PROSPERITY BANCSHARES INC

Previous wording

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, 2024, the Bank operated 288 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth area; 22 in the East Texas area; 31 in the Central Texas area including Austin and San Antonio; 44 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 and 5 in the West Texas area currently doing business as Lone Star 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

Current wording

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 September 30, 2024, the Bank operated 287 full-service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth area; 22 in the East Texas area; 31 in the Central Texas area including Austin and San Antonio; 43 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 and 5 in the West Texas area currently doing business as Lone Star Bank. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas, and its telephone number is

Previous wording

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.

Current wording

(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.

Previous wording

Total assets were $39.76 billion at June 30, 2024 compared with $38.55 billion at December 31, 2023, an increase of $1.21 billion or 3.2%. Total loans were $22.32 billion at June 30, 2024 compared with $21.18 billion at December 31, 2023, an increase of $1.14 billion or 5.4%. Total deposits were $27.93 billion at June 30, 2024 compared with $27.18 billion at December 31, 2023, an increase of $753.3 million or 2.8%. Total shareholders’ equity was $7.28 billion at June 30, 2024 compared with $7.08 billion at December 31, 2023, an increase of $204.1 million or 2.9%.

Current wording

Total assets were $40.12 billion at September 30, 2024 compared with $38.55 billion at December 31, 2023, an increase of $1.57 billion or 4.1%. Total loans were $22.38 billion at September 30, 2024 compared with $21.18 billion at December 31, 2023, an increase of $1.20 billion or 5.7%. Total deposits were $28.09 billion at September 30, 2024 compared with $27.18 billion at December 31, 2023, an increase of $907.8 million or 3.3%. Total shareholders’ equity was $7.36 billion at September 30, 2024 compared with $7.08 billion at December 31, 2023, an increase of $281.9 million or 4.0%.

Previous wording

Merger of Lone Star State Bancshares, Inc. — Effective April 1, 2024, the Company completed the merger of Lone Star State Bancshares, Inc. (“Lone Star”) into Bancshares and the subsequent merger of its wholly owned subsidiary Lone Star State Bank of West Texas (“Lone Star Bank”), into the Bank. Lone Star operated five full-service banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. As of March 31, 2024, Lone Star, on a consolidated basis, reported total assets of $1.38 billion, total loans of $1.08 billion and total deposits of $1.24 billion.

Current wording

Merger of Lone Star State Bancshares, Inc. — Effective April 1, 2024, the Company completed the merger of Lone Star State Bancshares, Inc. (“Lone Star”) into Bancshares and the subsequent merger of its wholly owned subsidiary Lone Star State Bank of West Texas (“Lone Star Bank”), into the Bank (collectively, the “LSSB Merger”). Lone Star operated five full-service banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. As of March 31, 2024, Lone Star, on a consolidated basis, reported total assets of $1.38 billion, total loans of $1.08 billion and total deposits of $1.24 billion.

Previous wording

Pursuant to the terms of the definitive agreement, Bancshares issued 2,376,182 shares of its common stock plus approximately $64.1 million in cash for all outstanding shares of Lone Star. This resulted in goodwill of $107.7 million as of June 30, 2024, 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 $17.7 million of core deposit intangibles as of June 30, 2024.

Current wording

Pursuant to the terms of the definitive agreement, Bancshares issued 2,376,182 shares of its common stock plus approximately $64.1 million in cash for all outstanding shares of Lone Star. This resulted in goodwill of $108.0 million as of September 30, 2024, 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 $17.7 million of core deposit intangibles as of September 30, 2024. In October 2024, the Company completed the operational conversion of Lone Star Bank.

Previous wording

Visa, Inc. (“Visa”) Class B-1 stock exchange net of investment securities sales of $10.7 million, partially offset by a merger related provision for credit losses of $9.1 million, merger related expenses of $4.4 million, a FDIC special assessment of $3.6 million and an increase in noninterest expenses related to three months of Lone Star Bank operations. The Company posted annualized returns on average common equity of 6.10% and 5.01%, annualized returns on average assets of 1.12% and 0.89% and efficiency ratios of 51.82% and 53.21% for the quarters ended June 30, 2024 and 2023, 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.

