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 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

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 March 31, 2025, the Bank operated 284 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; 45 in the West Texas area including Lubbock,

Previous 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.

Current wording

Midland-Odessa, Abilene, Amarillo and Wichita Falls; 15 in the Bryan/College Station area; 6 in the Central Oklahoma area; and 8 in the Tulsa, Oklahoma area. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe in Houston, Texas, and its telephone number is (281) 269-7199. The Company’s website address is www.prosperitybankusa.com. Information contained on the Company’s website is not incorporated by reference into this quarterly report on Form 10-Q and is not part of this or any other report.

Previous wording

Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continual internal growth. The Company maintains separate data with respect to each banking center’s net interest income, efficiency ratio, deposit growth and loan growth for purposes of measuring its overall profitability. The Company also focuses on maintaining efficiency and stringent cost control practices and policies. The Company has centralized many of its critical operations, such as data processing and loan processing. Management believes that this centralized infrastructure can accommodate substantial additional growth and achieve necessary controls while enabling the Company to minimize operational costs through certain economies of scale. The Company also intends to continue to seek expansion opportunities.

Current wording

Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continual internal growth. The Company maintains separate data with respect to each banking center’s net interest income, efficiency ratio, deposit growth and loan growth for purposes of measuring its overall profitability. The Company also focuses on maintaining efficiency and stringent cost control practices and policies. The Company has centralized many of its critical operations, such as data processing and loan processing. Management believes that this centralized infrastructure can accommodate substantial additional growth and achieve necessary controls while enabling the Company to minimize operational costs through certain economies of scale. The Company also intends to continue to seek expansion opportunities. The Company’s banking operations are considered by management to be aggregated in one reportable operating segment. For more information about the Company’s segment reporting, refer to Note 1 to the consolidated financial statements.

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 (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.

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 “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 $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.

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 $106.7 million as of March 31, 2025. 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 March 31, 2025. In October 2024, the Company completed the operational conversion of Lone Star Bank.

Previous wording

Allowance for Credit Losses— The allowance for credit losses is accounted for in accordance with FASB ASC 326, Measurement of Credit Losses on Financial Instruments which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is an allowance available for losses on loans and held-to-maturity securities. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. All losses are charged to the allowance when the loss actually occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery.

Current wording

Allowance for Credit Losses—The allowance for credit losses is accounted for in accordance with FASB ASC Topic 326, “Financial Instruments-Credit Losses” (“CECL”), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. CECL requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is an allowance available for losses on loans and held-to-maturity securities that is deducted from the amortized cost basis to estimate the net amount expected to be collected. The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. All losses are charged to the allowance when the loss actually occurs or when a determination is made that such a loss is likely and can be reasonably estimated. Recoveries are credited to the allowance at the time of recovery.

Previous wording

The Company’s allowance for credit losses consists of two elements: (1) specific valuation allowances based on expected losses on impaired loans and certain purchased credit-deteriorated loans (“PCD”) loans; and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company. Management has established an allowance for credit losses which it believes is adequate for estimated losses in the Company’s loan portfolio. Based on an evaluation of the portfolio, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers factors such as historical lifetime loan loss experience, the amount of nonperforming assets and related collateral, the volume, growth and composition of the portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the portfolio through its internal loan review process and other relevant factors. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Charge-offs occur when loans are deemed to be uncollectible. Pursuant to the Company's adoption of ASU 2022-02 effective January 1, 2023, the Company prospectively discontinued troubled debt restructurings accounting and no longer measures the economic concession for loan modifications occurring on or after the adoption date. In addition, modifications to loans previously designated as troubled debt restructurings that occur on or after January 1, 2023, are accounted for under ASU 2022-02 and result in the elimination of any prior economic concession recorded in the allowance related to such loans. For further discussion of the methodology used in the determination of the allowance for credit losses on loans, see “Accounting for Acquired Loans and the Allowance for Acquired Credit Losses” below and “Financial Condition—Allowance for Credit Losses on Loans” below.

