.43% and 6.47% for the six months ended June 30, 2025 and 2024, respectively, and average interest earning assets decreased from $20.12 billion to $19.96 billion. The decrease in average interest earning assets is primarily due to a $419.4 million decrease in average investment securities and a $152.2 million decrease in average interest-bearing balances due from banks, which was partially offset by a $407.1 million increase in average loans receivable. For the six months ended June 30, 2025 and 2024, we recognized $2.6 million and $4.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by two basis points. We recognized $1.8 million in event income for the six-months ended June 30, 2025 compared to $2.8 million for the six-months ended June 30, 2024. The reduction in accretion was dilutive to the net interest margin by one basis point. The cost of interest bearing liabilities decreased from 2.96% for the six-months ended June 30, 2024 to 2.65% for the six-months ended June 30, 2025, and average interest-bearing liabilities decreased from $14.69 billion to $14.49 billion. The decrease in average interest-bearing liabilities is primarily due to a $717.3 million decrease in FHLB and other borrowed funds, which was partially offset by a $529.0 million increase in average interest-bearing deposits. During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million, primarily related to the BTFP advance, which was dilutive to the net interest margin by approximately 10 basis points. The Company paid off the advance in November 2024. The overall increase in the net interest margin was due to a decrease in interest expense resulting from a decrease in interest rates paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities and an increase the average balance of interest-earning assets, which was partially offset by a decrease in interest income due to a reduction in asset yields.

Our efficiency ratio was 41.94% for the six months ended June 30, 2025, compared to 43.69% for the same period in 2024. For the six months ended June 30, 2025, our efficiency ratio, as adjusted (non-GAAP), was 42.42%, compared to 43.50% reported for the same period of 2024. (See Table 29 for the non-GAAP tabular reconciliation).

Our annualized return on average assets was 2.08% for the six months ended June 30, 2025, compared to 1.78% for the same period in 2024. (See Table 26 for the related non-GAAP financial measures and tabular reconciliation). Our annualized return on average common equity was 11.76% and 10.69% for the six months ended June 30, 2025, and 2024, respectively. (See Table 27 for the related non-GAAP financial measures and tabular reconciliation).

Financial Condition as of and for the Period Ended June 30, 2025 and December 31, 2024

Our total assets as of June 30, 2025 increased $416.3 million to $22.91 billion from $22.49 billion reported as of December 31, 2024. Cash and cash equivalents increased $190.7 million for the six months ended June 30, 2025. Our loan portfolio balance increased to $15.18 billion as of June 30, 2025 from $14.76 billion at December 31, 2024. The increase in loans was primarily due to $398.3 million of organic loan growth in our community banking footprint and $17.8 million of organic loan growth from our Centennial Commercial Finance Group ("Centennial CFG") franchise. These increases were partially offset by a $182.6 million decrease in investment securities resulting from paydowns and maturities during the first six months of 2025. Total deposits increased $342.1 million to $17.49 billion as of June 30, 2025 from $17.15 billion as of December 31, 2024. Stockholders’ equity increased $124.3 million to $4.09 billion as of June 30, 2025, compared to $3.96 billion as of December 31, 2024. The $124.3 million increase in stockholders’ equity is primarily associated with the $233.6 million in net income and $20.2 million in other comprehensive income for the six months ended June 30, 2025, which was partially offset by the $78.3 million in shareholder dividends paid and stock repurchases of $57.3 million.

Our non-performing loans were $96.3 million, or 0.63% of total loans as of June 30, 2025, compared to $98.9 million, or 0.67% of total loans, as of December 31, 2024. The allowance for credit losses as a percentage of non-performing loans increased to 292.72% as of June 30, 2025, from 278.99% as of December 31, 2024. As of June 30, 2025, our non-performing assets decreased to $137.8 million, or 0.60% of total assets, from $142.4 million, or 0.63% of total assets, as of December 31, 2024.

Critical Accounting Policies and Estimates

Overview. We prepare our consolidated financial statements based on the selection of certain accounting policies, generally accepted accounting principles and customary practices in the banking industry. These policies, in certain areas, require us to make significant estimates and assumptions. Our accounting policies are described in detail in the notes to our consolidated financial statements included as part of this document.

We consider a policy critical if (i) the accounting estimate requires assumptions about matters that are highly uncertain at the time of the accounting estimate; and (ii) different estimates that could reasonably 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 our financial statements. Using these criteria, we believe that the accounting policies most critical to us are those associated with our lending practices, including the accounting for the allowance for credit losses, foreclosed assets, investments, intangible assets, income taxes and stock options.

Credit Losses. We account for credit losses in accordance with ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326" or "CECL"). The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

Investments – Available-for-sale. Securities available-for-sale ("AFS") are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity and other comprehensive income (loss), net of taxes. Securities that are held as available-for-sale are used as a part of our asset/liability management strategy. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company first assesses whether it intends to sell or is more likely than not that the Company 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, the security’s amortized cost basis is written down to fair value through income. For securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, and changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The Company has made the election to exclude accrued interest receivable on AFS securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Investments – Held-to-Maturity. Debt securities held-to-maturity ("HTM"), which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. The Company evaluates all securities quarterly to determine if any securities in a loss position require a provision for credit losses in accordance with ASC 326. The Company measures expected credit losses on HTM securities on a collective basis by major security type, with each type sharing similar risk characteristics. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The Company has made the election to exclude accrued interest receivable on HTM securities from the estimate of credit losses and report accrued interest separately on the consolidated balance sheets. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectability of a security is confirmed.

Loans Receivable and Allowance for Credit Losses. Except for loans acquired during our acquisitions, substantially all of our loans receivable are reported at their outstanding principal balance adjusted for any charge-offs, as it is management’s intent to hold them for the foreseeable future or until maturity or payoff, except for mortgage loans held for sale. Interest income on loans is accrued over the term of the loans based on the principal balance outstanding.

The allowance for credit losses on loans receivable is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectability of a loan balance is confirmed and expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in the national unemployment rate, gross domestic product, rental vacancy rate, housing price index and rental vacancy rate index.

The allowance for credit losses is measured based on call report segment as these types of loans exhibit similar risk characteristics. The identified loan segments are as follows:

• 1-4 family residential construction loans
• Other construction loans and all land development and other land loans
• Loans secured by farmland (including farm residential and other improvements)
• Revolving, open-end loans secured by 1-4 family residential properties and extended under lines
• Secured by first liens
• Secured by junior liens
• Secured by multifamily (5 or more) residential properties
• Loans secured by owner-occupied, nonfarm nonresidential properties
• Loans secured by other nonfarm nonresidential properties
• Loans to finance agricultural production and other loans to farmers
• Commercial and industrial loans
• Other revolving credit plans
• Automobile loans
• Other consumer loans
• Other consumer loans - Shore Premier Finance
• Obligations (other than securities and leases) of states and political subdivisions in the US
• Loans to nondepository financial institutions
• Loans for purchasing or carrying securities
• All other loans
• Leases

The allowance for credit losses for each segment is measured through the use of the discounted cash flow method ("DCF"). Loans evaluated individually that are considered to be collateral dependent are not included in the collective evaluation. For these loans, where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, net of estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. The allowance for credit losses may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan, net of estimated costs to sell. For individually analyzed loans which are not considered to be collateral dependent, an allowance is recorded based on the loss rate for the respective pool within the collective evaluation.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments and curtailments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

• Management has a reasonable expectation at the reporting date that restructured loans made to borrowers experiencing financial difficulty will be executed with an individual borrower.
• The extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

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 factors ("Q-Factors") and other qualitative adjustments may increase or decrease management's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor and other qualitative adjustments include, among other things, the impact of (i) changes in lending policies, procedures and strategies; (ii) changes in nature and volume of the portfolio; (iii) staff experience; (iv) changes in volume and trends in classified loans, delinquencies and nonaccruals; (v) concentration risk; (vi) trends in underlying collateral values; (vii) external factors such as competition, legal and regulatory environment; (viii) changes in the quality of the loan review system; and (ix) economic conditions.

Loans are placed on non-accrual status when management believes that the borrower’s financial condition, after giving consideration to economic and business conditions and collection efforts, is such that collection of interest is doubtful, or generally when loans are 90 days or more past due. Loans are charged against the allowance for credit losses when management believes that the collectability of the principal is unlikely. Accrued interest related to non-accrual loans is generally charged against the allowance for credit losses when accrued in prior years and reversed from interest income if accrued in the current year. Interest income on non-accrual loans may be recognized to the extent cash payments are received, although the majority of payments received are usually applied to principal. Non-accrual loans are generally returned to accrual status when principal and interest payments are less than 90 days past due, the customer has made required payments for at least six months, and we reasonably expect to collect all principal and interest.

The Company has purchased loans, some of which have experienced more than insignificant credit deterioration since origination. Purchase credit deteriorated ("PCD") loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as other loans. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit loss.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures is adjusted as a provision for or reversal of credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Foreclosed Assets Held for Sale. Real estate and personal property acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Valuations are periodically performed by management, and the real estate and personal property are carried at fair value less costs to sell. Gains and losses from the sale of other real estate and personal property are recorded in non-interest income, and expenses used to maintain the properties are included in non-interest expenses.