Current wording

For the quarter ended September 30, 2024, net income available to common shareholders was $127.3 million or $1.34 per diluted common share compared with $112.2 million or $1.20 per diluted common share for the same period in 2023. The change was primarily due to an increase in net interest income, partially offset by an increase in noninterest expense related to three months of Lone Star Bank operations. The Company posted annualized returns on average common equity of 6.93% and 6.39%, annualized returns on average assets of 1.28% and 1.13% and efficiency ratios of 46.87% and 48.74% for the quarters ended September 30, 2024 and 2023, 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.

Previous wording

For the six months ended June 30, 2024, net income available to common shareholders was $222.0 million or $2.34 per diluted common share compared with $211.6 million or $2.30 per diluted common share for the six months ended June 30, 2023. Net income and net income per diluted common share for the six months ended June 30, 2024 was impacted by an increase in net interest income, a gain on the Visa Class B-1 stock exchange net of investment securities sales of $11.0 million, lower merger related provision for credit losses and a decrease in merger related expenses, partially offset by a FDIC special assessment of $3.6 million and an increase in noninterest expenses related to three months of Lone Star Bank operations. The Company posted annualized returns on average common equity of 6.15% and 6.18%, annualized returns on average assets of 1.13% and 1.09% and efficiency ratios of 50.49% and 48.38% for the six months ended June 30, 2024 and 2023, respectively.

Current wording

For the nine months ended September 30, 2024, net income available to common shareholders was $349.3 million or $3.68 per diluted common share compared with $323.8 million or $3.50 per diluted common share for the nine months ended September 30, 2023. Net income and net income per diluted common share for the nine months ended September 30, 2024 were impacted by an increase in net interest income, a gain on Visa Class B-1 stock exchange net of investment securities sales of $11.2 million, lower merger related provision for credit losses and a decrease in merger related expenses, partially offset by a FDIC special assessment of $3.6 million and an increase in noninterest expenses related to six months of Lone Star Bank operations and nine months of FirstCapital Bank operations. The Company posted annualized returns on average common equity of 6.40% and 6.25%, annualized returns on average assets of 1.16% and 1.11% and efficiency ratios of 49.25% and 48.50% for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Net interest income before the provision for credit losses was $497.0 million for the six months ended June 30, 2024, an increase of $17.1 million or 3.6%, compared with $479.9 million for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances on federal funds sold and other earning assets and an increase in loan discount accretion, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits.

Current wording

Net interest income before the provision for credit losses was $261.7 million for the quarter ended September 30, 2024, an increase of $22.2 million or 9.3% compared with $239.5 million for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances on federal funds sold and other earning assets and a decrease in the average balances and rate on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits.

Previous wording

Interest income on loans was $336.4 million for the quarter ended June 30, 2024, an increase of $49.8 million or 17.4%, compared with $286.6 million for the same period in 2023. The increase was due to an increase in both the average balances and average rates on loans.

Current wording

Interest income on loans was $337.5 million for the quarter ended September 30, 2024, an increase of $28.8 million or 9.3% compared with $308.7 million for the same period in 2023. The increase was due to an increase in both the average balances and average rates on loans.

Previous wording

Interest income on securities was $62.4 million for the quarter ended June 30, 2024, a decrease of $9.6 million or 13.4%, compared with $72.1 million for the same period in 2023, primarily due to a decrease in the average balances on investment securities.

Current wording

Interest income on securities was $59.6 million for the quarter ended September 30, 2024, a decrease of $10.4 million or 14.8% compared with $70.0 million for the same period in 2023, primarily due to a decrease in the average balances on investment securities.

Previous wording

Average interest-bearing liabilities were $22.48 billion for the quarter ended June 30, 2024, an increase of $656.5 million or 3.0%, compared with $21.83 billion for the same period in 2023, primarily due to an increase in interest-earning deposits partially offset by a decrease in other borrowings and securities sold under repurchase agreements. The average rate on interest-bearing liabilities was 2.76% for the quarter ended June 30, 2024, an increase of 48 basis points, compared with 2.28% for the same period in 2023.