Current wording

The Company’s allowance for credit losses consists of two elements: (1) specific valuation allowances based on expected losses on impaired loans and certain purchased credit deteriorated loans (“PCD”) loans; and (2) a general valuation allowance based on historical lifetime loan loss experience, current economic conditions, reasonable and supportable forecasted economic conditions and other qualitative risk factors both internal and external to the Company. Management has established an allowance for credit losses which it believes is adequate to cover the expected losses in the Company’s loan portfolio. Based on an evaluation of the portfolio, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. In making its evaluation, management considers factors such as historical lifetime loan loss experience, the amount of nonperforming assets and related collateral, the volume, growth and composition of the portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the portfolio through its internal loan review process and other relevant factors. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. Charge-offs occur when loans are deemed to be uncollectible.

Previous 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.

Current wording

For the quarter ended March 31, 2025, net income available to common shareholders was $130.2 million or $1.37 per diluted common share compared with $110.4 million or $1.18 per diluted common share for the same period in 2024. The changes were primarily due to an increase in net interest income, partially offset by an increase in salaries and benefits and provision for income taxes. The Company posted annualized returns on average common equity of 6.94% and 6.20%, annualized returns on average assets of 1.34% and 1.13% and efficiency ratios of 45.71% and 49.07% for the quarters ended March 31, 2025 and 2024, 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

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.

Current wording

Net interest income before the provision for credit losses was $265.4 million for the quarter ended March 31, 2025, an increase of $27.1 million or 11.4% compared with $238.2 million for the same period in 2024. 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 rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances on interest-bearing deposits.

Previous 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.

Current wording

Interest income on securities was $57.9 million for the quarter ended March 31, 2025, a decrease of $8.5 million or 12.8% compared with $66.4 million for the same period in 2024, primarily due to a decrease in the average balances on investment securities.

Previous 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.

Current wording

Average interest-bearing liabilities were $21.65 billion for the quarter ended March 31, 2025, a decrease of $442.8 million or 2.0% compared with $22.10 billion for the same period in 2024, primarily due to a decrease in other borrowings and securities sold under repurchase agreements, partially offset by an increase in interest-earning deposits. The average rate on interest-bearing liabilities was 2.39% for the quarter ended March 31, 2025, a decrease of 23 basis points compared with 2.62% for the same period in 2024.

Previous 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.

Current wording

The net interest margin on a tax-equivalent basis was 3.14% for the quarter ended March 31, 2025, an increase of 35 basis points compared with 2.79% for the same period in 2024. 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 average rates on other borrowings, partially offset by a decrease in the average balances on investment securities and an increase in the average balances on interest-bearing deposits.

Previous wording

The following tables present, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities and the resultant rates. Except as indicated in the footnotes, no tax-equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables as loans carrying a zero yield.

Current wording

The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities and the resultant rates. Except as indicated in the footnotes, no tax-equivalent adjustments were made and all average balances are daily average balances. Any nonaccruing loans have been included in the tables as loans carrying a zero yield.

Previous 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.

Current wording

There was no provision for credit losses for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Net charge-offs were $2.7 million for the quarter ended March 31, 2025 compared with net charge-offs of $2.1 million for the quarter ended March 31, 2024. For the first quarter of 2025, $8.3 million of reserves on resolved PCD loans without any related charge-offs were released to the general reserve.

Previous 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.

Current wording

Includes stock-based compensation expense of $3.1 million and $3.4 million for the three months ended March 31, 2025 and 2024, 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 $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.

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 nondeductible expenses. Income tax expense totaled $36.2 million for the three months ended March 31, 2025 compared with $30.8 million for the same period in 2024, an increase of $5.3 million or 17.2%. The Company’s effective tax rate for the three months ended March 31, 2025 and 2024 was 21.7% and 21.8%, respectively.

Previous 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.

Current wording

At March 31, 2025, total loans were $21.98 billion, a decrease of $171.6 million or 0.8% compared with $22.15 billion at December 31, 2024. Loans at March 31, 2025 included $9.8 million of loans held for sale and $1.06 billion of Warehouse Purchase Program loans compared with $10.7 million of loans held for sale and $1.08 billion of Warehouse Purchase Program loans at December 31, 2024. At March 31, 2025, loans represented 56.7% of total assets compared with 56.0% of total assets at December 31, 2024.

