Concentrations of Credit. Most of the Company’s lending activity occurs within the states of Texas and Oklahoma. Commercial real estate loans, 1-4 family residential loans and construction, land development and other land loans made up 81.1% and 83.0% of the Company’s total loan portfolio, excluding Warehouse Purchase Program loans, at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024 and December 31, 2023, excluding Warehouse Purchase Program loans, there were no concentrations of loans related to any single industry in excess of 10% of total loans.

Related Party Loans. As of September 30, 2024 and December 31, 2023, loans outstanding to directors, officers and their affiliates totaled $274 thousand and $292 thousand, respectively. All transactions between the Company and such related parties are conducted in the ordinary course of business and made on the same terms and conditions as similar transactions with unaffiliated persons.

Nonperforming Assets and Nonaccrual and Past Due Loans. The Company has several procedures in place to assist it in maintaining the overall quality of its loan portfolio. The Company has established underwriting guidelines to be followed by its officers, including requiring appraisals on loans collateralized by real estate. The Company also monitors its delinquency levels for any negative or adverse trends. Nevertheless, the Company’s loan portfolio could become subject to increasing pressures from deteriorating borrower credit due to general economic conditions.

The Company generally places a loan on nonaccrual status and ceases accruing interest when the payment of principal or interest is delinquent for 90 days, or earlier in some cases; unless the loan is in the process of collection and the underlying collateral fully supports the carrying value of the loan. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

With respect to potential problem loans, an evaluation of the borrower’s overall financial condition is made, together with an appraisal for loans collateralized by real estate, to determine the need, if any, for possible write-downs or appropriate additions to the allowance for credit losses.

An aging analysis of past due loans, segregated by category of loan, is presented below:


	September 30, 2024
	Loans Past Due and Still Accruing
	30-89 Days		90 or More Days		Total Past Due Loans		Nonaccrual Loans		Current Loans		Total Loans
	(Dollars in thousands)
Construction, land development and other land loans	$	10,953	$	—	$	10,953	$	1,848	$	2,801,720	$	2,814,521
Warehouse Purchase Program loans		—		—		—		—		1,228,706		1,228,706
Agriculture and agriculture real estate (includes farmland)		15,202		—		15,202		2,686		1,015,336		1,033,224
1-4 family (includes home equity) (1)		44,032		—		44,032		34,611		8,398,891		8,477,534
Commercial real estate (includes multi-family residential)		7,678		—		7,678		31,685		5,830,324		5,869,687
Commercial and industrial		16,530		—		16,530		13,080		2,514,022		2,543,632
Consumer and other		3,410		20		3,430		59		410,059		413,548
Total	$	97,805	$	20	$	97,825	$	83,969	$	22,199,058	$	22,380,852


	December 31, 2023
	Loans Past Due and Still Accruing
	30-89 Days		90 or More Days		Total Past Due Loans		Nonaccrual Loans		Current Loans		Total Loans
	(Dollars in thousands)
Construction, land development and other land loans	$	21,627	$	1,635	$	23,262	$	14,770	$	3,038,559	$	3,076,591
Warehouse Purchase Program loans		—		—		—		—		822,245		822,245
Agriculture and agriculture real estate (includes farmland)		8,572		—		8,572		1,460		806,011		816,043
1-4 family (includes home equity) (1)		38,350		130		38,480		25,694		8,103,904		8,168,078
Commercial real estate (includes multi-family residential)		23,511		—		23,511		18,662		5,620,775		5,662,948
Commercial and industrial		14,782		430		15,212		8,066		2,281,762		2,305,040
Consumer and other		503		—		503		36		329,054		329,593
Total	$	107,345	$	2,195	$	109,540	$	68,688	$	21,002,310	$	21,180,538

(1)

Includes $6.1 million and $5.7 million of residential mortgage loans held for sale at September 30, 2024 and December 31, 2023, respectively.

The Company had $89.9 million in nonperforming assets at September 30, 2024 compared with $72.7 million at December 31, 2023. 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 Company had $84.0 million in nonaccrual loans at September 30, 2024 compared with $68.7 million at December 31, 2023.

