What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-28 · 152 added, 211 removed, 619 unchanged (37% of the section changed)

40 unchanged sentences

We then record the necessary allowance for credit losses on the non-PCD loans through provision for loan credit losses expense.

In the first quarter of 2020, U.S.

federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the Current Expected Credit Loss (“CECL”) methodology during the 2020 calendar year with the option to delay the regulatory capital impact for up to two years (beginning January 1, 2020), followed by a three-year transition period.

We elected to use the two-year delay of CECL’s impact on our regulatory capital (from January 1, 2020, through December 31, 2021), followed by the three-year transition period of CECL’s initial impact on our regulatory capital (from January 1, 2022, through December 31, 2024), and, accordingly, we began to amortize the CECL adoption impact to our regulatory capital beginning on January 1, 2022.

The amount representing the CECL impact to the Company’s regulatory capital that will be ratably transitioning back into regulatory capital over the transition period is $2.5 million and $5.1 million at December 31, 2023 and 2022, respectively.

Mortgage Servicing Rights.

We recognize the rights to service mortgage loans based on the estimated fair value of the mortgage servicing right ("MSR") when loans are sold and the associated servicing rights are retained.

We elected to account for the MSR at fair value.

The fair value of the MSR is determined using a valuation model administered by a third-party that calculates the present value of estimated future net servicing income.

The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income and other ancillary income such as late fees.

Management reviews all significant assumptions quarterly.

Mortgage loan prepayment speeds, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal.

The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the rate of return investors in the market would require for an asset with similar risk.

Both assumptions can, and generally will, change as market conditions and interest rates change.

Estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.

We are a financial holding company headquartered in Ruston, Louisiana.

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Deeply rooted in our history is a culture committed to providing personalized, relationship banking to businesses, municipalities, and personal clients to enrich the lives of the people in the communities we serve.

We provide a broad range of financial services and currently has over 60 locations from Dallas/Fort Worth, East Texas and Houston, across North Louisiana and into Mississippi .

In early 2024, we entered our new Southeast market with two planned banking locations in Mobile, Alabama and Fort Walton Beach, Florida.

We provide a broad range of financial services and currently has over 60 locations from Dallas/Fort Worth, East Texas, Houston, across North Louisiana, Mississippi, South Alabama and into the Florida Panhandle .

As a financial holding company operating through one segment, we generate the majority of our revenue from interest earned on loans and investments, service charges and fees on deposit accounts.

8 unchanged sentences

Results of Operations

The year ended December 31, 2024, was impacted by certain questioned activity involving a former banker which is explained in detail in Part II, Item 8 , Note 18 — Commitments and Contingencies under Loss Contingencies .

These items negatively impacted our diluted EPS of $2.45 by $0.29 for the year ended December 31, 2024.

Comparison of Results of Operations for the Years Ended December 31, 2024, 2023 and 2022

At and for the Years Ended December 31,

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Net Interest Income and Net Interest Margin

Net interest income for the year ended December 31, 2023, was $299.6 million, an increase of $24.3 million, or 8.8%, compared to the year ended December 31, 2022.

Increases in interest rates and average interest-earning assets drove increases of $129.4 million and $67.4 million, respectively, in total interest income.

The increase in total interest income was partially offset by a $172.5 million increase in interest expense, of which $163.5 million of the increase was driven by increases in interest rates.

The Federal Reserve Board sets various benchmark rates, including the Federal Funds rate, and thereby influences the general market rates of interest, including the loan and deposit rates offered by financial institutions.

The Federal Funds target rate range had increased 525 basis points starting with the Federal Reserve Board’s first rate increase in 2022, and in order to remain competitive as market interest rates increased, we increased interest rates paid on our deposits.

Increases in interest rates contributed $107.8 million to the total increase in interest income earned on total LHFI during the year ended December 31, 2023, while rising interest rates increased our total deposit interest expense and FHLB advances and other borrowings interest expense by $152.6 million and $10.3 million, respectively, during the same period.

Interest income earned on LHFI during the year ended December 31, 2023, increased in all loan categories when compared to the year ended December 31, 2022.

Interest income earned on real estate loans and commercial and industrial loans contributed $112.5 million and $65.3 million, respectively, of the $181.1 million total increase in interest income earned on LHFI when compared to the year ended December 31, 2022.

Increases in average balances and interest rates drove $57.3 million and $55.2 million, respectively, of the total increase in interest income earned on real estate loans, while increases in interest rates drove $44.9 million of the $65.3 million increase in interest income earned on commercial and industrial loans for the comparable periods.

Purchase accounting accretion on acquired loans was $2.0 million for the year ended December 31, 2023, with remaining purchase accounting net loan discounts totaling $222,000 at December 31, 2023.

Net purchase accounting accretion income on deposits and subordinated indebtedness totaled $124,000 for the year ended December 31, 2023, bringing the impact from purchase accounting treatment on total net interest income to $2.1 million for the year ended December 31, 2023.

Net purchase accounting accretion was $3.3 million during the year ended December 31, 2022.

Towards the end of the first quarter of 2023, in response to the uncertainty in the marketplace surrounding the bank failures that occurred during this time, we strategically borrowed and held approximately $700.0 million in excess cash for contingency liquidity.

This excess liquidity was held at a weighted-average rate of 5.17% and added $130.0 million in average interest-bearing assets for the year ended December 31, 2023, which negatively impacted the fully tax-equivalent net interest margin (“NIM-FTE”) by 10 basis points.

The $700.0 million in excess cash was repaid by June 30, 2023.

During the third quarter of 2023, we made a strategic decision to sell available for sale investment securities with a book value of $181.9 million, and realized a loss of $7.2 million, in order to use the proceeds to pay down FHLB advances.

The impact on the NIM-FTE for the year ended December 31, 2023, was three basis points.

While the associated loss resulted in an $0.15 negative impact to diluted EPS for the year ended December 31, 2023, the difference between the relatively low yield on securities sold and the higher cost of FHLB advances was an attractive trade-off, with an estimated annualized positive forward impact to NIM-FTE of 11 basis points, an estimated annualized forward diluted EPS benefit of approximately $0.11 and an estimated earn-back period of 1.7 years.

The estimated metrics above use our annualized third quarter of 2023 net income, less any non-operating income items, and added the estimated annualized tax-effected net interest income using a weighted average tax-effected yield of 3.08% on the securities sold and an expected interest rate of 5.62% on the FHLB advances paid off.

During the month ended December 31, 2023, we sold available for sale investment securities with a book value of $78.9 million, and realized a loss of $4.6 million.

We intend to use the proceeds in order to support loan growth in our markets, including our new Southeast market;

however, in the interim, the proceeds will be held in our interest-earning deposits with banks with an estimated annual yield of 5.4%.

Due to the timing of this transaction, it had no impact on our NIM-FTE for the year ended December 31, 2023.

While the associated loss resulted in an $0.11 negative impact to diluted EPS for the year ended December 31, 2023, the difference between the relatively low yield on the securities sold and the higher yield of either interest-earning deposits in banks and/or new loan originations as we deploy proceeds was an attractive trade-off.

Depending on how long it takes to deploy from cash to loans, we estimate an annualized positive forward impact to NIM-FTE of three to five basis points, an estimated annualized forward diluted EPS benefit of approximately $0.06 to $0.11, and an estimated earn-back period of 1.9 to 1.1 years.

The metrics above used the estimated annualized tax-effected net interest income generated in excess of the weighted average tax-effected yield of 2.04% on the securities sold compared to an estimated interest yield of 5.4% if the proceeds are invested in interest-earning deposits at other banks, or 7.7% if the proceeds are used to fund new loan production.

The NIM-FTE was 3.23% for the year ended December 31, 2023, a 19 basis point decrease from the year ended December 31, 2022.

