SOUTHSIDE BANCSHARES INC

Previous wording

Certain statements of other than historical fact that are contained in this report may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to our beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause our actual results to differ materially from the results discussed in the forward-looking statements. For example, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, our ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates and our expectations regarding rate increases, tax reform, inflation, the impacts related to or resulting from other economic factors are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. Accordingly, our results could materially differ from those that have been estimated. The most significant factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the ongoing impact of higher inflation levels, interest rate fluctuations and general economic and recessionary concerns, all of which could impact economic growth and could cause a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations, our ability to manage liquidity in a rapidly changing and unpredictable market, labor shortages and changes in interest rates by the Federal Reserve. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are not limited to, the following:

Current wording

Certain statements of other than historical fact that are contained in this report may be considered to be “forward-looking statements” within the meaning of and subject to the safe harbor protections of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. These statements may include words such as “expect,” “estimate,” “project,” “anticipate,” “appear,” “believe,” “could,” “should,” “may,” “might,” “will,” “would,” “seek,” “intend,” “probability,” “risk,” “goal,” “target,” “objective,” “plans,” “potential,” and similar expressions. Forward-looking statements are statements with respect to our beliefs, plans, expectations, objectives, goals, anticipations, assumptions, estimates, intentions and future performance and are subject to significant known and unknown risks and uncertainties, which could cause our actual results to differ materially from the results discussed in the forward-looking statements. For example, benefits of the Share Repurchase Plan, trends in asset quality, capital, liquidity, our ability to sell nonperforming assets, expense reductions, planned operational efficiencies and earnings from growth and certain market risk disclosures, including the impact of interest rates and our expectations regarding rate changes, tax reform, inflation, the impacts related to or resulting from other economic factors are based upon information presently available to management and are dependent on choices about key model characteristics and assumptions and are subject to various limitations. By their nature, certain of the market risk disclosures are only estimates and could be materially different from what actually occurs in the future. Accordingly, our results could materially differ from those that have been estimated. The most significant factor that could cause future results to differ materially from those anticipated by our forward-looking statements include the ongoing impact of higher inflation levels, interest rate fluctuations and general economic and recessionary concerns, as well as the effects of declines in the real estate market, tariffs or trade wars (including reduced consumer spending, lower economic growth or recession, reduced demand for U.S. exports, disruptions to supply chains and decreased demand for other banking products and services), high unemployment and increasing insurance costs, as well as the financial stress to borrowers as a result of the foregoing, all of which could impact economic growth and could cause a reduction in financial transactions and business activities, including decreased deposits and reduced loan originations and our ability to manage liquidity in a rapidly changing and unpredictable market. Other factors that could cause actual results to differ materially from those indicated by forward-looking statements include, but are …

Excerpt shortened here; the source contains the full paragraph.

Previous wording

•current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions to manage interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act and other regulatory responses to economic conditions;

Current wording

•current or future legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which we or our customers or our borrowers are engaged, including the impact of the Dodd-Frank Act, the Federal Reserve’s actions to manage interest rates, the capital requirements promulgated by the Basel Committee, the CARES Act, the Economic Aid Act, tariffs, trade policies and/or disputes and other regulatory responses to economic conditions;

Previous wording

•changes in consumer spending, borrowing and saving habits, including as a result of inflation, elevated interest rates and recessionary concerns;

Current wording

•changes in consumer spending, borrowing and saving habits, including as a result of inflation, tariffs, fluctuating interest rates and recessionary concerns;

Previous wording

Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Current wording

Net interest income (FTE), net interest margin (FTE) and net interest spread (FTE). Net interest income (FTE) is a non-GAAP measure that adjusts for the tax-favored status of net interest income from certain loans and investments and is not permitted under GAAP in the consolidated statements of income. We believe that this measure is the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources. The most directly comparable financial measure calculated in accordance with GAAP is our net interest income. Net interest margin (FTE) is the ratio of net interest income (FTE) to average earning assets. The most directly comparable financial measure calculated in accordance with GAAP is our net interest margin. Net interest spread (FTE) is the difference in the average yield on average earning assets on a tax-equivalent basis and the average rate paid on average interest bearing liabilities. The most directly comparable financial measure calculated in accordance with GAAP is our net interest spread.

Previous wording

The economic conditions and growth prospects for our markets, even against the headwinds of elevated inflation, interest rate fluctuations and potential recessionary concerns, continue to reflect a solid and positive overall outlook. Ongoing inflation levels and continued higher interest rates could have a negative impact on both our consumer and commercial borrowers. Currently, however, the Texas markets we serve continue to remain healthy due to both job and population growth.