Previous wording

Included in commercial and industrial loans are (1) commitments to oil and gas producers largely secured by proven, developed and producing reserves and (2) commitments to service, equipment and midstream companies secured mainly by accounts receivable, inventory and equipment. Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party or the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.

Current wording

Included in commercial and industrial loans are (1) commitments to oil and gas producers largely secured by proven, developed and producing reserves and (2) commitments to service, equipment and midstream companies secured mainly by accounts receivable, inventory and equipment. Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party and verified by the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.

Previous 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.

Current wording

Nonperforming assets were $81.4 million at March 31, 2025 compared with $81.5 million at December 31, 2024, 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 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.

Current wording

Nonperforming assets were 0.37% of total loans and other real estate at March 31, 2025 and December 31, 2024. The allowance for credit losses on loans as a percentage of total nonperforming loans was 475.8% at March 31, 2025 and 463.9% at December 31, 2024.

Previous wording

The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses on loans which it believes is adequate as of September 30, 2024 for estimated losses in the Company’s loan portfolio. The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, and (4) provision releases returned to earnings that decrease the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.

Current wording

The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses on loans which it believes is adequate to cover the expected losses in the Company’s loan portfolio as of March 31, 2025. The amount of the allowance for credit losses on loans is affected by the following: (1) charge-offs of loans that occur when loans are deemed uncollectible and decrease the allowance, (2) recoveries on loans previously charged off that increase the allowance, (3) provisions for credit losses charged to earnings that increase the allowance, and (4) provision releases returned to earnings that decrease the allowance. Based on an evaluation of the loan portfolio and consideration of the factors listed below, management presents a quarterly review of the allowance for credit losses to the Bank’s Board of Directors, indicating any change in the allowance since the last review and any recommendations as to adjustments in the allowance. Although management believes it uses the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions or borrower performance differ from the assumptions used in making the initial determinations.

Previous wording

In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Current wording

In determining the amount of the general valuation allowance, management considers factors such as historical lifetime loan loss experience, concentration risk of specific loan types, the volume, growth and composition of the Company’s loan portfolio, current economic conditions and reasonable and supportable forecasted economic conditions that may affect borrower ability to pay and the value of collateral, the evaluation of the Company’s loan portfolio through its internal loan review process, other qualitative risk factors both internal and external to the Company and other relevant factors. Historical lifetime loan loss experience is determined by utilizing an open-pool (“cumulative loss rate”) methodology. Adjustments to the historical lifetime loan loss experience are made for differences in current loan pool risk characteristics such as portfolio concentrations, delinquency, non-accrual, and watch list levels, as well as changes in current and forecasted economic conditions such as unemployment rates, property and collateral values, and other indices relating to economic activity. The utilization of reasonable and supportable forecasts includes an immediate reversion to lifetime historical loss rates. Based on a review of these factors for each loan type, the Company applies an estimated percentage to the outstanding balance of each loan type, excluding any loan that has a specific reserve. Allocation of a portion of the allowance to one category of loans does not preclude its availability to cover expected losses in other categories.

Previous wording

A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans.

Current wording

A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired and PCD loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans.

Previous wording

PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans is made. PCD loans were recorded at their acquisition date fair values, which were based on expected cash flows and considers estimates of expected future credit losses. The Company’s estimates of loan fair values at the acquisition date may be adjusted for a period of up to one year as the Company continues to evaluate its estimate of expected future cash flows at the acquisition date. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses. See “Critical Accounting Estimates” above for more information.

Current wording

PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans may be required. PCD loans were recorded at their acquisition date fair values, which were based on expected cash flows and considers estimates of expected future credit losses. The Company’s estimates of loan fair values at the acquisition date may be adjusted for a period of up to one year as the Company continues to evaluate its estimate of expected future cash flows at the acquisition date. If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses.

Previous 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.

Current wording

The Company had gross charge-offs on originated loans of $3.4 million during the three months ended March 31, 2025. Partially offsetting these charge-offs were recoveries on originated loans of $786 thousand. Gross charge-offs on acquired loans were $567 thousand during the three months ended March 31, 2025. Offsetting these charge-offs were recoveries on acquired loans of $453 thousand. Total charge-offs for the three months ended March 31, 2025 were $3.9 million, partially offset by total recoveries of $1.2 million.