Current wording

Average interest-bearing liabilities were $22.39 billion for the quarter ended September 30, 2024, an increase of $408.7 million or 1.9% compared with $21.98 billion for the same period in 2023, primarily due to an increase in interest-earning deposits partially offset by a decrease in other borrowings and securities sold under repurchase agreements. The average rate on interest-bearing liabilities was 2.78% for the quarter ended September 30, 2024, an increase of 24 basis points compared with 2.54% for the same period in 2023.

Previous wording

The net interest margin on a tax-equivalent basis was 2.94% for the quarter ended June 30, 2024, an increase of 21 basis points compared with 2.73% for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances on federal funds sold and other earning assets, an increase in loan discount accretion, and a decrease in the average balances on other borrowings, partially offset by an increase in the average balances and rates on interest-bearing deposits. The increases in the average balances on loans and deposits were primarily due to the LSSB Merger.

Current wording

The net interest margin on a tax-equivalent basis was 2.95% for the quarter ended September 30, 2024, an increase of 23 basis points compared with 2.72% for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances on federal funds sold and other earning assets and a decrease in the average balances and rate on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits. The increases in the average balances on loans and deposits were primarily due to the LSSB Merger.

Previous wording

Net interest income before the provision for credit losses was $258.8 million for the quarter ended June 30, 2024, an increase of $22.3 million or 9.4%, compared with $236.5 million for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances on federal funds sold and other earning assets, an increase in loan discount accretion, and a decrease in the average balances on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits.

Current wording

Net interest income before the provision for credit losses was $758.7 million for the nine months ended September 30, 2024, an increase of $39.3 million or 5.5% compared with $719.5 million for the same period in 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances and average rates on federal funds sold and other earning assets, an increase in loan discount accretion and a decrease in the average rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits.

Previous wording

Interest income on loans was $642.7 million for the six months ended June 30, 2024, an increase of $108.9 million or 20.4%, compared with $533.8 million for the same period in 2023. The change was due to an increase in both the average balances and average rates on loans held for investment.

Current wording

Interest income on loans was $980.1 million for the nine months ended September 30, 2024, an increase of $137.7 million or 16.3% compared with $842.4 million for the same period in 2023. The change was due to an increase in both the average balances and average rates on loans.

Previous wording

Interest income on securities was $128.8 million for the six months ended June 30, 2024, a decrease of $16.4 million or 11.3%, compared with $145.2 million for the same period in 2023, primarily due to a decrease in the average balances on investment securities.

Current wording

Interest income on securities was $188.5 million for the nine months ended September 30, 2024, a decrease of $26.8 million or 12.4% compared with $215.2 million for the same period in 2023, primarily due to a decrease in the average balances on investment securities.

Previous wording

Average interest-bearing liabilities were $22.29 billion for the six months ended June 30, 2024, an increase of $964.6 million or 4.5%, compared with $21.32 billion for the same period in 2023, primarily due to an increase in interest-bearing deposits and other borrowings partially offset by a decrease in securities sold under repurchase agreements. The average rate on interest-bearing liabilities was 2.69% for the six months ended June 30, 2024, an increase of 72 basis points, compared with 1.97% for the same period in 2022.

Current wording

Average interest-bearing liabilities were $22.59 billion for the nine months ended September 30, 2024, an increase of $1.05 billion or 4.9% compared with $21.55 billion for the same period in 2023, primarily due to an increase in interest-bearing deposits partially offset by a decrease in securities sold under repurchase agreements and other borrowings. The average rate on interest-bearing liabilities was 2.68% for the nine months ended September 30, 2024, an increase of 52 basis points compared with 2.16% for the same period in 2023.

