ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Cautionary Notice Regarding Forward-Looking Statements
Statements and financial discussion and analysis contained in this quarterly report on Form 10-Q that are not statements of historical fact constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and involve a number of risks and uncertainties, many of which are beyond the Company’s control. Forward-looking statements can be identified by words such as “believes,” “intends,” “expects,” “plans,” “will” and similar references to future periods. Many possible events or factors could affect the future financial results and performance of the Company and could cause such results or performance to differ materially from those expressed in the forward-looking statements. These possible events or factors include, but are not limited to:
•changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or reduced demand for credit, including the result and effect on the Company’s loan portfolio and allowance for credit losses;
•adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, the Company’s stock price, liquidity and regulatory responses to these developments (including increases in the cost of the Company’s deposit insurance assessments);
•the Company’s ability to effectively manage its liquidity risk and the availability of capital and funding;
•volatility in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations;
•prolonged periods of high inflation and their effects on the Company’s business, profitability and stock price;
•changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio;
•changes in local economic and business conditions, including fluctuations in the price of oil, natural gas and other commodities, which adversely affect the Company’s customers and their ability to transact profitable business with the Company, including the ability of the Company’s borrowers to repay their loans according to their terms or a change in the value of the related collateral;
•the potential impacts of climate change;
•increased competition for deposits and loans adversely affecting balances, rates and terms;
•the risks relating to the recent acquisitions of American, Southwest and Stellar including, without limitation: the diversion of management’s time on issues related to the acquisitions and integration; unexpected transaction costs, including the costs of integrating operations; the risk that the businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the potential failure to fully or timely realize expected revenues and revenue synergies; the risk of deposit and customer attrition; regulatory enforcement and litigation risk; unexpected operating and other costs; the risk of customer and employee loss and business disruptions; increased competitive pressures and solicitations of customers by competitors;
•the timing, impact and other uncertainties of any future acquisitions, and the Company’s ability to identify suitable future acquisition candidates, the success or failure in the integration of their operations, and the ability to enter new markets successfully and capitalize on growth opportunities;
•the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and the potential to reduce anticipated benefits from such mergers or combinations;
•the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations;
•increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio;
•the concentration of the Company’s loan portfolio in loans collateralized by residential and commercial real estate;
•the failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses, including such assumptions related to potential or recent acquisitions;
•changes in the availability of funds resulting in increased costs or reduced liquidity;
•a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company’s securities portfolio;
•increased asset levels and changes in the composition of assets and the resulting impact on the Company’s capital levels and regulatory capital ratios;
•the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes;
•the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels;
•government intervention in the U.S. financial system;
•changes in statutes and government regulations or their interpretations applicable to financial holding companies and the Company’s present and future banking and other subsidiaries, including changes in tax requirements and tax rates;
•the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;
•the Company’s ability to identify and address cybersecurity risks such as data security breaches, malware, “denial of service” attacks, “hacking”, and identity theft, a failure of which could disrupt business and result in significant losses or adverse effects to the Company’s reputation;
•poor performance by, or breach of the operational or security systems of, third-party vendors and other service providers;
•risks related to the use of new technologies, including artificial intelligence and machine learning;
•exposure to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to the Company under that relationship or under any other arrangement;
•the failure of analytical and forecasting models and tools used by the Company to estimate expected credit losses and to measure the fair value of financial instruments;
•additional risks from new lines of businesses or new products and services;
•risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions, including those related to cybersecurity breaches, intellectual property or fiduciary responsibilities;
•the failure of the Company’s enterprise risk management framework to identify or address risks adequately;
•potential risk of environmental liability associated with lending activities;
•changes in trade policies by the United States or other countries, such as the imposition of tariffs or retaliatory tariffs or other trade barriers;
•acts of terrorism, an outbreak of hostilities, or other international or domestic calamities, civil unrest, insurrections, other political, economic or diplomatic developments, including those caused by public health issues, outbreaks of diseases and pandemics, weather or other acts of God and other matters beyond the Company’s control; and
•other risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, or in the Company’s other reports and documents filed with the Securities and Exchange Commission.
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. The Company believes it has chosen these assumptions or bases in good faith and that they are reasonable. However, the Company cautions that assumptions or bases almost always vary from actual results, and the differences between assumptions or bases and actual results can be material. Therefore, the Company cautions against placing undue reliance on its forward-looking statements. The forward-looking statements speak only as of the date the statements are made. The Company undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of the Company’s balance sheets and statements of income. This section should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included in Part I, Item 1 of this report and with the consolidated financial statements and accompanying notes and other detailed information appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
OVERVIEW
Prosperity Bancshares, Inc., a Texas corporation (“Bancshares”), is a registered financial holding company that derives substantially all of its revenues and income from the operation of its bank subsidiary, Prosperity Bank (the “Bank,” and together with Bancshares, the “Company”). The Bank provides a wide array of financial products and services to businesses and consumers throughout Texas and Oklahoma. As of June 30, 2026, the Bank operated 311 full-service banking locations: 62 in the Houston area, including The Woodlands; 36 in the South Texas area including Corpus Christi and Victoria; 61 in the Dallas/Fort Worth area; 21 in the East Texas area; 28 in the Central Texas area including Austin and San Antonio; 45 in the West Texas area including Lubbock, Midland-Odessa, Abilene, Amarillo and Wichita Falls; 15 in the Bryan/College Station area; 6 in the Central Oklahoma area; 8 in the Tulsa, Oklahoma area; 18 in the Central, South Texas and San Antonio areas doing business as American Bank and 11 in the San Antonio area doing business as Texas Partners Bank. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas, and its telephone number is (281) 269-7199. The Company’s website address is www.prosperitybankusa.com. Information contained on the Company’s website is not incorporated by reference into this quarterly report on Form 10-Q and is not part of this or any other report.
The Company generates the majority of its revenues from interest income on loans, service charges and fees on customer accounts and income from investment in securities. The revenues are partially offset by interest expense paid on deposits and other borrowings and noninterest expenses such as administrative and occupancy expenses. Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is the Company’s largest source of revenue. The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin.
Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continuous internal growth. The Company maintains separate data with respect to each banking center’s net interest income, efficiency ratio, deposit growth and loan growth for purposes of measuring its overall profitability. The Company also focuses on maintaining efficiency and stringent cost control practices and policies. The Company has centralized many of its critical operations, such as data processing and loan processing. Management believes that this centralized infrastructure can accommodate substantial additional growth and achieve necessary controls while enabling the Company to minimize operational costs through certain economies of scale. The Company also intends to continue to seek expansion opportunities. The Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For more information about the Company’s segment reporting, refer to Note 1 to the consolidated financial statements.
Total assets were $43.87 billion at June 30, 2026, compared with $38.46 billion at December 31, 2025, an increase of $5.41 billion or 14.1%. Total loans were $25.03 billion at June 30, 2026, compared with $21.81 billion at December 31, 2025, an increase of $3.22 billion or 14.8%. Total deposits were $32.60 billion at June 30, 2026, compared with $28.48 billion at December 31, 2025, an increase of $4.12 billion or 14.5%. Total shareholders’ equity was $8.31 billion at June 30, 2026, compared with $7.62 billion at December 31, 2025, an increase of $689.1 million or 9.0%.
RECENT ACQUISITIONS
Acquisition of American Bank Holding Corporation — On January 1, 2026, the Company completed the merger of American Bank Holding Corporation (“American”) into Bancshares and the subsequent merger of American’s wholly owned subsidiary American Bank, N.A. (“American Bank”) into the Bank (collectively, the “American Merger”). American Bank operated 18 banking offices and two loan production offices in South and Central Texas including its main office in Corpus Christi, and banking offices in San Antonio, Austin, Victoria and the greater Corpus Christi area including Port Aransas and Rockport and a loan production office in Houston, Texas.
Pursuant to the terms of the definitive agreement, Bancshares issued 4,439,938 shares of its common stock for all outstanding shares of American common stock. This resulted in goodwill of $185.9 million as of June 30, 2026, which does not include all the subsequent fair value adjustments that have not yet been finalized. Goodwill represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair value of liabilities assumed. Additionally, the Company recognized $31.1 million of core deposit intangibles as of June 30, 2026.
Acquisition of Southwest Bancshares, Inc. — On February 1, 2026, the Company completed the merger of Southwest Bancshares, Inc. (“Southwest”) into Bancshares and the subsequent merger of Southwest’s wholly owned subsidiary Texas Partners Bank (“Texas Partners”), into the Bank (collectively, the “Southwest Merger”). Texas Partners operated 11 banking offices in Central Texas including its main office in San Antonio, and banking offices in the San Antonio area, Austin and the Hill Country.
Pursuant to the terms of the definitive agreement, Bancshares issued 4,094,974 shares of its common stock for all outstanding shares of Southwest common stock. This resulted in goodwill of $134.9 million as of June 30, 2026, which does not include all the subsequent fair value adjustments that have not yet been finalized. Additionally, the Company recognized $33.8 million of core deposit intangibles as of June 30, 2026.
SUBSEQUENT EVENT
Acquisition of Stellar Bancorp, Inc. — On July 1, 2026, the Company completed the merger of Stellar Bancorp, Inc. (“Stellar”) into Bancshares and the subsequent merger of Stellar’s wholly owned subsidiary Stellar Bank (“Stellar Bank”) into the Bank (collectively, the “Stellar Merger”). Stellar Bank operated 52 banking offices including its main office in Houston and banking offices in the Houston, Beaumont and East Texas areas and in Dallas, Texas.
Pursuant to the terms of the definitive agreement, Bancshares issued 19,371,499 shares of its common stock and paid approximately $578.66 million in cash for all outstanding shares of Stellar common stock.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires the Company to establish accounting policies and make estimates that affect amounts reported in the consolidated financial statements. An accounting estimate requires assumptions and judgments about uncertain matters that could have a material effect on the consolidated financial statements. Estimates are made using facts and circumstances known at a point in time. Changes in those facts and circumstances could produce results substantially different from those estimates. The Company’s accounting policies are described in detail in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. The Company believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity:
Business Combinations—Generally, acquisitions are accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”. A business combination occurs when the Company acquires net assets that constitute a business and obtains control over that business. Business combinations are effected through the transfer of consideration consisting of cash and/or common stock and are accounted for using the acquisition method. Accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values at the acquisition date. Determining the fair value of assets and liabilities, especially the loan portfolio, is a process involving significant judgment regarding methods and assumptions used to calculate estimated fair values. Fair values are subject to refinement for up to one year after the closing date of the acquisition as information relative to closing date fair values becomes available. The results of operations of an acquired entity are included in the Company’s consolidated results from the acquisition date, and prior periods are not restated.
Allowance for Credit Losses—The allowance for credit losses is accounted for in accordance with FASB ASC Topic 326, “Financial Instruments-Credit Losses” (“CECL”), which uses an expected loss methodology that is referred to as the current expected credit loss methodology. CECL requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is an allowance available for losses on loans and held-to-maturity securities that is deducted from the amortized cost basis to estimate the net amount expected to be collected. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. All losses are charged to the allowance when the loss actually occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery.