Acquired Loans. Acquired loans were preliminarily recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected default rates, loss given default, and recovery rates. Projected default rates, loss given default, and recovery rates for purchased credit deteriorated (“PCD”) loans primarily impact the related allowance, as opposed to the fair value mark. During the valuation process, the Company identified PCD and Non-PCD loans in the acquired loan portfolios. Loans acquired with evidence of credit quality deterioration since origination as of the acquisition date were accounted for as PCD. PCD loan identification considers the following factors: payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may indicate deterioration of credit quality as of the acquisition date when compared to the origination date. Non-PCD loan identification considers the following factors: account types, remaining terms, annual interest rates or coupons, current market rates, interest types, past delinquencies, timing of principal and interest payments, loan to value ratios, loss exposures and remaining balances. Accretion of purchased discounts on PCD and Non-PCD loans will be recognized based on payment structure and the contractual maturity of individual loans.

PCD Loans. The recorded investment in PCD loans included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of September 30, 2024 and December 31, 2023.

Income recognition on PCD loans is subject to the timing and amount of future cash flows. PCD loans for which the Company is accruing interest income are not considered nonperforming or impaired. The PCD discount reflected above as of September 30, 2024, represents the amount of discount available to be recognized as income.

Non-PCD Loans. The recorded investment in Non-PCD loans included in the consolidated balance sheet and the related outstanding balance as of the dates indicated are presented in the table below. The outstanding balance represents the total amount owed as of September 30, 2024 and December 31, 2023.

Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks loan grades to be used as credit quality indicators. The following is a general description of the loan grades used:

Grade 1—Credits in this category have risk potential that is virtually nonexistent. These loans may be secured by insured certificates of deposit, insured savings accounts, U.S. Government securities and highly rated municipal bonds.

Grade 2—Credits in this category are of the highest quality. These borrowers represent top rated companies and individuals with unquestionable financial standing with excellent global cash flow coverage, net worth, liquidity and collateral coverage.

Grade 3—Credits in this category are not immune from risk but are well protected by the collateral and paying capacity of the borrower. These loans may exhibit a minor unfavorable credit factor, but the overall credit is sufficiently strong to minimize the possibility of loss.

Grade 4—Credits in this category are considered to be of acceptable credit quality with moderately greater risk than Grade 3 and receiving closer monitoring. Loans in this category have sources of repayment that remain sufficient to preclude a larger than normal probability of default and secondary sources are likewise currently of sufficient quantity, quality, and liquidity to protect the Company against loss of principal and interest. These borrowers have specific risk factors, but the overall strength of the credit is acceptable based on other mitigating credit and/or collateral factors and can repay the debt in the normal course of business.

Grade 5—Credits in this category constitute an undue and unwarranted credit risk; however, the factors do not rise to a level of substandard. These credits have potential weaknesses and/or declining trends that, if not corrected, could expose the Company to risk at a future date. These loans are monitored on the Company’s internally-generated watch list and evaluated on a quarterly basis.

Grade 6—Credits in this category are considered “substandard” but “non-impaired” loans in accordance with regulatory guidelines. Loans in this category have well-defined weakness that, if not corrected, could make default of principal and interest possible. Loans in this category are still accruing interest and may be dependent upon secondary sources of repayment and/or collateral liquidation.

Grade 7—Credits in this category are deemed “substandard” and “impaired” pursuant to regulatory guidelines. As such, the Company has determined that it is probable that less than 100% of the contractual principal and interest will be collected. These loans are individually evaluated for a specific reserve and will typically have the accrual of interest stopped.

Grade 8—Credits in this category include “doubtful” loans in accordance with regulatory guidance. Such loans are no longer accruing interest and factors indicate a loss is imminent. These loans are also deemed “impaired.” While a specific reserve may be in place while the loan and collateral are being evaluated, these loans are typically charged down to an amount the Company estimates is collectible.

Grade 9—Credits in this category are deemed a “loss” in accordance with regulatory guidelines and have been charged off or charged down. The Company may continue collection efforts and may have partial recovery in the future.

The following tables present loans by risk grade, by category of loan and year of origination/renewal at September 30, 2024.