The decrease was primarily due to 83 basis points of margin compression experienced during the year ended December 31, 2023, and reflected a 240 basis point increase in interest rates paid on total interest-bearing liabilities offset by a 157 basis point increase in the yield earned on interest-earning assets for the year ended December 31, 2023.

The increase in the Federal Funds rate, and the pace at which it increased, caused a shift in average deposit balances reflected in increases of $782.5 million, or 127.0%, in average time deposit balances, and a $413.1 million, or 18.5%, increase in money market deposit balances compared to the year ended December 31, 2022.

The change in market interest rates driven primarily by the Federal Funds rate increases during the intervening period was also reflected in the decline of $275.1 million, or 11.4%, in average noninterest-bearing deposits for the year ended December 31, 2023, compared to the year ended December 31, 2022.

Net interest income for the year ended December 31, 2024, was $300.4 million, an increase of $809,000, or 0.3%, compared to the year ended December 31, 2023.

The increase was primarily driven by a $50.5 million increase in interest income earned on LHFI and a $15.7 million decrease in interest expense incurred on Federal Home Loan Bank (“FHLB”) advance & other borrowings, offset by a $58.4 million increase in interest expense paid on interest-bearing deposits and a $6.5 million decrease in interest income earned on investment securities, during the year ended December 31, 2024, compared to the year ended December 31, 2023.

Interest income earned on LHFI during the year ended December 31, 2024, increased in substantially all loan categories when compared to the year ended December 31, 2023.

Interest income earned on real estate-based loans, mortgage warehouse lines of credit and commercial and industrial loans contributed $32.4 million, $10.1 million and $8.0 million, respectively, of the $50.5 million total increase in interest income earned on LHFI when compared to the year ended December 31, 2023.

Increases in interest rates drove $17.9 million, $5.5 million and $2.8 million of the increase in interest income earned on real estate-based loans, commercial and industrial loans, and mortgage warehouse lines of credit, and increases in average loan balances drove $14.6 million, $7.3 million and $2.5 million of the increase in interest income earned on real estate-based loans, mortgage warehouse lines of credit and commercial and industrial loans for the comparable periods, respectively.

The increase in average rates and average balances of interest-bearing deposits during the year ended December 31, 2024, contributed increases of $43.3 million and $15.1 million, respectively, to interest expense when compared to the year ended December 31, 2023.

The average rate on interest-bearing deposits was 3.86% for the year ended December 31, 2024, an increase of 65 basis points, from 3.21% for the year ended December 31, 2023.

The increase in average balances of interest-bearing deposits was primarily driven by a $296.2 million increase in average money market deposit balances.

Lower average balances in investment securities contributed a decrease of $7.7 million in interest income and the decrease in average balance in FHLB advances and other borrowings contributed a decrease of $15.5 million in interest expense, during the year ended December 31, 2024, compared to the year ended December 31, 2023, as a result of a strategic decision to sell available for sale securities to pay down borrowings and fund loan growth during the intervening period.

The Federal Reserve Board (“FRB”) sets various benchmark rates, including the federal funds rate, and thereby influences the general market rates of interest, including the loan and deposit rates offered by financial institutions.

On September 18, 2024, the FRB reduced the federal funds target rate range by 50 basis points, to a range of 4.75% to 5.00%, marking the first rate reduction since early 2020.

Prior to this movement, the fed funds rate was at a 23-year high, reflecting a total federal funds target rate range increase of 525 basis points since the FRB started raising rates in early 2022 through the last federal funds target rate range increase in mid-2023.

During the second half of 2024, the federal funds target range has decreased 100 basis points from its cycle high with the current federal funds target range set to 4.25% to 4.50% on December 18, 2024.

While the FRB has eased rates, the impact of higher interest rates for a sustained period of time continues to be reflected in our fully tax equivalent net interest margin (“NIM-FTE”) as well as in other financial metrics.

The NIM-FTE was 3.22% for the year ended December 31, 2024, a one basis point decrease from 3.23% for the year ended December 31, 2023.

The decrease was primarily due to a 51-basis point increase in the rate paid on interest-bearing liabilities to 3.88% for the year ended December 31, 2024, from 3.37% for year ended December 31, 2023, compared to a 42-basis point increase in the yield earned on interest-earning assets to 6.01% from 5.59%.

During the quarter ended December 31, 2024, we executed a bond portfolio optimization strategy aimed at enhancing long-term yields and improving overall portfolio performance.

This strategy involved selling lower-yielding investment securities prior to their maturity and using the proceeds to purchase higher-yielding investments.

As a result, we replaced securities with a total book value of $188.2 million and a weighted average yield of 1.51%, with new securities totaling $173.7 million with a weighted average yield of 5.22%, realizing a loss of $14.6 million.

The weighted average duration of the securities portfolio increased to 4.46 years as of December 31, 2024, compared to 4.28 years as of December 31, 2023.

Due to the timing of this transaction, the optimization positively impacted our NIM-FTE by one basis point for the year ended December 31, 2024, while on an annual basis, the estimated positive impact in NIM-FTE is seven basis points.

While the associated loss, net of the increase in interest income, resulted in a $0.35 negative impact to diluted EPS for the year ended December 31, 2024, we believe the trade-off in yield represents an attractive opportunity with an estimated increase in annual net interest income of $5.6 million and earn-back period of 2.4 years.

The following table presents average consolidated balance sheet information, interest income, interest expense and the corresponding average yields earned, and rates paid for the year ended December 31, 2024, 2023 and 2022.

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Non-marketable equity securities held in other financial institutions 62,579 2,417 3.86 67,956 3,408 5.01 58,441 1,802 3.08

Interest-bearing deposits in banks 318,559 16,388 5.14 349,484 3,685 1.05 418,034 802 0.19

Interest-earning deposits in banks 279,945 14,573 5.21 318,559 16,388 5.14 349,484 3,685 1.05

Total interest-earning assets 9,400,787 564,585 6.01 9,356,757 523,391 5.59 8,128,589 326,604 4.02

Noninterest-earning assets 557,803 584,263 557,642

584,263 557,642 411,341

Total assets $ 9,958,590 $ 9,941,020 $ 8,686,231

10 unchanged sentences

Other liabilities 159,676 142,786 148,984

142,786 148,984 135,399

Total liabilities 8,852,940 8,941,116 7,874,748

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All average balances are daily average balances.

(2) Includes Government National Mortgage Association ("GNMA") repurchase average balances of $1.1 million, $33.6 million, $53.9 million for the year ended December 31, 2023, 2022 and 2021, respectively.

The GNMA repurchase asset and liability are recorded as equal offsetting amounts in the consolidated balance sheets, with the asset included in loans held for sale and the liability included in FHLB advances and other borrowings.

During the second half of 2022, the Company entered into an agreement to sell its GNMA MSR portfolio, which met all final sale conditions in early 2023.

The Company derecognized the related GNMA repurchase asset and offsetting liability during the quarter ended March 31, 2023.

For more information on the GNMA repurchase option, see Note 9 — Mortgage Banking in the notes to our consolidated financial statements.

(2) In order to present pre-tax income and resulting yields on tax-exempt investments comparable to those on taxable investments, a tax-equivalent adjustment has been computed.

23 unchanged sentences

Non-marketable equity securities held in other financial institutions (270) (721) (991)

Interest-bearing deposits in banks (326) 13,029 12,703

Interest-earning deposits in banks (1,986) 171 (1,815)

Total interest-earning assets 14,029 27,165 41,194

23 unchanged sentences

Non-marketable equity securities held in other financial institutions 293 1,313 1,606

Interest-bearing deposits in banks (131) 3,014 2,883

Interest-earning deposits in banks (326) 13,029 12,703

Total interest-earning assets 67,417 129,370 196,787

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Provision for Credit Losses

We recorded a provision expense of $16.8 million for the year ended December 31, 2023, a $7.9 million decrease from $24.7 million for the year ended December 31, 2022.

