Loan Origination/Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions. Loans to borrowers with aggregate debt relationships over $1.0 million and below $5.0 million are evaluated and acted upon on a daily basis by two of the company-wide designated senior credit officers. Loans to borrowers with aggregate debt relationships above $5.0 million are evaluated and acted upon by an officers’ loan committee that meets weekly.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

(i) Commercial and Industrial Loans. In nearly all cases, the Company’s commercial loans are made in the Company’s market areas and are underwritten based on the borrower's ability to service the debt from the conversion of working assets or cash flow. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. As a general practice, term loans are secured by any available real estate, equipment or other assets owned by the borrower. Both working capital and term loans are typically supported by a personal guaranty of a principal. In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return. The increased risk in commercial loans is due to the type of collateral securing these loans as well as the expectation that commercial loans generally will be serviced principally from the operations of the business, and those operations may not be successful. Historical trends have shown these types of loans to have higher delinquencies than mortgage loans. As a result of these additional complexities, variables and risks, commercial loans require more thorough underwriting and servicing than other types of loans.

(ii) Commercial Real Estate. The Company makes commercial real estate loans collateralized by owner-occupied and nonowner-occupied real estate to finance the purchase of real estate. The Company’s commercial real estate loans are collateralized by first liens on real estate, typically have variable interest rates (or five year or less fixed rates) and amortize over a 15- to 25-year period. Payments on loans secured by nonowner-occupied properties are often dependent on the successful operation or management of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than other types of loans. The Company seeks to minimize these risks in a variety of ways, including giving careful consideration of the property’s operating history, future operating projections, current and projected occupancy, location and physical condition in connection with underwriting these loans. The underwriting analysis also includes credit verification, analysis of global cash flow, collateral valuation and a review of the financial condition of the borrower and guarantor. Loans to hotels and restaurants are primarily included in commercial real estate loans.

(iii) 1-4 Family Residential Loans. The Company’s lending activities also include the origination of 1-4 family residential mortgage loans (including home equity loans) collateralized by owner-occupied and nonowner-occupied residential properties located in the Company’s market areas. The Company offers a variety of mortgage loan portfolio products which generally are amortized over five to 30 years. Loans collateralized by 1-4 family residential real estate generally have been originated in amounts of no more than 89% of appraised value. The Company requires mortgage title insurance, as well as hazard, wind and/or flood insurance as appropriate. The Company prefers to retain residential mortgage loans for its own account rather than selling them into the secondary market. By doing so, the Company incurs interest rate risk as well as the risks associated with non-payments on such loans. The Company’s mortgage department also offers a variety of mortgage loan products which are generally amortized over 30 years, including FHA and VA loans, which are sold to secondary market investors.

(iv) Construction, Land Development and Other Land Loans. The Company makes loans to finance the construction of residential and nonresidential properties. Construction loans generally are collateralized by first liens on real estate and have variable interest rates. The Company conducts periodic inspections, either directly or through an agent, prior to approval of periodic draws on these loans. Underwriting guidelines similar to those described above are also used in the Company’s construction lending activities, with heightened analysis of construction and/or development costs. Construction loans involve additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately evaluate the total funds required to complete a project and the related loan to value ratio. As a result of these uncertainties, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If the Company is forced to foreclose on a project prior to completion, the Company may not be able to recover all of the unpaid portion of the loan. In addition, the Company may be required to fund additional amounts to complete a project and may have to hold the property for an indeterminate period of time. Although the Company has underwriting procedures designed to identify what it believes to be acceptable levels of risks in construction lending, these procedures may not prevent losses from the risks described above.

(v) Warehouse Purchase Program. The Warehouse Purchase Program allows unaffiliated mortgage originators (“Clients”) to close 1-4 family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors. The Company’s Clients are strategically targeted for their experienced management teams and analyzed for the expected profitability of each Client’s business model over the long term. The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards consistent with the United States government-sponsored enterprises, “Agencies” such as Fannie Mae, the private investors to which the mortgage loans are ultimately sold and the mortgage insurers.