Intangible Assets. Intangible assets consist of goodwill and core deposit intangibles. Goodwill represents the excess purchase price over the fair value of net assets acquired in business acquisitions. The core deposit intangible represents the excess intangible value of acquired deposit customer relationships as determined by valuation specialists. The core deposit intangibles are being amortized over 48 months to 121 months on a straight-line basis. Goodwill is not amortized but rather is evaluated for impairment on at least an annual basis. We perform an annual impairment test of goodwill and core deposit intangibles as required by FASB ASC 350, Intangibles - Goodwill and Other, in the fourth quarter or more often if events and circumstances indicate there may be an impairment.

Income Taxes. We account for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. We determine deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term "more likely than not" means a likelihood of more than 50 percent; the terms "examined" and "upon examination" also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to the management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Both we and our subsidiary file consolidated tax returns. Our subsidiary provides for income taxes on a separate return basis, and remits to us amounts determined to be currently payable.

Stock Compensation. In accordance with FASB ASC 718, Compensation - Stock Compensation, and FASB ASC 505-50, Equity-Based Payments to Non-Employees, the fair value of each option award is estimated on the date of grant. We recognize compensation expense for the grant-date fair value of the option award over the vesting period of the award.

Branches

As opportunities arise, we will continue to open new (commonly referred to as de novo) branches in our current markets and in other attractive market areas.

As of June 30, 2025, we had 217 branch locations. There were 75 branches in Arkansas, 78 branches in Florida, 58 branches in Texas, five branches in Alabama and one branch in New York City.

Results of Operations

For the three and six months ended June 30, 2025 and 2024

Our net income increased $16.9 million, or 16.6%, to $118.4 million for the three-month period ended June 30, 2025, from $101.5 million for the same period in 2024. On a diluted earnings per share basis, our earnings were $0.60 per share for the three-month period ended June 30, 2025 compared to $0.51 per share for the three-month period ended June 30, 2024. During the three months ended June 30, 2025, the Company recorded $3.0 million in provision for credit losses on loans. In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate. During the three months ended June 30, 2025, the Company recorded $3.5 million in special income from equity investments, $1.5 million in income from an FDIC assessment reduction, $1.2 million in BOLI death benefits, $983,000 gain on sale of bank premises and equipment and $885,000 in legal fee reimbursements. These items were partially offset by $3.3 million in legal claims expense and a $238,000 decrease in the fair value of marketable securities.

Our net income increased $32.0 million, or 15.9%, to $233.6 million for the six-month period ended June 30, 2025, from $201.6 million for the same period in 2024. On a diluted earnings per share basis, our earnings were $1.18 per share for the six-month period ended June 30, 2025 compared to $1.00 per share for the six-month period ended June 30, 2024. During the six months-ended June 30, 2025, the Company recorded $3.0 million in provision for credit losses on loans. In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate. During the six months ended June 30, 2025, the Company recorded $7.4 million in special income from equity investments, $1.5 million in income from an FDIC assessment reduction, $1.2 million in BOLI death benefits, $983,000 gain on sale of bank premises and equipment, $885,000 in legal fee reimbursements and a $204,000 increase in the fair value of marketable securities, which was partially offset by $3.3 million in legal claims expense.

Net Interest Income

Net interest income, our principal source of earnings, is the difference between the interest income generated by earning assets and the total interest cost of the deposits and borrowings obtained to fund those assets. Factors affecting the level of net interest income include the volume of earning assets and interest-bearing liabilities, yields earned on loans and investments, rates paid on deposits and other borrowings, the level of non-performing loans and the amount of non-interest-bearing liabilities supporting earning assets. Net interest income is analyzed in the discussion and tables below on a fully taxable equivalent basis. The adjustment to convert certain income to a fully taxable equivalent basis consists of dividing tax-exempt income by one minus the combined federal and state income tax rate (24.433% and 24.989% for 2025 and 2024, respectively).

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve reduced the target rate three times during 2024. First, on September 18, 2024, the target rate was reduced to 4.75% to 5.00%, second, on November 7, 2024, the target rate was reduced to 4.50% to 4.75% and third, on December 18, 2024, the target rate was reduced to 4.25% to 4.50%. As of June 30, 2025, the Federal Reserve has not changed the rates during 2025.

Our net interest margin increased from 4.27% for the three-month period ended June 30, 2024 to 4.44% for the three-month period ended June 30, 2025. The yield on interest earning assets was 6.42% and 6.56% for the three months ended June 30, 2025 and 2024, respectively, and average interest earning assets decreased from $20.21 billion to $20.08 billion. The decrease in average interest earning assets is primarily due to a $116.1 million decrease in average interest-bearing balances due from banks and a $422.0 million decrease in average investment securities, partially offset by a $406.9 million increase in average loans receivable. For the three months ended June 30, 2025 and 2024, we recognized $1.2 million and $1.9 million, respectively, in total net accretion for acquired loans and deposits. We recognized $516,000 in event income for the three-months ended June 30, 2025 compared to $1.7 million for the three-months ended June 30, 2024. The reduction in accretion was dilutive to the net interest margin by three basis points. The cost of interest bearing liabilities decreased from 3.15% for the three-months ended June 30, 2024 to 2.73% for the three-months ended June 30, 2025, and average interest-bearing liabilities decreased from $14.75 billion to $14.58 billion. The decrease in average interest-bearing liabilities is primarily due to a $734.1 million decrease in FHLB and other borrowed funds, which was partially offset by a $576.6 million increase in average interest-bearing deposits. During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million, primarily related to the Bank Term Funding Program ("BTFP") advance, which was dilutive to the net interest margin by approximately 10 basis points. The Company paid off the advance in November 2024. The overall increase in the net interest margin was due to a decrease in interest expense resulting from a decrease in interest rates paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities and an increase the average balance of interest-earning assets, which was partially offset by a decrease in interest income due to a reduction in asset yields.

Our net interest margin increased from 4.20% for the six-month period ended June 30, 2024 to 4.44% for the six-month period ended June 30, 2025. The yield on interest earning assets was 6.43% and 6.47% for the six months ended June 30, 2025 and 2024, respectively, and average interest earning assets decreased from $20.12 billion to $19.96 billion. The decrease in average interest earning assets is primarily due to a $419.4 million decrease in average investment securities and a $152.2 million decrease in average interest-bearing balances due from banks, which was partially offset by a $407.1 million increase in average loans receivable. For the six months ended June 30, 2025 and 2024, we recognized $2.6 million and $4.6 million, respectively, in total net accretion for acquired loans and deposits. The reduction in accretion was dilutive to the net interest margin by two basis points. We recognized $1.8 million in event income for the six-months ended June 30, 2025 compared to $2.8 million for the six-months ended June 30, 2024. The reduction in accretion was dilutive to the net interest margin by one basis point. The cost of interest bearing liabilities decreased from 2.96% for the six-months ended June 30, 2024 to 2.65% for the six-months ended June 30, 2025, and average interest-bearing liabilities decreased from $14.69 billion to $14.49 billion. The decrease in average interest-bearing liabilities is primarily due to a $717.3 million decrease in FHLB and other borrowed funds, which was partially offset by a $529.0 million increase in average interest-bearing deposits. During the second quarter of 2024, the Company held excess liquidity of approximately $500.0 million, primarily related to the BTFP advance, which was dilutive to the net interest margin by approximately 10 basis points. The Company paid off the advance in November 2024. The overall increase in the net interest margin was due to a decrease in interest expense resulting from a decrease in interest rates paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities and an increase the average balance of interest-earning assets, which was partially offset by a decrease in interest income due to a reduction in asset yields.

Net interest income on a fully taxable equivalent basis increased $8.0 million, or 3.7%, to $222.5 million for the three-month period ended June 30, 2025, from $214.5 million for the same period in 2024. This increase in net interest income for the three-month period ended June 30, 2025 was the result of a $16.3 million decrease in interest expense, which was partially offset by an $8.3 million decrease in interest income, on a fully taxable equivalent basis. The $16.3 million decrease in interest expense is primarily the result of the lower interest rate environment. The lower rates on interest bearing liabilities resulted in a decrease in interest expense of approximately $13.3 million, in addition to a decrease in average interest bearing liabilities which reduced interest expense by approximately $3.1 million. The $8.3 million decrease in interest income was also primarily the result of the lower interest rate environment. The lower yield on earning assets resulted in a decrease in interest income of approximately $10.6 million, which was partially offset by an increase of $2.3 million in interest income due to the change in average interest earning asset balances.