The decrease was primarily due to the $14.9 million provision for loan credit losses on non-PCD loans associated with the BTH merger that occurred on August 1, 2022, offset by an increase in loan provision primarily due to loan growth during the intervening period, as well as increases in required reserves on individually evaluated loans at December 31, 2023, compared to December 31, 2022.

In addition, we recorded a release of credit loss provision of $836,000 on our investment securities during the year ended December 31, 2023, an improvement of $1.6 million from a provision expense of $732,000 during the year ended December 31, 2022.

Net charge-offs were $7.8 million during the year ended December 31, 2023, compared to $4.6 million during the year ended December 31, 2022.

The ALCL to nonperforming LHFI was 321.66% at December 31, 2023, compared to 876.87% at December 31, 2022, primarily driven by a $20.2 million increase in nonperforming LHFI compared to December 31, 2022.

The increase in nonperforming loans was driven by increases of $14.5 million and $5.3 million in commercial and industrial and nonperforming residential real estate loans, respectively.

The provision for credit losses, which includes the provisions for loan losses, off-balance sheet commitments and investment security credit losses, is based on management's assessment of the adequacy of our allowance for credit losses ("ACL") for loans, securities and our reserve for off-balance sheet lending commitments.

Factors impacting the provision include inherent risk characteristics in our loan portfolio, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of the change in collateral values, reasonable and supportable forecasts, and the funding probability on unfunded lending commitments.

The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management's best estimate of life of loan credit losses inherent in our loan portfolio at the balance sheet date, investment security credit losses and our reserve for off-balance sheet lending commitments, which reflects management's best estimate of losses inherent in our legally binding lending-related commitments.

The allowance is increased by the provision for loan credit losses and decreased by charge-offs, net of recoveries.

We recorded a provision expense of $7.4 million for the year ended December 31, 2024, a $9.3 million decrease from $16.8 million for the year ended December 31, 2023, primarily driven by a $8.8 million decrease in the provision for loan credit losses.

The net decrease in provision expense for loan credit losses for the year ended December 31, 2024, compared to the year ended December 31, 2023, was mainly due to decreases of $8.5 million and $7.1 million in collectively and individually evaluated reserves, respectively, which decreases were offset by the $4.1 million provision increase associated with the questioned activity recognized during the year ended December 31, 2024, as discussed in detail in Part II, Item 8, Note 18 — Commitments and Contingencies under Loss Contingencies .

During the period, we experienced a $6.7 million increase in net charge-offs.

The increase in charge-offs was mainly driven by charge-offs relating to four commercial and industrial relationships totaling $15.2 million during the year ended December 31, 2024, compared to four commercial and industrial relationships totaling $6.8 million being the major driver for charge-offs during the year ended December 31, 2023.

The increase in charge-offs was partially offset by increase in recoveries on two commercial and industrial relationships totaling $4.6 million during the year ended December 31, 2024.

Noninterest Income

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(Dollars in thousands) Years Ended December 31, 2024 vs.

2022 2022 vs.

Noninterest income:

2 unchanged sentences

Service charges and fees 19,015 18,803 17,669 212 1.1 1,134 6.4

Mortgage banking revenue 3,356 6,722 12,927 (3,366) (50.1) (6,205) (48.0)

Other fee income 8,917 8,089 7,279 828 10.2 810 11.1

Mortgage banking revenue 6,580 3,356 6,722 3,224 96.1 (3,366) (50.1)

Swap fee income 323 1,277 457 (954) (74.7) 820 N/M

(Loss) gain on sales of securities, net (14,799) (11,635) 1,664 (3,164) 27.2 (13,299) N/M

Limited partnership investment gain (loss) income 405 (199) 5,701 604 N/M (5,900) (103.5)

Gain (loss) on sales and disposals of other assets, net 64 (175) (185) 239 N/M 10 (5.4)

Change in fair value of equity investments 10,096 — — 10,096 N/A — N/A

Other income 7,013 4,737 10,162 2,276 48.0 (5,425) (53.4)

Change in fair value of equity investments 5,188 10,096 — (4,908) (48.6) 10,096 N/A

Other income 3,396 3,264 614 132 4.0 2,650 N/M

Total noninterest income $ 55,379 $ 58,335 $ 57,274 $ (2,956) (5.1) $ 1,061 1.9

2 unchanged sentences

N/A = Not applicable.

Noninterest income for the year ended December 31, 2023, increased by $1.1 million, or 1.9%, to $58.3 million, compared to $57.3 million for the year ended December 31, 2022.

The increase was primarily due to increases of $10.1 million, $2.3 million and $2.2 million in the change in fair value of equity investments, other noninterest income and insurance commission and fee income, respectively.

The BTH merger contributed $1.8 million of the noninterest income increase between the two periods, primarily reflected in service charges and fee income.

The increases were partially offset by an increase of $13.3 million in the loss on sales of securities, net, and a decrease of $3.4 million in mortgage banking revenue, respectively.

Insurance commission and fee income.

The $2.2 million increase in insurance commission and fee income was mainly due to increases in new commercial accounts combined with higher contingency income earned due to lower claims for catastrophic events experienced by our insurance agency counterparties during the year ended December 31, 2023, compared to the year ended December 31, 2022.

Mortgage banking revenue.

The $3.4 million decrease in mortgage banking revenue compared to the year ended December 31, 2022, was primarily due to a slowdown in the residential housing market brought on by higher mortgage interest rates, and in some key markets, continued housing supply shortages, leading to overall lower lending during the period.

During December 2023 and January 2024, the Company solicited non-binding indications of interest with respect to the proposed sale of substantially all of its mortgage servicing rights asset and recognized an impairment of $1.8 million.

The Company plans to sell approximately $17.4 million in mortgage servicing rights, representing approximately $1.39 billion in unpaid principal balances, subject to successful negotiation of a definitive purchase and sale agreement and satisfaction of all closing conditions.

Late in the year ended December 31, 2022, we recorded a $2.0 million impairment on the held for sale GNMA MSR portfolio.

We sold the GNMA MSR, with no significant additional gain or loss realized, and derecognized the related GNMA repurchase asset and offsetting liability early in the year ended December 31, 2023.

(Loss) gain on sales of securities, net.

The loss on sales of securities was due to the sale of available for sale investment securities with a book value of $260.8 million, which realized a loss on sale of $11.8 million during the second half of 2023.

We used the proceeds from the sales to pay down FHLB advances and support loan growth in our markets.

Please see the Net Interest Income and Net Interest Margin section above for more information on these transactions.

Noninterest income for the year ended December 31, 2024, decreased by $3.0 million, or 5.1%, to $55.4 million, compared to $58.3 million for the year ended December 31, 2023.

The decrease was primarily due to a decrease of $4.9 million in the change in fair value of equity investments and a $3.2 million increase in loss on sales of securities, net, partially offset by increases of $3.2 million and $1.7 million in mortgage banking revenue and insurance commission and fee income, respectively.

Change in fair value of equity investments.

The $10.1 million increase in change in fair value of equity investments was due to a gain realized from a positive valuation adjustment on one of our non-marketable equity securities, which qualified for the practical expedient under which we carry these securities at cost adjusted for any observable transactions during the period, less any impairment.

During the year ended December 31, 2023, we observed multiple orderly transactions for identical equity securities indicating a price change had occurred and adjusted our basis upwards accordingly.

Other noninterest income.

The $2.3 million increase in other noninterest income was primarily due to a positive fair value adjustment of our municipal securities of $726,000 for the year ended December 31, 2023, compared to a negative fair value adjustment of $854,000 for the year ended December 31, 2022.