The Company’s allowance for credit losses consists of two elements: (1) specific valuation allowances based on expected losses on impaired loans and certain purchased credit deteriorated loans (“PCD”) loans; and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, two-year reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company. Based on an evaluation of the portfolio, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers factors such as historical lifetime loan loss experience, the amount of nonperforming assets and related collateral, the volume, growth and composition of the portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the portfolio through its internal loan review process and other relevant factors. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Charge-offs occur when loans are deemed to be uncollectible. Based on this evaluation, management has established an allowance for credit losses that it believes is management’s best estimate of current expected credit losses in the Company’s loan portfolio.
The Company evaluates all restructurings, including restructurings for borrowers experiencing financial difficulty, to determine whether they result in a new loan or a continuation of an existing loan. In accordance with CECL, the Company only establishes a specific reserve for modifications of loans made to borrowers experiencing financial difficulty when the loan is identified as impaired. The effect of most modifications of loans made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The Company adjusts the terms of loans for certain borrowers when it believes such changes will help its customers manage their loan obligations and increase the collectability of the loans. Modifications of loans made to borrowers experiencing financial difficulty may include but are not limited to changes in committed loan amount, interest rate, amortization, note maturity, borrower, guarantor, collateral, forbearance, forgiveness of principal or interest, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The approval of modifications of loans for borrowers experiencing financial difficulty are handled on a case-by-case basis. For further discussion of the methodology used in the determination of the allowance for credit losses on loans, see “Accounting for Acquired Loans and the Allowance for Acquired Credit Losses” below and “Financial Condition—Allowance for Credit Losses on Loans” below.
Accounting for Acquired Loans and the Allowance for Acquired Credit Losses—The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity are recorded at their fair values at the acquisition date. The fair value estimates associated with acquired loans, based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
On January 1, 2026, the Company adopted ASU 2025-08 that updates the accounting for purchased loans under ASC 326. Under ASU 2025-08, loans acquired without credit deterioration (“Non-PCD” loans) and deemed “seasoned” will now be considered purchased seasoned loans (“PSLs”) and accounted for using the gross-up approach at acquisition, which was formerly applicable only to PCD assets. PSLs include all loans acquired in a business combination that do not have “more-than-insignificant” deterioration of credit quality since origination. Under ASU 2025-08, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized costs basis, thereby eliminating the immediate recognition of day-one credit loss expense previously required for Non-PCD loans. For further discussion of the methodology used in the determination of the allowance for credit losses for acquired loans, see “Financial Condition—Allowance for Credit Losses on Loans” below. For further discussion of the Company’s acquisition and loan accounting, see Note 5 to the consolidated financial statements.
RESULTS OF OPERATIONS
For the quarter ended June 30, 2026, net income available to common shareholders was $168.6 million or $1.67 per diluted common share compared with $135.2 million or $1.42 for the same period in 2025. Net income and net income per diluted common share for the second quarter of 2026 was primarily impacted by an increase in net interest income and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million, partially offset by an increase in noninterest expenses related to the American and Southwest operations and an increase in provision for income taxes. The Company posted annualized returns on average common equity of 8.14% and 7.13%, annualized returns on average assets of 1.55% and 1.41% and efficiency ratios of 45.99% and 44.80% for the quarters ended June 30, 2026, and 2025, respectively. The efficiency ratio is calculated by dividing total noninterest expense (excluding net gains and losses on the sale, write-down or write-up of assets and securities) by the sum of net interest income and noninterest income. Because the ratio is a measure of revenues and expenses resulting from the Company’s lending activities and fee-based banking services, net gains and losses on the sale, write-up or write-down of assets and securities are not included. Additionally, taxes are not part of this calculation.
For the six months ended June 30, 2026, net income available to common shareholders was $284.9 million or $2.84 per diluted common share compared with $265.4 million or $2.79 for the six months ended June 30, 2025. Net income and net income per diluted common share for the six months ended June 30, 2026, were impacted by the American Merger and the Southwest Merger, merger related expenses of $43.3 million and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million. The Company posted annualized returns on average common equity of 6.93% and 7.03%, annualized returns on average assets of 1.33% and 1.37% and efficiency ratios of 52.44% and 45.26% for the six months ended June 30, 2026, and 2025, respectively.
Net Interest Income
The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.”
For the Three Months Ended June 30, 2026
Net interest income before the provision for credit losses was $330.6 million for the quarter ended June 30, 2026, an increase of $62.8 million or 23.5% compared with $267.7 million for the same period in 2025. The net interest margin on a tax-equivalent basis was 3.47% for the quarter ended June 30, 2026, an increase of 29 basis points compared with 3.18% for the same period in 2025. The changes to both measures were primarily due to the repricing of assets, a decrease in the average balance and average rate on other borrowings and the impact of the American Merger and the Southwest Merger.
Interest income on loans was $369.6 million for the quarter ended June 30, 2026, an increase of $44.1 million or 13.5% compared with $325.5 million for the same period in 2025. Interest income on securities was $81.2 million for the quarter ended June 30, 2026, an increase of $23.4 million or 40.4% compared with $57.8 million for the same period in 2025. The changes for both were primarily due to the repricing of assets and the impact of the American Merger and the Southwest Merger.
Average interest-bearing liabilities were $24.29 billion for the quarter ended June 30, 2026, an increase of $3.26 billion or 15.5% compared with $21.03 billion for the same period in 2025. The increase was primarily due to the American Merger and the Southwest Merger, partially offset by the decrease in other borrowings. The average rate on interest-bearing liabilities was 2.13% for the quarter ended June 30, 2026, a decrease of 25 basis points compared with 2.38% for the same period in 2025.
For the Six Months Ended June 30, 2026
Net interest income before the provision for credit losses was $651.7 million for the six months ended June 30, 2026, an increase of $118.6 million or 22.2% compared with $533.1 million for the same period in 2025. The net interest margin on a tax-equivalent basis was 3.49% for the six months ended June 30, 2026, an increase of 33 basis points compared with 3.16% for the six months ended June 30, 2025. The changes for both measures were primarily due to the repricing of assets, the impact of the American Merger and the Southwest Merger and a decrease in the average balance and average rate on other borrowings.
Interest income on loans was $731.3 million for the six months ended June 30, 2026, an increase of $86.8 million or 13.5% compared with $644.5 million for the same period in 2025. Interest income on securities was $151.7 million for the six months ended June 30, 2026, an increase of $36.0 million or 31.1% compared with $115.7 million for the same period in 2025. The changes for both were primarily due to the repricing of assets and the impact of the American Merger and the Southwest Merger.
Average interest-bearing liabilities were $23.92 billion for the six months ended June 30, 2026, an increase of $2.58 billion or 12.1% compared with $21.34 billion for the same period in 2025. The increase was primarily due to the American Merger and the Southwest Merger, partially offset by a decrease in other borrowings. The average rate on interest-bearing liabilities was 2.10% for the six months ended June 30, 2026, a decrease of 29 basis points compared with 2.39% for the same period in 2025.
The following tables present, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities and the resultant rates. Except as indicated in the footnotes, no tax-equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables as loans carrying a zero yield.
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|
|
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|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Average Outstanding Balance |
|
|
Interest Earned/Paid |
|
|
Average Yield/Rate (1) |
|
|
Average Outstanding Balance |
|
|
Interest Earned/Paid |
|
|
Average Yield/Rate (1) |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
17,858 |
|
|
$ |
281 |
|
|
|
6.31 |
% |
|
$ |
9,813 |
|
|
$ |
166 |
|
|
|
6.79 |
% |
Loans held for investment |
|
|
23,750,036 |
|
|
|
350,967 |
|
|
|
5.93 |
% |
|
|
20,907,400 |
|
|
|
306,671 |
|
|
|
5.88 |
% |
Loans held for investment - Warehouse Purchase Program |
|
|
1,316,645 |
|
|
|
18,326 |
|
|
|
5.58 |
% |
|
|
1,179,307 |
|
|
|
18,653 |
|
|
|
6.34 |
% |
Total loans |
|
|
25,084,539 |
|
|
|
369,574 |
|
|
|
5.91 |
% |
|
|
22,096,520 |
|
|
|
325,490 |
|
|
|
5.91 |
% |
Investment securities |
|
|
12,258,188 |
|
|
|
81,200 |
|
|
|
2.66 |
% |
|
|
10,867,856 |
|
|
|
57,836 |
|
|
|
2.13 |
% |
Federal funds sold and other earning assets |
|
|
969,502 |
|
|
|
8,719 |
|
|
|
3.61 |
% |
|
|
841,933 |
|
|
|
9,438 |
|
|
|
4.50 |
% |
Total interest-earning assets |
|
|
38,312,229 |
|
|
|
459,493 |
|
|
|
4.81 |
% |
|
|
33,806,309 |
|
|
|
392,764 |
|
|
|
4.66 |
% |
Allowance for credit losses on loans |
|
|
(383,281 |
) |
|
|
|
|
|
|
|
|
(348,310 |
) |
|
|
|
|
|
|
Noninterest-earning assets |
|
|
5,508,187 |
|
|
|
|
|
|
|
|
|
4,933,215 |
|
|
|
|
|
|
|
Total assets |
|
$ |
43,437,135 |
|
|
|
|
|
|
|
|
$ |
38,391,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
6,135,720 |
|
|
$ |
15,093 |
|
|
|
0.99 |
% |
|
$ |
4,807,864 |
|
|
$ |
8,859 |
|
|
|
0.74 |
% |
Savings and money market deposits |
|
|
10,928,333 |
|
|
|
53,661 |
|
|
|
1.97 |
% |
|
|
8,944,897 |
|
|
|
45,796 |
|
|
|
2.05 |
% |
Certificates and other time deposits |
|
|
4,787,401 |
|
|
|
38,330 |
|
|
|
3.21 |
% |
|
|
4,366,510 |
|
|
|
39,135 |
|
|
|
3.59 |
% |
Other borrowings |
|
|
2,174,506 |
|
|
|
20,094 |
|
|
|
3.71 |
% |
|
|
2,717,583 |
|
|
|
30,101 |
|
|
|
4.44 |
% |
Securities sold under repurchase agreements |
|
|
194,250 |
|
|
|
1,019 |
|
|
|
2.10 |
% |
|
|
194,577 |
|
|
|
1,151 |
|
|
|
2.37 |
% |
Subordinated notes and junior subordinated debentures |
|
|
70,408 |
|
|
|
746 |
|
|
|
4.25 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total interest-bearing liabilities |
|
|
24,290,618 |
|
|
|
128,943 |
|
|
|
2.13 |
% |
|
|
21,031,431 |
|
|
|
125,042 |
|
|
|
2.38 |
% |
Noninterest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
10,561,142 |
|
|
|
|
|
|
|
|
|
9,508,845 |
|
|
|
|
|
|
|
Allowance for credit losses on off-balance sheet credit exposures |
|
|
37,646 |
|
|
|
|
|
|
|
|
|
37,646 |
|
|
|
|
|
|
|
Other liabilities |
|
|
259,201 |
|
|
|
|
|
|
|
|
|
227,002 |
|
|
|
|
|
|
|
Total liabilities |
|
|
35,148,607 |
|
|
|
|
|
|
|
|
|
30,804,924 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
8,288,528 |
|
|
|
|
|
|
|
|
|
7,586,290 |
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
43,437,135 |
|
|
|
|
|
|
|
|
$ |
38,391,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
|
|
|
|
|
|
2.68 |
% |
|
|
|
|
|
|
|
|
2.28 |
% |
Net interest income and margin (2) (3) |
|
|
|
|
$ |
330,550 |
|
|
|
3.46 |
% |
|
|
|
|
$ |
267,722 |
|
|
|
3.18 |
% |
Net interest income and margin (tax equivalent) (4) |
|
|
|
|
$ |
331,130 |
|
|
|
3.47 |
% |
|
|
|
|
$ |
268,296 |
|
|
|
3.18 |
% |
(1)Annualized and based on average balances on an actual 365-day basis for the three months ended June 30, 2026, and 2025.