Net interest income on a fully taxable equivalent basis increased $19.7 million, or 4.7%, to $439.7 million for the six-month period ended June 30, 2025, from $419.9 million for the same period in 2024. This increase in net interest income for the six-month period ended June 30, 2025 was the result of a $30.8 million decrease in interest expense, which was partially offset by an $11.0 million decrease in interest income, on a fully taxable equivalent basis. The $30.8 million decrease in interest expense is primarily the result of the lower interest rate environment. The lower rates on interest bearing liabilities resulted in a decrease in interest expense of approximately $24.1 million, in addition to a decrease in average interest bearing liabilities which reduced interest expense by approximately $6.6 million. The $11.0 million decrease in interest income was also primarily the result of the lower interest rate environment. The lower yield on earning assets resulted in a decrease in interest income of approximately $14.9 million, which was partially offset by an increase of $3.8 million in interest income due to the change in average interest earning asset balances.

Tables 2 and 3 reflect an analysis of net interest income on a fully taxable equivalent basis for the three and six months ended June 30, 2025 and 2024, as well as changes in the fully taxable equivalent net interest margin for the three and six months ended June 30, 2025 compared to the same period in 2024.

Table 2: Analysis of Net Interest Income

(Dollars in thousands)

Table 3: Changes in Fully Taxable Equivalent Net Interest Margin

(In thousands)

65

Table 4 shows, for each major category of earning assets and interest-bearing liabilities, the average amount outstanding, the interest income or expense on that amount and the average rate earned or expensed for the three and six months ended June 30, 2025 and 2024, respectively. The table also shows the average rate earned on all earning assets, the average rate expensed on all interest-bearing liabilities, the net interest spread and the net interest margin for the same periods. The analysis is presented on a fully taxable equivalent basis. Non-accrual loans were included in average loans for the purpose of calculating the rate earned on total loans.

Table 4: Average Balance Sheets and Net Interest Income Analysis

(Dollars in thousands)

66

(Dollars in thousands)

67

Table 5 shows changes in interest income and interest expense resulting from changes in volume and changes in interest rates for the three and six months ended June 30, 2025 compared to the same period in 2024, on a fully taxable basis. The changes in interest rate and volume have been allocated to changes in average volume and changes in average rates, in proportion to the relationship of absolute dollar amounts of the changes in rates and volume.

Table 5: Volume/Rate Analysis

(In thousands)

Provision for Credit Losses

Credit Loss Expense: During the three and six months ended June 30, 2025, the Company recorded $3.0 million in provision for credit losses on loans. In addition, management determined that a provision was not necessary for the unfunded commitments as the current level of the reserve was considered adequate. During the three and six months ended June 30, 2024, the Company recorded $8.0 million and $13.5 million in provision for credit losses on loans, respectively. In addition, during the six months ended June 30, 2024, the Company recovered $1.0 million in provision for unfunded commitments.

During the three and six months ended June 30, 2025, the Company determined the $2.2 million allowance for credit losses on the available for sale portfolio and the $2.0 million allowance for credit losses on the held-to-maturity portfolio was adequate. Therefore, no additional provision was considered necessary. In addition, during the three and six months ended June, 30, 2024, the Company determined the $2.5 million allowance for credit losses on the AFS portfolio and the $2.0 million allowance for credit losses on the HTM portfolio were adequate. Therefore, no additional provision was considered necessary.

Net charge-offs to average total loans were 0.03% and 0.07% for the three months ended June 30, 2025 and 2024, respectively. Net (recoveries) charge-offs to average total loans were (0.04)% and 0.08% for the six months ended June 30, 2025 and 2024, respectively.

Non-Interest Income

Total non-interest income was $51.1 million and $96.5 million for the three and six months ended June 30, 2025, compared to $42.8 million and $84.6 million for the same period in 2024. Our recurring non-interest income includes service charges on deposit accounts, other service charges and fees, trust fees, mortgage lending income, insurance commissions, increase in cash value of life insurance, fair value adjustment for marketable securities and dividends.

Table 6 measures the various components of our non-interest income for the three and six months ended June 30, 2025 and 2024.

Table 6: Non-Interest Income

(Dollars in thousands)

Non-interest income increased $8.3 million, or 19.4%, to $51.1 million for the three months ended June 30, 2025 from $42.8 million for the same period in 2024. The primary factors in this increase were the increases in other service charges and fees, trust fees, mortgage lending income and other income, which was partially offset by the decrease in gain on sale of branches, equipment and other assets, net.

Additional details for the three months ended June 30, 2025 on some of the more significant changes are as follows:

• The $2.0 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees.
• The $512,000 increase in trust fees is primarily due to increases in IRA fees and personal trust fees.
• The $504,000 increase in mortgage lending income is primarily related to an increase in volume of secondary market loans.
• The $1.1 million decrease in the gain on sale of branches, equipment and other assets, net is primarily due to the sale of a building from our Texas region during 2024.
• The $6.8 million increase in other income is primarily due to a $3.4 million increase in fair value of equity securities, which includes $3.5 million in special income from equity investments during the second quarter of 2025, a $1.2 million increase in BOLI death benefit income, a $1.1 million increase in miscellaneous income and a $599,000 increase in recoveries on historic losses.

Non-interest income increased $11.9 million, or 14.1%, to $96.5 million for the six months ended June 30, 2025 from $84.6 million for the same period in 2024. The primary factors in this increase were the increases in other service charges and fees, mortgage lending income, cash value of life insurance and other income, which were partially offset by decreases in dividends from FHLB, FRB, FNBB & other, gain on sale of branches, equipment and other assets, net and fair value adjustment for marketable securities.

Additional details for the six months ended June 30, 2025 on some of the more significant changes are as follows:

• The $2.5 million increase in other service charges and fees is primarily related to an increase in Centennial CFG property finance loan fees.
• The $545,000 increase in mortgage lending income is primarily related to an increase in volume of secondary market loans.
• The $783,000 increase in the cash value of life insurance is primarily related to enhancement charges related to a 1035 exchange in BOLI policies.
• The $630,000 decrease in dividends from FHLB, FRB, Bankers' Bank and other was primarily due to a lower volume of dividends from the FHLB and equity investments.
• The $1.2 million decrease in the gain on sale of branches, equipment and other assets, net is primarily due to the sale of a building from our Texas region during 2024.
• The $525,000 decrease in the fair value adjustment for marketable securities is due to market fluctuations.
• The $10.9 million increase in other income is primarily due to a $7.5 million increase in fair value of equity securities, which includes 7.4 million in special income from equity investments, a $1.3 million increase in recoveries on historic losses, a $1.1 million increase in BOLI death benefit income, a $541,000 increase in miscellaneous income and a $524,000 increase in investment brokerage fee income.

Non-Interest Expense

Non-interest expense consists of salaries and employee benefits, occupancy and equipment, data processing, and other expenses such as advertising, amortization of intangibles, electronic banking expense, FDIC and state assessment, insurance, legal and accounting fees, other professional fees and other expenses.

Table 7 below sets forth a summary of non-interest expense for the three and six months ended June 30, 2025 and 2024.

Table 7: Non-Interest Expense

(Dollars in thousands)

Non-interest expense increased $2.9 million, or 2.5%, to $116.0 million for the three months ended June 30, 2025 from $113.2 million for the same period in 2024. The primary factors that resulted in this increase were the increases in salaries and employee benefits and other expense, which were partially offset by the decreases in data processing expense and FDIC and state assessment expense.

Additional details for the three months ended June 30, 2025 on some of the more significant changes are as follows:

• The $3.9 million increase in salaries and employee benefits expense is primarily due to an increase in incentive compensation as a result of an increase in revenue for the Company combined with the additional costs of doing business.
• The $571,000 decrease in data processing expense is primarily due to relationship credits received as a result of a new contract.
• The $3.9 million decrease in FDIC and state assessment expense is due to a reversal adjustment from restating call report uninsured deposits from December 2022 through December 2024, which lowered assessment expense by $1.5 million, as well as the FDIC special assessment being incurred during the second quarter of 2024. The FDIC special assessment was levied in order to recover the losses to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
• Other expense increased $3.7 million primarily due to $3.3 million in legal claims expense being recorded during the second quarter of 2025.

Non-interest expense increased $4.3 million, or 1.9%, to $229.0 million for the six months ended June 30, 2025 from $224.7 million for the same period in 2024. The primary factors that resulted in this increase were the increases in salaries and employee benefits, advertising expense, legal and accounting expense and other expense, which were partially offset by the decreases in occupancy and equipment expense and FDIC and state assessment expense.

Additional details for the six months ended June 30, 2025 on some of the more significant changes are as follows:

• The $4.8 million increase in salaries and employee benefits expense is primarily due to an increase in incentive compensation as a result of an increase in revenue for the Company combined with the additional costs of doing business.
• The $1.2 million decrease in data processing expense is primarily due to relationship credits received as a result of a new contract.
• The $636,000 increase in advertising expense is primarily due to an increased volume of advertising.
• The $3.8 million decrease in FDIC and state assessment expense is due to a reversal adjustment from restating call report uninsured deposits from December 2022 through December 2024, which lowered assessment expense by $1.5 million, as well as the FDIC special assessment being incurred during the second quarter of 2024. The FDIC special assessment was levied in order to recover the losses to the Deposit Insurance Fund associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
• The $1.3 million increase in legal and accounting expense is primarily due to ongoing legal matters.
• The $3.5 million increase in other expense is primarily due to $3.3 million in legal claims expense being recorded during the second quarter of 2025.