The decrease in change in fair value of equity investments was primarily due to a $5.2 million positive valuation adjustment on a non-marketable equity security during the year ended December 31, 2024, which was more than offset by a $10.1 million positive valuation adjustment on the same non-marketable equity security that occurred during the year ended December 31, 2023.

During the years ended December 31, 2024 and 2023, we observed multiple orderly transactions for this equity security indicating a price change had occurred and adjusted our basis upwards accordingly.

Mortgage banking revenue.

The $3.2 million increase in mortgage banking revenue compared to the year ended December 31, 2023, was primarily driven by a $1.8 million increase in gain on sale of loans held for sale primarily due to higher profit margins and increased sales volume, and a net $1.3 million increase in mortgage banking revenue caused by $1.8 million MSR asset impairment recorded during the year ended December 31, 2023, which was offset by a $410,000 gain on sale of the MSR asset during the year ended December 31, 2024.

Loss on sales of securities, net.

The $3.2 million increase in loss on sales of securities, net, was mainly driven by a $14.6 million loss recognized in the last quarter of 2024 as a result of our bond portfolio optimization strategy transaction.

This was partially offset by a $11.8 million loss recognized in the second half of 2023, resulting from a strategic decision to use securities sale proceeds to pay down FHLB advances and support loan growth in our markets.

Insurance commission and fee income.

The $1.7 million increase in insurance commission and fee income was mainly due to increases in both direct bill commission and contingency income.

The increase in direct bill commission was mainly driven by higher commissions from property and casualty insurance.

The increase in contingency income was mainly due to new commercial accounts combined with lower claims for catastrophic events experienced by our insurance agency counterparties during the year ended December 31, 2024, compared to the year ended December 31, 2023.

Noninterest Expense

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(Dollars in thousands) Years Ended December 31, 2024 vs.

2022 2022 vs.

Noninterest expense:

3 unchanged sentences

Data processing 13,497 11,590 10,456 1,907 16.5 1,134 10.8

Intangible asset amortization 9,628 5,488 844 4,140 75.4 4,644 N/M

Office and operations 11,441 10,834 8,120 607 5.6 2,714 33.4

Intangible asset amortization 7,979 9,628 5,488 (1,649) (17.1) 4,140 75.4

Regulatory assessments 6,902 6,456 3,547 446 6.9 2,909 82.0

Advertising and marketing 6,150 5,986 4,431 164 2.7 1,555 35.1

Professional services 6,610 5,931 3,813 679 11.4 2,118 55.5

Loan-related expenses 3,164 5,035 6,097 (1,871) (37.2) (1,062) (17.4)

Advertising and marketing 5,986 4,431 3,438 1,555 35.1 993 28.9

Electronic banking 5,162 4,712 3,958 450 9.6 754 19.1

Franchise tax expense 2,897 3,334 3,582 (437) (13.1) (248) (6.9)

Regulatory assessments 6,456 3,547 2,904 2,909 82.0 643 22.1

Communications 1,527 1,246 1,574 281 22.6 (328) (20.8)

Merger-related expense — — 6,171 — N/A (6,171) (100.0)

Other expenses 4,581 4,336 4,697 245 5.7 (361) (7.7)

Other expense 10,548 6,108 5,582 4,440 72.7 526 9.4

Total noninterest expense $ 251,038 $ 235,216 $ 200,419 $ 15,822 6.7 $ 34,797 17.4

____________________________

N/M = Not meaningful.

N/A = Not applicable.

Noninterest expense for the year ended December 31, 2023, increased by $34.8 million, or 17.4%, to $235.2 million, compared to $200.4 million for the year ended December 31, 2022.

The BTH merger contributed $18.1 million the total increase, excluding merger-related expenses.

Noninterest expense for the year ended December 31, 2024, increased by $15.8 million, or 6.7%, to $251.0 million, compared to $235.2 million for the year ended December 31, 2023, primarily due to increases of $10.0 million, $4.4 million $1.9 million and $1.1 million in salaries and employee benefits, other noninterest, data processing and occupancy and equipment, net expenses, respectively.

These increases were partially offset by decreases of $1.9 million and $1.6 million in loan-related expenses and intangible asset amortization, respectively.

Salaries and employee benefits.

The $19.8 million increase in salaries and employee benefits expenses was primarily driven by increases of $15.0 million, $1.2 million and $1.1 million in salary expense, incentive compensation and medical self-insurance costs, respectively, for the year ended December 31, 2023, compared to the year ended December 31, 2022.

• The BTH merger contributed $7.5 million to the total salaries and employee benefits increase, primarily due to an additional seven months of BTH expense during the year ended December 31, 2023, compared to five months of BTH expense during the year ended December 31, 2022.

• The impact of the cost of living increases made in August 2022 and annual cost of living adjustments and raises made on March 1, 2023, increased the comparative change in salaries and employee benefits between the two periods.

The $10.0 million increase in salaries and employee benefits expense was primarily driven by increases of $6.6 million, $2.0 million, $1.7 million, and $1.5 million in salary expense, incentive compensation bonus, share-based compensation, and medical insurance expenses respectively.

The increase was partially offset by an employee retention credit (“ERC”) of $1.7 million that was recorded during the year ended December 31, 2024, and related to the operations of BTH Bank, N.A., which we acquired in 2022.

The ERC is a refundable tax credit for certain eligible businesses that had employees affected during the COVID-19 pandemic.

The increase in salary expense was mainly attributed to raises given as a result of our annual salary reviews combined with an increase driven by our entry into South Alabama and the Florida Panhandle markets during 2024.

The increase in incentive compensation bonuses can be attributed primarily to elevated anticipated payouts, driven by a greater focus on meeting deposit objectives.

This is evidenced by a larger sum of incentives linked to these deposit goals, alongside an increase in accruals associated with financial targets for the year ended December 31, 2024, compared to the year ended December 31, 2023.

The increase in share-based compensation was primarily due to evaluation adjustments on performance stock units to align with payout expectations based on company performance.

Medical insurance expense increased as a result of higher insurance premiums combined with higher self-insurance claims during the current period.

Other noninterest expense.

The $4.4 million increase in other noninterest expense was primarily due to $4.3 million in contingency expense related to certain questioned activity involving a former banker in our East Texas market, as explained in detail in Part II, Item 8, Note 18 — Commitments and Contingencies under Loss Contingencies .

Data Processing.

The $1.9 million increase in data processing expense was primarily due to an increase of $1.1 million in software expenses, primarily driven by new services and increased fees for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Also, contributing a combined increase of $749,000 were increased expenses associated with core services, compliance systems and data processing costs.

Occupancy and equipment, net.

The $6.6 million increase was primarily due to the BTH merger that closed on August 1, 2022, which contributed $3.3 million to the total increase.

Additionally, the increase was due to the addition of two new banking locations and two mortgage production offices being added during the intervening period.

Intangible asset amortization expense.

The $4.1 million increase was primarily due to the core deposit intangible established in conjunction with the BTH merger.

Office and operations.

These increases were mainly due to increases in connection with the BTH merger.

Professional services.

The increase was mainly due to a $1.1 million increase in consulting expense.

Regulatory assessment.

The $2.9 million increase in regulatory assessments was driven primarily by an increase in the blended FDIC’s Uniform Assessment rate to 7.10% at December 31, 2023, from 4.09% at December 31, 2022, which was primarily the result of growth in our average assets during the intervening period.

Merger-related expense.

The $6.2 million merger-related expenses in 2022 were associated with the BTH merger that was closed on August 1, 2022, while no comparable expense occurred during the year ended December 31, 2023.

The $1.1 million increase in occupancy and equipment, net was primarily due to an increase in expense associated with the accounting for our strategic profitability initiative which includes consolidation of eight banking centers, five in the Dallas-Fort Worth market, with one each in the Houston, Louisiana and Mississippi markets.