(2)Yield is based on amortized cost and does not include any component of unrealized gains or losses.
(3)The net interest margin is equal to net interest income divided by average interest-earning assets.
(4)In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Average Outstanding Balance |
|
|
Interest Earned/Paid |
|
|
Average Yield/Rate (1) |
|
|
Average Outstanding Balance |
|
|
Interest Earned/Paid |
|
|
Average Yield/Rate (1) |
|
|
|
(Dollars in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
16,834 |
|
|
$ |
519 |
|
|
|
6.22 |
% |
|
$ |
8,698 |
|
|
$ |
293 |
|
|
|
6.79 |
% |
Loans held for investment |
|
|
23,610,945 |
|
|
|
695,563 |
|
|
|
5.94 |
% |
|
|
20,933,170 |
|
|
|
611,739 |
|
|
|
5.89 |
% |
Loans held for investment - Warehouse Purchase Program |
|
|
1,262,533 |
|
|
|
35,248 |
|
|
|
5.63 |
% |
|
|
1,028,534 |
|
|
|
32,481 |
|
|
|
6.37 |
% |
Total loans |
|
|
24,890,312 |
|
|
|
731,330 |
|
|
|
5.93 |
% |
|
|
21,970,402 |
|
|
|
644,513 |
|
|
|
5.92 |
% |
Investment securities |
|
|
11,866,153 |
|
|
|
151,731 |
|
|
|
2.58 |
% |
|
|
10,942,215 |
|
|
|
115,722 |
|
|
|
2.13 |
% |
Federal funds sold and other earning assets |
|
|
996,109 |
|
|
|
18,207 |
|
|
|
3.69 |
% |
|
|
1,140,915 |
|
|
|
25,334 |
|
|
|
4.48 |
% |
Total interest-earning assets |
|
|
37,752,574 |
|
|
|
901,268 |
|
|
|
4.81 |
% |
|
|
34,053,532 |
|
|
|
785,569 |
|
|
|
4.65 |
% |
Allowance for credit losses on loans |
|
|
(356,855 |
) |
|
|
|
|
|
|
|
|
(349,506 |
) |
|
|
|
|
|
|
Noninterest-earning assets |
|
|
5,435,129 |
|
|
|
|
|
|
|
|
|
4,967,987 |
|
|
|
|
|
|
|
Total assets |
|
$ |
42,830,848 |
|
|
|
|
|
|
|
|
$ |
38,672,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
$ |
6,199,301 |
|
|
$ |
29,086 |
|
|
|
0.95 |
% |
|
$ |
5,015,178 |
|
|
$ |
17,878 |
|
|
|
0.72 |
% |
Savings and money market deposits |
|
|
10,757,523 |
|
|
|
104,380 |
|
|
|
1.96 |
% |
|
|
8,975,919 |
|
|
|
91,441 |
|
|
|
2.05 |
% |
Certificates and other time deposits |
|
|
4,808,748 |
|
|
|
77,855 |
|
|
|
3.26 |
% |
|
|
4,396,350 |
|
|
|
80,068 |
|
|
|
3.67 |
% |
Other borrowings |
|
|
1,899,061 |
|
|
|
34,877 |
|
|
|
3.70 |
% |
|
|
2,746,961 |
|
|
|
60,593 |
|
|
|
4.45 |
% |
Securities sold under repurchase agreements |
|
|
186,030 |
|
|
|
1,921 |
|
|
|
2.08 |
% |
|
|
206,197 |
|
|
|
2,485 |
|
|
|
2.43 |
% |
Subordinated notes and junior subordinated debentures |
|
|
67,059 |
|
|
|
1,449 |
|
|
|
4.36 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total interest-bearing liabilities |
|
|
23,917,722 |
|
|
|
249,568 |
|
|
|
2.10 |
% |
|
|
21,340,605 |
|
|
|
252,465 |
|
|
|
2.39 |
% |
Noninterest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
10,412,431 |
|
|
|
|
|
|
|
|
|
9,506,704 |
|
|
|
|
|
|
|
Allowance for credit losses on off-balance sheet credit exposures |
|
|
37,857 |
|
|
|
|
|
|
|
|
|
37,646 |
|
|
|
|
|
|
|
Other liabilities |
|
|
238,470 |
|
|
|
|
|
|
|
|
|
240,789 |
|
|
|
|
|
|
|
Total liabilities |
|
|
34,606,480 |
|
|
|
|
|
|
|
|
|
31,125,744 |
|
|
|
|
|
|
|
Shareholders' equity |
|
|
8,224,368 |
|
|
|
|
|
|
|
|
|
7,546,269 |
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
42,830,848 |
|
|
|
|
|
|
|
|
$ |
38,672,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread |
|
|
|
|
|
|
|
|
2.71 |
% |
|
|
|
|
|
|
|
|
2.26 |
% |
Net interest income and margin (2) (3) |
|
|
|
|
$ |
651,700 |
|
|
|
3.48 |
% |
|
|
|
|
$ |
533,104 |
|
|
|
3.16 |
% |
Net interest income and margin (tax equivalent) (4) |
|
|
|
|
$ |
652,855 |
|
|
|
3.49 |
% |
|
|
|
|
$ |
534,265 |
|
|
|
3.16 |
% |
(1)Annualized and based on average balances on an actual 365-day basis for the six months ended June 30, 2026, and 2025.
(2)Yield is based on amortized cost and does not include any component of unrealized gains or losses.
(3)The net interest margin is equal to net interest income divided by average interest-earning assets.
(4)In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax-equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates.
The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates. For purposes of this table, changes in interest income and interest expense related to purchase accounting adjustments and changes attributable to both rate and volume which cannot be segregated have been allocated to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2026 vs. 2025 |
|
|
2026 vs. 2025 |
|
|
|
Increase |
|
|
|
|
|
Increase |
|
|
|
|
|
|
(Decrease) |
|
|
|
|
|
(Decrease) |
|
|
|
|
|
|
Due to Change in |
|
|
|
|
|
Due to Change in |
|
|
|
|
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
136 |
|
|
$ |
(21 |
) |
|
$ |
115 |
|
|
$ |
274 |
|
|
$ |
(48 |
) |
|
$ |
226 |
|
Loans held for investment (1) |
|
|
41,696 |
|
|
|
2,600 |
|
|
|
44,296 |
|
|
|
78,254 |
|
|
|
5,570 |
|
|
|
83,824 |
|
Loans held for investment - Warehouse Purchase Program |
|
|
2,172 |
|
|
|
(2,499 |
) |
|
|
(327 |
) |
|
|
7,390 |
|
|
|
(4,623 |
) |
|
|
2,767 |
|
Investment securities (1) |
|
|
7,399 |
|
|
|
15,965 |
|
|
|
23,364 |
|
|
|
9,771 |
|
|
|
26,238 |
|
|
|
36,009 |
|
Federal funds sold and other earning assets |
|
|
1,430 |
|
|
|
(2,149 |
) |
|
|
(719 |
) |
|
|
(3,215 |
) |
|
|
(3,912 |
) |
|
|
(7,127 |
) |
Total increase in interest income |
|
|
52,833 |
|
|
|
13,896 |
|
|
|
66,729 |
|
|
|
92,474 |
|
|
|
23,225 |
|
|
|
115,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand deposits |
|
|
2,447 |
|
|
|
3,787 |
|
|
|
6,234 |
|
|
|
4,221 |
|
|
|
6,987 |
|
|
|
11,208 |
|
Savings and money market deposits |
|
|
10,155 |
|
|
|
(2,290 |
) |
|
|
7,865 |
|
|
|
18,150 |
|
|
|
(5,211 |
) |
|
|
12,939 |
|
Certificates and other time deposits (1) |
|
|
3,772 |
|
|
|
(4,577 |
) |
|
|
(805 |
) |
|
|
7,511 |
|
|
|
(9,724 |
) |
|
|
(2,213 |
) |
Other borrowings |
|
|
(6,015 |
) |
|
|
(3,992 |
) |
|
|
(10,007 |
) |
|
|
(18,703 |
) |
|
|
(7,013 |
) |
|
|
(25,716 |
) |
Securities sold under repurchase agreements |
|
|
(2 |
) |
|
|
(130 |
) |
|
|
(132 |
) |
|
|
(243 |
) |
|
|
(321 |
) |
|
|
(564 |
) |
Subordinated notes and junior subordinated debentures |
|
|
746 |
|
|
|
— |
|
|
|
746 |
|
|
|
1,449 |
|
|
|
— |
|
|
|
1,449 |
|
Total increase (decrease) in interest expense |
|
|
11,103 |
|
|
|
(7,202 |
) |
|
|
3,901 |
|
|
|
12,385 |
|
|
|
(15,282 |
) |
|
|
(2,897 |
) |
Increase in net interest income |
|
$ |
41,730 |
|
|
$ |
21,098 |
|
|
$ |
62,828 |
|
|
$ |
80,089 |
|
|
$ |
38,507 |
|
|
$ |
118,596 |
|
(1)Includes impact of purchase accounting adjustments.
Provision for Credit Losses
Management actively monitors the Company’s asset quality and provides specific loss provisions when necessary. Provisions for credit losses are charged to income to bring the total allowance for credit losses on loans and off-balance sheet credit exposures to a level deemed appropriate by management of the Company based on such factors as historical lifetime credit loss experience, the amount of nonperforming loans and related collateral, the volume growth and composition of the loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the loan portfolio through the internal loan review process and other relevant factors.
Loans are charged off against the allowance for credit losses when appropriate. Although management believes it uses the best information available to make determinations with respect to the provision for credit losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations.
There was no provision for credit losses for the three and six months ended June 30, 2026 and 2025.
Net charge-offs were $2.2 million for the quarter ended June 30, 2026, compared with net charge-offs of $3.0 million for the quarter ended June 30, 2025. For the three months ended June 30, 2026, net charge-offs included $962 thousand related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. For the three months ended June 30, 2026, $10.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Net charge-offs were $43.5 million for the six months ended June 30, 2026, compared with $5.7 million for the six months ended June 30, 2025. For the six months ended June 30, 2026, net charge-offs included a $39.2 million increase in net charge-offs for commercial and industrial loans. Additionally, due to the American Merger and the Southwest Merger, reserves increased by Day One accounting for PCD loans of $53.3 million and Day One accounting for PSLs of $39.3 million. Further, $12.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.
Noninterest Income
The Company’s primary sources of recurring noninterest income are credit, debit and ATM card income, nonsufficient funds fees and service charges on deposit accounts. Additionally, the Company generates recurring noninterest income from its various additional products and services, including trust services, mortgage lending, brokerage and independent sales organization sponsorship operations. Noninterest income does not include loan origination fees, which are recognized over the life of the related loan as an adjustment to yield using the interest method.