Current wording

Recent tariff announcements and the ongoing negotiations have caused some uncertainty related to the economy and inflation prospects. While it is too early to discern the likely outcome of these negotiations, the current economic conditions and growth prospects for our markets continue to reflect a solid and overall positive outlook. Higher inflation levels and higher interest rates could have a negative impact on both our consumer and commercial borrowers. Currently, however, the Texas markets we serve continue to remain healthy due to both job and population growth.

Previous wording

Our deposits were $6.44 billion at September 30, 2024, a decrease of $114.0 million, or 1.7%, from December 31, 2023. At September 30, 2024, we had 179,214 total deposit accounts with an average balance of $32,000. Our estimated uninsured deposits were 35.9% of total deposits as of September 30, 2024. When excluding affiliate deposits (Southside-owned deposits) and public fund deposits (all collateralized), our total estimated deposits without insurance or collateral was 19.2% of total deposits as of September 30, 2024.

Current wording

Our deposits were $6.59 billion at March 31, 2025, a decrease of $63.4 million, or 1.0%, from December 31, 2024. At March 31, 2025, we had 178,840 total deposit accounts with an average balance of $34,000. Our estimated uninsured deposits were 40.0% of total deposits as of March 31, 2025. When excluding affiliate deposits (Southside-owned deposits) and public fund deposits (all collateralized), our total estimated deposits without insurance or collateral was 20.8% of total deposits as of March 31, 2025.

Previous wording

Our noninterest bearing deposits represent approximately 21.4% of total deposits. During the three months ended September 30, 2024, our cost of interest bearing deposits increased 43 basis points from 2.58% for the three months ended September 30, 2023 to 3.01%. Our cost of total deposits for the third quarter of 2024 increased 40 basis points from 1.98% for the three months ended September 30, 2023 to 2.38%.

Current wording

Our noninterest bearing deposits represent approximately 20.9% of total deposits. During the three months ended March 31, 2025, our cost of interest bearing deposits decreased 14 basis points from 2.97% for the three months ended March 31, 2024 to 2.83%. Our cost of total deposits for the first quarter of 2025 decreased 10 basis points from 2.36% for the three months ended March 31, 2024 to 2.26%.

Previous wording

The table below shows our total lines of credit, borrowings, total amounts available for future liquidity, and swapped value as of September 30, 2024 (in thousands):

Current wording

Our capital ratios and contingent liquidity sources remain solid. The table below shows our total lines of credit, borrowings, total amounts available for future liquidity, and swapped value as of March 31, 2025 (in thousands):

Previous wording

Net income increased $2.1 million, or 11.2%, to $20.5 million for the three months ended September 30, 2024, compared to the same period in 2023. The increase in net income was a result of the $4.6 million decrease in the provision for credit losses and the $2.2 million increase in net interest income, partially offset by the $2.7 million decrease in noninterest income, the $779,000 increase in noninterest expense, and the $1.3 million increase in income tax expense. Earnings per diluted common share was $0.68 and $0.60 for the three months ended September 30, 2024 and 2023, respectively.

Current wording

Net income was $21.5 million for both of the three month periods ended March 31, 2025 and 2024. The $700,000 increase in the provision for credit losses, the $208,000 increase in noninterest expense and the $99,000 increase in income tax expense, was offset by the $504,000 increase in net interest income and the $499,000 increase in noninterest income. Earnings per diluted common share was $0.71 for both of the three month periods ended March 31, 2025 and 2024.

Previous wording

Loans at September 30, 2024 were $4.58 billion, an increase of $53.5 million, or 1.2%, compared to December 31, 2023, due to increases of $254.2 million in commercial real estate loans and $58.7 million in 1-4 family residential loans. The increases were partially offset by decreases of $203.9 million in construction loans, $39.1 million in municipal loans, $8.2 million in loans to individuals and $8.0 million in commercial loans. Loans held for sale decreased $10.1 million, or 93.0%, to $768,000 at September 30, 2024 from $10.9 million at December 31, 2023 due to the sale of a $7.9 million commercial real estate loan relationship during the first quarter of 2024.

Current wording

Loans at March 31, 2025 were $4.57 billion, a decrease of $94.4 million, or 2.0%, compared to December 31, 2024, due to decreases of $79.7 million in construction loans, $19.7 million in municipal loans, $2.5 million in commercial real estate loans and $1.9 million in loans to individuals. These decreases were partially offset by increases of $8.5 million in commercial loans and $1.0 million in 1-4 family residential loans. Loans held for sale decreased $1.0 million, or 53.6%, to $903,000 at March 31, 2025 from $1.9 million at December 31, 2024.