We expect to close six of these banking centers at the end of February 2025, which combined with the two branch closures that occurred mid-year 2024, is expected to reduce our occupancy expense by approximately $4.6 million annually.

Loan-related expenses.

The $1.9 million decrease in loan-related expenses was primarily due to decreases of $675,000 and $630,000 in loan related legal fees and servicing costs, respectively.

Intangible asset amortization.

The $1.6 million decrease in intangible asset amortization is primarily due to the accelerated amortization method used to measure the amortization expense of the assets, as well as certain intangible assets that were fully amortized during the year ended December 31, 2023.

Income Tax Expense

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Our effective tax rate was 21.4% for the year ended December 31, 2024, compared to 20.9% for the year ended December 31, 2023.

The effective tax rate was higher for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to higher state income taxes as a result of higher state income, as well as an increase in stock compensation tax expense during the year ended December 31, 2023.

Comparison of Financial Condition at December 31, 2024, and December 31, 2023

Total assets increased by $36.5 million, or 0.4%, to $9.72 billion at December 31, 2023, from $9.69 billion at December 31, 2022.

The increase in total assets is primarily due to an increase of $570.9 million, or 8.1%, in our loans held for investment (“LHFI”).

LHFI was $7.66 billion at December 31, 2023, compared to $7.09 billion at December 31, 2022.

The increase was partially offset by decreases of $387.9 million and $78.5 million in available for sale securities and cash and cash equivalents, respectively.

Available for sale securities and cash and cash equivalents were $1.25 billion and $280.4 million at December 31, 2023, respectively compared to $1.64 billion and $359.0 million at December 31, 2022, respectively.

Federal Home Loan Bank advances, repurchase obligations and other borrowings decreased $555.6 million, or 86.9%, to $83.6 million at December 31, 2023, from $639.2 million at December 31, 2022, offset by a $475.4 million, or 6.1%, increase in total deposits to $8.25 billion at December 31, 2023, from $7.78 billion at December 31, 2022.

Total deposits increased at December 31, 2023, compared to December 31, 2022, primarily due to increases in brokered time deposits and money market deposits.

Total assets decreased by $43.9 million, or 0.5%, to $9.68 billion at December 31, 2024, from $9.72 billion at December 31, 2023.

The decrease in total assets is primarily due to decreases of $151.1 million and $87.2 million in available for sale securities and LHFI, respectively.

These decreases were partially offset by an increase of $189.8 million in cash and cash equivalents.

LHFI were $7.57 billion at December 31, 2024, a decrease of 1.1%, compared to $7.66 billion at December 31, 2023.

Available for sale securities declined to $1.10 billion, reflecting a 12.1% decrease, at December 31, 2024, compared to $1.25 billion at December 31, 2023.

Cash and cash equivalents increased to $470.2 million, an increase of 67.7%, at December 31, 2024, compared to $280.4 million at December 31, 2023.

Total liabilities decreased by $126.2 million, or 1.5%, to $8.53 billion at December 31, 2024, from $8.66 billion at December 31, 2023.

Federal Home Loan Bank advances, repurchase obligations and other borrowings decreased $71.1 million, or 85.1%, to $12.5 million at December 31, 2024, from $83.6 million at December 31, 2023.

Subordinated debentures decreased $34.3 million, or 17.7%, to $159.9 million at December 31, 2024, from $194.3 million at December 31, 2023.

Total deposits decreased by $28.0 million, or 0.3%, to $8.22 billion at December 31, 2024, from $8.25 billion at December 31, 2023, primarily due to a decrease of $364.8 million in brokered deposits, which was partially offset by increases of $184.6 million and $157.9 million and interest-bearing demand and money market deposits, respectively.

Loan Portfolio

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______________________

(1) Includes owner-occupied CRE of $953.8 million and $843.0 million at December 31, 2023, and 2022, respectively.

At December 31, 2023, total LHFI were $7.66 billion, an increase of $570.9 million, or 8.1%, compared to $7.09 billion at December 31, 2022.

The increase was primarily driven by loan growth of $520.1 million in real estate loans.

Total LHFI at December 31, 2023, excluding mortgage warehouse lines of credit, was $7.33 billion, reflecting an increase of $525.8 million, or 7.7%, compared to December 31, 2022.

Our lending focus continues to be on operating companies, including commercial loans and lines of credit, as well as owner-occupied commercial real estate loans.

(1) Includes owner-occupied CRE of $975.9 million and $953.8 million at December 31, 2024 and December 31, 2023, respectively.

At December 31, 2024, total LHFI were $7.57 billion, a decrease of $87.2 million, or 1.1%, compared to $7.66 billion at December 31, 2023.

The decrease was primarily driven by a decline of $206.2 million in construction/land/land development loans, which was partially offset by an increase of $122.7 million in residential real estate loans.

Total LHFI at December 31, 2024, excluding mortgage warehouse lines of credit, were $7.22 billion, reflecting a decrease of $106.3 million, or 1.5%, compared to December 31, 2023.

A significant portion, 32.7%, of our LHFI portfolio at December 31, 2024, consisted of CRE loans secured by real estate properties.

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December 31, 2024

(Dollars in thousands) Louisiana

State Mississippi State Texas

State All other states Total

(Dollars in thousands) Texas Louisiana Mississippi All Other States Total

Non-owner occupied CRE:

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Hotels 3,348 50,656 35,095 9,246 98,345

All others sectors 17,192 8,626 114,247 36,565 176,630

All other sectors 145,493 11,865 9,184 57,809 224,351

Total non-owner occupied CRE 914,036 219,721 123,110 244,617 1,501,484

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Entertainment & Recreation 37,562 22,954 10,167 — 70,683

All others sectors 120,081 25,545 205,184 68,673 419,483

All other sectors 252,176 120,035 25,665 55,554 453,430

Total owner occupied CRE 630,788 219,990 54,089 71,080 975,947

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Total nonperforming LHFI

Nonperforming loans held for sale

Total nonperforming loans

75,002 30,115

2 unchanged sentences

Residential real estate 1,261 846

Former Bank premises 1,034 —

Total other real estate owned

3 unchanged sentences

$ 78,637 $ 34,044

Loan modifications made to borrowers experiencing financial difficulty - nonaccrual (1)

$ 7,573,713 $ 7,660,944

Loan modifications made to borrowers experiencing financial difficulty - accruing (1)

7,660,944 7,090,022

Ratio of nonperforming LHFI to total LHFI

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Ratio of nonperforming assets to total assets

______________________

(1) December 31, 2022, amounts were previously disclosed as troubled debt restructured (“TDR”) loans under Accounting Standards Codification 310-40.

Accounting Standards Update 2022-02 eliminated the TDR guidance effective for public business entities on January 1, 2023.

At December 31, 2023, total nonperforming LHFI increased by $20.2 million from December 31, 2022.

The increase in nonperforming LHFI was driven by increases of $14.5 million and $5.3 million in nonperforming commercial and industrial loans and residential real estate loans, respectively.

The net increase in nonperforming commercial and industrial loans was mainly due to two relationships totaling $11.1 million, which maintained reserves of $5.2 million as of December 31, 2023.

The increase in nonperforming residential real estate loans was driven by a reclassification of nonperforming mortgage loans from the held for sale portfolio to the held for investment portfolio during the year ended December 31, 2023, which contributed a $5.8 million increase in nonperforming residential real estate loans, with government guarantees of $5.0 million.

The residential real estate loans carry government guarantees and considering the guaranty, as well as the value, of the underlying collateral resulted in an immaterial impact to the ALCL.

As explained in detail in Part II, Item 8, Note 18 — Commitments and Contingencies under Loss Contingencies, our credit metrics were negatively impacted by certain questioned activity involving a former banker in our East Texas market.