Income Taxes

Income tax expense increased $1.7 million, or 5.4%, to $33.6 million for the three-month period ended June 30, 2025, from $31.9 million for the same period in 2024. Income tax expense increased $3.4 million, or 5.4%, to $65.5 million for the six-month period ended June 30, 2025, from $62.2 million for the same period in 2024. The effective income tax rate was 22.10% and 21.91% for the three and six months ended June 30, 2025, compared to 23.90% and 23.56% for the same period in 2024. The marginal tax rate was 24.433% and 24.989% for 2025 and 2024, respectively.

Financial Condition as of and for the Period Ended June 30, 2025 and December 31, 2024

Our total assets as of June 30, 2025 increased $416.3 million to $22.91 billion from $22.49 billion reported as of December 31, 2024. Cash and cash equivalents increased $190.7 million for the six months ended June 30, 2025. Our loan portfolio balance increased to $15.18 billion as of June 30, 2025 from $14.76 billion at December 31, 2024. The increase in loans was primarily due to $398.3 million of organic loan growth in our community banking footprint and $17.8 million of organic loan growth from our Centennial Commercial Finance Group ("Centennial CFG") franchise. These increases were partially offset by a $182.6 million decrease in investment securities resulting from paydowns and maturities during the first six months of 2025. Total deposits increased $342.1 million to $17.49 billion as of June 30, 2025 from $17.15 billion as of December 31, 2024. Stockholders’ equity increased $124.3 million to $4.09 billion as of June 30, 2025, compared to $3.96 billion as of December 31, 2024. The $124.3 million increase in stockholders’ equity is primarily associated with the $233.6 million in net income and $20.2 million in other comprehensive income for the six months ended June 30, 2025, which was partially offset by the $78.3 million in shareholder dividends paid and stock repurchases of $57.3 million.

Loan Portfolio

Loans Receivable

Our loan portfolio averaged $15.06 billion and $14.65 billion during the three months ended June 30, 2025 and 2024, respectively. Our loan portfolio averaged $14.98 billion and $14.57 billion during the six months ended June 30, 2025 and 2024, respectively. Loans receivable were $15.18 billion and $14.76 billion as of June 30, 2025 and December 31, 2024, respectively.

From December 31, 2024 to June 30, 2025, the Company experienced an increase of approximately $416.1 million in loans. The increase in loans was due to $398.3 million of organic loan growth in our community banking footprint and $17.8 million of organic loan growth from our Centennial CFG franchise.

The most significant components of the loan portfolio were commercial real estate, residential real estate, consumer and commercial and industrial loans. These loans are generally secured by residential or commercial real estate or business or personal property. Although these loans are primarily originated within our franchises in Arkansas, Florida, Texas, Alabama and Centennial CFG, the property securing these loans may not physically be located within our market areas of Arkansas, Florida, Texas, Alabama and New York. Loans receivable were approximately $3.66 billion, $4.31 billion, $3.92 billion, $107.3 million, $1.35 billion and $1.83 billion as of June 30, 2025 in Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG, respectively.

Table 8 presents our loans receivable balances by category as of June 30, 2025 and December 31, 2024.

Table 8: Loans Receivable

(In thousands)

72

Commercial Real Estate Loans. We originate non-farm and non-residential loans (primarily secured by commercial real estate), construction/land development loans, and agricultural loans, which are generally secured by real estate located in our market areas. Our commercial mortgage loans are generally collateralized by first liens on real estate and amortized (where defined) over a 15 to 30-year period with balloon payments due at the end of one to five years. These loans are generally underwritten by assessing cash flow (debt service coverage), primary and secondary source of repayment, the financial strength of the borrower as well as any guarantors, the strength of the tenant (if any), the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. Generally, we will loan up to 85% of the value of improved property, 65% of the value of raw land and 75% of the value of land to be acquired and developed. A first lien on the property and assignment of lease is required if the collateral is rental property, with second lien positions considered on a case-by-case basis.

As of June 30, 2025, we had approximately $1.10 billion of construction/land development loans which were collateralized by land. This consisted of approximately $79.7 million for raw land and approximately $1.02 billion for land with commercial and/or residential lots.

As of June 30, 2025, commercial real estate ("CRE") loans totaled $8.56 billion, or 56.4%, of loans receivable, as compared to $8.50 billion, or 57.6%, of loans receivable, as of December 31, 2024. CRE loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $2.35 billion, $2.53 billion, $2.19 billion, $45.7 million, zero and $1.44 billion at June 30, 2025, respectively.

Table 9 presents the composition of the funded and unfunded balances of our CRE portfolio by loan type, as of June 30, 2025 and December 31, 2024, and their respective percentages of our total CRE portfolio.

Table 9: CRE Loan Concentrations

(Dollars in thousands)

73

(Dollars in thousands)

(1) Agriculture real estate loans and owner-occupied non-farm non-residential loans are not included within CRE for regulatory reporting purposes.

(2) Excludes multi-family residential loans of $620.4 million and $496.5 million as of June 30, 2025 and December 31, 2024, respectively, which are included in the residential real estate loans throughout the filing. Multi-family residential loans are included in CRE for regulatory purposes.

Table 10 presents the composition of our CRE loan portfolio by the ten largest geographical locations of the collateral as of June 30, 2025 and December 31, 2024.

Table 10: Geographical Locations of CRE Loans

(In thousands)

(In thousands)

(1) Agriculture real estate loans and owner-occupied non-farm non-residential loans are not included within CRE for regulatory reporting purposes.

(2) Excludes multi-family residential loans of $620.4 million and $496.5 million as of June 30, 2025 and December 31, 2024, respectively, which are included in the residential real estate loans throughout the filing. Multi-family residential loans are included in CRE for regulatory purposes.

Our loan policy states that in order to achieve a well-balanced, diversified credit portfolio, concentrations containing inappropriate or excessive risk are to be avoided. It is the goal of the Company to maintain a prudent diversification of loans. We define a concentration of credit as direct or indirect obligations according to the following guidelines: (i) concentrations of 25% or more of total risk-based capital by individual borrower, small, interrelated group of individuals, single repayment source or individual project; (ii) concentrations of 100% or more of total risk-based capital by industry or product line. As of June 30, 2025, we have not met the threshold for the concentration limits. In addition, the Bank's Board of Directors monitors the CRE loan portfolio for concentrations related to geography, industry, and collateral type and determines applicable guidelines. The Chief Lending Officer also reviews the portfolio periodically to determine if any concentrations exist and makes recommendations with respect to setting internal guidelines.

The Company also monitors key risk indicators ("KRIs") on a quarterly basis for the overall loan portfolio as well as specific KRIs for the CRE portfolio. The KRIs are tied to the Bank's appetite for credit risk which is reflected in the Bank's credit policy and underwriting criteria. The KRIs related to underwriting include loan downgrades by loan review, loan downgrades to classified levels and loan policy exceptions (loan to value, debt coverage ratio and credit score). The KRIs related to CRE loans include concentrations of construction and land loans, concentrations of total CRE loans, CRE loans in excess of loan to value guidelines and total real estate loans in excess of loan to value guidelines. The results of the KRI analysis are presented to the Bank's Asset Quality Committee on a quarterly basis. Any exceptions to established limits and thresholds are monitored and addressed in a timely manner as required by the Asset Quality Committee.

The Company has a CRE strategy and contingency plan which outlines the principles required to adequately manage our CRE exposures. It discusses the inherent risks within CRE lending, as well as the risks unique to specific lending activities and property taxes. In addition, the plan outlines internal limits related to CRE lending, reasoning for operating outside those limits, and provides for a contingency plan to reduce the CRE exposures under adverse economic conditions or other situations where it is deemed necessary to do so. The responsibility for monitoring the CRE Strategy and Contingency Plan, and subsequent reporting to management and the Board of Directors lies with the Chief Lending Officer and the Asset Quality Committee of the Board of Directors. Within the CRE Strategy and Contingency Plan, we established four adverse economic triggers to measure on an ongoing basis to attempt to determine when a change in CRE strategy might be warranted, at least from an external economic perspective. If one or a combination of these triggers have exceeded Board approved thresholds, the Executive Risk Committee will determine which action or combination of actions, if any, to take based on the specific situation. If utilized, the required actions are likely to focus on tightening/loosening of underwriting criteria, potential capital raises or loan distribution actions such as selling or participating loans. However, other action steps may be considered necessary depending upon the specific situation. As of June 30, 2025, none of the triggers exceeded our internal guidelines, and we have not recommended any additional changes to our underwriting standards because the Company considers the current standards to be adequate in addressing the risks to our CRE portfolio.