Previous wording

The net interest margin on a tax-equivalent basis was 2.87% for the six months ended June 30, 2024, an increase of 4 basis points, compared with 2.83% for the six months ended June 30, 2023. The change was primarily due to an increase in the average balances and average rates on loans and an increase in the average balances on federal funds sold and other earning assets and an increase in loan discount accretion, partially offset by an increase in the average balances and rates on interest-bearing deposits. The increases in the average balances on loans and deposits were primarily due to the LSSB Merger.

Current wording

The net interest margin on a tax-equivalent basis was 2.86% for the nine months ended September 30, 2024, an increase of 7 basis points compared with 2.79% for the nine months ended September 30, 2023. The change was primarily due to an increase in the average balances and average rates on loans, an increase in the average balances and average rates on federal funds sold and other earning assets, an increase in loan discount accretion and a decrease in the average rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances and rates on interest-bearing deposits. The increases in the average balances on loans and deposits were primarily due to the LSSB Merger and FB Merger.

Previous wording

The provision for credit losses was $9.1 million for the three and six months ended June 30, 2024 compared to the $18.5 million provision for credit losses for the three and six months ended June 30, 2023. As a result of the loans acquired in the LSSB Merger, the second quarter of 2024 included a $7.9 million provision for credit losses on loans and a $1.2 million provision for credit losses on off-balance sheet credit exposures.

Current wording

There was no provision for credit losses for the three months ended September 30, 2024 and 2023. The provision for credit losses was $9.1 million and $18.5 million for nine months ended September 30, 2024 and 2023, respectively. As a result of the loans acquired in the LSSB Merger, the nine months ended September 30, 2024 included a $7.9 million provision for credit losses on loans and a $1.2 million provision for credit losses on off-balance sheet credit exposures.

Previous wording

Net charge-offs were $4.4 million for the quarter ended June 30, 2024 compared with net charge-offs of $16.1 million for the quarter ended June 30, 2023. Net charge-offs for the three months ended June 30, 2024 included $878 thousand related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. Additionally, reserves on PCD loans increased by $26.1 million due to Day One accounting for PCD loans at the time of the LSSB Merger. Further, $4.8 million of reserves on resolved PCD loans without any related charge-offs was released to the general reserve.

Current wording

Net charge-offs were $5.5 million for the quarter ended September 30, 2024 compared with net charge-offs of $3.4 million for the quarter ended September 30, 2023. Net charge-offs for the three months ended September 30, 2024 included $1.4 million related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. Further, $5.0 million of reserves on resolved PCD loans without any related charge-offs was released to the general reserve.

Previous wording

Net charge-offs were $6.5 million for the six months ended June 30, 2024 compared with $15.5 million for the six months ended June 30, 2023. Net charge-offs for the six months ended June 30, 2024 included $1.9 million related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. Additionally, reserves on PCD loans increased by $26.1 million due to Day One accounting for PCD loans at the time of the LSSB Merger. Further, $8.9 million of reserves on resolved PCD loans was released to the general reserve.

Current wording

Net charge-offs were $12.0 million for the nine months ended September 30, 2024 compared with $18.9 million for the nine months ended September 30, 2023. Net charge-offs for the nine months ended September 30, 2024 included $3.3 million related to resolved PCD loans, which had specific reserves that were allocated to the charge-offs. Additionally, reserves on PCD loans increased by $26.1 million due to Day One accounting for PCD loans at the time of the LSSB Merger. Further, $13.9 million of reserves on resolved PCD loans was released to the general reserve.

Previous wording

Noninterest income totaled $46.0 million for the three months ended June 30, 2024 compared with $39.7 million for the same period in 2023, an increase of $6.3 million or 15.9%, primarily due to a gain on the Visa Class B-1 stock exchange net of investment securities sales, partially offset by the change in the net (loss) gain on sale or write-down of assets and a decrease in other noninterest income Noninterest income totaled $84.9 million for the six months ended June 30, 2024 compared with $78.0 million for the same period in 2023, an increase of $6.9 million or 8.9%, primarily due to a gain on the Visa Class B-1 stock exchange net of investment securities sales and an increase in trust income, partially offset by the change in the net (loss) gain on sale or write-down of assets and a decrease in other noninterest income.