Our investigation of this activity remains ongoing and is not final.

The Company continues to work with a third-party forensic accounting team to confirm the Bank’s identification and reconciliation of the activity, and also to assist in evaluating any additional impact from the questioned activity.

At this time, we believe that any ultimate loss arising from the situation will not be material to our financial position.

Nonperforming LHFI increased $44.9 million at December 31, 2024, compared to December 31, 2023, and nonperforming LHFI to LHFI increased to 0.99% compared to 0.39%.

The $44.9 million increase in non-performing loans was primarily driven by one loan relationship totaling $29.0 million impacted by the questioned loan activity mentioned above.

Also contributing to the increase in nonperforming LHFI at December 31, 2024, compared to December 31, 2023, were three residential real estate loan relationships totaling $9.7 million.

Please see Note 4 — Loans to our consolidated financial statements contained in Part II, Item 8 of this report for more information on nonperforming loans.

The steep incline in the interest rate environment over the last several years driven by the FRB’s federal funds rate setting policy, as outlined in the Results of Operations section above, has negatively impacted borrowers with variable or floating rate loans causing their cost of borrowings to increase significantly since mid-2022.

This has put pressure on borrower’s cash flow and contributed to higher overall nonperforming loans at December 31, 2024, compared to December 31, 2023.

Potential Problem Loans

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• for commercial and industrial loans, the debt service coverage ratio (income from the business in excess of operating expenses compared to loan repayment requirements), the operating results of the commercial, industrial or professional enterprise, the borrower’s business, professional and financial ability and expertise, the specific risks and volatility of income and operating results typical for businesses in that category and the value, nature and marketability of collateral.

• for mortgage warehouse loans, the borrower’s adherence to agency or investor underwriting guidelines, while the risk associated with the underlying consumer mortgage loan repayments, similar to other consumer loans, depends on the borrower’s financial stability and are more likely than commercial loans to be adversely affected by divorce, job loss, illness and other personal hardships.

The following table presents the allowance for credit loss by loan category:

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(1) Represents the ratio of each loan type to total LHFI.

Our ALCL increased by $9.7 million, or 11.1%, to $96.9 million at December 31, 2023, from $87.2 million at December 31, 2022.

The ratio of ALCL to total LHFI increased to 1.26% at December 31, 2023, compared to 1.23% at December 31, 2022.

Qualitative factor changes across the Company’s risk pools drove a $6.7 million increase in the ALCL, with the allowance for individually evaluated loans contributing another $4.4 million of the increase for the year ended December 31, 2023, when compared to the year ended December 31, 2022.

Our ALCL decreased by $5.8 million, or 6.0%, to $91.1 million at December 31, 2024, from $96.9 million at December 31, 2023.

Changes in qualitative factors across the Company's risk pools drove a $2.6 million decline in the ALCL, driven primarily by an improved economic outlook, including lower interest rate pressures and stabilizing market conditions.

The allowance for individually evaluated loans contributing another $2.7 million of the decrease for the year ended December 31, 2024, when compared to the year ended December 31, 2023.

The ratio of ALCL to total LHFI decreased to 1.20% at December 31, 2024, compared to 1.26% at December 31, 2023.

The following table presents an analysis of the ALCL and other related data at the periods indicated.

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ALCL 2024 2023

Balance at beginning of period $ 87,161 $ 64,586

ALCL - BTH merger — 5,527

Balance at beginning of year $ 96,868 $ 87,161

Provision for loan credit losses 8,680 17,514

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Net charge-offs 14,488 7,807

Balance at end of period $ 96,868 $ 87,161

Balance at end of year $ 91,060 $ 96,868

Ratio of ALCL to:

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Past due loans to total LHFI increased to 0.56% at December 31, 2024, compared to 0.34% at December 31, 2023.

The steep incline in the interest rate environment driven by the Federal Reserve Board’s Federal Funds rate setting policy, as outlined in the Results of Operations section above, has negatively impacted borrowers with variable or floating rate loans causing their cost of borrowings to increase significantly over the last eighteen months.

This has put pressure on borrower’s cash flow and contributed to higher overall nonperforming loans at December 31, 2023 compared to December 31, 2022.

Our securities portfolio is the second largest component of earning assets and provides a significant source of revenue.

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Our securities portfolio totaled $1.12 billion at December 31, 2024, representing a decrease of $151.9 million, or 11.9%, from $1.27 billion at December 31, 2023.

The decrease was primarily due to sales, maturities and calls, as well as normal principal paydowns, which was partially offset by decrease in unrealized losses during the year ended December 31, 2023.

During the last few days of the quarter ended September 30, 2023, we made a strategic decision to sell available for sale investment securities with a book value of $181.9 million and realized a loss of $7.2 million, the proceeds of which were used to pay down FHLB advances.

In order to support loan operations heading into 2024, during the last quarter of the 2023 year we sold available for sale investment securities with a book value of $78.9 million and realized a loss of $4.6 million.

Our available for sale portfolio totaled $1.25 billion at December 31, 2023, and represented 98.6% of our total security portfolio and is comprised of 47.8% mortgage-backed, 22.5% municipal, 6.4% treasury/agency, 13.2% collateralized mortgage obligations and 10.1% corporate/asset-backed securities.

Our available for sale portfolio totaled $1.64 billion at December 31, 2022, and represented 98.9% of our total security portfolio and was comprised of 40.5% mortgage-backed, 23.7% municipal, 15.1% treasury/agency, 11.3% collateralized mortgage obligations and 9.4% corporate/asset-backed securities.

The decrease was primarily due to sales, maturities and calls, as well as normal principal paydowns, which was partially offset by purchases and a decrease in unrealized losses during the year ended December 31, 2024.

During the fourth quarter of 2024, we executed a bond portfolio optimization strategy aimed at enhancing long-term yields and improving overall portfolio performance.

As a result, we replaced securities with a total book value of $188.2 million and a weighted average yield of 1.51% with new securities totaling $173.7 million with a weighted average yield of 5.22%, realizing a loss of $14.6 million.

During the second half of 2023, we sold available for sale investment securities with total book value of $260.8 million and realized total loss of $11.8 million, the proceeds of which were used to pay down FHLB advances and support loan operations.

Our available for sale portfolio totaled $1.10 billion at December 31, 2024, which represented 98.4% of our total security portfolio and is comprised of 53.0% mortgage-backed, 23.2% municipal, 1.3% treasury/agency, 15.4% collateralized mortgage obligations and 7.1% corporate/asset-backed securities.

Our available for sale portfolio totaled $1.25 billion at December 31, 2023, which represented 98.6% of our total security portfolio, and was comprised of 47.8% mortgage-backed, 22.5% municipal, 6.4% treasury/agency, 13.2% collateralized mortgage obligations and 10.1% corporate/asset-backed securities.

The securities portfolio had a weighted average effective duration of 4.46 years at December 31, 2024, compared to 4.28 years at December 31, 2023.

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Corporate bonds 78,236 7.1 83,635 6.7

government and agency securities 79,640 6.4 248,420 15.1

treasury and government agency securities 13,805 1.3 79,640 6.4

Commercial mortgage-backed securities 44,284 4.0 93,396 7.5

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Corporate bonds — — 7,617 7.62 70,195 4.71 424 4.50 78,236 4.99

government and agency securities 45,392 1.44 30,653 1.27 — — 3,595 1.60 79,640 1.38

treasury and government agency securities 299 3.00 78 7.60 10,148 5.15 3,280 1.53 13,805 4.26

Commercial mortgage-backed securities — — 26,646 1.44 17,638 2.18 — — 44,284 1.73

2 unchanged sentences

Residential collateralized mortgage obligations — — — — 8,534 2.85 132,293 2.66 140,827 2.67

Asset-backed securities — — — — — — 43,005 6.54 43,005 6.54

Total securities available for sale $ 2,514 2.71 $ 79,830 2.50 $ 242,451 3.16 $ 777,733 2.70 $ 1,102,528 2.78

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Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different from the stated contractual maturity.