Residential Real Estate Loans. We originate one to four family, residential mortgage loans generally secured by property located in our primary market areas. Approximately 55.5% and 37.6% of our residential mortgage loans consist of owner occupied 1-4 family properties and non-owner occupied 1-4 family properties (rental), respectively, as of June 30, 2025, with the remaining 6.9% relating to condominiums and mobile homes. Residential real estate loans generally have a loan-to-value ratio of up to 90%. These loans are underwritten by giving consideration to the borrower’s ability to pay, stability of employment or source of income, debt-to-income ratio, credit history and loan-to-value ratio.

As of June 30, 2025, residential real estate loans totaled $2.76 billion, or 18.2%, of loans receivable, compared to $2.45 billion, or 16.6%, of loans receivable, as of December 31, 2024. Residential real estate loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $600.4 million, $1.23 billion, $672.8 million, $39.2 million, zero and $214.4 million at June 30, 2025, respectively.

Consumer Loans. Our consumer loans are composed of secured and unsecured loans originated by our bank, the primary portion of which consists of loans to finance United States Coast Guard registered high-end sail and power boats within our SPF division. The performance of consumer loans will be affected by the local and regional economies as well as the rates of personal bankruptcies, job loss, divorce and other individual-specific characteristics.

As of June 30, 2025, consumer loans totaled $1.22 billion, or 8.0%, of loans receivable, compared to $1.23 billion, or 8.4%, of loans receivable, as of December 31, 2024. Consumer loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $20.1 million, $6.3 million, $8.3 million, $448,000, $1.18 billion and zero at June 30, 2025, respectively.

Commercial and Industrial Loans. Commercial and industrial loans are made for a variety of business purposes, including working capital, inventory, equipment and capital expansion. The terms for commercial loans are generally one to seven years. Commercial loan applications must be supported by current financial information of the borrower and, where appropriate, by adequate collateral. Commercial loans are generally underwritten by addressing cash flow (debt service coverage), primary and secondary sources of repayment, the financial strength of the borrower as well as any guarantors, the borrower’s liquidity and leverage, management experience, ownership structure, economic conditions and industry specific trends and collateral. The loan to value ratio depends on the type of collateral. Generally, accounts receivable are financed at between 50% and 80% of accounts receivable less than 60 days past due. Inventory financing will range between 50% and 80% (with no work in process) depending on the borrower and nature of inventory. We require a first lien position for those loans.

As of June 30, 2025, commercial and industrial loans totaled $2.11 billion, or 13.9%, of loans receivable, compared to $2.02 billion, or 13.7%, of loans receivable, as of December 31, 2024. Commercial and industrial loans originated in our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets were $478.7 million, $502.8 million, $795.6 million, $21.6 million, $160.8 million and $147.9 million at June 30, 2025, respectively.

Non-Performing Assets

We classify our problem loans into three categories: past due loans, special mention loans and classified loans (accruing and non-accruing).

When management determines that a loan is no longer performing, and that collection of interest appears doubtful, the loan is placed on non-accrual status. Loans that are 90 days past due are placed on non-accrual status unless they are adequately secured and there is reasonable assurance of full collection of both principal and interest. Our management closely monitors all loans that are contractually 90 days past due, treated as "special mention" or otherwise classified or on non-accrual status.

Purchased loans that have experienced more than insignificant credit deterioration since origination are PCD loans. An allowance for credit losses is determined using the same methodology as other loans. The Company develops separate PCD models for each loan segment with PCD loans not individually analyzed for credit losses. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a non-credit discount or premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit losses are recorded through the provision for credit losses. The Company held approximately $55.2 million and $76.3 million in PCD loans, as of June 30, 2025 and December 31, 2024, respectively.

Table 11 sets forth information with respect to our non-performing assets as of June 30, 2025 and December 31, 2024. As of these dates, all non-performing restructured loans are included in non-accrual loans.

Table 11: Non-performing Assets

(Dollars in thousands)

77

Our non-performing loans are comprised of non-accrual loans and accruing loans that are contractually past due 90 days. Our bank subsidiary recognizes income principally on the accrual basis of accounting. When loans are classified as non-accrual, the accrued interest is charged off and no further interest is accrued, unless the credit characteristics of the loan improve. If a loan is determined by management to be uncollectible, the portion of the loan determined to be uncollectible is then charged to the allowance for credit losses.

Our non-performing loans were $96.3 million, or 0.63% of total loans as of June 30, 2025, compared to $98.9 million, or 0.67% of total loans, as of December 31, 2024. The allowance for credit losses as a percentage of non-performing loans increased to 292.72% as of June 30, 2025, from 278.99% as of December 31, 2024. As of June 30, 2025, our non-performing assets decreased to $137.8 million, or 0.60% of total assets, from $142.4 million, or 0.63% of total assets, as of December 31, 2024.

Table 12 below shows the non-performing loans and non-performing assets by region as of June 30, 2025 and December 31, 2024:

Table 12: Non-performing Assets By Region

(in thousands)

(in thousands)

Debt restructuring generally occurs when a borrower is experiencing, or is expected to experience, financial difficulties in the near term. As a result, we will work with the borrower to prevent further difficulties, and ultimately to improve the likelihood of recovery on the loan. In those circumstances it may be beneficial to restructure the terms of a loan and work with the borrower for the benefit of both parties, versus forcing the property into foreclosure and having to dispose of it in potentially an unfavorable and depressed real estate market. When we have modified the terms of a loan, we usually either reduce the monthly payment and/or interest rate for generally about three to twelve months. For our restructured loans that accrue interest at the time the loan is restructured, it would be a rare exception to have charged-off any portion of the loan.

A loan modification that might not otherwise be considered may be granted. These loans can involve loans remaining on non-accrual, moving to non-accrual, or continuing on an accrual status, depending on the individual facts and circumstances of the borrower. Generally, a non-accrual loan that is restructured remains on non-accrual for a period of three months to demonstrate that the borrower can meet the restructured terms. However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can pay under the new terms and may result in the loan being returned to an accrual status after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan will remain in a non-accrual status.

As of June 30, 2025, we had $105.7 million of restructured loans that are in compliance with the modified terms and are not reported as past due or non-accrual, and we had $17.4 million of restructured loans that are not in compliance with the modified terms and are reported as non-accrual. Of the $105.7 million of restructured loans that are in compliance with the modified terms, our Arkansas market contained $1.8 million, our Florida market contained $1.0 million, our Texas market contained $97.6 million, our SPF region contained $3.0 million and our New York region contained $2.3 million of these restructured loans. Of the $17.4 million of restructured loans not in compliance with the modified terms, our Arkansas market contained $1.4 million, our Florida market contained $15.8 million and our Texas market contained $195,000.

The Company closely monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company has modified 12 loans over the past 12 months to borrowers experiencing financial difficulty. The pre-modification balance of the loans was $112.2 million, and the ending balance as of June 30, 2025 was $100.8 million. The $100.8 million balance consists of $1.2 million of non-accrual loans and $99.6 million of current loans, of which all were current as of June 30, 2025. Three of the modified loans pertained to one borrower relationship and accounted for $96.3 million of the total post-modification outstanding balance. These loans were modified during the year ended December 31, 2024. The modification involved three new loans being underwritten resulting in the interest rate decreasing by 12 basis points and one of the loans in the relationship being charged-off. The charged-off amount was $26.1 million, and the charge-off was recorded during 2024. Six of the $123.1 million in restructured loans held by the Company were considered to be collateral dependent as of June 30, 2025. The outstanding balance of these loans was $116.8 million, and the specific reserve was $4.0 million.

The Company had $246.2 million and $268.0 million in impaired loans (which includes loans individually analyzed for credit losses for which a specific reserve has been recorded, non-accrual loans, loans past due 90 days or more and restructured loans made to borrowers experiencing financial difficulty) for the periods ended June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025, our Arkansas, Florida, Texas, Alabama, SPF and Centennial CFG markets accounted for approximately $24.1 million, $48.0 million, $156.1 million, $162,000, $14.7 million and $3.1 million of the impaired loans, respectively.

The amortized cost balance for loans with a specific allocation decreased from $92.7 million to $78.3 million, and the specific allocation for impaired loans decreased by approximately $4.5 million to $19.4 million at June 30, 2025 compared to $23.8 million at December 31, 2024.

Total foreclosed assets held for sale were $41.5 million as of June 30, 2025, compared to $43.4 million as of December 31, 2024, for a decrease of $1.9 million. The foreclosed assets held for sale as of June 30, 2025 are comprised of $863,000 located in Arkansas, $565,000 located in Florida, $17.3 million located in Texas, zero in Alabama, zero in SPF and $22.8 million in Centennial CFG. The majority of the foreclosed assets held for sale is comprised of two properties. The first is an office building located in Santa Monica, California with a carrying value of $22.8 million. The second is an apartment complex which is under construction in Gunter, Texas with a carrying value of $14.3 million. These two properties account for $37.2 million of the balance of foreclosed assets held for sale at June 30, 2025.

Table 13 shows the summary of foreclosed assets held for sale as of June 30, 2025 and December 31, 2024.