Although not subject to any legally binding commitment, when the Company makes a purchase decision, it acquires a 100% participation interest in the mortgage loans originated by its Clients. Individual mortgage loans are warehoused in the Company’s portfolio only for a short duration, averaging less than 30 days. When instructed by a Client that a warehoused loan has been sold to an investor, the Company delivers the note to the investor that pays the Company, which in turn remits the net sales proceeds to the Client.

(vi) Agriculture Loans. The Company provides agriculture loans for short-term livestock and crop production, including rice, cotton, milo and corn, farm equipment financing and agriculture real estate financing. The Company evaluates agriculture borrowers primarily based on their historical profitability, level of experience in their particular industry segment, overall financial capacity and the availability of secondary collateral to withstand economic and natural variations common to the industry. Because agriculture loans present a higher level of risk associated with events caused by nature, the Company routinely makes on-site visits and inspections in order to identify and monitor such risks.

(vii) Consumer Loans. Consumer loans made by the Company include direct “A”-credit automobile loans, recreational vehicle loans, boat loans, home improvement loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 180 months and vary based upon the nature of collateral and size of loan. Generally, consumer loans entail greater risk than do real estate secured loans, particularly in the case of consumer loans that are unsecured or collateralized by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan balance. The remaining deficiency often does not warrant further substantial collection efforts against the borrower beyond obtaining a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness, personal bankruptcy or death. Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans.

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 81.3% and 83.0% of the Company’s total loan portfolio, excluding Warehouse Purchase Program loans, at December 31, 2024 and 2023, respectively. As of December 31, 2024 and 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 December 31, 2024 and 2023, loans outstanding to directors, officers and their affiliates totaled $266 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:


	December 31, 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	$	21,464	$	267	$	21,731	$	2,079	$	2,835,471	$	2,859,281
Warehouse Purchase Program loans		—		—		—		—		1,080,903		1,080,903
Agriculture and agriculture real estate (includes farmland)		4,554		575		5,129		2,634		1,025,783		1,033,546
1-4 family (includes home equity) (1)		49,391		—		49,391		42,048		8,396,150		8,487,589
Commercial real estate (includes multi-family residential)		15,692		—		15,692		18,455		5,766,838		5,800,985
Commercial and industrial		26,852		1,347		28,199		8,348		2,471,541		2,508,088
Consumer and other		478		—		478		83		378,256		378,817
Total	$	118,431	$	2,189	$	120,620	$	73,647	$	21,954,942	$	22,149,209


	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 $10.7 million and $5.7 million of residential mortgage loans held for sale at December 31, 2024 and 2023, respectively.

The Company had $81.5 million in nonperforming assets at December 31, 2024 compared with $72.7 million at December 31, 2023 and $27.5 million at December 31, 2022. Nonperforming assets were 0.37% of total loans and other real estate at December 31, 2024 compared with 0.34% and 0.15% of total loans and other real estate at December 31, 2023 and 2022, respectively. The nonperforming assets consisted of 368 separate credits or other real estate properties at December 31, 2024, compared with 292 at December 31, 2023, and 170 at December 31, 2022. The Company had $73.6 million, $68.7 million and $19.6 million in nonaccrual loans at December 31, 2024, 2023, and 2022, respectively.

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.

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 table presents loans by risk grade and category of loan and year of origination at December 31, 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		4,500		685		151		—		—		13		—		—		5,349
Grade 3		549,816		534,017		532,729		217,862		103,049		49,488		108,803		17,111		2,112,875
Grade 4		50,550		146,561		195,618		76,629		64,886		26,557		36,760		—		597,561
Grade 5		564		510		4,318		7,065		5,542		5,239		1,075		—		24,313
Grade 6		—		641		—		7,314		177		479		—		—		8,611
Grade 7		—		—		1,334		114		—		14		217		—		1,679
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		5,472		13,793		47,699		8,931		5,966		7,153		19,879		—		108,893
Total	$	610,902	$	696,207	$	781,849	$	317,915	$	179,620	$	88,943	$	166,734	$	17,111	$	2,859,281