	Term Loans
	Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(Dollars in thousands)

Construction, Land Development and Other Land Loans
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2		—		921		157		—		—		13		—		—		1,091
Grade 3		410,166		611,667		537,443		265,630		122,745		42,038		110,971		8,869		2,109,529
Grade 4		32,881		111,188		167,799		77,493		64,818		28,277		19,451		17,224		519,131
Grade 5		66		14		3,037		—		33,234		15,627		795		—		52,773
Grade 6		—		—		—		7,317		179		492		—		—		7,988
Grade 7		—		—		104		116		—		66		223		—		509
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		8,441		20,022		53,663		9,561		4,688		6,655		20,470		—		123,500
Total	$	451,554	$	743,812	$	762,203	$	360,117	$	225,664	$	93,168	$	151,910	$	26,093	$	2,814,521

Current-period gross write-offs	$	—	$	377	$	109	$	—	$	—	$	—	$	—	$	—	$	486

Agriculture and Agriculture Real Estate (includes Farmland)
Grade 1	$	1,132	$	540	$	975	$	85	$	183	$	405	$	10,047	$	12	$	13,379
Grade 2		—		247		60		57		—		683		—		—		1,047
Grade 3		143,498		122,082		193,582		86,595		50,888		107,228		120,427		142		824,442
Grade 4		14,626		20,545		15,681		26,758		6,167		12,127		27,780		28		123,712
Grade 5		1,048		57		730		782		—		1,120		—		—		3,737
Grade 6		—		—		2,844		74		—		1,165		—		—		4,083
Grade 7		—		—		1,419		199		—		207		—		—		1,825
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		18,047		1,874		15,708		2,034		3,410		2,731		17,195		—		60,999
Total	$	178,351	$	145,345	$	230,999	$	116,584	$	60,648	$	125,666	$	175,449	$	182	$	1,033,224

Current-period gross write-offs	$	—	$	—	$	109	$	62	$	339	$	121	$	—	$	—	$	631

1-4 Family (includes Home Equity) (1)
Grade 1	$	—	$	73	$	147	$	—	$	108	$	—	$	—	$	—	$	328
Grade 2		—		404		1,144		148		—		2,316		—		—		4,012
Grade 3		310,005		1,252,218		2,353,241		2,100,201		971,979		1,186,914		96,313		879		8,271,750
Grade 4		7,511		17,291		22,220		27,744		8,463		66,167		3,862		—		153,258
Grade 5		—		693		1,364		—		1,162		1,886		76		—		5,181
Grade 6		—		19		374		—		17		1,431		—		—		1,841
Grade 7		—		3,135		9,833		5,506		4,401		11,383		125		—		34,383
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		336		972		2,771		470		517		1,715		—		—		6,781
Total	$	317,852	$	1,274,805	$	2,391,094	$	2,134,069	$	986,647	$	1,271,812	$	100,376	$	879	$	8,477,534

Current-period gross write-offs	$	—	$	93	$	1,024	$	116	$	33	$	70	$	—	$	—	$	1,336


	Term Loans
	Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(Dollars in thousands)

Commercial Real Estate (includes Multi-Family Residential)
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		1,070		—		435		2,020		—		—		3,525
Grade 3		192,738		422,199		926,952		727,824		413,895		1,129,802		51,405		253		3,865,068
Grade 4		7,229		66,531		302,535		239,074		227,702		587,942		15,455		—		1,446,468
Grade 5		—		2,325		7,558		7,190		21,762		152,210		—		—		191,045
Grade 6		—		597		2,376		339		15,619		93,984		—		—		112,915
Grade 7		—		2,426		781		1,064		1,568		3,536		50		—		9,425
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		42,731		72,240		40,220		16,477		69,244		329		—		241,241
Total	$	199,967	$	536,809	$	1,313,512	$	1,015,711	$	697,458	$	2,038,738	$	67,239	$	253	$	5,869,687