Previous wording

Our nonperforming assets at September 30, 2024 increased $3.7 million, or 91.4%, to $7.7 million and represented 0.09% of total assets, compared to $4.0 million, or 0.05% of total assets, at December 31, 2023. Nonaccruing loans increased $3.4 million, or 86.5%, to $7.3 million, and the ratio of nonaccruing loans to total loans was 0.16% and 0.09% for September 30, 2024 and December 31, 2023, respectively. The increase in nonaccrual loans was primarily due to one commercial real estate loan added during the third quarter of 2024. There were no restructured loans as of September 30, 2024, compared to $13,000 at December 31, 2023. Repossessed assets were $14,000 at September 30, 2024. There were no repossessed assets at December 31, 2023. There was $388,000 and $99,000 of OREO at September 30, 2024 and December 31, 2023, respectively.

Current wording

Our nonperforming assets at March 31, 2025 increased $28.6 million, or 797.0%, to $32.2 million and represented 0.39% of total assets, compared to $3.6 million, or 0.04% of total assets, at December 31, 2024. Nonaccruing loans increased $1.1 million, or 33.6%, to $4.3 million, and the ratio of nonaccruing loans to total loans was 0.09% and 0.07% for March 31, 2025 and December 31, 2024, respectively. There were $27.5 million in restructured loans as of March 31, 2025, compared to $2,000 at December 31, 2024. The increase in restructured loans was due to the extension of maturity on a $27.5 million commercial real estate loan to allow for an extended lease up period. Repossessed assets were $46,000 at March 31, 2025, compared to $14,000 at December 31, 2024. There was $388,000 of OREO at March 31, 2025 and December 31, 2024.

Previous wording

Our total shareholders’ equity at September 30, 2024 increased 4.1%, or $32.0 million, to $805.3 million, or 9.6% of total assets, compared to $773.3 million, or 9.3% of total assets, at December 31, 2023. The increase in shareholders’ equity was the result of net income of $66.7 million, stock compensation expense of $2.5 million, net issuance of common stock under employee stock plans of $1.1 million and common stock issued under our dividend reinvestment plan of $886,000, partially offset by cash dividends paid of $32.7 million, other comprehensive loss of $5.0 million and repurchases of $1.5 million of our common stock.

Current wording

Our total shareholders’ equity at March 31, 2025 increased 0.6%, or $4.7 million, to $816.6 million, or 9.8% of total assets, compared to $811.9 million, or 9.5% of total assets, at December 31, 2024. The increase in shareholders’ equity was the result of net income of $21.5 million, stock compensation expense of $914,000 and common stock issued under our dividend reinvestment plan of $264,000, partially offset by cash dividends paid of $10.9 million, other comprehensive loss of $6.9 million and net issuance of common stock under employee stock plans of $148,000.

Previous wording

We ended the third quarter of 2024 with approximately $352.6 million in available liquidity from the FRDW, in addition to the approximately $1.80 billion credit line available from FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral. At September 30, 2024, the estimated deposits, without insurance or collateral, to total deposits, excluding affiliate deposits (Southside-owned deposits) was 19.2%, or $1.24 billion.

Current wording

We ended the first quarter of 2025 with approximately $425.2 million in available liquidity from the FRDW, in addition to the approximately $1.79 billion available from the credit line with FHLB due primarily to the blanket lien on our loan portfolio and to a lesser extent, securities available as collateral. At March 31, 2025, the estimated deposits, without insurance or collateral, to total deposits, excluding affiliate deposits (Southside-owned deposits) was 20.8%, or $1.37 billion.

Previous wording

During the nine months ended September 30, 2024, we entered into an additional $50 million cash flow hedge interest rate swap contract while $150 million cash flow hedge interest rate swap contracts were terminated and $120 million matured. At September 30, 2024, FHLB advances of $310 million and brokered deposits of $480 million were hedged with our $790 million of cash flow swaps. As of September 30, 2024, a pre-tax unrealized gain of $6.8 million was recognized in other comprehensive income, and there was no ineffective portion of these hedges. We continue to evaluate the lowest cost wholesale funding sources and will utilize either brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources in addition to utilizing cash flow hedges to mitigate the impacts of interest rate movements. At September 30, 2024, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 57% of the funding source, of which approximately 51% is swapped at a fixed rate, providing protection from rising interest rates.