Current wording

Noninterest income totaled $41.1 million for the three months ended September 30, 2024 compared with $38.7 million for the same period in 2023, an increase of $2.4 million or 6.1%, primarily due to the increase in the net gain (loss) on sale or write-down of assets, partially offset by a decrease in other noninterest income. Noninterest income totaled $126.0 million for the nine months ended September 30, 2024 compared with $116.7 million for the same period in 2023, an increase of $9.3 million or 7.9%, primarily due to a gain on Visa Class B-1 stock exchange net of investment securities sales and, an increase in trust income, partially offset by a decrease in other noninterest income.

Previous wording

Noninterest expense totaled $152.8 million for the quarter ended June 30, 2024 compared with $145.9 million for the quarter ended June 30, 2023, an increase of $7.0 million or 4.8%. Noninterest expense totaled $288.7 million for the six months ended June 30, 2024 compared with $268.9 million for the six months ended June 30, 2023, an increase of $19.8 million or 7.4%. The change for both periods was primarily due to a FDIC special assessment of $3.6 million, an increase in salaries and benefits and an increase in additional expenses related to three months of Lone Star Bank operations, partially offset by a decrease in merger expenses.

Current wording

Noninterest expense totaled $140.3 million for the quarter ended September 30, 2024 compared with $135.7 million for the quarter ended September 30, 2023, an increase of $4.7 million or 3.5%, primarily due to an increase in salaries and benefits, an increase in credit and debit card, data processing and software amortization, and additional expenses related to three months of Lone Star Bank operations, partially offset by a decrease in merger related expenses. Noninterest expense totaled $429.0 million for the nine months ended September 30, 2024 compared with $404.5 million for the nine months ended September 30, 2023, an increase of $24.5 million or 6.1%, primarily due to a FDIC special assessment of $3.6 million, an increase in salaries and benefits and additional expenses related to six months of Lone Star Bank operations and nine months of FirstCapital Bank operations, partially offset by a decrease in merger related expenses.

Previous wording

Includes stock-based compensation expense of $3.1 million and $2.7 million for the three months ended June 30, 2024 and 2023, respectively, and $6.5 million and $5.9 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

Includes stock-based compensation expense of $3.1 million for the three months ended September 30, 2024 and 2023, and $9.6 million and $9.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

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 other nondeductible expenses. Income tax expense totaled $31.3 million for the three months ended June 30, 2024 compared with $24.8 million for the same period in 2023, an increase of $6.5 million or 26.1%. Income tax expense totaled $62.1 million for the six months ended June 30, 2024 compared with $58.8 million for the same period in 2023, an increase of $3.3 million or 5.6%. The Company’s effective tax rate for the three months ended June 30, 2024 and 2023 was 21.9% and 22.2%, respectively. The Company’s effective tax rate for the six months ended June 30, 2024 and 2023 was 21.9% and 21.8%, respectively.

Current wording

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 other nondeductible expenses. Income tax expense totaled $35.2 million for the three months ended September 30, 2024 compared with $30.4 million for the same period in 2023, an increase of $4.8 million or 15.7%. Income tax expense totaled $97.3 million for the nine months ended September 30, 2024 compared with $89.2 million for the same period in 2023, an increase of $8.0 million or 9.0%. The Company’s effective tax rate for the three months ended September 30, 2024 and 2023 was 21.6% and 21.3%, respectively. The Company’s effective tax rate for the nine months ended September 30, 2024 and 2023 was 21.8% and 21.6%, respectively.

Previous wording

At June 30, 2024, total loans were $22.32 billion, an increase of $1.14 billion or 5.4%, compared with $21.18 billion at December 31, 2023. Loans at June 30, 2024 included $10.0 million of loans held for sale and $1.08 billion of Warehouse Purchase Program loans compared with $5.7 million of loans held for sale and $822.2 million of Warehouse Purchase Program loans at December 31, 2023. At June 30, 2024, loans represented 56.1% of total assets compared with 54.9% of total assets at December 31, 2023.