Noninterest income totaled $60.7 million for the three months ended June 30, 2026, compared with $43.0 million for the same period in 2025, an increase of $17.7 million or 41.2%. Noninterest income totaled $107.2 million for the six months ended June 30, 2026, compared with $84.3 million for the six months ended June 30, 2025, an increase of $22.9 million or 27.2%. The change for both periods was primarily due to the American Merger and Southwest Merger and a gain on Visa Class B-2 stock exchange net of investment securities sales of $8.2 million.
The following table presents, for the periods indicated, the major categories of noninterest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(Dollars in thousands) |
|
Nonsufficient funds fees |
|
$ |
11,349 |
|
|
$ |
8,885 |
|
|
$ |
22,216 |
|
|
$ |
18,032 |
|
Credit card, debit card and ATM card income |
|
|
10,303 |
|
|
|
9,761 |
|
|
|
19,786 |
|
|
|
18,500 |
|
Service charges on deposit accounts |
|
|
9,235 |
|
|
|
7,645 |
|
|
|
17,915 |
|
|
|
15,053 |
|
Trust income |
|
|
4,943 |
|
|
|
3,859 |
|
|
|
9,865 |
|
|
|
7,460 |
|
Mortgage income |
|
|
1,363 |
|
|
|
965 |
|
|
|
2,643 |
|
|
|
1,974 |
|
Brokerage income |
|
|
1,478 |
|
|
|
1,225 |
|
|
|
3,046 |
|
|
|
2,487 |
|
Bank owned life insurance income |
|
|
2,476 |
|
|
|
1,985 |
|
|
|
5,074 |
|
|
|
4,100 |
|
Net (loss) gain on sale or write-down of assets |
|
|
(42 |
) |
|
|
1,414 |
|
|
|
276 |
|
|
|
1,179 |
|
Net gain on sale or write-up of securities |
|
|
8,235 |
|
|
|
— |
|
|
|
8,235 |
|
|
|
— |
|
Other |
|
|
11,365 |
|
|
|
7,243 |
|
|
|
18,123 |
|
|
|
15,498 |
|
Total noninterest income |
|
$ |
60,705 |
|
|
$ |
42,982 |
|
|
$ |
107,179 |
|
|
$ |
84,283 |
|
Noninterest Expense
Noninterest expense totaled $176.2 million for the three months ended June 30, 2026, compared with $138.6 million for the same period in 2025, an increase of $37.6 million or 27.1%, which was primarily due to an increase in salaries and benefits and an increase in additional expenses related to three months of American and Southwest operations. Noninterest expense totaled $393.5 million for the six months ended June 30, 2026, compared with $278.9 million for the six months ended June 30, 2025, an increase of $114.6 million or 41.1%, primarily due to an increase in merger related expenses of $43.3 million, an increase in salaries and benefits and an increase in additional expenses related to six months of American operations and five months of Southwest operations.
The following table presents, for the periods indicated, the major categories of noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
|
(Dollars in thousands) |
|
Salaries and employee benefits (1) |
|
$ |
110,965 |
|
|
$ |
87,296 |
|
|
$ |
220,176 |
|
|
$ |
176,772 |
|
Non-staff expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Net occupancy and equipment |
|
|
10,685 |
|
|
|
9,168 |
|
|
|
21,339 |
|
|
|
18,314 |
|
Credit and debit card, data processing and software amortization |
|
|
16,121 |
|
|
|
12,056 |
|
|
|
34,235 |
|
|
|
23,478 |
|
Regulatory assessments and FDIC insurance |
|
|
5,287 |
|
|
|
5,508 |
|
|
|
11,328 |
|
|
|
11,297 |
|
Core deposit intangibles amortization |
|
|
5,661 |
|
|
|
3,610 |
|
|
|
10,920 |
|
|
|
7,251 |
|
Depreciation |
|
|
5,795 |
|
|
|
4,779 |
|
|
|
11,343 |
|
|
|
9,553 |
|
Communications (2) |
|
|
4,271 |
|
|
|
3,507 |
|
|
|
8,105 |
|
|
|
6,980 |
|
Net other real estate expense (3) |
|
|
309 |
|
|
|
(18 |
) |
|
|
609 |
|
|
|
92 |
|
Merger related expenses |
|
|
755 |
|
|
|
— |
|
|
|
43,271 |
|
|
|
— |
|
Other |
|
|
16,327 |
|
|
|
12,659 |
|
|
|
32,137 |
|
|
|
25,129 |
|
Total noninterest expense |
|
$ |
176,176 |
|
|
$ |
138,565 |
|
|
$ |
393,463 |
|
|
$ |
278,866 |
|
(1)Includes stock-based compensation expense of $3.2 million and $3.0 million for the three months ended June 30, 2026, and 2025, respectively, and $6.6 million and $6.1 million for the six months ended June 30, 2026, and 2025, respectively.
(2)Communications expense includes telephone, data circuits, postage and courier expenses.
(3)Net other real estate income consists of rental expense, rental income and gains and losses on sales of real estate.
Income Taxes
The amount of federal and state income tax expense is influenced by the amount of pre-tax income, the amount of tax-exempt income and the amount of nondeductible expenses. Income tax expense totaled $46.5 million for the three months ended June 30, 2026, compared with $37.0 million for the same period in 2025, an increase of $9.5 million or 25.7%. Income tax expense totaled $80.6 million for the six months ended June 30, 2026, compared with $73.1 million for the same period in 2025, an increase of $7.4 million or 10.2%. The Company’s effective tax rate for the three months ended June 30, 2026, and 2025 was 21.6% and 21.5%, respectively. The Company’s effective tax rate for the six months ended June 30, 2026, and 2025 was 22.0% and 21.6%, respectively.
Enactment of the One Big Beautiful Bill Act — On July 4, 2025, the One Big Beautiful Bill Act (the “OBBB Act”), which included certain modifications to U.S. tax law, was enacted. The Company has completed its initial evaluation of the provisions of the OBBB Act and has concluded that it did not have a material impact on the Company's income tax provision for the six months ended June 30, 2026 and year ended December 31, 2025.
FINANCIAL CONDITION
Loan Portfolio
The Company separates its loan portfolio into two general categories of loans: (1) “originated loans,” which are loans originated by the Company and made pursuant to the Company’s loan policy and procedures in effect at the time the loan was made, and (2) “acquired loans,” which are loans acquired in a business combination and recorded at fair value at acquisition date. Those acquired loans that are renewed or substantially modified after the date of the business combination are referred to as “re-underwritten acquired loans.” If a renewal or substantial modification of an acquired loan is underwritten by the Company with a new credit analysis, the loan may no longer be categorized as an acquired loan. For example, acquired loans to one borrower may be combined into a new loan with a new loan number and categorized as an originated loan. Acquired loans with a fair value discount or premium at the date of the business combination that remained at the reporting date are referred to as “fair-valued acquired loans.” All
fair-valued acquired loans are further categorized into PCD loans and PSLs. Acquired loans with evidence of credit quality deterioration as of the acquisition date when compared to the origination date are classified as PCD loans.
The following tables summarize the Company’s originated and acquired loan portfolios broken out into originated loans, re-underwritten acquired loans, PSLs and PCD loans, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2026 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total Loans |
|
|
|
(Dollars in thousands) |
|
Residential mortgage loans held for sale |
|
$ |
18,656 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
18,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
1,850,475 |
|
|
|
565,391 |
|
|
|
781,234 |
|
|
|
92,992 |
|
|
|
3,290,092 |
|
Warehouse purchase program |
|
|
1,290,156 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,290,156 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
|
|
2,389,000 |
|
|
|
211,114 |
|
|
|
486,853 |
|
|
|
56,640 |
|
|
|
3,143,607 |
|
1-4 family residential (includes home equity) |
|
|
7,355,234 |
|
|
|
184,249 |
|
|
|
1,036,110 |
|
|
|
10,526 |
|
|
|
8,586,119 |
|
Commercial real estate (includes multi-family residential) |
|
|
4,664,831 |
|
|
|
485,679 |
|
|
|
1,885,454 |
|
|
|
185,014 |
|
|
|
7,220,978 |
|
Farmland |
|
|
582,782 |
|
|
|
24,364 |
|
|
|
76,197 |
|
|
|
22,525 |
|
|
|
705,868 |
|
Agriculture |
|
|
276,302 |
|
|
|
75,225 |
|
|
|
2,696 |
|
|
|
6,031 |
|
|
|
360,254 |
|
Consumer and other |
|
|
326,177 |
|
|
|
19,650 |
|
|
|
64,868 |
|
|
|
1,573 |
|
|
|
412,268 |
|
Total loans held for investment |
|
|
18,734,957 |
|
|
|
1,565,672 |
|
|
|
4,333,412 |
|
|
|
375,301 |
|
|
|
25,009,342 |
|
Total |
|
$ |
18,753,613 |
|
|
$ |
1,565,672 |
|
|
$ |
4,333,412 |
|
|
$ |
375,301 |
|
|
$ |
25,027,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2025 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total Loans |
|
|
|
(Dollars in thousands) |
|
Residential mortgage loans held for sale |
|
$ |
14,155 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
14,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
1,640,519 |
|
|
|
529,002 |
|
|
|
101,750 |
|
|
|
32,665 |
|
|
|
2,303,936 |
|
Warehouse purchase program |
|
|
1,304,798 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,304,798 |
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
|
|
2,468,830 |
|
|
|
181,271 |
|
|
|
46,132 |
|
|
|
45,222 |
|
|
|
2,741,455 |
|
1-4 family residential (includes home equity) |
|
|
7,513,090 |
|
|
|
185,707 |
|
|
|
555,827 |
|
|
|
5,858 |
|
|
|
8,260,482 |
|
Commercial real estate (includes multi-family residential) |
|
|
4,483,549 |
|
|
|
405,063 |
|
|
|
705,206 |
|
|
|
182,579 |
|
|
|
5,776,397 |
|
Farmland |
|
|
558,958 |
|
|
|
19,240 |
|
|
|
62,081 |
|
|
|
21,752 |
|
|
|
662,031 |
|
Agriculture |
|
|
273,192 |
|
|
|
81,208 |
|
|
|
4,821 |
|
|
|
6,652 |
|
|
|
365,873 |
|
Consumer and other |
|
|
320,003 |
|
|
|
50,788 |
|
|
|
5,435 |
|
|
|
15 |
|
|
|
376,241 |
|
Total loans held for investment |
|
|
18,562,939 |
|
|
|
1,452,279 |
|
|
|
1,481,252 |
|
|
|
294,743 |
|
|
|
21,791,213 |
|
Total |
|
$ |
18,577,094 |
|
|
$ |
1,452,279 |
|
|
$ |
1,481,252 |
|
|
$ |
294,743 |
|
|
$ |
21,805,368 |
|
At June 30, 2026, total loans were $25.03 billion, an increase of $3.22 billion or 14.8% compared with $21.81 billion at December 31, 2025. Loans at June 30, 2026, included $18.7 million of loans held for sale and $1.29 billion of Warehouse Purchase Program loans compared with $14.2 million of loans held for sale and $1.30 billion of Warehouse Purchase Program loans at December 31, 2025. At June 30, 2026, loans represented 57.0% of total assets compared with 56.7% of total assets at December 31, 2025.