Current wording

During the three months ended March 31, 2025, we entered into an additional $50 million cash flow hedge interest rate swap contract while $160 million cash flow hedge interest rate swap contracts matured. At March 31, 2025, FHLB advances of $310 million and brokered deposits of $370 million were hedged with our $680 million of cash flow swaps. As of March 31, 2025, a pre-tax unrealized gain of $5.3 million was recognized in other comprehensive income, and there was no ineffective portion of these hedges. We continue to evaluate the lowest cost wholesale funding sources and will utilize either brokered deposits, FHLB advances or FRDW borrowings, or a combination of the three funding sources in addition to utilizing cash flow hedges to mitigate the impacts of interest rate movements. At March 31, 2025, the majority of the securities portfolio was funded by non-maturity deposits, some of which are included in wholesale funding that accounts for approximately 42% of the funding source, of which approximately 59% is swapped at a fixed rate, providing protection from rising interest rates.

Previous wording

We utilize wholesale funding and securities to enhance overall profitability to determine the appropriate leverage of our capital, determining acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management. This balance sheet strategy currently consists of borrowing funds from the brokered market, FHLB and the FRDW. These funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, U.S. Treasury Bills and corporate securities. Although the securities purchased often carry lower yields than loans, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S. Government, and the guarantees of the municipalities, (ii) are more liquid than individual loans and (iii) may be used to collateralize our borrowings or other obligations.

Current wording

We utilize wholesale funding and securities to enhance overall profitability, to determine the appropriate leverage of our capital and to determine acceptable levels of credit, interest rate and liquidity risk consistent with prudent capital management. This balance sheet strategy currently consists of borrowing funds from the brokered market, FHLB and the FRDW. These funds are invested primarily in U.S. agency MBS and long-term municipal securities and to a lesser extent, U.S. Treasury Bills and corporate securities. Although the securities purchased often carry lower yields than loans, these securities generally (i) increase the overall quality of our assets because of either the implicit or explicit guarantees of the U.S. Government, and the guarantees of the municipalities, (ii) are more liquid than individual loans and (iii) may be used to collateralize our borrowings or other obligations.

Previous wording

Risks associated with this asset structure include a potentially lower net interest rate spread and margin when compared to our peers, changes in the slope of the yield curve, increased interest rate risk, the length of interest rate cycles, changes in volatility or spreads associated with the MBS, municipal and corporate securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal and corporate securities. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in the 2023 Form 10-K for a discussion of risks related to interest rates. An additional risk is significant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio and could also impact our equity capital. Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q.

Current wording

Risks associated with this asset structure include a potentially lower net interest rate spread and margin when compared to our peers, changes in the slope of the yield curve, increased interest rate risk, the length of interest rate cycles, changes in volatility or spreads associated with the MBS, municipal and corporate securities, the unpredictable nature of MBS prepayments and credit risks associated with the municipal and corporate securities. See “Part I - Item 1A. Risk Factors – Risks Related to Our Business” in this report for a discussion of risks related to interest rates. An additional risk is significant increases in interest rates, especially long-term interest rates, which could adversely impact the fair value of the AFS securities portfolio and could also impact our equity capital. Due to the unpredictable nature of MBS prepayments, the length of interest rate cycles and the slope of the interest rate yield curve, net interest income could fluctuate more than simulated under the scenarios modeled by our ALCO and described under “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in this report.

Previous wording

Our securities portfolio increased from $2.60 billion at December 31, 2023 to $2.70 billion at September 30, 2024. The increase in the securities portfolio was due to securities purchased during the nine months ended September 30, 2024, which more than offset sales of securities and principal payments.

Current wording

Our securities portfolio decreased 2.7% from $2.81 billion at December 31, 2024 to $2.74 billion at March 31, 2025. The decrease in the securities portfolio was due to maturities, principal payments and sales of securities during the three months ended March 31, 2025, which more than offset securities purchased.

Previous wording

At September 30, 2024, securities as a percentage of assets totaled 32.3%, compared to 31.4% at December 31, 2023, due to a $93.5 million, or 3.6%, increase in securities, while cash and cash equivalents decreased to 5.8% of total assets at

Current wording

At March 31, 2025, securities as a percentage of assets totaled 32.8%, compared to 33.0% at December 31, 2024, due to a $76.9 million, or 2.7%, decrease in securities, while cash and cash equivalents increased to 5.2% of total assets at March 31, 2025, compared to 5.0% at December 31, 2024. Our balance sheet management strategy is dynamic and is continually evaluated as market conditions warrant.