Previous wording

The following table shows the allocation of the net charge-offs among various categories of loans as of the dates indicated.

Current wording

The following table shows the allocation of the net charge-offs and net recoveries among various categories of loans as of the dates indicated.

Previous wording

The following tables show the allocation of the allowance for credit losses on loans among various categories of loans disaggregated between originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans at the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any loan category, regardless of whether allocated to an originated loan or an acquired loan.

Current wording

The following tables show the allocation of the allowance for credit losses on loans among various categories of loans disaggregated between originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans at the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to cover expected losses from any loan category, regardless of whether allocated to an originated loan or an acquired loan.

Previous 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%.

Current wording

At March 31, 2025, $234.2 million of the allowance for credit losses on loans was attributable to originated loans, an increase of $6.9 million or 3.1% compared with $227.2 million of the allowance at December 31, 2024. At March 31, 2025, $31.4 million of the allowance for credit losses on loans was attributable to re-underwritten acquired loans compared with $32.3 million of the allowance at December 31, 2024, a decrease of $882 thousand or 2.7%. At March 31, 2025, $24.5 million of the allowance for credit losses on loans was attributable to Non-PCD loans compared with $25.0 million of the allowance at December 31, 2024, a decrease of $450 thousand or 1.8%. At March 31, 2025, $59.0 million of the allowance for credit losses on loans was attributable to PCD loans compared with $67.4 million of the allowance at December 31, 2024, a decrease of $8.3 million or 12.4%.

Previous 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.

Current wording

At March 31, 2025, the Company had $32.0 million of total outstanding net accretable discounts on Non-PCD loans and PCD loans. The Company believes that the allowance for credit losses on loans at March 31, 2025 is adequate to cover expected losses that may be realized from the loan portfolio as of such date. Nevertheless, the Company could sustain losses in future periods which could be substantial in relation to the size of the allowance at March 31, 2025.

Previous wording

The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancelable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of September 30, 2024 and December 31, 2023, the Company had $37.6 million and $36.5 million, respectively, in allowance for credit losses on off-balance sheet credit exposures, with the increase due to the LSSB Merger. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet.

Current wording

The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancelable by the Company. The allowance is adjusted by provisions for credit losses charged to earnings that increase the allowance, or by provision releases returned to earnings that decrease the allowance. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on the commitments expected to fund. The estimate of commitments expected to fund is affected by historical analysis of utilization rates. The expected credit loss rates applied to the commitments expected to fund are affected by the general valuation allowance utilized for outstanding balances with the same underlying assumptions and drivers. As of March 31, 2025 and December 31, 2024, the Company had $37.6 million in allowance for credit losses on off-balance sheet credit exposures. The allowance for credit losses on off-balance sheet credit exposures is a separate line item on the Company’s consolidated balance sheet.

Previous 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.

Current wording

The carrying cost of securities totaled $10.79 billion at March 31, 2025 compared with $11.09 billion at December 31, 2024, a decrease of $301.7 million or 2.7%. At March 31, 2025, securities represented 27.8% of total assets compared with 28.0% of total assets at December 31, 2024.

Previous wording

The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under FASB ASC 326, “Financial Instruments – Credit Losses.”

Current wording

The investment securities portfolio is measured for expected credit losses by segregating the portfolio into two general classifications and applying the appropriate expected credit losses methodology. Investment securities classified as available for sale or held to maturity are evaluated for expected credit losses under CECL.

Previous 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.

Current wording

Average deposits for the three months ended March 31, 2025 were $28.16 billion, an increase of $1.00 billion or 3.7% compared with $27.16 billion for the three months ended March 31, 2024, primarily due to the Merger. The ratio of average interest-bearing deposits to total average deposits was 66.3% and 65.2% during the first three months of 2025 and 2024, respectively.

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 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.

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 March 31, 2025, the Company had total borrowing capacity of $7.92 billion under this line. FHLB advances of $2.70 billion were outstanding at March 31, 2025, with an interest rate of 4.38%. At March 31, 2025, the Company had no FHLB long-term notes payable balance outstanding.

Previous 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.