The loan portfolio consists of various types of loans categorized by major type as follows:
(i) Commercial and Industrial Loans. In nearly all cases, the Company’s commercial loans are made in the Company’s market areas and are underwritten based on the borrower’s ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. As a general practice, term loans are secured by any available real estate, equipment or other assets owned by the borrower. Both working capital and term loans are typically supported by a personal guaranty of a principal. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these loans as well as the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.
Included in commercial and industrial loans are (1) commitments to oil and gas producers largely secured by proven, developed and producing reserves and (2) commitments to service, equipment and midstream companies secured mainly by accounts receivable, inventory and equipment. Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party and verified by the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.
(ii) Commercial Real Estate. The Company makes commercial real estate loans collateralized by owner-occupied and nonowner-occupied real estate to finance the purchase of real estate. The Company’s commercial real estate loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed rates) and amortize over a 15- to 25-year period. Payments on loans secured by nonowner-occupied properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration to the property’s operating history, future operating projections, current and projected occupancy, location and physical condition, in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, appraisals and a review of the financial condition of the borrower and guarantor. Loans to hotels and restaurants are included in commercial real estate loans.
(iii) 1-4 Family Residential Loans. The Company’s lending activities also include the origination of 1-4 family residential mortgage loans (including home equity loans) collateralized by owner-occupied and nonowner-occupied residential properties located in the Company’s market areas. The Company offers a variety of mortgage loan portfolio products which generally are amortized over five to 30 years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value. The Company requires mortgage title insurance, as well as hazard, wind and/or flood insurance as appropriate. The Company prefers to retain residential mortgage loans for its own account rather than selling them into the secondary market. By doing so, the Company incurs interest rate risk as well as the risks associated with non-payments on such loans. The Company’s mortgage department also offers a variety of mortgage loan products which are generally amortized over 30 years, including FHA and VA loans, which are sold to secondary market investors.
(iv) Construction, Land Development and Other Land Loans. The Company makes loans to finance the construction of residential and nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have variable interest rates. The Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Company’s construction lending activities, with heightened analysis of construction and/or development costs. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, the Company may not be able to recover all of the unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Although the Company has underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction lending, these procedures may not prevent losses from the risks described above.
(v) Warehouse Purchase Program. The Warehouse Purchase Program allows unaffiliated mortgage originators (“Clients”) to close 1-4 family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors. The Company’s Clients are strategically targeted for their experienced management teams and analyzed for the expected profitability of each Client’s business model over the long term. The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards as required by United States government-sponsored enterprise agencies, such as the Federal National Mortgage Association (“Fannie Mae”) and private investors to which the mortgage loans are ultimately sold and/or mortgage insurers.
Although not subject to any legally binding commitment, when the Company makes a purchase decision, it acquires a 100% participation interest in the mortgage loans originated by its Clients. Individual mortgage loans are warehoused in the Company’s portfolio only for a short duration, averaging less than 30 days. When instructed by a Client that a warehoused loan has been sold to an investor, the Company delivers the note to the investor that pays the Company, which in turn remits the net sales proceeds to the Client.
(vi) Agriculture Loans. The Company provides agriculture loans for short-term livestock and crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture borrowers primarily based on their historical profitability, level of experience in their particular industry segment, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks.
(vii) Consumer Loans. Consumer loans made by the Company include direct “A”-credit automobile loans, recreational vehicle loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 180 months and vary based upon the nature of collateral and size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, personal bankruptcy or death. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.
The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Nonperforming Assets
Nonperforming assets include loans on nonaccrual status, accruing loans 90 days or more past due, repossessed assets and real estate which has been acquired through foreclosure and is awaiting disposition.
The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases, unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.
Nonperforming assets decreased $20.3 million to $130.6 million at June 30, 2026, compared with $150.8 million at December 31, 2025.
The following tables present information regarding nonperforming assets differentiated among originated loans, re-underwritten acquired loans, PSLs and PCD loans, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2026 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Nonaccrual loans (1) |
|
$ |
80,728 |
|
|
$ |
2,140 |
|
|
$ |
7,210 |
|
|
$ |
26,833 |
|
|
$ |
116,911 |
|
Accruing loans 90 or more days past due |
|
|
1,729 |
|
|
|
494 |
|
|
|
137 |
|
|
|
— |
|
|
|
2,360 |
|
Total nonperforming loans |
|
|
82,457 |
|
|
|
2,634 |
|
|
|
7,347 |
|
|
|
26,833 |
|
|
|
119,271 |
|
Repossessed assets |
|
|
9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9 |
|
Other real estate |
|
|
6,344 |
|
|
|
— |
|
|
|
936 |
|
|
|
4,016 |
|
|
|
11,296 |
|
Total nonperforming assets |
|
$ |
88,810 |
|
|
$ |
2,634 |
|
|
$ |
8,283 |
|
|
$ |
30,849 |
|
|
$ |
130,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans and other real estate |
|
|
0.47 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
|
|
8.13 |
% |
|
|
0.52 |
% |
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate |
|
|
0.51 |
% |
|
|
0.17 |
% |
|
|
0.19 |
% |
|
|
8.13 |
% |
|
|
0.55 |
% |
Nonaccrual loans to total loans |
|
|
0.43 |
% |
|
|
0.14 |
% |
|
|
0.17 |
% |
|
|
7.15 |
% |
|
|
0.47 |
% |
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans |
|
|
0.46 |
% |
|
|
0.14 |
% |
|
|
0.17 |
% |
|
|
7.15 |
% |
|
|
0.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2025 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Nonaccrual loans (1) |
|
$ |
95,816 |
|
|
$ |
19,208 |
|
|
$ |
6,016 |
|
|
$ |
16,177 |
|
|
$ |
137,217 |
|
Accruing loans 90 or more days past due |
|
|
317 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
317 |
|
Total nonperforming loans |
|
|
96,133 |
|
|
|
19,208 |
|
|
|
6,016 |
|
|
|
16,177 |
|
|
|
137,534 |
|
Repossessed assets |
|
|
— |
|
|
|
— |
|
|
|
12 |
|
|
|
— |
|
|
|
12 |
|
Other real estate |
|
|
8,845 |
|
|
|
— |
|
|
|
395 |
|
|
|
4,056 |
|
|
|
13,296 |
|
Total nonperforming assets |
|
$ |
104,978 |
|
|
$ |
19,208 |
|
|
$ |
6,423 |
|
|
$ |
20,233 |
|
|
$ |
150,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total loans and other real estate |
|
|
0.56 |
% |
|
|
1.32 |
% |
|
|
0.43 |
% |
|
|
6.77 |
% |
|
|
0.69 |
% |
Nonperforming assets to total loans, excluding Warehouse Purchase Program loans, and other real estate |
|
|
0.61 |
% |
|
|
1.32 |
% |
|
|
0.43 |
% |
|
|
6.77 |
% |
|
|
0.74 |
% |
Nonaccrual loans to total loans |
|
|
0.52 |
% |
|
|
1.32 |
% |
|
|
0.41 |
% |
|
|
5.49 |
% |
|
|
0.63 |
% |
Nonaccrual loans to total loans, excluding Warehouse Purchase Program loans |
|
|
0.55 |
% |
|
|
1.32 |
% |
|
|
0.41 |
% |
|
|
5.49 |
% |
|
|
0.67 |
% |
(1)There were no nonperforming Warehouse Purchase Program loans or Warehouse Purchase Program lines of credit for the periods presented.
Nonperforming assets were 0.52% of total loans and other real estate at June 30, 2026, and 0.69% of total loans and other real estate at December 31, 2025. The allowance for credit losses on loans as a percentage of total nonperforming loans was 321.0% at June 30, 2026, and 242.7% at December 31, 2025.
Allowance for Credit Losses on Loans
Management has established an allowance for credit losses on loans that it believes is management’s best estimate of current expected losses on the Company’s loan portfolio as of June 30, 2026. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses.
The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, (4) provision releases returned to earnings that decrease the allowance, and (5) increases in reserves related to acquired loans. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.
The Company’s allowance for credit losses on loans consists of two components: (1) a specific valuation allowance based on expected lifetime losses on specifically identified loans and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, two-year reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company.
In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan. The specific reserves are determined on an individual loan basis. Loans for which specific reserves are provided are excluded from the general valuation allowance described below.
In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to cover expected losses in other categories.
A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired and PCD loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans.
Changes in the Company’s asset quality are reflected in the allowance in several ways. Specific reserves that are calculated on a loan-by-loan basis and the qualitative assessment of all other loans reflect current changes in the credit quality of the loan portfolio. Historical lifetime credit losses, on the other hand, are based on an open-pool (“cumulative loss rate”) methodology, which is then applied to estimate lifetime credit losses in the loan portfolio. A deterioration in the credit quality of the loan portfolio in the current period would increase the historical lifetime loss rate to be applied in future periods, just as an improvement in credit quality would decrease the historical lifetime loss rate.
The allowance for credit losses is further determined by the size of the loan portfolio subject to the allowance methodology and environmental factors that include Company-specific risk indicators and general economic conditions, both of which are constantly changing. The Company evaluates the economic and portfolio-specific factors on a quarterly basis to determine a qualitative component of the general valuation allowance. The factors include current economic metrics, two-year reasonable and supportable forecasted economic metrics, business conditions, delinquency trends, credit concentrations, nature and volume of the portfolio and other adjustments for items not covered by specific reserves and historical lifetime loss experience. Management’s assessment of qualitative factors is a statistically based approach to determine the loss rate adjustment associated with such factors. Based on the Company’s actual historical lifetime loan loss experience relative to economic and loan portfolio-specific factors at the time the losses occurred, management is able to identify the expected level of lifetime losses as of the date of measurement. The correlation of historical loss experience with current and forecasted economic conditions provides an estimate of lifetime losses that has not been previously factored into the general valuation allowance by the determination of specific reserves and lifetime historical losses. Additionally, the Company considers qualitative factors not easily quantified and the possibility of model imprecision.
Utilizing the aggregation of specific reserves, historical loss experience and a qualitative component, management is able to determine the valuation allowance to reflect the full lifetime loss.
The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity are recorded at their fair values at the acquisition date. These fair value estimates associated with acquired loans, and based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.
PSLs that were not deemed impaired subsequent to the acquisition date are considered non-impaired and are evaluated as part of the general valuation allowance.
PSLs that have deteriorated to an impaired status subsequent to acquisition are evaluated for a specific reserve on a quarterly basis which, when identified, is added to the allowance for credit losses. The Company reviews impaired PSLs on a loan-by-loan basis and determines the specific reserve based on the difference between the recorded investment in the loan and one of three factors: expected future cash flows, observable market price or fair value of the collateral. Because essentially all of the Company’s impaired PSLs have been collateral-dependent, the amount of the specific reserve historically has been determined by comparing the fair value of the collateral securing the PSL with the recorded investment in such loan. In the future, the Company will continue to analyze impaired PSLs on a loan-by-loan basis and may use an alternative measurement method to determine the specific reserve, as appropriate and in accordance with applicable accounting standards.
PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans may be required. PCD loans were recorded at their acquisition date fair values based on expected cash flows with a reserve established for the estimate of expected future cash flows. The Company’s estimates of loan fair values at the acquisition date may be adjusted for a period of up to one year as the Company continues to evaluate its estimate of expected future cash flows at the acquisition date. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses.