Previous wording

During 2022, we entered into partial term fair value hedges for certain of our fixed rate callable AFS municipal securities. During 2024, we entered into partial term fair value hedges of fixed rate AFS MBS and fixed rate municipal loans using the portfolio layer method. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to partially offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. As of September 30, 2024, hedged municipal securities with a carrying amount of $336.9 million are included in our AFS securities portfolio in our consolidated balance sheets representing approximately 77% of the AFS municipal portfolio. As of September 30, 2024, $201.0 million in hedging instruments were used to hedge a layer of the closed portfolio of AFS MBS with a carrying value of $632.1 million, or 81% of the AFS MBS portfolio, and $155.0 million in hedging instruments were used to hedge a layer of the closed portfolio of municipal loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value.

Current wording

During 2022, we entered into partial term fair value hedges for certain of our fixed rate callable AFS municipal securities. During 2024, we entered into partial term fair value hedges of fixed rate AFS MBS and fixed rate municipal loans using the portfolio layer method. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to partially offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. As of March 31, 2025, hedged municipal securities with a carrying amount of $289.9 million are included in our AFS securities portfolio in our consolidated balance sheets representing approximately 72% of the AFS municipal portfolio. As of March 31, 2025,$134.0 million in hedging instruments were used to hedge a layer of the closed portfolio of AFS MBS with a carrying value of $420.1 million, or 46% of the AFS MBS portfolio, and$155.0 million in hedging instruments were used to hedge a layer of the closed portfolio of municipal loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value.

Previous wording

With respect to funding sources, we primarily utilize deposits and to a lesser extent wholesale funding to achieve our strategy of minimizing cost while achieving overall interest rate risk objectives as well as the liability management objectives of the ALCO. Our primary wholesale funding sources are FHLB, brokered deposits and borrowings from the FRDW. Our FHLB borrowings increased 257.4%, or $547.4 million, to $760.0 million at September 30, 2024 from $212.6 million at December 31, 2023.

Current wording

With respect to funding sources, we primarily utilize deposits and to a lesser extent wholesale funding to achieve our strategy of minimizing cost while achieving overall interest rate risk objectives as well as the liability management objectives of the ALCO. Our primary wholesale funding sources are FHLB, brokered deposits and borrowings from the FRDW. Our FHLB borrowings decreased 16.4%, or $120.2 million, to $611.7 million at March 31, 2025 from $731.9 million at December 31, 2024. As of March 31, 2025 and December 31, 2024, we had no borrowings from the FRDW.

Previous wording

As of September 30, 2024, our total wholesale funding as a percentage of deposits, not including brokered deposits, increased to 27.1% from 25.5% at December 31, 2023 and 23.3% at September 30, 2023.

Current wording

As of March 31, 2025, our total wholesale funding as a percentage of deposits, not including brokered deposits, decreased to 19.2% from 24.9% at December 31, 2024.

Previous wording

Our brokered deposits may consist of CDs and non-maturity deposits. We had $126.4 million in brokered CDs at September 30, 2024. We had no brokered CDs at December 31, 2023. At September 30, 2024, our brokered CDs had a weighted average cost of 517 basis points and remaining maturities of approximately less than 11 months. Our brokered non-maturity deposits decreased to $627.2 million at September 30, 2024, of which $480.0 million are related to our cash flow hedges, from $828.0 million at December 31, 2023, with a weighted average cost of 345 and 323 basis points, respectively. Our wholesale funding policy currently allows for maximum brokered deposits of the lesser of $1.05 billion, or 12% of total assets. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.

Current wording

Our brokered deposits may consist of CDs and non-maturity deposits which may be raised quickly with terms tailored to our funding needs. We had $54.6 million in brokered CDs at March 31, 2025, compared to $115.7 million at December 31, 2024. At March 31, 2025, our brokered CDs had a weighted average cost of 429 basis points and remaining maturities of less than 3 months. Our brokered non-maturity deposits decreased to $491.5 million at March 31, 2025, of which $370.0 million are related to our cash flow hedges, from $627.1 million at December 31, 2024, with a weighted average cost of 368 and 321 basis points, respectively. Our wholesale funding policy currently allows for maximum brokered deposits of the lesser of $1.05 billion, or 12% of total assets. Potential higher interest expense and lack of customer loyalty are risks associated with the use of brokered deposits.

Previous wording

In connection with $790.0 million of our wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements with an interest rate tied to SOFR. In connection with $790.0 million and $1.01 billion of the agreements outstanding at September 30, 2024 and December 31, 2023, respectively, the Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows at 2.70% with a remaining average weighted maturity of 1.8 years at September 30, 2024. Refer to “Note 11 – Derivative Financial Instruments and Hedging Activities” in our consolidated financial statements included in this report for a detailed description of our hedging policy and methodology related to derivative instruments.