Current-period gross write-offs	$	—	$	—	$	167	$	481	$	—	$	160	$	—	$	—	$	808

Commercial and Industrial
Grade 1	$	42,831	$	11,280	$	7,730	$	3,498	$	2,165	$	4,698	$	46,472	$	155	$	118,829
Grade 2		2,202		3,252		7,255		148		118		3,361		6,207		—		22,543
Grade 3		250,903		183,975		190,192		135,024		54,337		167,734		1,014,305		1,813		1,998,283
Grade 4		39,698		67,267		30,184		6,092		8,340		35,539		99,458		1,470		288,048
Grade 5		27,340		—		20,765		195		1,356		5,925		12,224		—		67,805
Grade 6		391		132		3,528		540		256		24		4,032		—		8,903
Grade 7		62		3,470		632		5,321		810		1,001		110		—		11,406
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		1,883		1,492		7,541		2,114		45		3,307		11,433		—		27,815
Total	$	365,310	$	270,868	$	267,827	$	152,932	$	67,427	$	221,589	$	1,194,241	$	3,438	$	2,543,632

Current-period gross write-offs	$	169	$	642	$	1,435	$	1,144	$	1,336	$	604	$	2,953	$	—	$	8,283

Consumer and Other
Grade 1	$	15,257	$	8,483	$	4,208	$	2,382	$	1,335	$	4,662	$	2,592	$	9	$	38,928
Grade 2		110,341		12,559		14,179		41		54		1,800		20,006		—		158,980
Grade 3		36,451		32,464		34,686		19,401		10,015		14,235		44,456		1		191,709
Grade 4		—		1,566		246		1,018		14,924		2,494		3,332		—		23,580
Grade 5		—		—		—		—		—		—		250		—		250
Grade 6		—		—		—		—		—		—		—		—		—
Grade 7		—		6		—		—		3		—		—		45		54
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		—		—		23		—		9		15		—		47
Total	$	162,049	$	55,078	$	53,319	$	22,865	$	26,331	$	23,200	$	70,651	$	55	$	413,548

Current-period gross write-offs	$	3,999	$	208	$	56	$	27	$	53	$	305	$	62	$	5	$	4,715


	Term Loans
	Amortized Cost Basis by Origination Year
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total
	(Dollars in thousands)

Warehouse Purchase Program
Grade 1	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Grade 2		—		—		—		—		—		—		—		—		—
Grade 3		1,228,706		—		—		—		—		—		—		—		1,228,706
Grade 4		—		—		—		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—		—		—		—
Grade 6		—		—		—		—		—		—		—		—		—
Grade 7		—		—		—		—		—		—		—		—		—
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		—		—		—		—		—		—		—		—
Total	$	1,228,706	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,228,706

Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total
Grade 1	$	59,220	$	20,376	$	13,060	$	5,965	$	3,791	$	9,765	$	59,111	$	176	$	171,464
Grade 2		112,543		17,383		23,865		394		607		10,193		26,213		—		191,198
Grade 3		2,572,467		2,624,605		4,236,096		3,334,675		1,623,859		2,647,951		1,437,877		11,957		18,489,487
Grade 4		101,945		284,388		538,665		378,179		330,414		732,546		169,338		18,722		2,554,197
Grade 5		28,454		3,089		33,454		8,167		57,514		176,768		13,345		—		320,791
Grade 6		391		748		9,122		8,270		16,071		97,096		4,032		—		135,730
Grade 7		62		9,037		12,769		12,206		6,782		16,193		508		45		57,602
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		28,707		67,091		151,923		54,422		25,137		83,661		49,442		—		460,383
Total	$	2,903,789	$	3,026,717	$	5,018,954	$	3,802,278	$	2,064,175	$	3,774,173	$	1,759,866	$	30,900	$	22,380,852

Current-period gross write-offs	$	4,168	$	1,320	$	2,900	$	1,830	$	1,761	$	1,260	$	3,015	$	5	$	16,259

(1)

Includes $6.1 million of residential mortgage loans held for sale at September 30, 2024.

Allowance for Credit Losses on Loans. 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 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.

The Company’s allowance for credit losses on loans consists of two components: (1) a specific valuation allowance based on expected losses on specifically identified 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.