Current-period gross write-offs	$	—	$	402	$	156	$	—	$	—	$	223	$	—	$	—	$	781

Agriculture and Agriculture Real Estate (includes Farmland)
Grade 1	$	2,146	$	567	$	40	$	76	$	67	$	497	$	10,162	$	16	$	13,571
Grade 2		—		10		45		3,490		—		610		—		—		4,155
Grade 3		149,268		93,898		184,355		80,309		42,323		117,505		152,829		19		820,506
Grade 4		29,790		11,099		14,443		26,075		5,674		12,374		35,964		—		135,419
Grade 5		80		57		929		264		—		1,573		—		—		2,903
Grade 6		—		—		2,825		1		—		686		—		—		3,512
Grade 7		—		—		1,403		199		—		181		—		—		1,783
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		3,059		3,162		2,808		1,905		16,889		16,338		7,536		—		51,697
Total	$	184,343	$	108,793	$	206,848	$	112,319	$	64,953	$	149,764	$	206,491	$	35	$	1,033,546

Current-period gross write-offs	$	5	$	—	$	109	$	62	$	339	$	121	$	—	$	—	$	636

1-4 Family (includes Home Equity) (1)
Grade 1	$	—	$	72	$	144	$	—	$	107	$	—	$	—	$	—	$	323
Grade 2		—		400		1,535		145		164		2,427		—		—		4,671
Grade 3		396,862		1,287,355		2,339,400		2,055,464		949,951		1,148,169		93,848		1,998		8,273,047
Grade 4		8,984		18,839		21,532		25,047		8,687		65,666		3,503		253		152,511
Grade 5		—		688		1,915		116		603		2,589		76		—		5,987
Grade 6		133		18		493		—		13		1,135		—		—		1,792
Grade 7		—		4,935		12,756		6,486		4,321		12,666		640		29		41,833
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		815		3,774		520		507		1,809		—		—		7,425
Total	$	405,979	$	1,313,122	$	2,381,549	$	2,087,778	$	964,353	$	1,234,461	$	98,067	$	2,280	$	8,487,589

Current-period gross write-offs	$	—	$	124	$	1,163	$	151	$	47	$	70	$	—	$	—	$	1,555


	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		—		—		1,041		—		302		13,943		24,495		—		39,781
Grade 3		243,633		384,617		858,216		747,863		348,753		1,165,428		48,733		298		3,797,541
Grade 4		16,431		74,372		289,639		192,969		230,362		577,718		6,572		13,610		1,401,673
Grade 5		—		2,497		13,839		947		44,641		146,967		—		—		208,891
Grade 6		—		3,085		4,000		1,442		10,310		94,573		—		—		113,410
Grade 7		—		2,072		2,140		699		—		584		50		—		5,545
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		3,786		21,990		59,233		38,578		32,875		77,682		—		—		234,144
Total	$	263,850	$	488,633	$	1,228,108	$	982,498	$	667,243	$	2,076,895	$	79,850	$	13,908	$	5,800,985

Current-period gross write-offs	$	—	$	—	$	167	$	481	$	—	$	313	$	329	$	—	$	1,290

Commercial and Industrial
Grade 1	$	22,912	$	11,756	$	4,184	$	3,559	$	2,061	$	7,445	$	50,438	$	6,700	$	109,055
Grade 2		2,466		681		7,216		—		118		3,341		23,090		—		36,912
Grade 3		321,021		160,798		169,606		124,229		41,968		153,999		907,243		92,398		1,971,262
Grade 4		45,782		61,719		28,477		5,306		8,087		35,922		70,907		316		256,516
Grade 5		497		45		19,220		944		53		33,127		27,637		427		81,950
Grade 6		380		3,585		3,368		511		1,309		22		6,067		—		15,242
Grade 7		—		40		524		5,198		—		955		—		—		6,717
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		87		820		10,519		2,021		41		3,455		13,491		—		30,434
Total	$	393,145	$	239,444	$	243,114	$	141,768	$	53,637	$	238,266	$	1,098,873	$	99,841	$	2,508,088

Current-period gross write-offs	$	222	$	857	$	1,744	$	1,212	$	1,964	$	604	$	3,103	$	—	$	9,706

Consumer and Other
Grade 1	$	19,661	$	6,897	$	3,781	$	1,472	$	1,193	$	4,936	$	2,091	$	—	$	40,031
Grade 2		109,901		11,982		13,964		—		44		1,780		85		—		137,756
Grade 3		36,778		19,493		32,312		20,587		8,681		13,992		45,747		7		177,597
Grade 4		—		1,472		226		964		14,770		2,421		3,373		—		23,226
Grade 5		—		—		—		—		—		—		89		—		89
Grade 6		—		—		—		—		—		—		—		—		—
Grade 7		—		27		4		—		46		—		—		—		77
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		—		—		22		—		7		12		—		41
Total	$	166,340	$	39,871	$	50,287	$	23,045	$	24,734	$	23,136	$	51,397	$	7	$	378,817

Current-period gross write-offs	$	5,470	$	263	$	56	$	50	$	53	$	305	$	67	$	7	$	6,271


	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		1,080,903		—		—		—		—		—		—		—		1,080,903
Grade 4		—		—		—		—		—		—		—		—		—
Grade 5		—		—		—		—		—		—		—		—		—
Grade 6		—		—		—		—		—		—		—		—		—
Grade 7		—		—		—		—		—		—		—		—		—
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		—		—		—		—		—		—		—		—		—
Total	$	1,080,903	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,080,903

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

Total
Grade 1	$	44,719	$	19,292	$	8,149	$	5,107	$	3,428	$	12,878	$	62,691	$	6,716	$	162,980
Grade 2		116,867		13,758		23,952		3,635		628		22,114		47,670		—		228,624
Grade 3		2,778,281		2,480,178		4,116,618		3,246,314		1,494,725		2,648,581		1,357,203		111,831		18,233,731
Grade 4		151,537		314,062		549,935		326,990		332,466		720,658		157,079		14,179		2,566,906
Grade 5		1,141		3,797		40,221		9,336		50,839		189,495		28,877		427		324,133
Grade 6		513		7,329		10,686		9,268		11,809		96,895		6,067		—		142,567
Grade 7		—		7,074		18,161		12,696		4,367		14,400		907		29		57,634
Grade 8		—		—		—		—		—		—		—		—		—
Grade 9		—		—		—		—		—		—		—		—		—
PCD Loans		12,404		40,580		124,033		51,977		56,278		106,444		40,918		—		432,634
Total	$	3,105,462	$	2,886,070	$	4,891,755	$	3,665,323	$	1,954,540	$	3,811,465	$	1,701,412	$	133,182	$	22,149,209

Current-period gross write-offs	$	5,697	$	1,646	$	3,395	$	1,956	$	2,403	$	1,636	$	3,499	$	7	$	20,239

(1)

Includes $10.7 million of residential mortgage loans held for sale at December 31, 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 to cover the expected losses in the loan portfolio as of December 31, 2024. 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 CECL. 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 CECL. 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.

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

Changes in the Company’s asset quality are reflected in the allowance in several ways. Specific reserves that are calculated on a loan-by-loan basis and the qualitative assessment of all other loans reflect current changes in the credit quality of the loan portfolio. Historical lifetime credit losses, on the other hand, are based on an open-pool (“cumulative loss rate”) methodology, which is then applied to estimate lifetime credit losses in the loan portfolio. A deterioration in the credit quality of the loan portfolio in the current period would increase the historical lifetime loss rate to be applied in future periods, just as an improvement in credit quality would decrease the historical lifetime loss rate.

The allowance for credit losses is further determined by the size of the loan portfolio subject to the allowance methodology and environmental factors that include Company-specific risk indicators and general economic conditions, both of which are constantly changing. The Company evaluates the economic and portfolio-specific factors on a quarterly basis to determine a qualitative component of the general valuation allowance. The factors include current economic metrics, reasonable and supportable forecasted economic metrics, business conditions, delinquency trends, credit concentrations, nature and volume of the portfolio and other adjustments for items not covered by specific reserves and historical lifetime loss experience. Management’s assessment of qualitative factors is a statistically based approach to determine the loss rate adjustment associated with such factors. Based on the Company’s actual historical lifetime loan loss experience relative to economic and loan portfolio-specific factors at the time the losses occurred, management is able to identify the expected level of lifetime losses as of the date of measurement. The correlation of historical loss experience with current and forecasted economic conditions provides an estimate of lifetime losses that has not been previously factored into the general valuation allowance by the determination of specific reserves and lifetime historical losses. Additionally, the Company considers qualitative factors not easily quantified and the possibility of model imprecision.

Utilizing the aggregation of specific reserves, historical loss experience and a qualitative component, management is able to determine the valuation allowance to reflect the full lifetime loss.

The Company accounts for its acquisitions using the acquisition method of accounting. Accordingly, the assets, including loans, and liabilities of the acquired entity were recorded at their fair values at the acquisition date. These fair value estimates associated with acquired loans, and based on a discounted cash flow model, include estimates related to market interest rates and undiscounted projections of future cash flows that incorporate expectations of prepayments and the amount and timing of principal, interest and other cash flows, as well as any shortfalls thereof.

Non-PCD loans that were not deemed impaired subsequent to the acquisition date are considered non-impaired and are evaluated as part of the general valuation allowance. Non-PCD loans that have deteriorated to an impaired status subsequent to acquisition are evaluated for a specific reserve on a quarterly basis which, when identified, is added to the allowance for credit losses. The Company reviews impaired Non-PCD loans on a loan-by-loan basis and determines the specific reserve based on the difference between the recorded investment in the loan and one of three factors: expected future cash flows, observable market price or fair value of the collateral. Because essentially all of the Company’s impaired Non-PCD loans have been collateral-dependent, the amount of the specific reserve historically has been determined by comparing the fair value of the collateral securing the Non-PCD loan with the recorded investment in such loan. In the future, the Company will continue to analyze impaired Non-PCD loans on a loan-by-loan basis and may use an alternative measurement method to determine the specific reserve, as appropriate and in accordance with applicable accounting standards.

PCD loans are monitored individually or on a pooled basis quarterly to assess for changes in expected cash flows subsequent to acquisition. If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans may be required. PCD loans were recorded at their acquisition date fair values, 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.

The following tables detail the activity in the allowance for credit losses on loans by category of loan for the years ended December 31, 2024, 2023 and 2022, respectively.


	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:
Balance January 1, 2024	$	87,775		$	11,380		$	77,652		$	88,664		$	59,832		$	7,059		$	332,362
Allowance on loans purchased with credit deterioration		942			14,309			344			4,306			6,176			1			26,078
Provision for credit losses		(9,954	)		2,130			4,210			(601	)		6,266			5,872			7,923
Charge-offs		(781	)		(636	)		(1,555	)		(1,290	)		(9,706	)		(6,271	)		(20,239	)
Recoveries		2			510			84			1,068			2,932			1,085			5,681
Net charge-offs		(779	)		(126	)		(1,471	)		(222	)		(6,774	)		(5,186	)		(14,558	)
Balance December 31, 2024	$	77,984		$	27,693		$	80,735		$	92,147		$	65,500		$	7,746		$	351,805