Current wording

In connection with $680.0 million of our wholesale funds, the Bank has entered into various variable rate agreements and fixed or variable rate short-term pay agreements with an interest rate tied to SOFR. In connection with $680.0 million and $790.0 million of the agreements outstanding at March 31, 2025 and December 31, 2024, respectively, the Bank also entered into various interest rate swap contracts that are treated as cash flow hedges under ASC Topic 815, “Derivatives and Hedging” that are expected to be effective in hedging the variability in future cash flows at 3.26% with a remaining average weighted maturity of 1.7 years at March 31, 2025. Refer to “Note 9 – Derivative Financial Instruments and Hedging Activities” in our consolidated financial statements included in this report for a detailed description of our hedging policy and methodology related to derivative instruments.

Previous wording

Net interest income is one of the principal sources of a financial institution’s earnings stream and represents the difference or spread between interest and fee income generated from interest earning assets and the interest expense paid on interest bearing liabilities. Fluctuations in interest rates or interest rate yield curves, as well as repricing characteristics and volume and changes in the mix of interest earning assets and interest bearing liabilities, materially impact net interest income. During the year ended December 31, 2023, the Federal Reserve increased the target federal funds rate by 100 basis points to 5.25% to 5.50%. During the third quarter of 2024, the Federal Reserve reduced target federal funds rate by 50 basis points to 4.75% to 5.00%. If the federal funds rate remains elevated or increases further, it may negatively impact our net interest income.

Current wording

Net interest income is one of the principal sources of a financial institution’s earnings stream and represents the difference or spread between interest and fee income generated from interest earning assets and the interest expense paid on interest bearing liabilities. Fluctuations in interest rates or interest rate yield curves, as well as repricing characteristics and volume and changes in the mix of interest earning assets and interest bearing liabilities, materially impact net interest income. During the first quarter of 2025, the federal funds rate remained unchanged at 4.25% to 4.50%. If the federal funds rate remains elevated, it may negatively impact our net interest income.

Previous wording

Net interest income for the three months ended September 30, 2024, increased $2.2 million, or 4.1%, compared to the same period in 2023. The increase in net interest income for the three months ended September 30, 2024, was due to the increases in the average balance and the average yield of interest earning assets, partially offset by increases in the average rate paid on our interest bearing liabilities and the average balance of our interest bearing liabilities. Total interest income increased $12.6 million, or 13.6%, to $105.7 million for the three months ended September 30, 2024, compared to $93.1 million during the same period in 2023. Total interest expense increased $10.4 million, or 26.2%, to $50.2 million for the three months ended September 30, 2024, compared to $39.8 million for the same period in 2023. Our net interest margin and net interest margin (FTE), a non-GAAP measure, decreased to 2.82% and 2.95%, respectively, for the three months ended September 30, 2024, compared to 2.85% and 3.02%, respectively, for the same period in 2023, and our net interest spread and net interest spread (FTE), also a non-GAAP measure, decreased to 2.10% and 2.23%, respectively, compared to 2.14% and 2.31%, respectively, for the same period in 2023. See “Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Current wording

Net interest income for the three months ended March 31, 2025, increased $504,000, or 0.9%, compared to the same period in 2024. The increase in net interest income for the three months ended March 31, 2025, was due to the decrease in the average rate paid on our interest bearing liabilities and the increase in the average balance of our interest earning assets, partially offset by the decrease in the average yield of interest earning assets and the increase in the average balance of our interest bearing liabilities. Total interest income decreased $2.5 million, or 2.4%, to $100.3 million for the three months ended March 31, 2025, compared to $102.8 million during the same period in 2024. Total interest expense decreased $3.0 million, or 6.0%, to $46.4 million for the three months ended March 31, 2025, compared to $49.4 million for the same period in 2024. Our net interest margin increased to 2.74% compared to 2.72% for the same period in 2024, and our net interest margin (FTE), a non-GAAP measure, was 2.86% for both of the three month periods ended March 31, 2025 and 2024. Our net interest spread and net interest spread (FTE), also a non-GAAP measure, increased to 2.08% and 2.20%, respectively, compared to 2.02% and 2.16%, respectively, for the same period in 2024. See “Non-GAAP Financial Measures” for more information and a reconciliation to GAAP.

Previous wording

The increase in total interest income for the three months ended September 30, 2024, was attributable to a $404.9 million, or 5.5%, increase in the average balance of interest earning assets for the three months ended September 30, 2024, compared to the same period in 2023, as well as an increase in the average yield on interest earning assets to 5.51% from 5.15% for the same period in 2023. The increase in total interest expense for the three months ended September 30, 2024, was primarily attributable to the increase in interest rates on our interest bearing liabilities to 3.28% from 2.84% for the same period in 2023, and an increase in the average balance of our interest bearing liabilities of $519.9 million, or 9.3%, for the three months ended September 30, 2024, compared to the same period in 2023. The increase in average earning assets was primarily the result of the increase in MBS, interest earning deposits and loans, partially offset by the decrease in tax-exempt and taxable investment securities.