Current wording

At September 30, 2024, total loans were $22.38 billion, an increase of $1.20 billion or 5.7% compared with $21.18 billion at December 31, 2023. Loans at September 30, 2024 included $6.1 million of loans held for sale and $1.23 billion of Warehouse Purchase Program loans compared with $5.7 million of loans held for sale and $822.2 million of Warehouse Purchase Program loans at December 31, 2023. At September 30, 2024, loans represented 55.8% of total assets compared with 54.9% of total assets at December 31, 2023.

Previous wording

Nonperforming assets increased $16.9 million to $89.6 million at June 30, 2024 compared with $72.7 million at December 31, 2023, with a significant portion of the balance for each period attributable to acquired loans.

Current wording

Nonperforming assets increased $17.3 million to $89.9 million at September 30, 2024 compared with $72.7 million at December 31, 2023, with a significant portion of the balance for each period attributable to acquired loans.

Previous wording

Nonperforming assets were 0.40% of total loans and other real estate at June 30, 2024 and 0.34% of total loans and other real estate at December 31, 2023. The allowance for credit losses on loans as a percentage of total nonperforming loans was 425.9% at June 30, 2024 and 468.9% at December 31, 2023.

Current wording

Nonperforming assets were 0.40% of total loans and other real estate at September 30, 2024 and 0.34% of total loans and other real estate at December 31, 2023. The allowance for credit losses on loans as a percentage of total nonperforming loans was 422.0% at September 30, 2024 and 468.9% at December 31, 2023.

Previous wording

The Company had gross charge-offs on originated loans of $4.7 million during the six months ended June 30, 2024. Partially offsetting these charge-offs were recoveries on originated loans of $685 thousand. Gross charge-offs on acquired loans were $5.0 million during the six months ended June 30, 2024. Offsetting these charge-offs were recoveries on acquired loans of $2.5 million. Total charge-offs for the six months ended June 30, 2024 were $9.7 million, partially offset by total recoveries of $3.2 million.

Current wording

The Company had gross charge-offs on originated loans of $7.0 million during the nine months ended September 30, 2024. Partially offsetting these charge-offs were recoveries on originated loans of $1.1 million. Gross charge-offs on acquired loans were $9.2 million during the nine months ended September 30, 2024. Offsetting these charge-offs were recoveries on acquired loans of $3.2 million. Total charge-offs for the nine months ended September 30, 2024 were $16.3 million, partially offset by total recoveries of $4.3 million.

Previous wording

The allowance for credit losses on loans totaled $359.9 million at June 30, 2024 compared with $332.4 million at December 31, 2023, an increase of $27.5 million or 8.3%, primarily due to the LSSB Merger. The allowance for credit losses on loans totaled 1.61% of total loans at June 30, 2024 and 1.57% of total loans at December 31, 2023.

Current wording

The allowance for credit losses on loans totaled $354.4 million at September 30, 2024 compared with $332.4 million at December 31, 2023, an increase of $22.0 million or 6.6%, primarily due to the LSSB Merger. The allowance for credit losses on loans totaled 1.58% of total loans at September 30, 2024 and 1.57% of total loans at December 31, 2023.

Previous wording

At June 30, 2024, $223.9 million of the allowance for credit losses on loans was attributable to originated loans, an increase of $1.5 million or 0.7% compared with $222.4 million of the allowance at December 31, 2023. At June 30, 2024, $30.5 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $30.0 million of the allowance at December 31, 2023, an increase of $525 thousand or 1.8%. At June 30, 2024, $30.8 million of the allowance for credit losses on loans was attributable to Non-PCD loans compared with $22.3 million of the allowance at December 31, 2023, an increase of $8.5 million or 37.9%. At June 30, 2024, $74.7 million of the allowance for credit losses on loans was attributable to PCD loans compared with $57.7 million of the allowance at December 31, 2023, an increase of $17.0 million or 29.5%.