As described in the section captioned “Critical Accounting Estimates” above, the Company’s determination of the allowance for credit losses involves a high degree of judgment and complexity. The Company’s analysis of qualitative, or environmental, factors on pools of loans with common risk characteristics, in combination with the quantitative historical lifetime loss information and specific reserves, provides the Company with an estimate of lifetime losses. The allowance must reflect changes in the balance of loans subject to the allowance methodology, as well as the estimated lifetime losses associated with those loans.
On January 1, 2026, the Company adopted ASU 2025-08 that updates the accounting for purchased loans under ASC 326. Under ASU 2025-08, Non-PCD loans deemed “seasoned” will now be considered PSLs and accounted for using the gross-up approach at acquisition, which was formerly applicable only to PCD loans. PSLs include all loans acquired in a business combination that do not have “more-than-insignificant” deterioration of credit quality since origination. Under ASU 2025-08, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized costs basis, thereby eliminating the immediate recognition of day-one credit loss expense previously required for Non-PCD loans. Accordingly, the initial estimate of expected credit losses recognized in the allowance for credit losses on loans on the American Merger and the Southwest Merger included both PCD loans and PSLs. For the American Merger, the Company recorded an allowance for credit losses on loans of $47.5 million, which included a $27.5 million allowance on PCD loans and a $20.0 million allowance on PSLs. For the Southwest Merger, the Company recorded an allowance for credit losses on loans of $45.1 million, which included a $25.8 million allowance on PCD loans and a $19.3 million allowance on PSLs.
The following tables present, as of and for the periods indicated, information regarding the allowance for credit losses on loans differentiated between originated loans and acquired loans. Reported net charge-offs may include those from PSLs and PCD loans, but only if the total charge-off required is greater than the remaining discount.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Six Months Ended June 30, 2026 |
|
|
|
Originated Loans |
|
|
Acquired Loans |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Average loans outstanding |
|
$ |
19,484,380 |
|
|
$ |
5,405,932 |
|
|
$ |
24,890,312 |
|
Gross loans outstanding at end of period |
|
$ |
18,753,613 |
|
|
$ |
6,274,385 |
|
|
$ |
25,027,998 |
|
Allowance for credit losses on loans at beginning of period |
|
$ |
231,282 |
|
|
$ |
102,460 |
|
|
$ |
333,742 |
|
Initial allowance on loans purchased with credit deterioration |
|
|
— |
|
|
|
53,330 |
|
|
|
53,330 |
|
Initial allowance on loans purchased seasoned loans(1) |
|
|
— |
|
|
|
39,261 |
|
|
|
39,261 |
|
Provision for credit losses |
|
|
16,440 |
|
|
|
(16,440 |
) |
|
|
— |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
(31,297 |
) |
|
|
(11,160 |
) |
|
|
(42,457 |
) |
Real estate and agriculture |
|
|
(1,351 |
) |
|
|
(341 |
) |
|
|
(1,692 |
) |
Consumer and other |
|
|
(3,480 |
) |
|
|
(167 |
) |
|
|
(3,647 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
1,202 |
|
|
|
644 |
|
|
|
1,846 |
|
Real estate and agriculture |
|
|
102 |
|
|
|
1,469 |
|
|
|
1,571 |
|
Consumer and other |
|
|
754 |
|
|
|
133 |
|
|
|
887 |
|
Net charge-offs (2) |
|
|
(34,070 |
) |
|
|
(9,422 |
) |
|
|
(43,492 |
) |
Allowance for credit losses on loans at end of period |
|
$ |
213,652 |
|
|
$ |
169,189 |
|
|
$ |
382,841 |
|
Ratio of allowance to end of period loans |
|
|
1.14 |
% |
|
|
2.70 |
% |
|
|
1.53 |
% |
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program |
|
|
1.22 |
% |
|
|
2.70 |
% |
|
|
1.61 |
% |
Ratio of net charge-offs (recoveries) to average loans (annualized) |
|
|
0.35 |
% |
|
|
0.35 |
% |
|
|
0.35 |
% |
Ratio of allowance to end of period nonperforming loans |
|
|
259.1 |
% |
|
|
459.6 |
% |
|
|
321.0 |
% |
Ratio of allowance to end of period nonaccrual loans |
|
|
264.7 |
% |
|
|
467.6 |
% |
|
|
327.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Six Months Ended June 30, 2025 |
|
|
|
Originated Loans |
|
|
Acquired Loans |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Average loans outstanding |
|
$ |
18,064,360 |
|
|
$ |
3,906,042 |
|
|
$ |
21,970,402 |
|
Gross loans outstanding at end of period |
|
$ |
18,628,762 |
|
|
$ |
3,568,626 |
|
|
$ |
22,197,388 |
|
Allowance for credit losses on loans at beginning of period |
|
$ |
227,238 |
|
|
$ |
124,567 |
|
|
$ |
351,805 |
|
Provision for credit losses |
|
|
13,748 |
|
|
|
(13,748 |
) |
|
|
— |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
(2,411 |
) |
|
|
(166 |
) |
|
|
(2,577 |
) |
Real estate and agriculture |
|
|
(1,673 |
) |
|
|
(413 |
) |
|
|
(2,086 |
) |
Consumer and other |
|
|
(3,286 |
) |
|
|
(216 |
) |
|
|
(3,502 |
) |
Recoveries: |
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
|
515 |
|
|
|
688 |
|
|
|
1,203 |
|
Real estate and agriculture |
|
|
267 |
|
|
|
366 |
|
|
|
633 |
|
Consumer and other |
|
|
551 |
|
|
|
57 |
|
|
|
608 |
|
Net charge-offs (2) |
|
|
(6,037 |
) |
|
|
316 |
|
|
|
(5,721 |
) |
Allowance for credit losses on loans at end of period |
|
$ |
234,949 |
|
|
$ |
111,135 |
|
|
$ |
346,084 |
|
Ratio of allowance to end of period loans |
|
|
1.26 |
% |
|
|
3.11 |
% |
|
|
1.56 |
% |
Ratio of allowance to end of period loans, excluding Warehouse Purchase Program |
|
|
1.35 |
% |
|
|
3.11 |
% |
|
|
1.66 |
% |
Ratio of net charge-offs (recoveries) to average loans (annualized) |
|
|
0.07 |
% |
|
|
(0.02 |
%) |
|
|
0.05 |
% |
Ratio of allowance to end of period nonperforming loans |
|
|
454.5 |
% |
|
|
218.3 |
% |
|
|
337.3 |
% |
Ratio of allowance to end of period nonaccrual loans |
|
|
456.7 |
% |
|
|
219.7 |
% |
|
|
339.2 |
% |
(1)The Company adopted ASU 2025-08 on January 1, 2026.
(2)There was no net charge-off activity on Warehouse Purchase Program loans during the periods presented.
The Company had gross charge-offs on originated loans of $36.1 million during the six months ended June 30, 2026. Partially offsetting these charge-offs were recoveries on originated loans of $2.1 million. Gross charge-offs on acquired loans were $11.7 million during the six months ended June 30, 2026. Offsetting these charge-offs were recoveries on acquired loans of $2.2 million. Total charge-offs for the six months ended June 30, 2026, were $47.8 million, partially offset by total recoveries of $4.3 million.
The following table shows the allocation of the net charge-offs and net recoveries among various categories of loans as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Amount |
|
|
Ratio of Net
Charge-offs (Recoveries) to Average Loans (Annualized) |
|
|
Amount |
|
|
Ratio of Net
Charge-offs (Recoveries) to Average Loans (Annualized) |
|
|
|
(Dollars in thousands) |
|
Balance of net (charge-offs) recoveries applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
(40,611 |
) |
|
|
0.32 |
% |
|
$ |
(1,374 |
) |
|
|
0.01 |
% |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Construction, land development and other land loans |
|
|
(50 |
) |
|
|
0 |
|
|
|
159 |
|
|
|
0.00 |
% |
1-4 family residential (including home equity) |
|
|
(1,176 |
) |
|
|
0.01 |
% |
|
|
(1,393 |
) |
|
|
0.01 |
% |
Commercial real estate (including multi-family residential) |
|
|
1,185 |
|
|
|
(0.01 |
%) |
|
|
(233 |
) |
|
|
0.00 |
% |
Agriculture (includes farmland) |
|
|
(80 |
) |
|
|
0.00 |
% |
|
|
14 |
|
|
|
0.00 |
% |
Consumer and other |
|
|
(2,760 |
) |
|
|
0.02 |
% |
|
|
(2,894 |
) |
|
|
0.03 |
% |
Total net (charge-offs) recoveries |
|
$ |
(43,492 |
) |
|
|
0.35 |
% |
|
$ |
(5,721 |
) |
|
|
0.05 |
% |
The following tables show the allocation of the allowance for credit losses on loans among various categories of loans disaggregated between originated loans, re-underwritten acquired loans, PSLs and PCD loans at the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to cover expected losses from any loan category, regardless of whether allocated to an originated loan or an acquired loan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2026 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total
Allowance |
|
|
Percent of Loans to Total Loans(1) |
|
|
|
(Dollars in thousands) |
|
Balance of allowance for credit losses on loans applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
39,136 |
|
|
$ |
16,903 |
|
|
$ |
17,478 |
|
|
$ |
30,672 |
|
|
$ |
104,189 |
|
|
|
13.9 |
% |
Real estate |
|
|
156,977 |
|
|
|
11,065 |
|
|
|
35,679 |
|
|
|
41,252 |
|
|
|
244,973 |
|
|
|
79.9 |
% |
Agriculture and agriculture real estate |
|
|
9,964 |
|
|
|
1,895 |
|
|
|
597 |
|
|
|
11,291 |
|
|
|
23,747 |
|
|
|
4.5 |
% |
Consumer and other |
|
|
7,575 |
|
|
|
361 |
|
|
|
1,115 |
|
|
|
881 |
|
|
|
9,932 |
|
|
|
1.7 |
% |
Total allowance for credit losses on loans |
|
$ |
213,652 |
|
|
$ |
30,224 |
|
|
$ |
54,869 |
|
|
$ |
84,096 |
|
|
$ |
382,841 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2025 |
|
|
|
|
|
|
Acquired Loans |
|
|
|
|
|
|
|
|
|
Originated Loans |
|
|
Re-Underwritten Acquired Loans |
|
|
PSLs |
|
|
PCD Loans |
|
|
Total
Allowance |
|
|
Percent of Loans to Total Loans(1) |
|
|
|
(Dollars in thousands) |
|
Balance of allowance for credit losses on loans applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial |
|
$ |
45,778 |
|
|
$ |
24,461 |
|
|
$ |
2,267 |
|
|
$ |
5,433 |
|
|
$ |
77,939 |
|
|
|
11.2 |
% |
Real estate |
|
|
168,799 |
|
|
|
10,279 |
|
|
|
12,813 |
|
|
|
31,773 |
|
|
|
223,664 |
|
|
|
81.9 |
% |
Agriculture and agriculture real estate |
|
|
9,724 |
|
|
|
2,005 |
|
|
|
543 |
|
|
|
11,166 |
|
|
|
23,438 |
|
|
|
5.0 |
% |
Consumer and other |
|
|
6,981 |
|
|
|
1,636 |
|
|
|
81 |
|
|
|
3 |
|
|
|
8,701 |
|
|
|
1.9 |
% |
Total allowance for credit losses on loans |
|
$ |
231,282 |
|
|
$ |
38,381 |
|
|
$ |
15,704 |
|
|
$ |
48,375 |
|
|
$ |
333,742 |
|
|
|
100.0 |
% |
(1)Loans outstanding as of a percentage of total loans, excluding Warehouse Purchase Program loans.