During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of this security is typically lengthened.

If interest rates begin to fall, prepayments may increase, thereby shortening the estimated average life of these securities.

During a period of decreasing interest rates, fixed rate mortgage-backed securities tend to experience higher prepayments of principal, which can significantly shorten the estimated average life of these securities.

As interest rates continue to fall, prepayments activity may increase further, thereby accelerating the reduction in the estimated average life of these securities.

All of our mortgage-backed securities and collateralized mortgage obligations are issued and/or guaranteed by U.S.

1 unchanged sentence

government-sponsored entities.

Other than securities issued by government agencies or government sponsored enterprises, we did not own securities of any one issuer for which aggregate cost exceeded 10.0% of consolidated stockholders’ equity at December 31, 2023 or 2022.

Other than securities issued by government agencies or government sponsored enterprises, we did not own securities of any one issuer for which aggregate cost exceeded 10.0% of our consolidated stockholders’ equity at December 31, 2024 or 2023.

Additionally, we do not hold any Fannie Mae or Freddie Mac preferred stock, collateralized debt obligations, structured investment vehicles or second lien elements in the investment portfolio, nor does the investment portfolio contain any securities that are directly backed by subprime or Alt-A mortgages.

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We also obtain deposits from local municipalities and state agencies.

Total deposits increased at December 31, 2023, compared to December 31, 2022, primarily due to increases in brokered time deposits and money market deposits, which increased by $439.6 million and $330.2 million, respectively, partially offset by a decrease in noninterest-bearing demand deposits of $562.8 million compared to December 31, 2022.

Typically, higher interest rates and sustained inflation will cause customers to move liquid asset balances into higher interest-earning vehicles such as money market funds.

Total deposits remained relatively flat at December 31, 2024, compared to December 31, 2023, with increases of $184.6 million, $157.9 million, and $40.1 million in interest-bearing demand, money market, and savings deposits, respectively, being offset by decreases of $364.8 million and $26.9 million in brokered and time deposits.

Typically, higher market interest rates and sustained inflation will cause customers to move liquid asset balances into higher interest-earning vehicles such as money market funds.

The following table presents our deposit mix at the dates indicated:

8 unchanged sentences

941,000 11.4 967,901 11.7 (26,901) (2.8)

Brokered time deposits 444,989 5.4 5,407 0.1 439,582 N/M

Brokered deposits (1)

80,226 1.0 444,989 5.4 (364,763) (82.0)

310,070 3.8 269,926 3.3 40,144 14.9

Total deposits

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_____________________

N/M = Not meaningful.

(1) At December 31, 2024, brokered deposits included brokered time deposits and brokered interest-bearing demand of $79.99 million and $236,000, respectively.

At December 31, 2023, brokered deposits included brokered time deposits of $445.0 million.

We manage our interest expense on deposits through specific deposit product pricing that is based on competitive pricing, economic conditions and current and anticipated funding needs.

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1,004,934 39,634 3.94 928,694 27,892 3.00 611,195 4,476 0.73

Brokered time deposits 470,040 24,241 5.16 5,002 8 0.16 — — —

Brokered deposits (1)

509,434 27,321 5.36 470,040 24,241 5.16 5,002 8 0.16

289,525 5,094 1.76 291,059 2,606 0.90 288,010 517 0.18

Total interest-bearing

4 unchanged sentences

$ 8,497,829 $ 254,873 3.00 $ 8,271,682 $ 196,457 2.38 $ 7,105,310 $ 33,509 0.47

Our average deposit balance was $8.27 billion for the year ended December 31, 2023, an increase of $1.17 billion, or 16.4%, from $7.11 billion for the year ended December 31, 2022.

The average annualized rate paid on our interest-bearing deposits for the year ended December 31, 2023, was 3.21%, compared to 0.72% for the year ended December 31, 2022.

The increase in the average cost of our deposits was primarily the result of the rapidly rising interest rate environment experienced since March 17, 2022, when the Federal Reserve Board started a series of eleven Federal Funds target range rate increases cumulating in a 525 basis point increase to the current target range of 5.25% to 5.50%.

Our current deposit rates have not yet completely absorbed all of the market interest rate increases that have occurred during the year ended December 31, 2023.

______________________

(1) Average brokered deposits include average brokered time deposits and average brokered interest-bearing demand of $440.0 million and $69.4 million, respectively, for the year ended December 31, 2024.

Average brokered deposits included average brokered time deposits of $470.0 million and $5.0 million for the years ended December 31, 2023, and 2022, respectively.

Our average deposit balances were $8.50 billion for the year ended December 31, 2024, an increase of $226.1 million, or 2.7%, from $8.27 billion for the year ended December 31, 2023.

The average rate paid on our interest-bearing deposits for the year ended December 31, 2024, was 3.86%, compared to 3.21% for the year ended December 31, 2023.

The increase in the average cost of our deposits was primarily the result of the rapidly rising interest rate environment experienced since March 2022, when the FRB started a series of eleven federal funds target range rate increases cumulating in a 525-basis point increase to a target range of 5.25% to 5.50%.

More recently, in the third and fourth quarters of 2024, the FRB cut the federal funds target range rate three times by a total of 100 basis points from a 23-year high of 5.25% to 5.50% to 4.25% to 4.50%.

Average noninterest-bearing deposits during the year ended December 31, 2024, were $1.89 billion, compared to $2.15 billion at December 31, 2023, a decrease of $259.1 million, or 12.1%, and represented 22.2% and 26.0% of average total deposits for the year ended December 31, 2024 and 2023, respectively.

Noninterest-bearing deposits are impacted by the higher interest rate environment, as customers move out of noninterest-bearing deposit balances into higher interest-earning investments.

Noninterest-bearing deposits have been impacted by the higher interest rate environment, as customers have been moving out of noninterest-bearing deposit balances into higher interest-earning investments, however, this trend has been slowing as rates begin to stabilize.

The following table presents the maturity distribution of our time deposits and the amount of such deposits in excess of the FDIC insurance limit at December 31, 2024.

13 unchanged sentences

$ 264,845 $ 1,020,990

$ 270,395 $ 1,412,890

The following table reflects the estimated total amount of uninsured and uncollateralized deposits for the periods indicated:

(Dollars in thousands) December 31, 2023 December 31, 2022

Total deposits $ 8,251,125 $ 7,775,702

Estimated insured deposits:

FDIC insured (3,425,268) (3,331,724)

FDIC insured reciprocal (801,699) (245,621)

FDIC insured brokered time deposits (444,989) (5,407)

Total estimated FDIC insured deposits (4,671,956) (3,582,752)

Estimated FDIC uninsured deposits 3,579,169 4,192,950

Collateralized public funds (849,603) (762,366)

Estimated uninsured/uncollateralized deposits $ 2,729,566 $ 3,430,584

Percentage of estimated uninsured/uncollateralized deposits to total deposits 33.1 % 44.1 %

Borrowed funds are summarized as follows:

2 unchanged sentences

Long-term FHLB advances 6,198 6,474

GNMA repurchase liability

Overnight repurchase agreements with depositors 6,262 7,124

Correspondent short-term borrowings — 30,000

Total FHLB advances and other borrowings $ 12,460 $ 83,598

1 unchanged sentence

Short-term FHLB advances decreased $70.0 million, or 100.0%, at December 31, 2024, compared to December 31, 2023.

Due to our increasing liquidity, we paid down our short-term advances during the year ended December 31, 2024.