Table 13: Foreclosed Assets Held For Sale

(In thousands)

Past Due and Non-Accrual Loans

Table 14 shows the summary of non-accrual loans as of June 30, 2025 and December 31, 2024:

Table 14: Total Non-Accrual Loans

(In thousands)

If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $1.8 million and $1.3 million, respectively, would have been recorded for the three-month periods ended June 30, 2025 and 2024. If non-accrual loans had been accruing interest in accordance with the original terms of their respective agreements, interest income of approximately $3.5 million and $2.5 million, respectively, would have been recorded for the six-month periods ended June 30, 2025 and 2024. The interest income recognized on non-accrual loans for the three months ended June 30, 2025 and 2024 was considered immaterial.

Table 15 shows the summary of accruing past due loans 90 days or more as of June 30, 2025 and December 31, 2024:

Table 15: Loans Accruing Past Due 90 Days or More

(In thousands)

Our ratio of total loans accruing past due 90 days or more and non-accrual loans to total loans was 0.63% and 0.67% at June 30, 2025 and December 31, 2024, respectively.

Allowance for Credit Losses

Overview. The allowance for credit losses on loans receivable increased from $275.9 million as of December 31, 2024 to $281.9 million as of June 30, 2025. The specific reserve for loans individually analyzed for credit losses was $19.4 million on $202.4 million of individually analyzed loans as of June 30, 2025, compared to a specific reserve of $23.8 million on $209.8 million of individually analyzed loans as of December 31, 2024. The allowance for credit losses as a percentage of loans was 1.86% and 1.87% at June 30, 2025 and December 31, 2024, respectively.

Loans Collectively Evaluated for Credit Loss. Loans receivable collectively evaluated for credit loss increased by approximately $423.6 million from $14.55 billion at December 31, 2024 to $14.98 billion at June 30, 2025. The percentage of the allowance for credit losses allocated to loans receivable collectively evaluated for credit loss to the total loans collectively evaluated for credit loss was 1.75% and 1.73% at June 30, 2025 and December 31, 2024, respectively.

Charge-offs and Recoveries. For the three months ended June 30, 2025, total charge-offs were $4.1 million and total recoveries were $3.0 million, for a net charge-off position of $1.1 million. For the six months ended June 30, 2025, total charge-offs were $7.5 million and total recoveries were $10.5 million, for a net recovery position of $3.0 million. For the three months ended June 30, 2024, total charge-offs were $3.1 million and total recoveries were $660,000, for a net charge-off position of $2.4 million. For the six months ended June 30, 2024, total charge-offs were $7.1 million and total recoveries were $1.2 million, for a net charge-off position of $5.9 million.

Table 16 below shows charge-off and recovery detail by region for the six months ended June 30, 2025 and 2024.

Table 16: Charge-Off and Recovery Detail By Region

For the Three Months Ended June 30, 2025

(in thousands)

For the Six Months Ended June 30, 2025

(in thousands)

For the Three Months Ended June 30, 2024

(in thousands)

For the Six Months Ended June 30, 2024

(in thousands)

Loans partially charged-off are placed on non-accrual status until it is proven that the borrower's repayment ability with respect to the remaining principal balance can be reasonably assured. This is usually established over a period of 6-12 months of timely payment performance.

Table 17 shows the allowance for credit losses, charge-offs and recoveries as of and for the three and six months ended June 30, 2025 and 2024.

Table 17: Analysis of Allowance for Credit Losses

(Dollars in thousands)

83

Table 18 presents the allocation of allowance for credit losses as of June 30, 2025 and December 31, 2024.

Table 18: Allocation of Allowance for Credit Losses

(Dollars in thousands)

(1) Percentage of loans in each category to total loans receivable.

During the six months ended June 30, 2025, the Company reduced the level of the hurricane reserve from $33.4 million to $6.0 million as the deferred loans returned to regular payment during the year. The reduction in the hurricane reserve and the increase in the economic uncertainty related qualitative factor drove the significant changes in reserve levels between commercial real estate and commercial & industrial loans.

Investment Securities

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue. Securities within the portfolio are classified as held-to-maturity, available-for-sale, or trading based on the intent and objective of the investment and the ability to hold to maturity. Fair values of securities are based on quoted market prices where available. If quoted market prices are not available, estimated fair values are based on quoted market prices of comparable securities. The estimated effective duration of our securities portfolio was 5.1 years as of June 30, 2025.

Securities held-to-maturity, which include any security for which we have the positive intent and ability to hold until maturity, are reported at historical cost adjusted for amortization of premiums and accretion of discounts. Premiums and discounts are amortized/accreted to the call date to interest income using the constant effective yield method over the estimated life of the security. We had $1.27 billion and $1.28 billion of held-to-maturity securities at June 30, 2025 and December 31, 2024, respectively. The detail of the held-to-maturity portfolio by carrying amount and percentage of the portfolio at June 30, 2025 and December 31, 2024 can be seen below.

Table 19: Held to Maturity Securities

(In Thousands)

(In Thousands)

84

Securities available-for-sale are reported at fair value with unrealized holding gains and losses reported as a separate component of stockholders’ equity as other comprehensive (loss) income. Securities that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital, and other similar factors are classified as available-for-sale. Available-for-sale securities were $2.90 billion and $3.07 billion as June 30, 2025 and December 31, 2024, respectively. The detail of the available-for-sale portfolio by estimated fair value and percentage of the portfolio at June 30, 2025 and December 31, 2024 can be seen below.

Table 20: Available for Sale Securities

(In Thousands)

(In Thousands)

During the three and six months ended June 30, 2025, the Company determined the $2.2 million allowance for credit losses on the available-for-sale portfolio and the $2.0 million allowance for credit losses on the held-to-maturity portfolio were adequate. Therefore, no additional provision was considered necessary.

See Note 2 to the Condensed Notes to Consolidated Financial Statements for the carrying value and fair value of investment securities.

Deposits

Our deposits averaged $17.41 billion and $16.94 billion for the three months ended June 30, 2025 and June 30, 2024, respectively. Our deposits averaged $17.30 billion and $16.84 billion for the six months ended June 30, 2025 and June 30, 2024, respectively. Total deposits were $17.49 billion as of June 30, 2025, and $17.15 billion as of December 31, 2024. Deposits are our primary source of funds. We offer a variety of products designed to attract and retain deposit customers. Those products consist of checking accounts, regular savings deposits, NOW accounts, money market accounts and certificates of deposit. Deposits are gathered from individuals, partnerships and corporations in our market areas. In addition, we obtain deposits from state and local entities and, to a lesser extent, U.S. Government and other depository institutions.

Our policy also permits the acceptance of brokered deposits. From time to time, when appropriate in order to fund strong loan demand, we accept brokered time deposits, generally in denominations of less than $250,000, from a regional brokerage firm, and other national brokerage networks. We also participate in the One-Way Buy Insured Cash Sweep ("ICS") service and similar services, which provide for one-way buy transactions among banks for the purpose of purchasing cost-effective floating-rate funding without collateralization or stock purchase requirements. Management believes these sources represent a reliable and cost-efficient alternative funding source for the Company. However, to the extent that our condition or reputation deteriorates, or to the extent that there are significant changes in market interest rates which we do not elect to match, we may experience an outflow of brokered deposits. In that event we would be required to obtain alternate sources for funding.

Table 21 reflects the classification of the brokered deposits as of June 30, 2025 and December 31, 2024.

Table 21: Brokered Deposits

(In thousands)

85

The interest rates paid are competitively priced for each particular deposit product and structured to meet our funding requirements. We will continue to manage interest expense through deposit pricing. We may allow higher rate deposits to run off during periods of limited loan demand. We believe that additional funds can be attracted, and deposit growth can be realized through deposit pricing if we experience increased loan demand or other liquidity needs.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the deposit and loan rates offered by financial institutions. The Federal Reserve reduced the target rate three times during 2024. First, on September 18, 2024, the target rate was reduced to 4.75% to 5.00%, second, on November 7, 2024, the target rate was reduced to 4.50% to 4.75% and third, on December 18, 2024, the target rate was reduced to 4.25% to 4.50%. As of June 30, 2025, the Federal Reserve has not changed the rates during 2025.

Table 22 reflects the classification of the average deposits and the average rate paid on each deposit category, which are in excess of 10 percent of average total deposits, for the three and six months ended June 30, 2025 and 2024.

Table 22: Average Deposit Balances and Rates

(Dollars in thousands)

(Dollars in thousands)

Securities Sold Under Agreements to Repurchase

We enter into short-term purchases of securities under agreements to resell (resale agreements) and sales of securities under agreements to repurchase (repurchase agreements) of substantially identical securities. The amounts advanced under resale agreements and the amounts borrowed under repurchase agreements are carried on the balance sheet at the amount advanced. Interest incurred on repurchase agreements is reported as interest expense. Securities sold under agreements to repurchase decreased $21.5 million, or 13.3%, from $162.4 million as of December 31, 2024 to $140.8 million as of June 30, 2025.