The allowance for credit losses on loans totaled $382.8 million at June 30, 2026, compared with $333.7 million at December 31, 2025, an increase of $49.1 million or 14.7%. The allowance for credit losses on loans totaled 1.53% of total loans at both June 30, 2026 and December 31, 2025.
At June 30, 2026, $213.7 million of the allowance for credit losses on loans was attributable to originated loans, a decrease of $17.6 million or 7.6% compared with $231.3 million of the allowance at December 31, 2025. At June 30, 2026, $30.2 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $38.4 million of the allowance at December 31, 2025, a decrease of $8.2 million or 21.3%. At June 30, 2026, $54.9 million of the allowance for credit losses on loans was attributable to PSLs compared with $15.7 million of the allowance at December 31, 2025, an increase of $39.2 million or 249.4%. At June 30, 2026, $84.1 million of the allowance for credit losses on loans was attributable to PCD loans compared with $48.4 million of the allowance at December 31, 2025, an increase of $35.7 million or 73.8%.
At June 30, 2026, the Company had $73.2 million of total outstanding accretable discounts on PSLs and PCD loans. The Company believes that the allowance for credit losses on loans at June 30, 2026, is adequate to cover expected losses that may be realized from the loan portfolio as of such date. Nevertheless, the Company could sustain losses in future periods, which losses could be substantial in relation to the size of the allowance at June 30, 2026.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancelable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of June 30, 2026, and December 31, 2025, the Company had $37.6 million in allowance for credit losses on off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet.
Securities
The carrying cost of securities totaled $12.34 billion at June 30, 2026, compared with $10.61 billion at December 31, 2025, an increase of $1.73 billion or 16.3%. At June 30, 2026, securities represented 28.1% of total assets compared with 27.6% of total assets at December 31, 2025.
The amortized cost and fair value of investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2026 |
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(Dollars in thousands) |
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
7,935 |
|
|
$ |
2,750 |
|
|
$ |
— |
|
|
$ |
10,685 |
|
Collateralized mortgage obligations |
|
|
204,881 |
|
|
|
62 |
|
|
|
(2,468 |
) |
|
|
202,475 |
|
Mortgage-backed securities |
|
|
133,526 |
|
|
|
157 |
|
|
|
(820 |
) |
|
|
132,863 |
|
Total |
|
$ |
346,342 |
|
|
$ |
2,969 |
|
|
$ |
(3,288 |
) |
|
$ |
346,023 |
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
4,100 |
|
|
$ |
— |
|
|
$ |
(8 |
) |
|
$ |
4,092 |
|
States and political subdivisions |
|
|
118,214 |
|
|
|
109 |
|
|
|
(1,842 |
) |
|
|
116,481 |
|
Corporate debt securities |
|
|
12,000 |
|
|
|
— |
|
|
|
(840 |
) |
|
|
11,160 |
|
Collateralized mortgage obligations |
|
|
377,315 |
|
|
|
435 |
|
|
|
(15,981 |
) |
|
|
361,769 |
|
Mortgage-backed securities |
|
|
11,481,428 |
|
|
|
3,705 |
|
|
|
(877,333 |
) |
|
|
10,607,800 |
|
Total |
|
$ |
11,993,057 |
|
|
$ |
4,249 |
|
|
$ |
(896,004 |
) |
|
$ |
11,101,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2025 |
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(Dollars in thousands) |
|
Available for Sale |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
7,935 |
|
|
$ |
2,518 |
|
|
$ |
— |
|
|
$ |
10,453 |
|
Collateralized mortgage obligations |
|
|
209,689 |
|
|
|
5 |
|
|
|
(2,250 |
) |
|
|
207,444 |
|
Mortgage-backed securities |
|
|
120,948 |
|
|
|
85 |
|
|
|
(733 |
) |
|
|
120,300 |
|
Total |
|
$ |
338,572 |
|
|
$ |
2,608 |
|
|
$ |
(2,983 |
) |
|
$ |
338,197 |
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agencies |
|
$ |
6,032 |
|
|
$ |
78 |
|
|
$ |
(70 |
) |
|
$ |
6,040 |
|
States and political subdivisions |
|
|
69,221 |
|
|
|
249 |
|
|
|
(1,347 |
) |
|
|
68,123 |
|
Corporate debt securities |
|
|
12,000 |
|
|
|
— |
|
|
|
(1,020 |
) |
|
|
10,980 |
|
Collateralized mortgage obligations |
|
|
223,675 |
|
|
|
1,010 |
|
|
|
(12,177 |
) |
|
|
212,508 |
|
Mortgage-backed securities |
|
|
9,964,300 |
|
|
|
9,070 |
|
|
|
(837,656 |
) |
|
|
9,135,714 |
|
Total |
|
$ |
10,275,228 |
|
|
$ |
10,407 |
|
|
$ |
(852,270 |
) |
|
$ |
9,433,365 |
|
The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under CECL.
Available for sale securities. For available for sale securities in an unrealized loss position, the amount of the expected credit losses recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis less any current-period credit loss, the expected credit losses will be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the expected credit losses will be separated into the amount representing the credit-related portion of the impairment loss (“credit loss”) and the noncredit portion of the impairment loss (“noncredit portion”). The amount of the total expected credit losses related to the credit loss is determined based on the difference between the present value of cash flows expected to be collected and the amortized cost basis, and such difference is recognized in earnings. The amount of the total expected credit losses related to the noncredit portion is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the expected credit losses recognized in earnings will become the new amortized cost basis of the investment.
As of June 30, 2026, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost. The unrealized losses are largely due to changes in market interest rates and spread relationships since the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of June 30, 2026, management believes that there is no potential for credit losses on available for sale securities.
Held to maturity securities. The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Fannie Mae or Federal Home Loan Mortgage Corporation (“Freddie Mac”). Ginnie Mae-issued securities are explicitly guaranteed by the U.S. government, while Fannie Mae- and Freddie Mac-issued securities are fully guaranteed by those respective United States government-sponsored agencies, and conditionally guaranteed by the full faith and credit of the United States. The Company’s held to maturity securities also include taxable and tax-exempt municipal securities issued primarily by school districts, utility districts and municipalities located in Texas. The Company’s investment in municipal securities is exposed to credit risk. The securities are highly rated by major rating agencies and regularly reviewed by management. A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of June 30, 2026, the Company’s municipal securities represent 1.0% of the securities portfolio. Management has the ability and intent to hold the securities classified as held to maturity until they mature, at which time the Company will receive full value for the securities. Accordingly, as of June 30, 2026, management believes that there is no potential for material credit losses on held to maturity securities.
Deposits
Total deposits were $32.60 billion at June 30, 2026, compared with $28.48 billion at December 31, 2025, an increase of $4.12 billion or 14.5%. Total noninterest-bearing deposits were $10.74 billion at June 30, 2026, compared with $9.47 billion at December 31, 2025, an increase of $1.27 billion or 13.4%. Interest-bearing deposits were $21.86 billion at June 30, 2026, compared with $19.01 billion at December 31, 2025, an increase of $2.85 billion or 15.0%.
Average deposits for the six months ended June 30, 2026, were $32.18 billion, an increase of $4.28 billion or 15.4% compared with $27.89 billion for the six months ended June 30, 2025. The ratio of average interest-bearing deposits to total average deposits was 67.6% and 65.9% during the first six months of 2026 and 2025, respectively.
The following table summarizes the daily average balances and weighted average rates paid on deposits for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
|
Average Balance |
|
|
Average Rate (1) |
|
|
Average Balance |
|
|
Average Rate (1) |
|
|
|
(Dollars in thousands) |
|
Interest-bearing demand deposits |
|
$ |
6,199,301 |
|
|
|
0.95 |
% |
|
$ |
5,015,178 |
|
|
|
0.72 |
% |
Regular savings |
|
|
2,701,022 |
|
|
|
0.51 |
% |
|
|
2,672,948 |
|
|
|
0.71 |
% |
Money market savings |
|
|
8,056,501 |
|
|
|
2.44 |
% |
|
|
6,302,971 |
|
|
|
2.63 |
% |
Certificates, IRAs and other time deposits |
|
|
4,808,748 |
|
|
|
3.26 |
% |
|
|
4,396,350 |
|
|
|
3.67 |
% |
Total interest-bearing deposits |
|
|
21,765,572 |
|
|
|
1.96 |
% |
|
|
18,387,447 |
|
|
|
2.08 |
% |
Noninterest-bearing demand deposits |
|
|
10,412,431 |
|
|
|
|
|
|
9,506,704 |
|
|
|
|
Total deposits |
|
$ |
32,178,003 |
|
|
|
1.32 |
% |
|
$ |
27,894,151 |
|
|
|
1.37 |
% |
(1)Annualized and based on average balances on an actual 365-day basis for the six months ended June 30, 2026, and 2025.
Borrowings and Subordinated Debt
The following table presents the Company’s borrowings as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2026 |
|
|
December 31, 2025 |
|
|
|
(Dollars in thousands) |
|
FHLB advances |
|
$ |
2,400,000 |
|
|
$ |
1,950,000 |
|
Securities sold under repurchase agreements |
|
|
199,576 |
|
|
|
201,216 |
|
Subordinated notes - Fixed to floating rate notes maturing on December 29, 2031 |
|
|
35,000 |
|
|
|
— |
|
Subordinated notes - Fixed to floating rate notes maturing on June 15, 2032 |
|
|
35,000 |
|
|
|
— |
|
Total |
|
$ |
2,669,576 |
|
|
$ |
2,151,216 |
|
FHLB advances and long-term notes payable— The Company has an available line of credit with the Federal Home Loan Bank of Dallas (“FHLB”), which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At June 30, 2026, the Company had total borrowing capacity of $7.62 billion under this line. FHLB advances of $2.40 billion were outstanding at June 30, 2026, with a weighted average interest rate of 3.76%. At June 30, 2026, the Company had no FHLB long-term notes payable balance outstanding.
Securities sold under repurchase agreements— At June 30, 2026, the Company had $199.6 million in securities sold under repurchase agreements with banking customers compared with $201.2 million at December 31, 2025, a decrease of $1.6 million or 0.8%. Repurchase agreements are generally settled on the following business day. All securities sold under repurchase agreements are collateralized by certain pledged securities.
Junior Subordinated Debentures—On January 1, 2026, in connection with the American Merger, the Company assumed the obligation related to $6.2 million in Floating Rate Junior Subordinated Debentures and trust preferred securities (the “Debentures”) that mature in April 7, 2034. The Debentures, which qualify as Tier 2 capital for regulatory purposes, have a floating rate based on the three-month Term Secured Overnight Financing Rate (“SOFR”) plus 2.85%. In March 2026, the Company gave irrevocable notice of its intent to redeem the Debentures and they were redeemed on April 7, 2026.
Subordinated notes—On January 1, 2026, in connection with the American Merger, the Company assumed the obligations related to $35.0 million of Fixed-to-Floating Rate Subordinated Notes that mature on December 29, 2031. The subordinated notes, which qualify as Tier 2 capital for regulatory purposes, are payable quarterly in arrears at an annual floating rate equal to three-month term SOFR as determined for the applicable period, plus 2.50%. The Company may, at its option, beginning on the first repricing date and on any scheduled interest payment date thereafter, redeem the subordinated notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount being redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders. The subordinated notes are subordinated in right of payment to all of the Company’s existing and future senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company’s subsidiaries.