Our long-term debt consists of advances from the FHLB with original maturities greater than one year and the subordinated indebtedness captioned and described below.

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The net amounts available under our borrowing capacity from the FHLB at December 31, 2024 and 2023, were $2.15 billion and $2.01 billion, respectively.

Additionally, at December 31, 2023 and 2022, we had the ability to borrow $1.42 billion and $1.23 billion from the discount window at the Federal Reserve Bank of Dallas ("FRB"), with $1.69 billion and $1.76 billion in commercial and industrial loans pledged as collateral, respectively.

Additionally, at December 31, 2024 and 2023, we had the ability to borrow $1.33 billion and $1.42 billion from the discount window at the Federal Reserve Bank of Dallas (“FRBD”), with $1.57 billion and $1.69 billion in commercial and industrial loans pledged as collateral, respectively.

There were no borrowings against this line at both December 31, 2024 and 2023.

Holding Company Line of Credit

The Company has a line of credit under the terms of which the loan amount shall not exceed an aggregate principal balance of $100 million, consisting of an initial $50.0 million extension of credit and any one or more potential incremental revolving loan amounts that the lender may make in its sole discretion, up to an aggregate principal of $50.0 million, upon the request of the Company.

The revolving line of credit matures on October 27, 2024, and the Company had no balance outstanding on this revolving credit loan under the Loan Agreement at December 31, 2023, and $30.0 million outstanding at December 31, 2022.

The Company had a line of credit with a maximum aggregate principal balance of $100 million, consisting of an initial $50.0 million extension of credit and any one or more potential incremental revolving loan amounts up to an aggregate principal of $50.0 million.

Consistent with the terms of the agreement, the Company extended the maturity twice in prior years, and the Loan Agreement was terminated as of the October 27, 2024, expiration date.

The Company had no balance outstanding on this revolving credit loan under the Loan Agreement at December 31, 2023.

Subordinated Indebtedness

Included in subordinated indebtedness, net in the table above, are $37.6 million of subordinated promissory notes ("BTH Notes") assumed from BTH in conjunction with the merger on August 1, 2022.

At December 31, 2023, the Company had BTH Notes of $34.7 million with maturity dates ranging from December 2024 to June 2031.

Interest rates on the BTH Notes primarily reprice quarterly and range from Prime +50 bps to Prime +175 bps, with a floor of 3.875% on all the BTH Notes, and ceilings ranging from 6.125% to 6.375%.

At December 31, 2023, the Company had $34.7 million in subordinated promissory notes that were assumed in the merger with BTH (“BTH Notes”) with origination dates ranging from June 2015 to June 2021.

After the five-year anniversary of issuance, the Company had the right to redeem the BTH Notes, in part or in full, at the Company’s discretion and, if applicable, subject to receipt of any required regulatory approvals.

Primarily due to the declining Tier 2 capital contribution of the BTH Notes, the Company elected to redeem all but $1.1 million of the BTH Notes during the year ended December 31, 2024.

In February 2020, Origin Bank completed an offering of $70.0 million in aggregate principal amount of 4.25% fixed-to-floating rate subordinated notes due 2030 (the “4.25% Notes”) to certain investors in a transaction exempt from registration under Section 3(a)(2) of the Securities Act of 1933, as amended.

The 4.25% Notes initially bear interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, to but excluding February 15, 2025.

From and including February 15, 2025, to but excluding the maturity date or early redemption date, the interest rate will equal the three-month LIBOR rate (provided that in the event the three-month LIBOR is less than zero, the three-month LIBOR will be deemed to be zero) plus 282 basis points, payable quarterly in arrears.

The 4.25% Notes bore interest at a fixed annual rate of 4.25%, payable semi-annually in arrears, to but excluding February 15, 2025.

From and including February 15, 2025, to but excluding the maturity date or early redemption date, the interest rate would equal the three-month LIBOR rate plus 282 basis points, payable quarterly in arrears.

On June 30, 2023, in conjunction with the customary fallback provision upon the discontinuation of LIBOR, the rate for the floating rate periods from and including February 15, 2025, on these notes transitioned to the three-month term SOFR plus 308 basis points.

Origin Bank is entitled to redeem the 4.25% Notes, in whole or in part, on or after February 15, 2025, and to redeem the 4.25% Notes at any time in whole upon certain other specified events.

The 4.25% Notes qualify as Tier 2 capital for regulatory capital purposes for Origin Bank.

Origin Bank elected to redeem the 4.25% Notes on February 15, 2025, as permitted under the terms of the 4.25% Notes.

In October 2020, the Company completed of an offering of $80.0 million in aggregate principal amount of 4.50% fixed-to-floating rate subordinated notes due 2030 (the “4.50% Notes”).

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The 4.50% Notes qualify as Tier 2 capital for regulatory capital purposes for the Company and a portion of the proceeds was transferred to Origin Bank during the fourth quarter of 2020, which qualifies as Tier 1 capital for regulatory capital purposes for the Bank.

During the year ended December 31, 2023, and with the approval of the Board of Governors of the Federal Reserve System, the Company repurchased $5.0 million of the 4.50% notes in conjunction the Federal Deposit Insurance Corporation’s failed bank resolution process.

On August 1, 2022, the Company assumed BTH’s obligations with respect to $7.2 million in aggregate principal amount of junior subordinated debentures issued to a statutory trust of BTH ("BTH TruPS").

The BTH TruPS and the Company’s two other wholly-owned, unconsolidated subsidiary grantor trusts were established for the purpose of issuing trust preferred securities.

For additional information regarding our holding company line of credit, subordinated indebtedness, including the junior subordinated debentures underlying the issuance of trust preferred securities, please see Note 11 — Borrowings in the notes to our consolidated financial statements contained in Part II, Item 8 of this report.

During the years ended December 31, 2024 and 2023, and with the approval of the Board of Governors of the Federal Reserve System, the Company repurchased $1.0 million and $5.0 million, respectively, of the 4.50% notes.

For information regarding our junior subordinated debentures underlying the issuance of trust preferred securities, please see Note 11 — Borrowings in the notes to our consolidated financial statements contained in Part II, Item 8 of this report.

Liquidity and Capital Resources

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Management continually monitors, forecasts and tests our liquidity and non-core dependency ratios to ensure compliance with targets established by our Asset-Liability Management Committee and approved by our board of directors.

Management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis.

At December 31, 2023 and 2022, our cash and liquid securities totaled 10.9% and 12.1% of total assets, respectively, providing liquidity to support our existing operations.

The Company, which is a separate legal entity apart from the Bank, must provide for its own liquidity, including the funding of the payment of any dividends that may be declared for our common stockholders and interest and principal on any outstanding debt or trust preferred securities incurred by the Company.

The available cash balances as noted in the table below are available for the general corporate purposes described above, as well as providing capital support to the Bank.

In addition, the Company has a line of credit as referenced above under Holding Company Line of Credit.

Management measures our liquidity position by giving consideration to both on-balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis.

The table below shows the liquidity measures for the Company at the dates indicated:

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In addition to cash generated from operations, we utilize a number of funding sources to manage our liquidity, including core deposits, investment securities, cash and cash equivalents, loan repayments, federal funds lines of credit available from other financial institutions, as well as advances from the FHLB.

We may also use the discount window at the FRB as a source of short-term funding.

We may also use the Federal Reserve discount window as a source of short-term funding.

Core deposits, which are total deposits excluding time deposits greater than $250,000 and brokered deposits, are a major source of funds used to meet cash flow needs.

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Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances.

Additionally, we had the ability to borrow at the discount window of the FRB using our commercial and industrial loans as collateral.

Additionally, we had the ability to borrow at the Federal Reserve discount window using our commercial and industrial loans as collateral.

There were no borrowings against this line at December 31, 2024.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis