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What changed in PROSPERITY BANCSHARES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PROSPERITY BANCSHARES INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+519 added−531 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-28)

Top changes in PROSPERITY BANCSHARES INC's 2024 10-K

519 paragraphs added · 531 removed · 395 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

87 edited+69 added−83 removed86 unchanged
Biggest changeUnder the BHCA, bank holding companies generally may not acquire a direct or indirect interest in or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and may not engage in activities other than those of banking, managing or controlling banks or furnishing services to or performing services for its subsidiaries, except that it may engage in, directly or indirectly, certain activities that the Federal Reserve Board has determined to be so closely related to banking or managing and controlling banks as to be a proper incident thereto.
Biggest changeBank holding companies are generally restricted to engaging in the business of banking, managing or controlling banks and certain other activities determined by the Federal Reserve Board to be closely related to banking.
Supervision and Regulation The supervision and regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) and the banking system as a whole, and not for the protection of the bank holding company’s shareholders or creditors.
The supervision and regulation of bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”) and the banking system as a whole, and not for the protection of the bank holding company’s shareholders or creditors.
As of March 31, 2023, First Bancshares, on a consolidated basis, reported total assets of $2.14 billion, total loans of $1.65 billion and total deposits of $1.71 billion. 1 Pursuant to the terms of the definitive agreement, the Company issued 3,583,370 shares of its common stock and approximately $91.5 million in cash for all outstanding shares of First Bancshares capital stock.
As of March 31, 2023, First Bancshares, on a consolidated basis, reported total assets of $2.14 billion, total loans of $1.65 billion and total deposits of $1.71 billion. Pursuant to the terms of the definitive agreement, the Company issued 3,583,370 shares of its common stock plus approximately $91.5 million in cash for all outstanding shares of First Bancshares capital stock.
With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. Source of Strength. Federal Reserve Board policy and federal law require a bank holding company to act as a source of financial strength to each of its banking subsidiaries.
With certain exceptions, the value of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements. Source of Strength. Federal Reserve Board policy and federal law require a bank holding company to act as a source of financial and managerial strength to each of its banking subsidiaries.
Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation 14 could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
Management believes that this centralized infrastructure can accommodate additional growth while enabling the Company to minimize operational costs through economies of scale. 4 Enhance Cross-Selling. The Company uses incentives and friendly competition to encourage cross-selling efforts and increase cross-selling results among its associates.
Management believes that this centralized infrastructure can accommodate additional growth while enabling the Company to minimize operational costs through economies of scale. Enhance Cross-Selling. The Company uses incentives and friendly competition to encourage cross-selling efforts and increase cross-selling results among its associates.
FDICIA provides that no state bank or subsidiary thereof may engage as principal in any activity not permitted for national banks, unless the institution complies with applicable capital requirements and the FDIC determines that the activity poses no significant risk to the DIF.
FDICIA provides that no state bank or subsidiary thereof may engage as principal in any activity not 9 permitted for national banks, unless the institution complies with applicable capital requirements and the FDIC determines that the activity poses no significant risk to the DIF.
As a result of its stable customer relationships, the Company is able to maintain a low cost of funds. Utilizing that and employing stringent cost controls, the Company has been profitable in every year of its existence, including the periods of adverse economic conditions in Texas and Oklahoma.
As a result of its stable customer relationships, the Company is able to maintain a low cost of funds. Utilizing its stable customer relationships and employing stringent cost controls, the Company has been profitable in every year of its existence, including the periods of adverse economic conditions in Texas and Oklahoma.
In certain circumstances, the Company’s repurchases 5 of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
In certain circumstances, the Company’s repurchases of its common stock may be subject to a prior approval or notice requirement under other regulations, policies or supervisory expectations of the Federal Reserve Board. Any redemption or repurchase of preferred stock or subordinated debt remains subject to the prior approval of the Federal Reserve Board.
Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights and civil money penalties in each jurisdiction in which the Bank operates.
Federal bank regulators, the CFPB, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights and civil money penalties in each jurisdiction in which the Bank operates.
An unsatisfactory record can substantially delay or block the transaction. 12 On October 24, 2023, the Office of the Comptroller of the Currency (“OCC”), Federal Reserve Board, and FDIC issued a final rule to modernize their respective CRA regulations.
An unsatisfactory record can substantially delay or block the transaction. On October 24, 2023, the Office of the Comptroller of the Currency (“OCC”), Federal Reserve Board, and FDIC issued a final rule to modernize their respective CRA regulations.
The Company has a Warehouse Purchase Program that allows 3 mortgage banking company customers to close one-to-four-family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors.
The Company has a Warehouse Purchase Program that allows mortgage banking company customers to close one-to-four-family real estate loans in their own name and manage their cash flow needs until the loans are sold to investors.
The Federal Reserve Board is authorized to limit or prohibit the payment of dividends if, in the Federal Reserve Board’s opinion, the payment of dividends would constitute an unsafe or unsound practice in light of a bank holding company’s financial condition.
The Federal Reserve Board is authorized to limit or prohibit the payment of dividends 5 if, in the Federal Reserve Board’s opinion, the payment of dividends would constitute an unsafe or unsound practice in light of a bank holding company’s financial condition.
Business Culture . The Company’s directors and officers are important to the Company’s success and play a key role in the Company’s business development efforts by actively participating in civic and public service activities in the communities served by the Company.
The Company’s directors and officers are important to the Company’s success and play a key role in the Company’s business development efforts by actively participating in civic and public service activities in the communities served by the Company.
Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of the Company’s adoption of CECL on January 1, 2020 and 25% of subsequent changes in the Company’s allowance for credit losses during each quarter of the two-year period ending December 31, 2021.
Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of the Company’s adoption of CECL on January 1, 2020 and 25% of subsequent changes in the Company’s allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
The assessment base for the special assessment is equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be collected at a quarterly rate of approximately 3.36 basis points for an anticipated total of eight quarterly assessment periods, beginning in the first quarter of 2024.
The assessment base for the special assessment was equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be collected at a quarterly rate of approximately 3.36 basis points for an anticipated total of eight quarterly assessment periods, beginning in the first quarter of 2024.
Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including substantial delay or blocking of a merger or other acquisition transaction. Incentive Compensation.
Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including substantial delay or blocking of a merger or other acquisition transaction. Cybersecurity .
The performance of these groups is also reviewed when setting lender compensation. The Company offers a variety of benefits to full-time associates, including Medical Insurance, Dental Insurance, Vision Insurance, Basic Life Insurance, Voluntary Life Insurance, Spouse/Dependent Life Insurance, Short Term Disability, Long Term Disability, Worksite Supplemental Benefits, Flexible Spending Account, 401K/Profit Sharing Plan, Vacation Leave, Sick Leave and Paid Holidays.
The performance of these groups is also reviewed when setting lender compensation. 2 The Company offers a variety of benefits to full-time associates, including Medical Insurance, Dental Insurance, Vision Insurance, Basic Life Insurance, Voluntary Life Insurance, Spouse/Dependent Life Insurance, Short Term Disability, Long Term Disability, Worksite Supplemental Benefits, Flexible Spending Account, 401(k)/Profit Sharing Plan, Vacation Leave, Sick Leave and Paid Holidays.
The USA PATRIOT Act of 2001 (the “USA Patriot Act”) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The USA Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.
The Company intends to continue to employ the strict underwriting guidelines and comprehensive loan review processes that have contributed to its low incidence of nonperforming assets and minimal charge-offs in relation to its size. Nonperforming assets were 0.34% of total loans and other real estate at December 31, 2023.
The Company intends to continue to employ the strict underwriting guidelines and comprehensive loan review processes that have contributed to its low incidence of nonperforming assets and minimal charge-offs in relation to its size. Nonperforming assets were 0.37% of total loans and other real estate at December 31, 2024.
Any such data provider would also have to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
Any such data provider is also required to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
Excluding Warehouse Purchase Program loans, nonperforming assets were 0.36% of total loans and other real estate at December 31, 2023. All Warehouse Purchase Program loans were performing loans at December 31, 2023. Continue Focus on Efficiency. The Company plans to maintain its stringent cost control practices and policies.
Excluding Warehouse Purchase Program loans, nonperforming assets were 0.39% of total loans and other real estate at December 31, 2024. All Warehouse Purchase Program loans were performing loans at December 31, 2024. Continue Focus on Efficiency. The Company plans to maintain its stringent cost control practices and policies.
As of December 31, 2023, the Bank operated 285 full service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth area; 22 in the East Texas area; 32 in the Central Texas area including Austin and San Antonio; 44 in the West Texas area including Lubbock, Midland-Odessa, Abilene; Amarillo and Wichita Falls; 16 in the Bryan/College Station area, 6 in the Central Oklahoma area; and 8 in the Tulsa, Oklahoma area.
As of December 31, 2024, the Bank operated 283 full service banking locations: 65 in the Houston area, including The Woodlands; 30 in the South Texas area including Corpus Christi and Victoria; 62 in the Dallas/Fort Worth area; 22 in the East Texas area; 31 in the Central Texas area including Austin and San Antonio; 44 in the West Texas area including Lubbock, Midland-Odessa, Abilene, Amarillo and Wichita Falls; 15 in the Bryan/College Station area, 6 in the Central Oklahoma area; and 8 in the Tulsa, Oklahoma area.
The Company is active in commercial and industrial lending, with commercial loans comprising 10.9% of the Company’s total loans as of December 31, 2023. The Company also offers agricultural loans, loans for automobiles and other consumer durables, home equity loans, debit and credit cards, digital banking solutions, trust and wealth management, retail brokerage services, mortgage services and treasury management.
The Company is active in commercial and industrial lending, with commercial loans comprising 11.3% of the Company’s total loans as of December 31, 2024. The Company also offers agricultural loans, loans for automobiles and other consumer durables, home equity loans, debit and credit cards, digital banking solutions, trust and wealth management, retail brokerage services, mortgage services and treasury management.
Recruiting, Training, Development and Retention. In order to provide current associates with the opportunity for advancement, the Company posts job opportunities internally for three calendar days before making them available to the public. Of the approximately 1,545 open positions filled in 2023, 27% were filled by internal associates.
Recruiting, Training, Development and Retention. In order to provide current associates with the opportunity for advancement, the Company posts job opportunities internally for three calendar days before making them available to the public. Of the approximately 1,690 open positions filled in 2024, 39% were filled by internal associates.
By offering certificates of deposit, interest checking accounts, money market accounts and savings accounts at competitive rates, the Company gives its depositors a full range of traditional deposit products. As of December 31, 2023, the Company’s trust department maintained total assets of $2.67 billion, including managed assets of $2.26 billion.
By offering certificates of deposit, interest checking accounts, money market accounts and savings accounts at competitive rates, the Company gives its depositors a full range of traditional deposit products. As of December 31, 2024, the Company’s trust department maintained total assets of $2.89 billion, including managed assets of $2.35 billion.
Because the Company’s securities are listed on the New York Stock Exchange (“NYSE”), the Company is subject to NYSE's rules for listed companies, including rules relating to corporate governance. Regulatory Restrictions on Dividends and Repurchases. The Company is regarded as a legal entity separate and distinct from the Bank.
Because the Company’s securities are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “PB,” the Company is subject to NYSE’s rules for listed companies, including rules relating to corporate governance. Regulatory Restrictions on Dividends and Share Repurchases. The Company is regarded as a legal entity separate and distinct from the Bank.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution and could block or substantially delay a merger or other acquisition transaction.
Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution and could block or substantially delay a merger or other acquisition transaction. 12 Office of Foreign Assets Control Regulation.
The extent to which any additional future assessments will impact our future deposit insurance expense is currently uncertain. Interchange Fees.
The extent to which any additional future assessments will impact the Company’s future deposit insurance expense is currently uncertain. 11 Interchange Fees.
In November 2021, the federal banking agencies adopted a final rule that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
Banking organizations are required to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
FirstCapital Bank operated 16 full-service banking offices in six different markets in West, North and Central Texas areas, including its main office in Midland, Texas, and banking offices in Midland, Lubbock, Amarillo, Wichita Falls, Burkburnett, Byers, Henrietta, Dallas, Horseshoe Bay, Marble Falls and Fredericksburg, Texas.
(“FirstCapital Bank”), into the Bank (collectively, the “FB Merger”). FirstCapital Bank operated 16 full-service banking offices in six different markets in West, North and Central Texas areas, including its main office in Midland, Texas, and banking offices in Midland, Lubbock, Amarillo, Wichita Falls, Burkburnett, Byers, Henrietta, Dallas, Horseshoe Bay, Marble Falls and Fredericksburg, Texas.
The Company has been an active real estate lender, with commercial real estate (including farmland and multi-family residential), 1-4 family residential (including home equity) and construction, land development and other land loans comprising 29.6%, 38.5% and 14.5%, respectively, of the Company’s total loans as of December 31, 2023.
The Company has been an active real estate lender, with commercial real estate (including farmland and multi-family residential); 1-4 family residential (including home equity); and construction, land development and other land loans comprising 29.3%, 38.3% and 12.9%, respectively, of the Company’s total loans as of December 31, 2024.
In general, statutory restrictions on the activities of banks are aimed at protecting the safety and soundness of depository institutions. Financial Modernization.
In general, statutory restrictions on the activities of banks are aimed at protecting the safety and soundness of depository institutions. Standards for Safety and Soundness.
Data that would be required to be made available under the rule would include transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.
Data is required to be made available under the rule includes transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.
The Bank is also subject to limitations on the payment of dividends under Texas law. Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.
Because the Company is a legal entity separate and distinct from its subsidiaries, its right to participate in the distribution of assets of any subsidiary upon the subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.
Banking A ctivities The Company, through the Bank, offers a variety of traditional loan and deposit products to its customers, which consist primarily of individual consumers and businesses throughout Texas and Oklahoma. At December 31, 2023, the Bank maintained approximately 813,000 separate deposit accounts including certificates of deposit and 72,500 separate loan accounts.
Banking A ctivities The Company, through the Bank, offers a variety of traditional loan and deposit products to its customers, which consist primarily of individual consumers and businesses throughout Texas and Oklahoma. At December 31, 2024, the Bank maintained approximately 816,300 separate deposit accounts including certificates of deposit and 70,400 separate loan accounts.
On October 25, 2023, the Federal Reserve Board issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents.
On October 25, 2023, the Federal Reserve Board issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction.
Under federal law, the Bank cannot pay a dividend if, after paying the dividend, the Bank will be 9 “undercapitalized.” The FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its capital requirements after the dividend.
Under federal law, the Bank cannot pay a dividend if, after paying the dividend, the Bank will be “undercapitalized.” The FDIC may declare a dividend payment to be unsafe and unsound even though the Bank would continue to meet its capital requirements after the dividend. The Bank is also subject to limitations on the payment of dividends under Texas law.
The Federal Reserve Board’s Regulation Y, for example, generally requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities if the consideration to be paid, together with the consideration paid for any repurchases or redemptions in the preceding year, is equal to 10% or more of the company’s consolidated net worth.
The Federal Reserve Board generally requires prior notice of any redemption or repurchase of a bank holding company’s own equity securities if the consideration to be paid, together with the net consideration paid for any repurchases or redemptions in the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.
Commercial real estate loans (including multifamily residential and excluding farmland) were $5.66 billion and represented 26.8% of the total portfolio as of December 31, 2023. One-to-four-family residential loans (excluding home equity) were $7.20 billion and represented 34.0% of the total loan portfolio as of December 31, 2023.
Commercial real estate loans (including multifamily residential and excluding farmland) were $5.80 billion and represented 26.2% of the total portfolio as of December 31, 2024. One-to-four-family residential loans (excluding home equity) were $7.58 billion and represented 34.2% of the total loan portfolio as of December 31, 2024.
To the extent that the Texas laws and regulations may have allowed state-chartered banks to engage in a broader range of activities than national banks, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) has operated to limit this authority.
To the extent that the Texas laws and regulations may have allowed state-chartered banks to engage in a broader range of activities than national banks, FDICIA has operated to limit this authority.
The Company recognizes that associates play a valuable role in its overall success. The Company strives to keep associates motivated and focused through its commitment to diversity and inclusion, compensation and benefits, and career development. All related programs or benefits contribute to the Company’s overall productivity and performance and play a vital role in attracting and retaining associates.
The Company recognizes that associates play a valuable role in its overall success. The Company strives to keep associates motivated and focused through the areas discussed above. All related programs or benefits contribute to the Company’s overall productivity and performance and play a vital role in attracting and retaining associates. Business Culture .
The Company intends to continue seeking opportunities, both inside and outside its existing markets, to expand either by acquiring existing banks or branches of banks or by establishing new banking centers.
Expand Market Share Through Internal Growth and a Disciplined Acquisition Strategy. The Company intends to continue seeking opportunities, both inside and outside its existing markets, to expand either by acquiring existing banks or branches of banks or by establishing new banking centers.
In October 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
In October 2024, the CFPB issued a final rule that requires a provider of payment accounts or products, such as a bank, to make data available to consumers free upon request regarding the products or services they obtain from the provider.
With respect to the Bank, the Basel III Capital Rules also revised the “prompt corrective action” regulations as discussed below under “The Bank—Corrective Measures for Capital Deficiencies.” In response to the novel strain of coronavirus disease (“COVID-19”) pandemic, in March 2020 the joint federal bank regulatory agencies issued an interim final rule that allowed banking organizations that implemented ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” (“CECL”) in 2020 to mitigate the effects of the CECL accounting standard in their regulatory capital for two years.
In response to the novel strain of coronavirus disease (“COVID-19”) pandemic, in March 2020 the joint federal bank regulatory agencies issued an interim final rule that allowed banking organizations that implemented ASU 2016-13, “ Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments” (“CECL”) in 2020 to mitigate the effects of the CECL accounting standard in their regulatory capital for two years.
Officers and associates have access to each customer’s existing and related account relationships and are better able to inform customers of additional products when customers visit or call the various banking centers or use their drive-in facilities. In addition, the Company includes product information on its web page and in monthly statements and other mailings.
Officers and associates have access to each customer’s existing and related account relationships and are better able to inform customers of additional products when customers visit or call the various banking centers or use their drive-in facilities.
Lone Star Bank operates five banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. As of December 31, 2023, Lone Star, on a consolidated basis, reported total assets of $1.37 billion, total loans of $1.08 billion and total deposits of $1.21 billion.
Lone Star operated five full-service banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas. As of March 31, 2024, Lone Star, on a consolidated basis, reported total assets of $1.38 billion, total loans of $1.07 billion and total deposits of $1.24 billion.
At December 31, 2023, noninterest-bearing demand deposits were 36.0% of the Bank’s total deposits. For the year ended December 31, 2023, the Company’s average cost of funds was 1.54% and the Company’s average cost of deposits (excluding all borrowings) was 1.00%.
At December 31, 2024, noninterest-bearing demand deposits were 34.5% of the Bank’s total deposits. For the year ended December 31, 2024, the Company’s average cost of funds was 1.87%, and the Company’s average cost of deposits (excluding all borrowings) was 1.47%.
Construction, land development and other land loans were $3.08 billion and represented 14.5% of the total loan portfolio as of December 31, 2023. Warehouse Purchase Program loans were $822.2 million and represented 3.9% of the total loan portfolio as of December 31, 2023. Maintain Sound Asset Quality.
Construction, land development and other land loans were $2.86 billion and represented 12.9% of the total loan portfolio as of December 31, 2024. Warehouse Purchase Program loans were $1.08 billion and represented 4.9% of the total loan portfolio as of December 31, 2024. Maintain Sound Asset Quality.
The Company’s associates bring a diversity of backgrounds, perspectives, and experiences that are reflective of the communities and customers the Company serves. The unique capabilities and talents that its associates invest in their work represent a significant part of not only the Company’s culture but its reputation and achievements as well.
The unique capabilities and talents that its associates invest in their work represent a significant part of not only the Company’s culture but its reputation and achievements as well.
The Company adopted the option provided by the interim final rule, which delayed the effects of CECL on its regulatory capital through 2021, after which the effects will be phased in over a three-year period from January 1, 2022 through December 31, 2024.
This two-year delay is in addition to the three-year transition period that the agencies had already made available. The Company adopted the option provided by the interim final rule, which delayed the effects of CECL on its regulatory capital through 2021, after which the effects were phased in over a three-year period from January 1, 2022 through December 31, 2024.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets. Dividends paid by the Bank have provided a substantial part of the Company’s operating funds, and it is anticipated that dividends paid by the Bank to the Company will continue to be the Company’s principal source of operating funds.
Dividends paid by the Bank have provided a substantial part of the Company’s operating funds, and it is anticipated that dividends paid by the Bank to the Company will continue to be the Company’s principal source of operating funds. Capital adequacy requirements serve to limit the amount of dividends that may be paid by the Bank.
A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.
Anti-Money Laundering and Anti-Terrorism Legislation. A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing. The U.S.
The NYSE’s listing standards pursuant to the SEC’s rule became effective on October 2, 2023. The Company adopted a compensation recovery policy pursuant to the NYSE listing standards on November 13, 2023. The Policy is included as Exhibit 97.1 to this Form 10-K. Cybersecurity .
The NYSE’s listing standards pursuant to the SEC’s rule became effective on October 2, 2023. The Company adopted a compensation recovery policy pursuant to the NYSE listing standards on November 13, 2023.
(“First Bancshares”) — Effective May 1, 2023, the Company completed the merger of First Bancshares into the Company and the subsequent merger of its wholly owned subsidiary, FirstCapital Bank of Texas, N.A. (“FirstCapital Bank”), into the Bank (collectively, the “Merger”).
In October 2024, the Company completed the operational conversion of Lone Star Bank. 1 Merger of First Bancshares of Texas, Inc. — Effective May 1, 2023, the Company completed the merger of First Bancshares of Texas, Inc. (“First Bancshares”) into the Company and the subsequent merger of its wholly owned subsidiary, FirstCapital Bank of Texas, N.A.
Compet ition The banking business is highly competitive, and the profitability of the Company depends principally on its ability to compete in its market areas.
In addition, the Company includes product information on its web page and in monthly statements and other mailings. 4 Compet ition The banking business is highly competitive, and the profitability of the Company depends principally on its ability to compete in its market areas.
As of December 31, 2023, the Company’s ratio of CET1 to risk-weighted assets was 15.54%, Tier 1 capital to risk-weighted assets was 15.54%, total capital to risk-weighted assets was 16.56% and Tier 1 capital to average quarterly assets was 10.39%.
As of December 31, 2024, the Company’s ratio of CET1 to risk-weighted assets was 16.42%, Tier 1 capital to risk-weighted assets was 16.42%, total capital to risk-weighted assets was 17.67% and Tier 1 capital to average quarterly assets (leverage ratio) was 10.82%.
Deposit Insurance Assessments. The deposits of the Bank are insured up to applicable limits by the DIF, and the Bank must pay deposit insurance assessments to the FDIC for such deposit insurance protection.
The Bank has adopted a customer information security program to comply with these requirements. Deposit Insurance Assessments. The deposits of the Bank are insured up to applicable limits by the DIF, and the Bank must pay deposit insurance assessments to the FDIC for such deposit insurance protection.
Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities. Anti-Money Laundering and Anti-Terrorism Legislation.
Among other things, the revised rules evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, apply a metrics-based benchmarking approach to assessment, and clarify eligible CRA activities. As of December 31, 2024, t he revised CRA regulations have been subject to an injunction since March 29, 2024.
Customers are served by a local banker with decision making authority. The Company also maintains specialty commercial lending lines of business staffed by bankers with lending expertise in the various business lines—commercial middle market, energy, mortgage warehouse and insurance lending. Expand Market Share Through Internal Growth and a Disciplined Acquisition Strategy.
Each banking center has its own listed local business telephone number. Customers are served by a local banker with decision making authority. The Company also maintains specialty commercial lending lines of business staffed by bankers with lending expertise in the various business lines—commercial middle market, energy, mortgage warehouse and insurance lending.
FirstCapital Bank of Texas 2023 16 (1) The number of banking centers added does not include any locations of the acquired entity that were closed and consolidated with existing banking centers of the Company upon consummation of the transaction or closed after consummation of the transaction. Recent Acquisition Merger of First Bancshares of Texas, Inc.
Lone Star State Bank of West Texas 2024 5 (1) The number of banking centers added does not include any locations of the acquired entity that were closed and consolidated with existing banking centers of the Company upon consummation of the transaction or closed after consummation of the transaction.
The Company staffs its banking centers with experienced bankers who possess lending expertise to effectively serve their community and gives them authority with centralized support to make certain pricing and credit decisions, avoiding the bureaucratic structure of larger banks. Each banking center has its own listed local business telephone number.
The Company provides a high degree of responsiveness combined with a wide variety of banking products and services. The Company staffs its banking centers with experienced bankers who possess lending expertise to effectively serve their community and gives them authority with centralized support to make certain pricing and credit decisions, avoiding the bureaucratic structure of larger banks.
Although the Company has significantly grown in the last several years, it intends to continue operating as a community banking organization focused on meeting the specific needs of consumers and businesses in its market areas. The Company provides a high degree of responsiveness combined with a wide variety of banking products and services.
To achieve this objective, the Company has employed the following strategic goals: Continue Community Banking Emphasis. Although the Company has significantly grown in the last several years, it intends to continue operating as a community banking organization focused on meeting the specific needs of consumers and businesses in its market areas.
As of December 31, 2023, the Company had 3,850 full-time equivalent associates, 1,099 of whom were officers of the Bank. Neither the Company nor the Bank is a party to any collective bargaining agreement. Diversity and Inclusion. The Company is committed to fostering, cultivating and preserving a culture of diversity and inclusion.
As of December 31, 2024, the Company had 3,916 full-time equivalent associates, 1,130 of whom were officers of the Bank. Neither the Company nor the Bank is a party to any collective bargaining agreement. The Company is fully committed to the concept and practice of equal opportunity.
Through its commitment to a diverse workforce, the Company has implemented the following initiatives: • Creating an inclusive work environment by hiring, training, and retaining associates from diverse backgrounds. • Encouraging associates to recruit new team members through the Company’s Referral Reward Program. • Reaching out to organizations that assist women and minorities in job services in order to attract a more diverse group of applicants. • Through its Diversity Officer, working with associates on understanding the importance of diversity and how to actively develop an inclusive work environment. • Participating in a variety of activities that reflect the cultural diversity within the communities the Company serves. 2 • Striving to select vendors/suppliers who reflect the diversity of the communities the Company serves. • Developing strategies to reach multicultural markets.
To further foster its relationship with its associates, the Company has implemented the following initiatives: • Hiring, training, and retaining associates from diverse backgrounds. • Encouraging associates to recruit new team members through the Company’s Referral Reward Program. • Reaching out to organizations that assist women and minorities in job services in order to attract a more diverse group of applicants. • Participating in a variety of activities that reflect the demographics within the communities the Company serves. • Developing strategies to reach multicultural markets. • Providing training and development opportunities as noted below.
Loans at December 31, 2023 were $21.18 billion compared with $18.84 billion at December 31, 2022, an increase of $2.34 billion or 12.4%. Commercial and industrial loans were $2.31 billion and represented 10.9% of the total loan portfolio as of December 31, 2023.
Loans at December 31, 2024 were $22.15 billion compared with $21.18 billion at December 31, 2023, an increase of $968.7 million or 4.6%. Commercial and industrial loans were $2.51 billion and represented 11.3% of the total loan portfolio as of December 31, 2024.
The cumulative amount of the transition adjustments is being phased in over the three-year transition period that began on January 1, 2022, with 75% recognized in 2022, 50% recognized in 2023, and 25% recognized in 2024.
The cumulative amount of the transition adjustments was phased in over a three-year transition period that began on January 1, 2022, was 75% recognized in 2022, 50% recognized in 2023, and 25% recognized in 2024. The Bank The Bank is a Texas-chartered banking association, the deposits of which are insured by the DIF of the FDIC.
Since neither the Company nor the Bank engages in the types of trading or investing covered by the Volcker Rule, the Volcker Rule does not currently have any effect on the operations of the Company or the Bank. 8 The Bank The Bank is a Texas-chartered banking association, the deposits of which are insured by the DIF of the FDIC.
Since neither the Company nor the Bank engages in the types of trading or investing covered by the Volcker Rule, the Volcker Rule does not currently have any effect on the operations of the Company or the Bank. 7 Incentive Compensation.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits; and their use may affect interest rates charged on loans or paid for deposits.
These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits; and their use may affect interest rates charged on loans or paid for deposits. 13 Federal Reserve Board monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future.
In July 2019, the federal bank regulators adopted final rules that, among other things, eliminated the standalone prior approval requirement in the Basel III Capital Rules for any repurchase of common stock.
Further, the Federal Reserve Board may oppose a dividend or repurchase transaction if it would constitute an unsafe or unsound practice or would violate any law or regulation. In July 2019, the federal bank regulators adopted final rules that, among other things, eliminated the standalone prior approval requirement in the Basel III Capital Rules for any repurchase of common stock.
Failure to comply with consumer protection requirements may also result in the Bank’s failure to obtain any required regulatory approval for merger or other acquisition transactions the Bank may wish to pursue or its prohibition from engaging in such transactions even if approval is not required.
Failure to comply with consumer protection requirements may also result in the Bank’s failure to obtain any required regulatory approval for merger or other acquisition transactions the Bank may wish to pursue or its prohibition from engaging in such transactions even if approval is not required. 10 The Dodd-Frank Act established the CFPB, which has supervisory, examination and enforcement authority over depository institutions with total assets of $10 billion or greater and other providers of consumer financial products or services such as the Bank.
Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If the Company fails to observe such regulatory guidance or standards, the Company could be subject to various regulatory sanctions, including financial penalties.
If the Company fails to observe such regulatory guidance or standards, the Company could be subject to various regulatory sanctions, including financial penalties.
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services. For banks with over $50 billion and less than $500 billion in total assets, compliance would be required approximately one year after adoption of the final rule.
The final rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services. Banks with over $10 billion and less than $250 billion in total assets, such as the Bank, must comply with the new requirements by April 1, 2027.
Federal Reserve Board monetary policies have materially affected the operating results of commercial banks in the past and are expected to continue to do so in the future. The nature of future monetary policies and the effect of such policies on the business and earnings of the Company and its subsidiaries cannot be predicted.
The nature of future monetary policies and the effect of such policies on the business and earnings of the Company and its subsidiaries cannot be predicted.
The proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Federal Reserve from large debit card issuers. Concentrated Commercial Real Estate Lending. The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents per debit card transaction. The proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Federal Reserve Board from large debit card issuers.
In addition to internal growth, the Company completed the following acquisitions within the last ten years (through December 31, 2023): Acquired Entity Acquired Bank Completion Date Number of Banking Centers Acquired (1) East Texas Financial Services, Inc. Firstbank 2013 4 Coppermark Bancshares, Inc. Coppermark Bank 2013 6 FVNB Corp. First Victoria National Bank 2013 20 F&M Bancorporation Inc.
In addition to internal growth, the Company has completed the following acquisitions since 2014 (through December 31, 2024): Acquired Entity Acquired Bank Completion Date Number of Banking Centers Acquired (1) F&M Bancorporation Inc. The F&M Bank & Trust Company 2014 11 Tradition Bancshares, Inc. Tradition Bank 2016 7 LegacyTexas Financial Group, Inc.
The trust department provides trust services in the Company’s various market areas. Business S trategies The Company’s main objective is to increase deposits and loans through internal growth, as well as through acquisition opportunities, while maintaining efficiency, providing individualized customer service and maximizing profitability. To achieve this objective, the Company has employed the following strategic goals: Continue Community Banking Emphasis.
For more information about the Company’s segment reporting, refer to Note 1 to the consolidated financial statements. 3 Business S trategies The Company’s main objective is to increase deposits and loans through internal growth, as well as through acquisition opportunities, while maintaining efficiency, providing individualized customer service and maximizing profitability.
In addition, in March 2022, the SEC proposed rules that would require disclosure of material cybersecurity incidents as well as cybersecurity risk management, strategy and governance. The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.
The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes.
The Change in Bank Control Act prohibits a person or group of persons from acquiring “control” of a bank holding company unless the Federal Reserve Board has been notified and has not objected to the transaction.
Under the Change in Bank Control Act and the regulations thereunder, a person or group must give advance notice to the Federal Reserve Board before acquiring control of any bank holding company, such as the Company, or before acquiring control of any FDIC-insured bank, such as the Bank.
Under the terms of the definitive agreement, the Company will issue 2,376,182 shares of its common stock plus $64.1 million in cash for all outstanding shares of Lone Star capital stock, subject to certain conditions and potential adjustments.
Pursuant to the terms of the definitive agreement, the Company issued 2,376,182 shares of its common stock plus approximately $64.1 million in cash for all outstanding shares of Lone Star. This resulted in goodwill of $106.7 million as of December 31, 2024, which does not include all the subsequent fair value adjustments that have not yet been finalized.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company’s financial condition and results of operations.
Biggest changeIn addition, future 17 laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability. Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards.
These provisions include: • a Board of Directors classified into three classes of directors with the directors of each class having staggered three-year terms; • a provision that any special meeting of the Company’s shareholders may be called only by the chairman of the board and chief executive officer, the president, a majority of the Board of Directors or the holders of at least 50% of the Company’s shares entitled to vote at the meeting; and • a provision establishing certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered at an annual or special meeting of shareholders.
These provisions include: • a Board of Directors classified into three classes of directors with the directors of each class having staggered three-year terms; 25 • a provision that any special meeting of the Company’s shareholders may be called only by the chairman of the board and chief executive officer, the president, a majority of the Board of Directors or the holders of at least 50% of the Company’s shares entitled to vote at the meeting; and • a provision establishing certain advance notice procedures for nomination of candidates for election as directors and for shareholder proposals to be considered at an annual or special meeting of shareholders.
Commercial real estate markets have been impacted by the economic disruptions caused by the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options that could have an adverse effect on the long-term performance of some types of office properties within the Company’s commercial real estate portfolio.
Commercial real estate markets have been impacted by the economic disruptions caused by the COVID-19 pandemic. The pandemic 16 has also been a catalyst for the evolution of various remote work options that could have an adverse effect on the long-term performance of some types of office properties within the Company’s commercial real estate portfolio.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on the Company’s business, financial condition and results of operations. 22 If the goodwill that the Company recorded in connection with a business acquisition becomes impaired, it could require charges to earnings.
Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on the Company’s business, financial condition and results of operations. If the goodwill that the Company recorded in connection with a business acquisition becomes impaired, it could require charges to earnings.
If this framework is not effective, the Company may be subject to potentially adverse regulatory consequences and could suffer unexpected losses and its financial condition or results of operations could be materially adversely affected. The Company is subject to risk arising from the failure or circumvention of internal controls and procedures.
If this framework is not effective, the Company may be subject to potentially adverse regulatory consequences and could suffer unexpected losses and its financial condition or results of operations could be materially adversely affected. 22 The Company is subject to risk arising from the failure or circumvention of internal controls and procedures.
Further, commercial loans generally will be serviced primarily from the operation of the business, which may not be successful, while 17 commercial real estate loans generally will be serviced from income on the properties securing the loans. As the Company’s various commercial loan portfolios increase, the corresponding risks and potential for losses from these loans will also increase.
Further, commercial loans generally will be serviced primarily from the operation of the business, which may not be successful, while commercial real estate loans generally will be serviced from income on the properties securing the loans. As the Company’s various commercial loan portfolios increase, the corresponding risks and potential for losses from these loans will also increase.
An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on the Company’s business, financial condition and results of operations. The fair value of the Company’s investment securities can fluctuate due to factors outside of its control.
An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on the Company’s business, financial condition and results of operations. 18 The fair value of the Company’s investment securities can fluctuate due to factors outside of its control.
The determination of the appropriate level of the allowance inherently involves a high 16 degree of subjectivity and requires the Company to make significant estimates of current credit risks, future trends and general economic conditions, including inflation and recession, all of which may undergo material changes.
The determination of the appropriate level of the allowance inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, future trends and general economic conditions, including inflation and recession, all of which may undergo material changes.
An increase in the Company’s allowance for credit losses or charge-offs as required by these regulatory agencies could have a material adverse effect on the Company’s operating results and financial condition. The Company’s profitability depends significantly on local economic conditions.
An increase in the Company’s allowance for credit losses or charge-offs as required by these regulatory agencies could have a material adverse effect on the Company’s operating results and financial condition. 15 The Company’s profitability depends significantly on local economic conditions.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 27
In addition, the Company is exposed to risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual loans and borrowers.
In addition, the Company is exposed to risks with 14 respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting, risks resulting from changes in economic and industry conditions, and risks inherent in dealing with individual loans and borrowers.
Further, the economy in Texas as a whole could be negatively impacted if there are a high number of jobs lost related to a decline in oil production in the state, or if the impact of lower oil prices negatively affects other industries.
The economy in Texas as a whole could be negatively impacted if there are a high number of jobs lost related to a decline in oil production in the state, or if the impact of lower oil prices negatively affects other industries.
Changes resulting from these new standards may result in 19 materially different financial results and may require that the Company changes how it processes, analyzes and reports financial information and that it changes financial reporting controls.
Changes resulting from these new standards may result in materially different financial results and may require that the Company changes how it processes, analyzes and reports financial information and that it changes financial reporting controls.
This 24 risk management framework may not be effective under all circumstances, and it may not adequately identify, manage or mitigate all or any risk or loss to the Company.
This risk management framework may not be effective under all circumstances, and it may not adequately identify, manage or mitigate all or any risk or loss to the Company.
Furthermore, evolving responses from federal and state governments and other regulators, and the Company’s customers or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which the Company operates, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Further, evolving responses from federal and state governments and other regulators, and the Company’s customers or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which the Company operates, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Additionally, the market for bank acquisitions was significantly and adversely impacted in 2023, and remains impacted, by a number of factors, including: • increased regulatory scrutiny; • elevated interest rates; • declining financial institution stock value • lower fair market values of investment securities portfolios; and • high-profile regional bank failures and the resulting effects therefrom.
Additionally, the market for bank acquisitions was significantly and adversely impacted in 2023, by a number of factors, including: • increased regulatory scrutiny; • elevated interest rates; 19 • declining financial institution stock value • lower fair market values of investment securities portfolios; and • high-profile regional bank failures and the resulting effects therefrom.
A significant decline in general economic conditions, caused by inflation, an increase or decline in commodity prices, recession, weather extremes, acts of terrorism, outbreaks of hostilities or other international or domestic calamities, unemployment or other factors could impact these local economic conditions and could negatively affect the Company’s financial condition, results of operations and cash flows.
A significant decline in general economic conditions, inflation, an increase or decline in commodity prices, recession, weather extremes, acts of terrorism, outbreaks of hostilities or other international or domestic calamities, unemployment or other factors could impact these local economic conditions and could negatively affect the Company’s financial condition, results of operations and cash flows.
The amount of specific “cyber” insurance coverage that the Company maintains and expects would apply in the event of various breach scenarios may not be adequate in any particular case. In addition, cyber threat scenarios are inherently difficult to predict and can take many forms, some of which may not be covered under the Company’s cyber insurance coverage.