In setting the specific valuation allowance, the Company follows a loan review program to evaluate the credit risk in the total loan portfolio and assigns risk grades to each loan. Through this loan review process, the Company maintains an internal list of impaired loans, which along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for credit losses. All loans that have been identified as impaired are reviewed on a quarterly basis in order to determine whether a specific reserve is required. For certain impaired loans, the Company allocates a specific loan loss reserve primarily based on the value of the collateral securing the impaired loan in accordance with ASC Topic 326-20, “Financial Instruments – Credit Losses.” The specific reserves are determined on an individual loan basis. Loans for which specific reserves are provided are excluded from the general valuation allowance described below.

In connection with this review of the loan portfolio, the Company considers risk elements attributable to particular loan types or categories in assessing the quality of individual loans. Some of the risk elements include:

In addition, for each category, the Company considers secondary sources of income and the financial strength and credit history of the borrower and any guarantors.

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 in accordance with ASC Topic 326, “Financial Instruments – Credit Losses.” 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.

The following table details activity in the allowance for credit losses on loans by category of loan for the three and nine months ended September 30, 2024 and 2023.


	Construction, Land Development and Other Land Loans			Agriculture and Agriculture Real Estate (includes Farmland)			1-4 Family (includes Home Equity)			Commercial Real Estate (includes Multi-Family Residential)			Commercial and Industrial			Consumer and Other			Total
	(Dollars in thousands)
Allowance for credit losses on loans:
Three Months Ended
Balance June 30, 2024	$	76,776		$	29,479		$	80,689		$	95,728		$	70,112		$	7,068		$	359,852
Provision for credit losses on loans		(633	)		(450	)		1,442			(921	)		(2,216	)		2,778			—
Charge-offs		(378	)		(109	)		(442	)		(297	)		(3,746	)		(1,568	)		(6,540	)
Recoveries		—			225			33			39			437			351			1,085
Net (charge-offs) recoveries		(378	)		116			(409	)		(258	)		(3,309	)		(1,217	)		(5,455	)
Balance September 30, 2024	$	75,765		$	29,145		$	81,722		$	94,549		$	64,587		$	8,629		$	354,397

Nine Months Ended
Balance December 31, 2023	$	87,775		$	11,380		$	77,652		$	88,664		$	59,832		$	7,059		$	332,362
Initial allowance on loans purchased with credit deterioration		942			14,309			344			4,306			6,176			1			26,078
Provision for credit losses		(12,467	)		3,577			5,017			1,439			4,948			5,409			7,923
Charge-offs		(486	)		(631	)		(1,336	)		(808	)		(8,283	)		(4,715	)		(16,259	)
Recoveries		1			510			45			948			1,914			875			4,293
Net (charge-offs) recoveries		(485	)		(121	)		(1,291	)		140			(6,369	)		(3,840	)		(11,966	)
Balance September 30, 2024	$	75,765		$	29,145		$	81,722		$	94,549		$	64,587		$	8,629		$	354,397

Allowance for credit losses on loans:
Three Months Ended
Balance June 30, 2023	$	91,858		$	11,254		$	67,722		$	86,765		$	81,970		$	5,640		$	345,209
Initial allowance on loans purchased with credit deterioration		1,641			—			—			4,290			3,763			—			9,694
Provision for credit losses on loans		1,437			149			3,932			(4,554	)		(2,455	)		1,491			—
Charge-offs		—			—			(20	)		(584	)		(1,961	)		(1,550	)		(4,115	)
Recoveries		5			—			98			14			367			223			707
Net (charge-offs) recoveries		5			—			78			(570	)		(1,594	)		(1,327	)		(3,408	)
Balance September 30, 2023	$	94,941		$	11,403		$	71,732		$	85,931		$	81,684		$	5,804		$	351,495

Nine Months Ended
Balance December 31, 2022	$	78,853		$	7,699		$	60,795		$	66,272		$	62,319		$	5,638		$	281,576
Initial allowance on loans purchased with credit deterioration		16,878			2,914			1,590			25,292			30,095			24			76,793
Provision for credit losses		(758	)		706			9,059			9,893			(10,448	)		3,532			11,984
Charge-offs		(77	)		(113	)		(121	)		(15,559	)		(3,203	)		(4,066	)		(23,139	)
Recoveries		45			197			409			33			2,921			676			4,281
Net (charge-offs) recoveries		(32	)		84			288			(15,526	)		(282	)		(3,390	)		(18,858	)
Balance September 30, 2023	$	94,941		$	11,403		$	71,732		$	85,931		$	81,684		$	5,804		$	351,495