Current wording

The decrease in total interest income for the three months ended March 31, 2025, was attributable to a decrease in the average yield on interest earning assets to 5.23% from 5.38% for the three months ended March 31, 2025, compared to the same period in 2024, partially offset by a $76.1 million, or 1.0%, increase in the average balance of interest earning assets when compared to the same period in 2024. The decrease in total interest expense for the three months ended March 31, 2025, was primarily attributable to the decrease in interest rates on our interest bearing liabilities to 3.03% from 3.22% for the same period in 2024, partially offset by an increase in the average balance of our interest bearing liabilities of $40.6 million, or 0.7%, for the three months ended March 31, 2025, compared to the same period in 2024. The increase in average earning assets was primarily the result of the increase in MBS and loans, partially offset by decreases in tax-exempt investment securities, interest earning deposits, taxable investment securities and federal funds sold.

Previous wording

(2)For the purpose of calculating the average yield, the average balance of securities is presented at historical cost.

Current wording

(2)For the purpose of calculating the average yield, the average balance of securities do not include unrealized gains and losses on AFS securities.

Previous wording

Note: As of September 30, 2024 and 2023, loans totaling $7.3 million and $4.3 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Current wording

Note: As of March 31, 2025 and 2024, loans totaling $4.3 million and $7.7 million, respectively, were on nonaccrual status. Our policy is to reverse previously accrued but unpaid interest on nonaccrual loans; thereafter, interest income is recorded to the extent received when appropriate.

Previous wording

The 24.6% decrease in noninterest income for the three months ended September 30, 2024, when compared to the same period in 2023, was due to a net loss on sale of securities AFS and decreases in other noninterest income and deposit services income, partially offset by an increase in brokerage services income. The 11.6% decrease in noninterest income for the nine months ended September 30, 2024, when compared to the same period in 2023, was due to decreases in the net gain on sale of equity securities, other noninterest income and deposit services income and a loss on sale of loans. These decreases were partially offset by a decrease in net loss on sale of securities AFS and an increase in brokerage services income.

Current wording

The 5.1% increase in noninterest income for the three months ended March 31, 2025, when compared to the same period in 2024, was primarily due to increases in gain on sale of loans and trust fees, partially offset by an increase in net loss on sale of securities AFS.

Previous wording

During the three and nine months ended September 30, 2024, we sold municipal securities that resulted in a net loss on sale of AFS securities of $1.9 million and $2.5 million, respectively.

Current wording

During the three months ended March 31, 2025, we sold MBS that resulted in a net loss on sale of AFS securities of $554,000. During the three months ended March 31, 2024, we sold municipal securities that resulted in a net loss on sale of AFS securities of $18,000.

Previous wording

Gain on sale of loans increased for the three months ended September 30, 2024, when compared to the same period in 2023, due to an increase in the balance of loans sold. The loss on sale of loans for the nine months ended September 30, 2024, was due to the $412,000 net loss on the sale of a commercial real estate loan relationship during the first quarter of 2024.

Current wording

Gain on sale of loans increased for the three months ended March 31, 2025, when compared to the same period in 2024, due to the $512,000 loss on the sale of a commercial real estate loan relationship during the first quarter of 2024.

Previous wording

Brokerage services income increased for the three and nine months ended September 30, 2024, when compared to the same periods in 2023, due to an increase in assets under management.

Current wording

Brokerage services income increased for the three months ended March 31, 2025, when compared to the same period in 2024, due to an increase in assets under management.

Previous wording

Other noninterest income decreased for the three and nine months ended September 30, 2024, when compared to the same periods in 2023, due to an impairment loss of $868,000 for AFS securities which were sold on October 1, 2024 and a decrease in mortgage servicing fee income, partially offset by an increase in equity investment income. Additional decreases in other noninterest income for the nine months ended September 30, 2024, when compared to the same period in 2023, include a decrease in the gain recognized on the repurchase of our subordinated notes at a discount and a decrease in swap fee income.

Current wording

Other noninterest income increased for the three months ended March 31, 2025, when compared to the same period in 2024, primarily due to increases in equity investment income, swap fee income and check order income, partially offset by a decrease in mortgage servicing fee income.