Current wording

At September 30, 2024, $227.2 million of the allowance for credit losses on loans was attributable to originated loans, an increase of $4.8 million or 2.2% compared with $222.4 million of the allowance at December 31, 2023. At September 30, 2024, $29.5 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $30.0 million of the allowance at December 31, 2023, a decrease of $409 thousand or 1.4%. At September 30, 2024, $28.6 million of the allowance for credit losses on loans was attributable to Non-PCD loans compared with $22.3 million of the allowance at December 31, 2023, an increase of $6.3 million or 28.1%. At September 30, 2024, $69.0 million of the allowance for credit losses on loans was attributable to PCD loans compared with $57.7 million of the allowance at December 31, 2023, an increase of $11.3 million or 19.7%.

Previous wording

At June 30, 2024, the Company had $43.8 million of total outstanding accretable discounts on Non-PCD loans and PCD loans. The Company believes that the allowance for credit losses on loans at June 30, 2024 is adequate to absorb expected lifetime losses that may be realized from the loan portfolio as of such date. Nevertheless, the Company could sustain losses in future periods which could be substantial in relation to the size of the allowance at June 30, 2024.

Current wording

At September 30, 2024, the Company had $38.9 million of total outstanding accretable discounts on Non-PCD loans and PCD loans. The Company believes that the allowance for credit losses on loans at September 30, 2024 is adequate to absorb expected lifetime losses that may be realized from the loan portfolio as of such date. Nevertheless, the Company could sustain losses in future periods which could be substantial in relation to the size of the allowance at September 30, 2024.

Previous wording

The carrying cost of securities totaled $11.70 billion at June 30, 2024 compared with $12.80 billion at December 31, 2023, a decrease of $1.10 billion or 8.6%. At June 30, 2024, securities represented 29.4% of total assets compared with 33.2% of total assets at December 31, 2023.

Current wording

The carrying cost of securities totaled $11.30 billion at September 30, 2024 compared with $12.80 billion at December 31, 2023, a decrease of $1.50 billion or 11.7%. At September 30, 2024, securities represented 28.2% of total assets compared with 33.2% of total assets at December 31, 2023.

Previous wording

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, 2024 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, 2024, management believes that there is no potential for material credit losses on held to maturity securities.

Current wording

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 September 30, 2024 the Company’s municipal securities represent 0.8% 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 September 30, 2024, management believes that there is no potential for material credit losses on held to maturity securities.

Previous wording

Visa Class B-1 Stock Exchange. During the second quarter of 2024, the Company tendered all of its shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock, pursuant to the terms and subject to the conditions of the public offering of Visa to exchange its Class B-1 common stock for a combination of shares of its Class B-2 common stock and Class C common stock, which expired on May 3, 2024. The Company recorded a gain of $20.6 million during the second quarter of 2024 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. In the exchange, the Company received 48,492 shares of Class B-2 stock, recorded at zero cost basis, and 19,245 shares of Class C common stock and subsequently sold 6,415 shares of Class C stock. The Company intends to sell all remaining shares of Class C stock as permitted by the exchange agreement.

Current wording

Visa Class B-1 Stock Exchange. During the second quarter of 2024, the Bank tendered all of its shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock, pursuant to the terms and subject to the conditions of the public offering of Visa to exchange its Class B-1 common stock for a combination of shares of its Class B-2 common stock and Class C common stock, which expired on May 3, 2024. The Company recorded a gain of $20.6 million during the second quarter of 2024 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. In the exchange, the Bank received 48,492 shares of Class B-2 stock, recorded at zero cost basis, and 19,245 shares of Class C common stock and has subsequently sold all shares of Class C stock.

Previous wording

Total deposits were $27.93 billion at June 30, 2024 compared with $27.18 billion at December 31, 2023, an increase of $753.3 million or 2.8%. Total noninterest-bearing deposits were $9.71 billion at June 30, 2024 compared with $9.78 billion at December 31, 2023, a decrease of $70.1 million or 0.7%. Interest-bearing deposits were $18.23 billion at June 30, 2024 compared with $17.40 billion at December 31, 2023, an increase of $823.3 million or 4.7%. The increases were primarily due to the LSSB Merger.