The allowance for credit losses on loans as of September 30, 2024 totaled $354.4 million or 1.58% of total loans, including acquired loans with discounts, an increase of $22.0 million or 6.6% compared to the allowance for credit losses on loans totaling $332.4 million or 1.57% of total loans, including acquired loans with discounts, as of December 31, 2023. This increase was primarily due to 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”) on April 1, 2024.

There was no provision for credit losses for the three months ended September 30, 2024 and 2023, and a provision for credit losses of $9.1 million and $18.5 million for the nine months ended September 30, 2024 and 2023, respectively. 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.

Net charge-offs were $5.5 million for the three months ended September 30, 2024 compared to net charge-offs of $3.4 million for the three months 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.

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.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures. The allowance for credit losses on off-balance sheet credit exposures estimates expected credit losses over the contractual period in which there is exposure to credit risk via a contractual obligation to extend credit, except when an obligation is unconditionally cancellable 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 in allowance for credit losses on off-balance sheet credit exposures, respectively, 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. As of September 30, 2024, the Company had $1.85 billion in commitments expected to fund.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty. The Company evaluates all restructurings, including restructurings for borrowers experiencing financial difficulty, to determine whether they result in a new loan or a continuation of an existing loan. In accordance with ASC Topic 326, “Financial Instruments—Credit Losses”, the Company only establishes a specific reserve for modifications to borrowers experiencing financial difficulty when the loan is identified as impaired. The effect of most modifications of loans made to borrowers who are experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance. The Company adjusts the terms of loans for certain borrowers when it believes such changes will help its customers manage their loan obligations and increase the collectability of the loans.

Modifications to borrowers experiencing financial difficulty may include but are not limited to changes in committed loan amount, interest rate, amortization, note maturity, borrower, guarantor, collateral, forbearance, forgiveness of principal or interest, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The approval of modifications of loans for borrowers experiencing financial difficulty are handled on a case-by-case basis.

The following table displays the amortized cost of loans that were both experiencing financial difficulty and modified during the three and nine months ended September 30, 2024 and 2023, presented by category of loan and type of modification.


	Payment Delay		Term Extension		Interest Rate Reduction		Total		Percent of Total Class of Loans
	(Dollars in thousands)
Three Months Ended September 30, 2024
Construction, land development and other land loans	$	—	$	7,163	$	—	$	7,163		0.3	%
Agriculture		—		950		—		950		0.3	%
Total	$	—	$	8,113	$	—	$	8,113		0.0	%

Nine Months Ended September 30, 2024
Commercial and industrial	$	—	$	2,768	$	—	$	2,768		0.1	%
Construction, land development and other land loans		—		7,163		—		7,163		0.3	%
Agriculture		—		12,600		—		12,600		3.8	%
Total	$	—	$	22,531	$	—	$	22,531		0.1	%


	Payment Delay		Term Extension		Interest Rate Reduction		Total		Percent of Total Class of Loans
	(Dollars in thousands)
Three Months Ended September 30, 2023
Commercial and industrial	$	—	$	5,639	$	—	$	5,639		0.2	%
Commercial real estate (includes multi-family residential)		—		—		6,922		6,922		0.1	%
Agriculture		—		419		—		419		0.2	%
Total	$	—	$	6,058	$	6,922	$	12,980		0.1	%

Nine Months Ended September 30, 2023
Commercial and industrial	$	—	$	5,639	$	292	$	5,931		0.2	%
Construction, land development and other land loans		—		6,054		—		6,054		0.2	%
Commercial real estate (includes multi-family residential)		1,294		—		6,922		8,216		0.1	%
Agriculture		—		419		—		419		0.2	%
Total	$	1,294	$	12,112	$	7,214	$	20,620		0.1	%

The Company did not have any modified loans that defaulted during the three and nine months ended September 30, 2024 that were modified during the prior trailing twelve months. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.