Previous wording

The increase in noninterest expense for the three and nine months ended September 30, 2024, when compared to the same periods in 2023, was due to increases in salaries and employee benefits and software and data processing expense, partially offset by decreases in advertising, travel and entertainment expense, professional fees, net occupancy expense and amortization of intangibles.

Current wording

The increase in noninterest expense for the three months ended March 31, 2025, when compared to the same period in 2024, was due to increases in other noninterest expense and professional fees, partially offset by decreases in salaries and employee benefits expense and amortization of intangibles.

Previous wording

Salaries and employee benefits expense increased during the three and nine months ended September 30, 2024, compared to the same periods in 2023, due to increases in direct salary expense, retirement expense and health insurance expense.

Current wording

Salaries and employee benefits expense decreased during the three months ended March 31, 2025, compared to the same period in 2024, due to decreases in direct salary expense and retirement expense, partially offset by an increase in health insurance expense.

Previous wording

For the three and nine months ended September 30, 2024, direct salary expense increased $312,000, or 1.7%, and $1.9 million, or 3.4%, respectively, when compared to the same periods in 2023, primarily due to normal salary increases effective in the first quarter of 2024 and approximately $618,000 associated with future cost reductions.

Current wording

For the three months ended March 31, 2025, direct salary expense decreased $754,000, or 3.7%, when compared to the same period in 2024, primarily due to approximately $618,000 associated with future cost reductions in the first quarter of 2024.

Previous wording

Retirement expense, included in salaries and employee benefits, increased $400,000, or 73.8%, and $701,000, or 34.0%, for the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023. This increase was due to increases in our split dollar expense, deferred compensation expense, 401(k) matching expense and post-retirement benefits expense.

Current wording

Retirement expense, included in salaries and employee benefits, decreased $41,000, or 4.7%, for the three months ended March 31, 2025, when compared to the same period in 2024. This decrease was due to decreases in our split dollar expense, post-retirement benefits expense, 401(k) matching expense and deferred compensation expense.

Previous wording

Health and life insurance expense, included in salaries and employee benefits, increased $279,000, or 14.1%, and $237,000, or 3.9%, for the three and nine months ended September 30, 2024, respectively, when compared to the same periods in 2023, due to an increase in health claims expense. We have a self-insured health plan which is supplemented with a stop loss policy.

Current wording

Health and life insurance expense, included in salaries and employee benefits, increased $63,000, or 3.2%, for the three months ended March 31, 2025, when compared to the same period in 2024, due to an increase in health claims expense. We have a self-insured health plan which is supplemented with a stop loss policy.

Previous wording

Amortization of intangibles decreased for the three and nine months ended September 30, 2024, when compared to the same periods in 2023, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over the amortization period.

Current wording

Amortization of intangibles decreased for the three months ended March 31, 2025, when compared to the same period in 2024, due primarily to a decrease in core deposit intangible amortization which is recognized on an accelerated method resulting in a decline in expense over the amortization period.

Previous wording

Pre-tax income for the three and nine months ended September 30, 2024 was $24.9 million and $80.9 million, respectively, an increase of 15.5%, compared to $21.6 million for the three months ended September 30, 2023 and a decrease of 0.8% compared to $81.6 million for the nine months ended September 30, 2023. We recorded income tax expense of $4.4 million and $14.2 million for the three and nine months ended September 30, 2024, respectively, compared to income tax expense of $3.1 million and $12.2 million for the same periods in 2023. The ETR as a percentage of pre-tax income was 17.6% for both the three and nine months ended September 30, 2024, compared to an ETR as a percentage of pre-tax income of 14.5% and 15.0% for the same periods in 2023. The increase in the ETR for the three and nine months ended September 30, 2024 was primarily a result of a decrease in net tax-exempt income as a percentage of pre-tax income as compared to the same periods in 2023. The increase in income tax expense is due to the higher ETR for the three and nine months ended September 30, 2024 compared to the same periods in 2023.

Current wording

Pre-tax income for the three months ended March 31, 2025 was $26.2 million, a marginal increase of 0.4%, compared to $26.1 million for the three months ended March 31, 2024. We recorded income tax expense of $4.7 million for the three months ended March 31, 2025, compared to income tax expense of $4.6 million for the same period in 2024. The ETR as a percentage of pre-tax income was 18.0% for the three months ended March 31, 2025, compared to an ETR as a percentage of pre-tax income of 17.7% for the same period in 2024. The increase in the ETR for the three months ended March 31, 2025 was primarily a result of an increase in state income tax expense compared to the same period in 2024. The increase in income tax expense is due to the higher ETR for the three months ended March 31, 2025 compared to the same period in 2024.