FHLB and Other Borrowed Funds

The Company’s FHLB borrowed funds, which are secured by our loan portfolio, were $550.0 million and $600.0 million at June 30, 2025 and December 31, 2024, respectively. At June 30, 2025, $100.0 million and $450.0 million of the outstanding balances were classified as short-term and long-term advances, respectively. At December 31, 2024, $100.0 million and $500.0 million of the outstanding balances were classified as short-term and long-term advances, respectively.

The FHLB advances mature from 2025 to 2037 with fixed interest rates ranging from 3.37% to 4.84%. Expected maturities could differ from contractual maturities because FHLB may have the right to call, or the Company may have the right to prepay certain obligations.

Other borrowed funds were $500,000 and $750,000 as of June 30, 2025 and December 31, 2024, respectively. These were classified as short-term advances.

Additionally, the Company had $1.31 billion and $1.22 billion at June 30, 2025 and December 31, 2024, respectively, in letters of credit under a FHLB blanket borrowing line of credit, which are used to collateralize public deposits.

Subordinated Debentures

Subordinated debentures were $439.0 million and $439.2 million as of June 30, 2025 and December 31, 2024, respectively.

On April 1, 2022, the Company acquired $140.0 million in aggregate principal amount of 5.500% Fixed-to-Floating Rate Subordinated Notes due 2030 (the 2030 Notes") from Happy, and the Company recorded approximately $144.4 million which included fair value adjustments. The 2030 Notes are unsecured, subordinated debt obligations of the Company and will mature on July 31, 2030. From and including the date of issuance to, but excluding July 31, 2025 or the date of earlier redemption, the 2030 Notes will bear interest at an initial rate of 5.50% per annum, payable in arrears on January 31 and July 31 of each year. From and including July 31, 2025 to, but excluding, the maturity date or earlier redemption, the 2030 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be 3-month Secured Overnight Funding Rate ("SOFR")), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2030 Notes, plus 5.345%, payable quarterly in arrears on January 31, April 30, July 31, and October 31 of each year, commencing on October 31, 2025.

The Company may, beginning with the interest payment date of July 31, 2025, and on any interest payment date thereafter, redeem the 2030 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2030 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2030 Notes at any time, including prior to July 31, 2025, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2030 Notes for U.S. federal income tax purposes or preclude the 2030 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2030 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

On July 31, 2025, the Company completed the payoff of its $140.0 million in aggregate principal amount of the 2030 Notes. Each 2030 Note was redeemed pursuant to the terms of the Subordinated Indenture, dated as of July 30, 2020, between the Company and UMB Bank, the Trustee for the 2030 Notes, at the redemption price of 100% of its principal amount, plus accrued and unpaid interest to, but excluding, the Redemption Date.

On January 18, 2022, the Company completed an underwritten public offering of $300.0 million in aggregate principal amount of its 3.125% Fixed-to-Floating Rate Subordinated Notes due 2032 (the "2032 Notes") for net proceeds, after underwriting discounts and issuance costs, of approximately $296.4 million. The 2032 Notes are unsecured, subordinated debt obligations of the Company and will mature on January 30, 2032. From and including the date of issuance to, but excluding January 30, 2027 or the date of earlier redemption, the 2032 Notes will bear interest at an initial rate of 3.125% per annum, payable in arrears on January 30 and July 30 of each year. From and including January 30, 2027 to, but excluding the maturity date or earlier redemption, the 2032 Notes will bear interest at a floating rate equal to the Benchmark rate (which is expected to be Three-Month Term SOFR), each as defined in and subject to the provisions of the applicable supplemental indenture for the 2032 Notes, plus 182 basis points, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on April 30, 2027.

The Company may, beginning with the interest payment date of January 30, 2027, and on any interest payment date thereafter, redeem the 2032 Notes, in whole or in part, subject to prior approval of the Federal Reserve if then required, at a redemption price equal to 100% of the principal amount of the 2032 Notes to be redeemed plus accrued and unpaid interest to but excluding the date of redemption. The Company may also redeem the 2032 Notes at any time, including prior to January 30, 2027, at the Company’s option, in whole but not in part, subject to prior approval of the Federal Reserve if then required, if certain events occur that could impact the Company’s ability to deduct interest payable on the 2032 Notes for U.S. federal income tax purposes or preclude the 2032 Notes from being recognized as Tier 2 capital for regulatory capital purposes, or if the Company is required to register as an investment company under the Investment Company Act of 1940, as amended. In each case, the redemption would be at a redemption price equal to 100% of the principal amount of the 2032 Notes plus any accrued and unpaid interest to, but excluding, the redemption date.

Stockholders’ Equity

Stockholders’ equity increased $124.3 million to $4.09 billion as of June 30, 2025, from $3.96 billion as of December 31, 2024. The $124.3 million increase in stockholders’ equity is primarily associated with the $233.6 million in net income and the $20.2 million in other comprehensive income for the six months ended June 30, 2025, which was partially offset by the $78.3 million in shareholder dividends paid and stock repurchases of $57.3 million in 2025. As of June 30, 2025 and December 31, 2024, our equity to asset ratio was 17.83% and 17.61%, respectively. Book value per share was $20.71 as of June 30, 2025, compared to $19.92 as of December 31, 2024, an 8.0% annualized increase.

Common Stock Cash Dividends. We declared cash dividends on our common stock of $0.20 and $0.18 per share for the three months ended June 30, 2025 and 2024, respectively, and $0.395 and $0.36 per share for the six months ended June 30, 2025 and 2024, respectively. The common stock dividend payout ratio for the three months ended June 30, 2025 and 2024 was 33.4% and 35.6%, respectively. The common stock dividend payout ratio for the six months ended June 30, 2025 and 2024 was 33.5% and 35.9%, respectively. On July 18, 2025, the Board of Directors declared a regular $0.20 per share quarterly cash dividend payable September 3, 2025, to shareholders of record August 13, 2025.

Stock Repurchase Program. During the first six months of 2025, the Company repurchased a total of 2,000,000 shares with a weighted-average stock price of $28.33 per share. Shares repurchased under the program as of June 30, 2025 since its inception total 28,507,507 shares. The remaining balance available for repurchase was 18,000,000 shares at June 30, 2025.

Liquidity and Capital Adequacy Requirements

Risk-Based Capital. We, as well as our bank subsidiary, are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and other discretionary actions by regulators that, if enforced, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are also subject to qualitative judgments by the regulators as to components, risk weightings and other factors.

In July 2013, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems" and certain provisions of the Dodd-Frank Act ("Basel III"). Basel III applies to all depository institutions, bank holding companies with total consolidated assets of $500 million or more, and savings and loan holding companies. Basel III became effective for the Company and its bank subsidiary on January 1, 2015. Basel III limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" of 2.5% of common equity Tier 1 capital to risk-weighted assets, which is in addition to the amount necessary to meet its minimum risk-based capital requirements.

Basel III amended the prompt corrective action rules to incorporate a common equity Tier 1 ("CET1") capital requirement and to raise the capital requirements for certain capital categories. In order to be adequately capitalized for purposes of the prompt corrective action rules, a banking organization is required to have at least a 4.5% CET1 risk-based capital ratio, a 4% Tier 1 leverage ratio, a 6% Tier 1 risk-based capital ratio and an 8% total risk-based capital ratio.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes that, as of June 30, 2025 and December 31, 2024, we met all regulatory capital adequacy requirements to which we were subject.

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new CECL accounting rule on retained earnings over a period of three years. As part of its response to the impact of COVID-19, on March 27, 2020, the federal banking regulatory agencies issued an interim final rule that provided the option to temporarily delay certain effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule allows bank holding companies and banks to delay for two years 100% of the day-one impact of adopting CECL and 25% of the cumulative change in the reported allowance for credit losses since adopting CECL. The Company elected to adopt the interim final rule, which is reflected in the risk-based capital ratios presented below as of December 31, 2024. The risk-based capital ratios presented below as of June 30, 2025 do not include a transitional period adjustment as the transition period has ended.

Table 23 presents our risk-based capital ratios on a consolidated basis as of June 30, 2025 and December 31, 2024.

Table 23: Risk-Based Capital

(Dollars in thousands)

89

As of the most recent notification from regulatory agencies, our bank subsidiary was "well-capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well-capitalized," we, as well as our banking subsidiary, must maintain minimum CET1 capital, leverage, Tier 1 risk-based capital, and total risk-based capital ratios as set forth in the table. There are no conditions or events since that notification that we believe have changed the bank subsidiary’s category.

Non-GAAP Financial Measurements

Our accounting and reporting policies conform to generally accepted accounting principles in the United States ("GAAP") and the prevailing practices in the banking industry. However, this report contains financial information determined by methods other than in accordance with GAAP, including earnings, as adjusted; diluted earnings per common share, as adjusted; tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity, excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted.

We believe these non-GAAP measures and ratios, when taken together with the corresponding GAAP measures and ratios, provide meaningful supplemental information regarding our performance. We believe investors benefit from referring to these non-GAAP measures and ratios in assessing our operating results and related trends, and when planning and forecasting future periods. However, these non-GAAP measures and ratios should be considered in addition to, and not as a substitute for or preferable to, ratios prepared in accordance with GAAP.