Allowance for credit losses on loans:
Balance January 1, 2023	$	78,853		$	7,699		$	60,795		$	66,272		$	62,319		$	5,638		$	281,576
Allowance on loans purchased with credit deterioration		16,878			2,914			1,590			25,292			30,095			24			76,793
Provision for credit losses		(7,929	)		683			14,999			14,216			(16,177	)		6,192			11,984
Charge-offs		(77	)		(114	)		(144	)		(17,158	)		(19,603	)		(5,688	)		(42,784	)
Recoveries		50			198			412			42			3,198			893			4,793
Net charge-offs		(27	)		84			268			(17,116	)		(16,405	)		(4,795	)		(37,991	)
Balance December 31, 2023	$	87,775		$	11,380		$	77,652		$	88,664		$	59,832		$	7,059		$	332,362

Allowance for credit losses on loans:
Balance January 1, 2022		58,897			7,759			56,710			75,005			80,412			7,597			286,380
Provision for credit losses		20,372			(67	)		3,883			(7,873	)		(18,934	)		2,619			—
Charge-offs		(435	)		(274	)		(168	)		(870	)		(1,273	)		(5,503	)		(8,523	)
Recoveries		19			281			370			10			2,114			925			3,719
Net charge-offs		(416	)		7			202			(860	)		841			(4,578	)		(4,804	)
Balance December 31, 2022	$	78,853		$	7,699		$	60,795		$	66,272		$	62,319		$	5,638		$	281,576

The allowance for credit losses on loans as of December 31, 2024 totaled $351.8 million or 1.59% of total loans, including acquired loans with discounts, an increase of $19.4 million or 5.8% 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 LSSB Merger.

There was a $9.1 million provision for credit losses for the year ended December 31, 2024 compared to a $18.5 million provision for credit losses for year ended December 31, 2023 and no provision for credit losses for the year ended December 31, 2022. The $9.1 million provision was due to loans acquired in the LSSB Merger and consisted of 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. The $18.5 million provision was made as a result of the loans acquired in the FB Merger and consisted of a $12.0 million provision for credit losses on loans and a $6.5 million provision for credit losses on off-balance sheet credit exposures.

Net charge-offs were $14.6 million for the year ended December 31, 2024 compared with $38.0 million for the year ended December 31, 2023. Net charge-offs for the year ended December 31, 2024 included $3.4 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, $15.4 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 December 31, 2024 and 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. As of December 31, 2024, the Company had $1.72 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 CECL, 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 years ended December 31, 2024 and 2023, presented by category of loan and by type of modification.


	Payment Delay		Term Extension		Interest Rate Reduction		Combination Payment Delay and Term Extension		Combination Payment Delay and Interest Rate Reduction		Total		Percent of Total Class of Loans
	(Dollars in thousands)
Year Ended December 31, 2024
Commercial and industrial	$	3,049	$	4,240	$	—	$	—	$	—	$	7,289		0.3	%
Construction, land development and other land loans		—		7,163		—		—		—		7,163		0.3	%
Commercial real estate (includes multi-family residential)		—		—		—		—		7,672		7,672		0.1	%
Total	$	3,049	$	11,403	$	—	$	—	$	7,672	$	22,124		0.1	%

Year Ended December 31, 2023
Commercial and industrial	$	—	$	5,275	$	282	$	—	$	—	$	5,557		0.2	%
Construction, land development and other land loans		—		6,634		—		9,950		—		16,584		0.5	%
Commercial real estate (includes multi-family residential)		1,291		—		15,897		9,685		—		26,873		0.5	%
Agriculture		—		414		—		—		—		414		0.2	%
Total	$	1,291	$	12,323	$	16,179	$	19,635	$	—	$	49,428		0.2	%

The financial effects of the loan modifications made to borrowers experiencing financial difficulty were not significant during the years ended December 31, 2024 and 2023. Furthermore, such modifications did not significantly impact the Company’s determination of the allowance for credit losses during those periods.

The Company did not have any loans made to borrowers experiencing financial difficulty that were modified during the years ended December 31, 2024 and 2023 that subsequently defaulted and were modified in the twelve months prior to default. Payment default is defined as movement to nonperforming status, foreclosure or charge-off, whichever occurs first.