On February 1, 2026, in connection with the Southwest Merger, the Company assumed the obligations related to $35.0 million of Fixed-to-Floating Rate Subordinated Notes that mature on June 15, 2032. The subordinated notes, which qualify as Tier 2 capital for regulatory purposes, have a fixed rate of interest of 5.00% until 2027 followed by a floating rate interest based on three-month term SOFR plus 255 basis points. The Company may, at its option, beginning on June 15, 2027, and on any scheduled interest payment date thereafter, redeem the subordinated notes, in whole or in part, at a redemption price equal to 100% of the outstanding principal amount being redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. Any partial redemption will be made pro rata among all of the holders. In addition, the Company may redeem all or portion of the subordinated notes at any time upon occurrence of a Tier 2 capital event, tax event or investment company event as defined in the agreement. The subordinated notes are subordinated in right of payment to all of the Company’s senior indebtedness and effectively subordinated to all existing and future debt and all other liabilities of the Company’s subsidiaries.
Liquidity
As more fully discussed in the Company’s 2025 Form 10-K, liquidity involves the Company’s ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate the Company on an ongoing basis and manage unexpected events. The Company’s largest source of funds is deposits and its largest use of funds is loans. The Company does not expect a change in the source or use of its funds in the future.
The Company has an available line of credit with the FHLB, which allows the Company to borrow on a collateralized basis. The Company’s FHLB advances are typically considered short-term borrowings and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. At June 30, 2026, the Company had total borrowing capacity of $7.62 billion under this line. FHLB advances of $2.40 billion were outstanding at June 30, 2026, with a weighted average interest rate of 3.76%. At June 30, 2026, the Company had no FHLB long-term notes payable balance outstanding.
The Company has the ability to borrow on a collateralized basis from the Federal Reserve Discount Window. The discount window allows depository institutions to manage liquidity on a short-term basis and borrowings are usually no longer than 90 days. As of June 30, 2026, the Company had $8.45 billion available in borrowings with no borrowings outstanding.
The Company has available access to purchase funds from correspondent banks, which has been utilized on occasion to take advantage of investment opportunities, however, the Company does not generally rely on this external funding source.
As of June 30, 2026, the Company had outstanding $5.03 billion in commitments to extend credit, $119.7 million in commitments associated with outstanding standby letters of credit and $879.8 million in commitments associated with unused capacity on Warehouse Purchase Program loans. Since commitments associated with letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.
The Company has no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. As of June 30, 2026, the Company had cash and cash equivalents of $1.68 billion compared with $1.75 billion at December 31, 2025, a decrease of $64.5 million or 3.7%. The change was primarily due to an increase in net purchases of investment securities of $1.41 billion, a decrease in deposits of $255.1 million, payment of cash dividends of $121.0 million and repurchase of common stock of $70.8 million, partially offset by an increase in cash provided related to loans of $525.6 million, net cash provided by the American Merger and the Southwest Merger of $478.1 million, net proceeds from other short-term borrowings of $450.0 million, and net cash provided by operating activities of $347.5 million.
Share Repurchases
On January 26, 2026, Bancshares announced a stock repurchase program under which it could repurchase up to 5%, or approximately 4.9 million shares, of its outstanding common stock over a one-year period expiring on January 26, 2027, at the discretion of management. Under the stock repurchase program, Bancshares may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. Repurchases under this program may also be made in transactions outside the safe harbor during a pending merger, acquisition or similar transaction. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Shares of stock repurchased are held as authorized but unissued shares. Bancshares is not obligated to purchase any particular number of shares, and Bancshares may suspend, modify or terminate the program at any time and for any reason without prior notice. Bancshares repurchased approximately 200 thousand shares of its common stock at an average weighted price of $68.34 per share during the three months ended June 30, 2026, and approximately 1.04 million shares of its common stock at an average weighted price of $68.19 per share for a total of $70.8 million during the six months ended June 30, 2026.
Contractual Obligations and Off-Balance Sheet Arrangements
Leases
The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial, and the Company has one sublease arrangement. Sublease income was $840 thousand and $750 thousand for the three months ended June 30, 2026, and 2025 and $1.7 million and $1.6 million for the six months ended June 30, 2026, and 2025, respectively. As of June 30, 2026, operating lease ROU assets and lease liabilities were approximately $31.4 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.
As of June 30, 2026, the weighted average of remaining lease terms of the Company’s operating leases was 4.8 years. The weighted average discount rate used to determine the lease liabilities as of June 30, 2026, for the Company’s operating leases was 2.7%. Cash paid for the Company’s operating leases was $3.8 million and $2.9 million for the three months ended June 30, 2026, and 2025, respectively, and $7.4 million and $5.9 million for each of the six months ended June 30, 2026, and 2025, respectively. During the six months ended June 30, 2026, the Company obtained $8.1 million in ROU assets in exchange for lease liabilities for ten operating leases, of which five were related to the American Merger and the Southwest Merger.
The Company’s future undiscounted cash payments associated with its operating leases as of June 30, 2026, are summarized below (dollars in thousands).
|
|
|
|
|
Remaining 2026 |
|
$ |
5,941 |
|
2027 |
|
|
9,094 |
|
2028 |
|
|
6,164 |
|
2029 |
|
|
4,750 |
|
2030 |
|
|
3,502 |
|
2031 |
|
|
2,498 |
|
Thereafter |
|
|
8,103 |
|
Total undiscounted lease payments |
|
$ |
40,052 |
|
Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, the Company enters into various transactions that, in accordance with GAAP, are not included in its consolidated balance sheets. The Company enters into these transactions to meet the financing needs of its customers. These transactions include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in the consolidated balance sheets.
The Company’s commitments associated with outstanding standby letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit expiring by period as of June 30, 2026, are summarized below. Since commitments associated with letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit may expire unused, the amounts shown may not necessarily reflect the actual future cash funding requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year or less |
|
|
More than 1
year but less
than 3 years |
|
|
3 years or
more but less than
5 years |
|
|
5 years or more |
|
|
Total |
|
|
|
(Dollars in thousands) |
|
Standby letters of credit |
|
$ |
103,776 |
|
|
$ |
13,562 |
|
|
$ |
2,291 |
|
|
$ |
26 |
|
|
$ |
119,655 |
|
Unused capacity on Warehouse Purchase Program loans |
|
|
879,845 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
879,845 |
|
Commitments to extend credit |
|
|
2,143,353 |
|
|
|
1,467,333 |
|
|
|
277,750 |
|
|
|
1,140,844 |
|
|
|
5,029,280 |
|
Total |
|
$ |
3,126,974 |
|
|
$ |
1,480,895 |
|
|
$ |
280,041 |
|
|
$ |
1,140,870 |
|
|
$ |
6,028,780 |
|
Allowance for Credit Losses on Off-balance Sheet Credit Exposures.
The Company records an allowance for credit losses on off-balance sheet credit exposure that is adjusted through an entry to provision for credit losses on the Company’s consolidated statement of income. At June 30, 2026, and December 31, 2025, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $37.6 million.
Capital Resources
Total shareholders’ equity was $8.31 billion at June 30, 2026, compared with $7.62 billion at December 31, 2025, an increase of $689.1 million or 9.0%. The increase was primarily the result of the common stock issuance in connection with the American Merger of $306.8 million, common stock issuance in connection with the Southwest Merger of $282.6 million, net income of $284.9 million and stock based compensation expense of $6.6 million, partially offset by dividend payments of $121.0 million and stock repurchase of $70.8 million.
The Basel III Capital Rules require the Company and the Bank to maintain a capital conservation buffer, composed entirely of common equity tier 1 capital (“CET1”), of 2.5%, effectively resulting in minimum ratios of (1) CET1 to risk-weighted assets of 7.0%, (2) Tier 1 capital to risk-weighted assets of 8.5%, (3) total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of 10.5% and (4) Tier 1 capital to average quarterly assets as reported on consolidated financial statements (known as the “leverage ratio”) of 4.0%.
The CET1, Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets include total assets, excluding goodwill and other intangible assets, allocated by risk weight category, and certain off-balance-sheet arrangements. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, excluding goodwill and other intangible assets. A financial institution with a conservation buffer of less than the required amount will be subject to limitations on capital distributions, including dividend payments and stock repurchases, and certain discretionary bonus payments to executive officers.
Financial institutions are categorized by the FDIC based on minimum Common Equity Tier 1, Tier 1 risk-based, total risk-based and Tier 1 leverage ratios. As of June 30, 2026, the Bank’s capital ratios were above the levels required for the Bank to be designated as “well capitalized.”
The following table provides a comparison of the Company’s and the Bank’s risk-weighted and leverage capital ratios to the minimum and well-capitalized regulatory standards as of June 30, 2026:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Required For Capital Adequacy Purposes |
|
|
|
Minimum Required Plus Capital Conservation Buffer |
|
|
To Be Categorized As Well Capitalized Under Prompt Corrective Action Provisions |
|
|
Actual Ratio as of June 30, 2026 |
|
The Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk-weighted assets) |
|
|
4.50 |
% |
|
|
|
7.00 |
% |
|
N/A |
|
|
|
15.94 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
6.00 |
% |
|
|
|
8.50 |
% |
|
N/A |
|
|
|
15.94 |
% |
Total capital (to risk-weighted assets) |
|
|
8.00 |
% |
|
|
|
10.50 |
% |
|
N/A |
|
|
|
17.38 |
% |
Tier 1 capital (to average assets) (leverage) |
|
|
4.00 |
% |
(1) |
|
|
4.00 |
% |
|
N/A |
|
|
|
11.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 capital (to risk-weighted assets) |
|
|
4.50 |
% |
|
|
|
7.00 |
% |
|
|
6.50 |
% |
|
|
15.24 |
% |
Tier 1 capital (to risk-weighted assets) |
|
|
6.00 |
% |
|
|
|
8.50 |
% |
|
|
8.00 |
% |
|
|
15.24 |
% |
Total capital (to risk-weighted assets) |
|
|
8.00 |
% |
|
|
|
10.50 |
% |
|
|
10.00 |
% |
|
|
16.46 |
% |
Tier 1 capital (to average assets) (leverage) |
|
|
4.00 |
% |
(2) |
|
|
4.00 |
% |
|
|
5.00 |
% |
|
|
10.64 |
% |
(1)The Federal Reserve Board may require the Company to maintain a leverage ratio above the required minimum.
(2)The FDIC may require the Bank to maintain a leverage ratio above the required minimum.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manages market risk, which for the Company is primarily interest rate risk, through its Asset Liability Committee consisting of senior officers of the Company, in accordance with policies approved by the Company’s Board of Directors.
The Company uses simulation analysis to examine the potential effects of market changes on net interest income and market value. The Company considers macroeconomic variables, Company strategy, liquidity and other factors as it quantifies market risk. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Sensitivity and Market Risk” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed on February 26, 2026, (the “2025 Form 10-K”), for further discussion. There have been no material changes in the Company’s market risk exposures that would affect the quantitative and qualitative disclosures from those disclosed in the 2025 Form 10-K and presented as of December 31, 2025.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.
Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.