The tables below present non-GAAP reconciliations of earnings, as adjusted, and diluted earnings per share, as adjusted, as well as the non-GAAP computations of tangible book value per share; return on average assets, excluding intangible amortization; return on average assets, as adjusted; return on average common equity, as adjusted; return on average tangible equity excluding intangible amortization; return on average tangible equity, as adjusted; tangible equity to tangible assets; and efficiency ratio, as adjusted. The items used in these calculations are included in financial results presented in accordance with GAAP.

Earnings, as adjusted, and diluted earnings per common share, as adjusted, are meaningful non-GAAP financial measures for management, as they exclude certain items such as merger expenses and/or certain gains and losses. Management believes the exclusion of these items in expressing earnings provides a meaningful foundation for period-to-period and company-to-company comparisons, which management believes will aid both investors and analysts in analyzing our financial measures and predicting future performance. These non-GAAP financial measures are also used by management to assess the performance of our business, because management does not consider these items to be relevant to ongoing financial performance.

In Table 24 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 24: Earnings, As Adjusted

(Dollars in thousands)

(1) Blended statutory rate of 24.433% for 2025 and 24.989% for 2024.

We had $1.43 billion, $1.44 billion and $1.44 billion total goodwill and core deposit intangibles as of June 30, 2025, December 31, 2024 and June 30, 2024, respectively. Because of our level of intangible assets and related amortization expenses, management believes tangible book value per share, return on average assets excluding intangible amortization, return on average tangible equity, return on average tangible equity excluding intangible amortization, and tangible equity to tangible assets are useful in evaluating our company. Management also believes return on average assets, as adjusted, return on average equity, as adjusted, and return on average tangible equity, as adjusted, are meaningful non-GAAP financial measures, as they exclude items such as certain non-interest income and expenses that management believes are not indicative of our primary business operating results. These calculations, which are similar to the GAAP calculations of book value per share, return on average assets, return on average equity, and equity to assets, are presented in Tables 25 through 28, respectively.

Table 25: Tangible Book Value Per Share

(In thousands, except per share data)

Table 26: Return on Average Assets, As Adjusted

(Dollars in thousands)

92

Table 27: Return on Average Equity, As Adjusted

(Dollars in thousands)

Table 28: Tangible Equity to Tangible Assets

(Dollars in thousands)

The efficiency ratio is a standard measure used in the banking industry and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income. The efficiency ratio, as adjusted, is a meaningful non-GAAP measure for management, as it excludes certain items and is calculated by dividing non-interest expense less amortization of core deposit intangibles by the sum of net interest income on a tax equivalent basis and non-interest income excluding items such as merger expenses and/or certain gains, losses and other non-interest income and expenses. In Table 29 below, we have provided a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated.

Table 29: Efficiency Ratio, As Adjusted

(Dollars in thousands)

Recently Issued Accounting Pronouncements

See Note 21 to the Condensed Notes to Consolidated Financial Statements for a discussion of certain recently issued and recently adopted accounting pronouncements.

Liquidity and Market Risk Management

At June 30, 2025, we held $2.36 billion in assets that could be used for liquidity purposes, which we refer to as net available internal liquidity. This balance consisted of $1.40 billion in unpledged investment securities which could be used for additional secured borrowing capacity, $782.2 million in cash on deposit with the Federal Reserve Bank ("FRB") and $172.3 million in other liquid cash accounts.

Consistent with our practice of maintaining access to significant external liquidity, we had $3.54 billion in net available sources of borrowed funds, which we refer to as net available external liquidity, as of June 30, 2025. This included $5.12 billion in total borrowing capacity with the Federal Home Loan Bank ("FHLB"), of which $1.86 billion has been drawn upon in the ordinary course of business, resulting in $3.26 billion in net available liquidity with the FHLB as of June 30, 2025. The $1.86 billion consisted of $550.0 million in outstanding FHLB advances and $1.31 billion used for pledging purposes. We also had access to approximately $172.7 million available borrowing capacity from the Discount Window. As of June 30, 2025, the Company also had access to $55.0 million from First National Bankers’ Bank ("FNBB"), and $55.0 million from other various external sources.

Overall, we had $5.90 billion net available liquidity as of June 30, 2025, which consisted of $2.36 billion of net available internal liquidity and $3.54 billion in net available external liquidity. Details on our available liquidity as of June 30, 2025 are available below.

Table 30: Available Liquidity

(in thousands)

We have continued to limit our exposure to uninsured deposits and have been actively monitoring this exposure in light of the current banking environment. As of June 30, 2025, we held approximately $8.66 billion in uninsured deposits of which $840.4 million were intercompany subsidiary deposit balances and $3.05 billion were collateralized deposits, for a net position of $4.77 billion. This represented approximately 27.3% of total deposits. In addition, net available liquidity exceeded uninsured and uncollateralized deposits by $1.13 billion as of June 30, 2025.

Table 31: Uninsured Deposits

(in thousands)

Asset/Liability Management. Our management actively measures and manages interest rate risk. The asset/liability committees of the boards of directors of our holding company and bank subsidiary are also responsible for approving our asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing our interest rate sensitivity position.

Our objective is to manage liquidity in a way that ensures cash flow requirements of depositors and borrowers are met in a timely and orderly fashion while ensuring the reliance on various funding sources does not become so heavily weighted to any one source that it causes undue risk to the bank. Our liquidity sources are prioritized based on availability and ease of activation. Our current liquidity condition is a primary driver in determining our funding needs and is a key component of our asset and liability management.

Various sources of liquidity are available to meet the cash flow needs of depositors and borrowers. Our principal source of funds is core deposits, including checking, savings, money market accounts and certificates of deposit. We may also from time to time obtain wholesale funding through brokered deposits. Secondary sources of funding include advances from the Federal Home Loan Bank of Dallas, the Federal Reserve Bank Discount Window and other borrowings, such as through correspondent banking relationships. These secondary sources enable us to borrow funds at rates and terms which, at times, are more beneficial to us. Additionally, as needed, we can liquidate or utilize our available-for-sale investment portfolio as collateral to provide funds for an intermediate source of liquidity.

Interest Rate Sensitivity. Our primary business is banking and the resulting earnings, primarily net interest income, are susceptible to changes in market interest rates. It is management’s goal to maximize net interest income within acceptable levels of interest rate and liquidity risks.

A key element in the financial performance of financial institutions is the level and type of interest rate risk assumed. The single most significant measure of interest rate risk is the relationship of the repricing periods of earning assets and interest-bearing liabilities. The more closely the repricing periods are correlated, the less interest rate risk we assume. We use net interest income simulation modeling and economic value of equity as the primary methods in analyzing and managing interest rate risk.

One of the tools that our management uses to measure short-term interest rate risk is a net interest income simulation model. This analysis calculates the difference between net interest income forecasted using base market rates and using a rising and a falling interest rate scenario. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate loans, which are assumed to re-price immediately, and proportional to the change in market rates, depending on their contracted index. Some loans and investments include the opportunity of prepayment (embedded options), and accordingly, the simulation model uses indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price overnight in the model while we project certain other deposits by product type to have stable balances based on our deposit history. This accounts for the portion of our portfolio that moves more slowly than market rates and changes at our discretion.

This analysis indicates the impact of changes in net interest income for the given set of rate changes and assumptions. It assumes the balance sheet remains static and that its structure does not change over the course of the year. It does not account for all factors that impact this analysis, including changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change.

Furthermore, loan prepayment rate estimates and spread relationships change regularly. Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest income.

For the rising and falling interest rate scenarios, the base market interest rate forecast was increased and decreased over twelve months by 200 and 100 basis points, respectively. At June 30, 2025, our net interest margin exposure related to these hypothetical changes in market interest rates was within the current guidelines established by us.

Table 32 presents our sensitivity to net interest income as of June 30, 2025 and June 30, 2024.

Table 32: Sensitivity of Net Interest Income

There have been no material changes in our market risk exposure from June 30, 2024 to June 30, 2025. Our balance sheet mix has remained consistent. The target rate changes by the Federal Reserve have impacted our earnings, but our net interest income exposure is still within our current guidelines. The Federal Reserve reduced the target rate three times during 2024. First, on September 18, 2024, the target rate was reduced to 4.75% to 5.00%, second, on November 7, 2024, the target rate was reduced to 4.50% to 4.75% and third, on December 18, 2024, the target rate was reduced to 4.25% to 4.50%. As of June 30, 2025, the Federal Reserve has not changed the rates during 2025.

Evaluation of Disclosure Controls

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Additionally, our disclosure controls and procedures were also effective in ensuring that information required to be disclosed in our Exchange Act report is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2025, which have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no material changes from the risk factors set forth in Part I, Item 1A, "Risk Factors," of our Form 10-K for the year ended December 31, 2024. See the discussion of our risk factors in the Form 10-K, as filed with the SEC. The risks described are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.