Current wording

Total deposits were $28.09 billion at September 30, 2024 compared with $27.18 billion at December 31, 2023, an increase of $907.8 million or 3.3%. Total noninterest-bearing deposits were $9.81 billion at September 30, 2024 compared with $9.78 billion at December 31, 2023, an increase of $34.8 million or 0.4%. Interest-bearing deposits were $18.28 billion at September 30, 2024 compared with $17.40 billion at December 31, 2023, an increase of $873.0 million or 5.0%. The increases were primarily due to the LSSB Merger.

Previous wording

Average deposits for the six months ended June 30, 2024 were $27.63 billion, an increase of $72.3 million or 0.3%, compared with $27.56 billion for the six months ended June 30, 2023. The ratio of average interest-bearing deposits to total average deposits was 65.2% and 62.5% during the first six months of 2024 and 2023, respectively.

Current wording

Average deposits for the nine months ended September 30, 2024 were $28.13 billion, an increase of $690.7 million or 2.5% compared with $27.43 billion for the nine months ended September 30, 2023. The ratio of average interest-bearing deposits to total average deposits was 65.3% and 62.4% during the first nine months of 2024 and 2023, respectively.

Previous wording

Bank Term Funding Program— During the second quarter of 2023, the Bank began participating in the Federal Reserve’s Bank Term Funding Program (“BTFP”), which ceased extending new loans as of March 11, 2024. Under the BTFP program, eligible depository institutions could obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets are valued at par. At June 30, 2024, the balance outstanding was $3.90 billion consisting of a one-term advance maturing in January 2025 with an interest rate of 4.76%, collateralized by the par value of pledged securities.

Current wording

Bank Term Funding Program— During the second quarter of 2023, the Bank began participating in the Federal Reserve’s Bank Term Funding Program (“BTFP”), which ceased extending new loans as of March 11, 2024. Under the BTFP program, eligible depository institutions could obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The pledged assets are valued at par totaling $4.03 billion at September 30, 2024. At September 30, 2024, the balance outstanding was $3.90 billion consisting of a one-term advance maturing in January 2025 with an interest rate of 4.76%, collateralized by the par value of pledged securities.

Previous wording

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, 2024, the Company had total borrowing capacity of $11.00 billion under this line. At June 30, 2024, the Company had no FHLB advances or long-term notes payable balance outstanding.

Current wording

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 September 30, 2024, the Company had total borrowing capacity of $8.13 billion under this line. At September 30, 2024, the Company had no FHLB advances or long-term notes payable balance outstanding.

Previous wording

Securities sold under repurchase agreements— At June 30, 2024, the Company had $233.7 million in securities sold under repurchase agreements with banking customers compared with $309.3 million at December 31, 2023, a decrease of $75.6 million or 24.4%. Repurchase agreements are generally settled on the following business day; however, approximately $3.0 million of the repurchase agreements outstanding at June 30, 2024 have maturity dates ranging from 12 to 24 months. All securities sold under repurchase agreements are collateralized by certain pledged securities.

Current wording

Securities sold under repurchase agreements— At September 30, 2024, the Company had $228.9 million in securities sold under repurchase agreements with banking customers compared with $309.3 million at December 31, 2023, a decrease of $80.4 million or 26.0%. Repurchase agreements are generally settled on the following business day; however, approximately $3.0 million of the repurchase agreements outstanding at September 30, 2024 have maturity dates ranging from 12 to 24 months. All securities sold under repurchase agreements are collateralized by certain pledged securities.

Previous wording

As of June 30, 2024, the Company had outstanding $4.35 billion in commitments to extend credit, $91.2 million in commitments associated with outstanding standby letters of credit and $855.7 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.

Current wording

As of September 30, 2024, the Company had outstanding $4.04 billion in commitments to extend credit, $90.1 million in commitments associated with outstanding standby letters of credit and $752.5 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.