Current wording

Securities sold under repurchase agreements— At March 31, 2025, the Company had $216.1 million in securities sold under repurchase agreements with banking customers compared with $221.9 million at December 31, 2024, a decrease of $5.8 million or 2.6%. Repurchase agreements are generally settled on the following business day; however, approximately $1.3 million of the repurchase agreements outstanding at March 31, 2025 have maturity terms ranging from 12 to 24 months. All securities sold under repurchase agreements are collateralized by certain pledged securities.

Previous 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.

Current wording

As of March 31, 2025, the Company had outstanding $3.74 billion in commitments to extend credit, $75.4 million in commitments associated with outstanding standby letters of credit and $930.0 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.

Previous wording

Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. As of September 30, 2024, the Company had cash and cash equivalents of $2.21 billion compared with $458.4 million at December 31, 2023, an increase of $1.75 billion or 382.1%. The increase was primarily due to net proceeds from maturities, sales and principal paydowns of investment securities of $1.54 billion, net cash provided by operating activities of $678.5 million, net cash provided by the purchase of Lone Star of $169.9 million and net proceeds from other short-term borrowings of $175.0 million, partially offset by net decrease in deposits of $332.5 million, net increase in loans of $154.9 million, payment of cash dividends of $159.1 million, net decrease in securities sold under repurchase agreements of $80.4 million and repurchase of common stock of $74.8 million.

Current wording

Asset liquidity is provided by cash and assets which are readily marketable or which will mature in the near future. As of March 31, 2025, the Company had cash and cash equivalents of $1.69 billion compared with $1.97 billion at December 31, 2024, a decrease of $277.6 million or 14.1%. The decrease was primarily due to net repayments from other short-term borrowings of $500.0 million, a net decrease in deposits of $354.5 million and cash dividend payments of $55.3 million, partially offset by net proceeds from maturities, sales and principal paydowns of investment securities of $297.3 million, net cash provided by operating activities of $178.2 million and net decrease in loans of $166.2 million.

Previous wording

On January 16, 2024, Bancshares announced a stock repurchase program under which it could repurchase up to 5%, or approximately 4.7 million shares, of its outstanding common stock over a one-year period expiring on January 16, 2025, at the discretion of management. Under the stock repurchase program, Bancshares may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. Repurchases under this program may also be made in transactions outside the safe harbor during a pending merger, acquisition or similar transaction. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Shares of stock repurchased are held as authorized but unissued shares. Bancshares is not obligated to purchase any particular number of shares, and Bancshares may suspend, modify or terminate the program at any time and for any reason without prior notice. Under its 2024 stock repurchase program, Bancshares repurchased zero shares of its common stock during the three months ended September 30, 2024 and approximately 1.2 million shares of its common stock at a weighted average price of $60.35 per share during the nine months ended September 30, 2024.

Current wording

On January 21, 2025, the Company announced a stock repurchase program under which Bancshares could repurchase up to 5%, or approximately 4.8 million shares, of its outstanding common stock over a one-year period expiring on January 21, 2026, at the discretion of management. Under the stock repurchase program, Bancshares may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. Repurchases under this program may also be made in transactions outside the safe harbor during a pending merger, acquisition or similar transaction. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Shares of stock repurchased are held as authorized but unissued shares. Bancshares is not obligated to purchase any particular number of shares, and Bancshares may suspend, modify or terminate the program at any time and for any reason without prior notice. Under its 2025 stock repurchase program, Bancshares repurchased zero shares of its common stock during the three months ended March 31, 2025.

Previous wording

The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial, and the Company has one sublease arrangement. Sublease income was $826 thousand and $816 thousand for the three months ended September 30, 2024 and 2023 and $2.5 million and $2.3 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, operating lease ROU assets and lease liabilities were approximately $35.5 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.

Current wording

The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of 1 to 15 years, which may include the option to extend the lease when it is reasonably certain for the Company to exercise that option. Operating lease right-of-use (“ROU”) assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial, and the Company has one sublease arrangement. Sublease income was $846 thousand and $869 thousand for the three months ended March 31, 2025 and 2024. As of March 31, 2025, operating lease ROU assets and lease liabilities were approximately $31.2 million. ROU assets and lease liabilities were classified as other assets and other liabilities, respectively.