The amount of cyber insurance coverage that the Company maintains and expects would apply in the event of various breach scenarios may not be adequate in any particular case. In addition, cyber threat scenarios are inherently difficult to predict and can take many forms, some of which may not be covered under the Company’s cyber insurance coverage.
Any failure or circumvention of controls and procedures; failure to comply with regulations related to controls and procedures; or failure to comply with corporate governance procedures could have a material adverse effect on the Company’s reputation, business, financial condition and results of operations, including subjecting us to litigation, regulatory fines, penalties or other sanctions.
Any failure or circumvention of controls and procedures; failure to comply with regulations related to controls and procedures; or failure to comply with corporate governance procedures could have a material adverse effect on the Company’s reputation, business, financial condition and results of operations, including subjecting the Company to litigation, regulatory fines, penalties or other sanctions.
The Company could face increased scrutiny or be viewed as higher risk by regulators or investors, which could have a material adverse effect on the Company’s business, financial condition, and results of operations. 25 The Company is subject to claims and litigation pertaining to intellectual property.
The Company could face increased scrutiny or be viewed as higher risk by regulators or investors, which could have a material adverse effect on the Company’s business, financial condition, and results of operations. 23 The Company is subject to claims and litigation pertaining to intellectual property.
The trading price for the Company’s common stock may fluctuate significantly in response to a variety of factors outside the Company’s control, including, among other things: • actual or anticipated variations in quarterly results of operations; • changes in recommendations by securities analysts; • failure to meet analysts’ revenue or earnings estimates; • changes in ratings from national rating agencies on the securities in the Company’s investment portfolio; • operating and stock price performance of other companies that investors deem comparable to the Company; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding the Company and/or its competitors; • new technology used, or services offered, by competitors; • cybersecurity breaches; • actions by institutional shareholders; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; • geopolitical conditions such as acts or threats of terrorism or military conflicts, such as the wars in Ukraine and the Middle East; • general market conditions, including real or anticipated changes in the strength of the Texas and Oklahoma economies; and • industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, presidential and congressional elections, interest rate changes, oil price volatility or credit losses.
The trading price for the Company’s common stock may fluctuate significantly in response to a variety of factors outside the Company’s control, including, among other things: • actual or anticipated variations in quarterly results of operations; • changes in recommendations by securities analysts; • failure to meet analysts’ revenue or earnings estimates; • changes in ratings from national rating agencies on the securities in the Company’s investment portfolio; • operating and stock price performance of other companies that investors deem comparable to the Company; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding the Company and/or its competitors; • new technology used, or services offered, by competitors; • cybersecurity breaches; • actions by institutional shareholders; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company or its competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; • geopolitical conditions such as acts or threats of terrorism or military conflicts, such as the wars in Ukraine and the Middle East; • general market conditions, including real or anticipated changes in the strength of the Texas and Oklahoma economies; and • industry factors and general economic and political conditions and events, such as economic slowdowns or recessions, presidential and congressional elections, interest rate changes, oil price volatility or credit losses. 26 General Risks Negative publicity could damage the Company’s reputation and business.
The market value for real estate can fluctuate significantly over a relatively short period as a result of conditions in the Company’s primary market areas, due to economic downturns, changes in the economic health of industries heavily concentrated in a particular market area, or changes in market interest rates.
The market value for real estate can fluctuate significantly over a relatively short period as a result of conditions in the Company’s primary market areas, due to economic downturns, changes in the economic health of industries heavily concentrated in a particular market area, housing supply, or changes in market interest rates.
Any failure, interruption or breach in security of these systems, whether caused by physical damage, hackers, viruses or other malware, could jeopardize the security of information stored in and transmitted through the Company’s computer systems and network infrastructure as well as result in failures or disruptions in the Company’s customer relationship management, general ledger, deposits, servicing or loan origination systems.
Any failure, interruption or breach in security of these systems, whether caused by physical damage, internal or external threat actors, viruses or other malware, could jeopardize the security of information stored in and transmitted through the Company’s computer systems and network infrastructure as well as result in failures or disruptions in the Company’s customer relationship management, general ledger, deposits, servicing or loan origination systems.
Negative public opinion could result from the Company’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.
Negative public opinion could result from the Company’s actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, mergers and acquisitions, and public scrutiny related to environmental, social and governance issues, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct.
The Company may be adversely affected by weaknesses in the commercial real estate market. As of December 31, 2023, commercial real estate loans (including multifamily residential and excluding farmland) comprised approximately 26.8% of the Company’s loan portfolio.
The Company may be adversely affected by weaknesses in the commercial real estate market. As of December 31, 2024, commercial real estate loans (including multifamily residential and excluding farmland) comprised approximately 26.2% of the Company’s loan portfolio.
These risks include (i) operational risk from the physical effects of climate events on the Company’s facilities and other assets as well as those of customers; (ii) credit risk from borrowers with significant exposure to climate risk; and (iii) reputational risk from stakeholder concerns about the Company’s practices related to climate change, the Company’s carbon footprint and the Company’s business relationships with customers who operate in carbon-intensive industries.
These risks include (1) operational risk from the physical effects of climate events on the Company’s facilities and other assets as well as those of customers; (2) credit risk from borrowers with significant exposure to climate risk; and (3) reputational risk from stakeholder concerns about the Company’s practices related to climate change, the Company’s carbon footprint and the Company’s business relationships with customers who operate in carbon-intensive industries.
Current economic conditions are significantly affected by elevated levels of inflation and rising interest rates throughout 2022 and 2023. Continuing inflationary pressures in 2024 could lead to increased costs to the Company’s customers, making it more difficult for them to repay their loans or other obligations, which would increase the Company’s credit risk.
Current economic conditions are significantly affected by elevated interest rates and levels of inflation. Continuing inflationary pressures in 2025 could lead to increased costs to the Company’s customers, making it more difficult for them to repay their loans or other obligations, which would increase the Company’s credit risk.
The preparation of consolidated financial statements in conformity with GAAP, including the accounting rules and regulations of the SEC and the FASB, requires management to make significant estimates and assumptions that impact the Company’s financial statements by affecting the value of its assets or liabilities and results of operations.
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”), including the accounting rules and regulations of the SEC and the FASB, requires management to make significant estimates and assumptions that impact the Company’s financial statements by affecting the value of its assets or liabilities and results of operations.
In addition, increases in cyber threats and the sophistication of bad actors, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms the Company and its third-party service providers use to protect client transaction data.
In addition, increases in cyber threats and the sophistication of bad actors, advances in computer capabilities, new discoveries in the field of cryptography and/or artificial intelligence, or other developments could result in a compromise or breach of the programs and processes that the Company and its third-party service providers use to protect client transaction data.
Any such adjustments are reflected in the Company’s results of operations in the periods in which they become known. At December 31, 2023, the Company’s goodwill totaled $3.40 billion.
Any such adjustments are reflected in the Company’s results of operations in the periods in which they become known. At December 31, 2024, the Company’s goodwill totaled $3.50 billion.
Climate change could have a material negative impact on the Company and its customers The Company’s business, as well as the operations and activities of its customers, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Company and its customers and these risks are expected to increase over time.
The Company’s business, as well as the operations and activities of its customers, could be negatively impacted by climate change. Climate change presents both immediate and long-term risks to the Company and its customers and these risks are expected to increase over time.
The Company’s ability to borrow could also be impaired by factors that are not specific to it, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the turmoil faced by banking organizations in 2023 and the continued deterioration in credit markets.
The Company’s ability to borrow could also be impaired by factors that are not specific to it, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry and deterioration in credit markets.
These technological advances increase cybersecurity risk. The Company’s programs that are intended to prevent or limit the effects of cybersecurity risk may not be sufficient to eliminate all unauthorized transactions or unauthorized access to customer information. The financial, reputational and regulatory impact of unauthorized transactions or unauthorized access to customer information could be significant.
These technological advances increase cybersecurity risk. The Company’s programs that are intended to prevent or limit the effects of cybersecurity risk may not be sufficient to eliminate all unauthorized transactions or unauthorized access to customer information.
These market developments have negatively impacted customer confidence in the safety and soundness of regional banks. As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.
Approximately 82.6% of the Company’s total loans as of December 31, 2023 consisted of loans included in the real estate loan portfolio, with 29.6% in commercial real estate (including farmland and multifamily residential), 38.5% in residential real estate (including home equity) and 14.5% in construction, land development and other land loans.
Approximately 80.5% of the Company’s total loans as of December 31, 2024 consisted of loans included in the real estate loan portfolio, with 29.3% in commercial real estate (including farmland and multifamily residential), 38.3% in residential real estate (including home equity) and 12.9% in construction, land development and other land loans.
General Risks Negative publicity could damage the Company’s reputation and business. Reputation risk, or the risk to earnings and capital from negative public opinion, is inherent in the Company’s business.
Reputation risk, or the risk to earnings and capital from negative public opinion, is inherent in the Company’s business.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally. Negative public opinion could adversely affect the Company’s ability to keep and attract customers and expose it to adverse legal and regulatory consequences. Public companies face increasing public scrutiny related to environmental, social and governance ("ESG") activities.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally. Negative public opinion could adversely affect the Company’s ability to keep and attract customers and expose it to adverse legal and regulatory consequences.
Such events and long-term shifts may also have a significant impact on the Company’s customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses counterparties of the Company, which could have a broader impact on the economy, supply chains and distribution networks. 26 Climate change also exposes the Company to risks associated with the transition to a less carbon-dependent economy.
Such events and long-term shifts may also have a significant impact on the Company’s customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses counterparties of the Company, which could have a broader impact on the economy, supply chains and distribution networks.
Furthermore, the occurrence of any such event in the future could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
Furthermore, the occurrence of any such event in the future could have a material adverse effect on the Company’s business, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations. 24 Climate change could have a material negative impact on the Company and its customers.
The Company may be adversely affected by data breaches at retailers and other third parties who maintain data relating to the Company’s customers that involve the theft of customer data, including the theft of customers’ debit card, credit card, wire transfer and other identifying and/or access information used to make purchases or payments at such retailers and to other third parties.
The Company may be adversely affected by data breaches at customers’ service providers, aggregators, retailers and other third parties who maintain data relating to the Company’s customers who obtain a service from the third party and that involve the theft of customer data, including the theft of customers’ account data, debit card, credit card, wire transfer and other identifying and/or access information used to obtain the services of third parties.
Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC and banking regulators) may change prior interpretations or positions on how these standards should be applied.
The Financial Accounting Standards Board (“FASB”) and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of the Company’s financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC and banking regulators) may change prior interpretations or positions on how these standards should be applied.
A decline in the Texas economy related to oil production decline could impact the Company’s loan portfolios outside of the energy portfolio, if borrowers experience unemployment or loss of income and are unable to make payments on their loans. The Company is subject to losses due to fraudulent and negligent acts. Financial institutions are inherently exposed to fraud risk.
A decline in the Texas economy related to oil production decline could impact the Company’s loan portfolios outside of the energy portfolio, if borrowers experience unemployment or loss of income and are unable to make payments on their loans.
Although the Company has not recorded any such impairment charges since it initially recorded the goodwill, the Company’s future evaluations of goodwill could result in findings of impairment and related write-downs, which may have a material adverse effect on its financial condition and results of operations.
Although the Company has not recorded any such impairment charges since it initially recorded the goodwill, the Company’s future evaluations of goodwill could result in findings of impairment and related write-downs, which may have a material adverse effect on its financial condition and results of operations. 20 Operational Risks The Company’s accounting estimates and risk management processes rely on analytical and forecasting models and tools that may prove to be inaccurate.
As of December 31, 2023, commercial real estate (including farmland and multifamily residential) and commercial loans totaled $8.57 billion. In general, commercial real estate loans and commercial loans pose greater credit risks than do owner-occupied residential real estate loans. These types of loans are also typically larger than residential real estate loans.
As of December 31, 2024, commercial real estate (including farmland and multifamily residential) and commercial loans comprised approximately 40.6% of the Company’s loan portfolio. In general, commercial real estate loans and commercial loans pose greater credit risks than do owner-occupied residential real estate loans. These types of loans are also typically larger than residential real estate loans.
Accordingly, the Company may be unable to anticipate or be prepared for these techniques or to implement adequate security barriers or other preventative measures, and thus it is not possible for the Company to entirely mitigate this risk.
Accordingly, the Company may be unable to anticipate or be prepared for these techniques or to implement adequate security barriers or other preventative measures, and thus it is not possible for the Company to entirely mitigate this risk. Data privacy laws also continue to evolve, with states increasingly proposing or enacting legislation that relates to data privacy and data protection.
The Company faces a variety of risks and difficulties pursuing its growth strategy, including: • finding suitable markets for expansion; • finding suitable candidates for acquisition; • attracting funding to support additional growth; • maintaining asset quality; • attracting and retaining qualified management; • managing execution risks; • maintaining adequate regulatory capital; and • scaling technology platforms. 21 In addition, in order to manage its growth and maintain adequate information and reporting systems within its organization, the Company must identify, hire and retain additional qualified associates, particularly in the accounting and operational areas of its business.
The Company faces a variety of risks and difficulties pursuing its growth strategy, including: • finding suitable markets for expansion; • finding suitable candidates for acquisition; • attracting funding to support additional growth; • maintaining asset quality; • attracting and retaining qualified management; • managing execution risks; • maintaining adequate regulatory capital; and • scaling technology platforms.
These transition risks may result from changes in policies, laws and regulations, technologies, and/or market preferences to address climate change. Such changes could have a material adverse effect on the Company’s business, results of operations, financial condition and/or reputation, in addition to having a similar impact on the Company’s customers.
Such changes could have a material adverse effect on the Company’s business, results of operations, financial condition and/or reputation, in addition to having a similar impact on the Company’s customers.
The Company has implemented a risk management framework to identify and manage its risk exposure, which is reviewed and overseen by the Company’s Risk Committee.
The Company’s risk management framework may not be effective in identifying, managing or mitigating risks and/or losses to it. The Company has implemented a risk management framework to identify and manage its risk exposure, which is reviewed and overseen by the Company’s Risk Committee.
Breaches of the Company’s or vendors’ systems, thefts of data and other breaches and criminal activity may result in significant costs to respond or remediate losses, damage to the Company’s customer relationships, regulatory scrutiny and enforcement and loss of future business opportunities due to reputational damage.
Breaches of the Company’s or vendors’ systems, thefts of data and other breaches and criminal activity may result in significant disruptions to the Company’s operations, significant costs to respond or remediate losses, damage to the Company’s customer relationships, regulatory scrutiny and enforcement, civil litigation and possible financial liability and/or loss of future business opportunities due to reputational damage, any of which could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.
The Company is subject to certain risks in connection with its use of technology. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
The Company may be required to incur additional expense to comply with these evolving regulations and could face penalties for violating any of these regulations. The Company is subject to certain risks in connection with its use of technology. The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.
Offering such protection to customers exposes the Company to significant expenses and potential losses related to reimbursing the Company’s customers for fraud losses, reissuing the compromised cards and increased monitoring for suspicious activity.
Despite third-party security risks that are beyond the Company’s control, the Company offers its customers protection against fraud and attendant losses for unauthorized use. Offering such protection to customers exposes the Company to significant expenses and potential losses related to reimbursing the Company’s customers for fraud losses, reissuing the compromised cards and increased monitoring for suspicious activity.
Acquired companies may have unforeseen liabilities, exposure to asset quality problems, key employee and customer retention problems and other problems that could negatively affect the Company’s organization.
Acquisitions of financial institutions, such as the recent acquisitions of First Bancshares and Lone Star, involve operational risks and uncertainties. Acquired companies may have unforeseen liabilities, exposure to asset quality problems, key employee and customer retention problems and other problems that could negatively affect the Company’s organization.
Various banking laws applicable to the Bank limit the payment of dividends and other distributions by the Bank to the Company, and may therefore limit the Company’s ability to pay dividends on its common stock. 27 There may be substantial fluctuations in the Company’s stock price.
The Company’s principal source of funds to pay dividends on the shares of common stock is cash dividends that the Company receives from the Bank. Various banking laws applicable to the Bank limit the payment of dividends and other distributions by the Bank to the Company, and may therefore limit the Company’s ability to pay dividends on its common stock.
The Company’s operations rely on external vendors, which may fail to provide adequate services. The Company relies on certain external vendors to provide products and services necessary to maintain its day-to-day operations.
The financial, reputational and regulatory impact of unauthorized transactions or unauthorized access to customer information could be significant. 21 The Company’s operations rely on external vendors, which may fail to provide adequate services. The Company relies on certain external vendors to provide products and services necessary to maintain its day-to-day operations.
Further, the Company’s assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets and liabilities.
Further, the Company’s assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets and liabilities. Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s business, financial condition and results of operations.
Liquidity Risks Liquidity risk could impair the Company’s ability to fund operations and jeopardize its financial condition. Liquidity is essential to the Company’s business, and it monitors and manages its liquidity daily. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on the Company’s liquidity.
An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on the Company’s liquidity.
Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services functionally equivalent to those provided by banks.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Also, technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services functionally equivalent to those provided by banks.
The Company’s loan portfolio, and specifically its energy lending portfolio, could be adversely affected by declines in the prices of oil and natural gas, as well as other factors.
The Company’s loan portfolio, and specifically its energy lending portfolio, could be adversely affected by declines in the prices of oil and natural gas, as well as other factors. As of December 31, 2024, funded commitments to oil and gas production and service companies represented 2.5% of total loans, excluding Warehouse Purchase Program loans.
Any financial liability or reputation damage could have a material adverse effect on the Company’s business, financial condition and results of operations. Environmental, Social and Governance Risks Severe weather, natural disasters and other adverse external climate events could significantly impact the Company’s business and customers.
If such estimates or assumptions underlying its financial statements are incorrect, the Company’s financial condition and results of operations could be adversely affected. Environmental, Social and Governance Risks Severe weather, natural disasters and other adverse external climate events could significantly impact the Company’s business and customers.
During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans, and there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage.
The Company is subject to environmental liability risk associated with lending activities. A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans, and there is a risk that hazardous or toxic substances could be found on these properties.
Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve Board increased interest rates rapidly. Further, the Federal Reserve Board announced an intention to take further actions to mitigate inflationary pressures. Rapid changes in interest rates may make it difficult for the Company to balance its loan and deposit portfolios.
Although the inflationary outlook in the United States has improved, it remains above the Federal Reserve Board’s target and the Federal Reserve Board may take further actions to mitigate inflationary pressures. Rapid changes in interest rates may make it difficult for the Company to balance its loan and deposit portfolios.
Human errors, malfeasance and other misconduct, even if promptly discovered and remediated, can result in reputational damage or legal risk and have a material adverse effect on the Company’s business, financial condition and results of operations. Legal, Regulatory and Compliance Risks The Company operates in a highly regulated environment and, as a result, is subject to extensive regulation and supervision.
Human errors, malfeasance and other misconduct, even if promptly discovered and remediated, can result in reputational damage or legal risk and have a material adverse effect on the Company’s business, financial condition and results of operations. The use of new technologies, including artificial intelligence (“AI”) and machine learning, may result in reputational harm, increased regulatory scrutiny and increased liability.
The Company may incur meaningful costs with respect to its ESG efforts and if such efforts are negatively perceived, the Company’s reputation and stock price may suffer. 28 Failure to compete effectively for customers could adversely affect the Company’s growth and profitability, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
Regardless of the outcome, the Company could incur meaningful costs with respect to its ESG efforts and if such efforts are negatively perceived, the Company’s reputation and stock price may suffer.
If a data breach of considerable magnitude were to occur at one or more retailers, the Company’s business, financial condition and results of operations may be adversely affected. The Company’s risk management framework may not be effective in identifying, managing or mitigating risks and/or losses to it.
If a data breach of considerable magnitude were to occur at one or more service providers, aggregators, retailers or another third party, the Company’s business, financial condition and results of operations may be adversely affected. The Company is subject to losses due to fraudulent and negligent acts. Financial institutions are inherently exposed to fraud risk.
The Company also faces competition from many other types of financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, financial technology (fintech) companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.
These competitors primarily include national, regional, and community banks within the various markets where the Company operates. The Company also faces competition from many other types of financial institutions, including savings and loans, credit unions, finance companies, brokerage firms, insurance companies, financial technology (fintech) companies and other financial intermediaries.
To the extent these factors, or other factors outside of the Company’s control, persist or arise, the Company’s ability to pursue and consummate acquisitions may be adversely impacted. Acquisitions of financial institutions, such as the recent acquisition of First Bancshares and the pending acquisition of Lone Star, involve operational risks and uncertainties.
Although most of these factors have either significantly subsided or no longer remain, to the extent these factors, or other factors outside of the Company’s control, return, persist, or arise, the Company’s ability to pursue and consummate acquisitions may be adversely impacted.
The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. These competitors primarily include national, regional, and community banks within the various markets where the Company operates.
Failure to compete effectively for customers could adversely affect the Company’s growth and profitability, which could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their proxy recommendations.
Additionally, while investors and shareholder advocates continued to place emphasis on how corporations address Environmental, Social and Governance (“ESG”) issues in their business strategy when making investment decisions and when developing their proxy recommendations, the Executive Orders issued by the President of the United States in early 2025 may impact the ESG initiatives of investors and the Company’s decisions with respect to ESG.
Recent negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system. The high-profile closures of various banks in 2023, and concerns about similar future events, have generated significant market volatility among publicly traded bank holding companies and, in particular, regional banks like the Company.
Any future bank failures like those experienced in 2023 or similar events may negatively impact customer confidence in the safety and soundness of regional banks and may generate market volatility among publicly traded bank holding companies and, in particular, regional banking organizations like the Company.
Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to environmental liability.
If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property.
While the Department of the Treasury, the Federal Reserve Board, and the FDIC took action to ensure that depositors of 20 these failed banks had access to their deposits, including uninsured deposit accounts, such actions may not be successful in restoring customer confidence in regional banks and the banking system more broadly.
While the Department of the Treasury, the Federal Reserve Board, and the FDIC historically have taken action to ensure that depositors of failed banks had access to their deposits, including uninsured deposit accounts, there is no guarantee that regional bank failures or bank runs will not occur in the future and, if they were to occur, they may have a material and adverse impact on customer and investor confidence in regional banks negatively impacting the Company’s liquidity, capital, results of operations and stock price.
The Company’s financial conditions and results of operations may be adversely affected by changes in accounting policies, standards and interpretations. The Financial Accounting Standards Board (“FASB”) and other bodies that establish accounting standards periodically change the financial accounting and reporting standards governing the preparation of the Company’s financial statements.
Any financial liability or reputation damage could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company’s financial condition and results of operations may be adversely affected by changes in accounting policies, standards and interpretations.
Any of the foregoing could have a material adverse effect on the Company’s business, financial condition and results of operations. In addition, the Company expects increased regulatory scrutiny during routine examinations and otherwise, and new regulations adopted in response to recent negative developments in the banking industry, which may increase the Company’s cost of doing business and reduce its profitability.
Any of the foregoing could have a material adverse effect on the Company’s business, financial condition and results of operations.
The occurrence of any such failures, interruptions or security breaches could result in significant disruptions to the Company’s operations and could damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny or expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.
Such negative impacts could result in an increased rate of loan delinquencies and credit losses which, accordingly, could have a material adverse effect on the Company’s business, financial condition and results of operations.
Removed
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the Company’s business, financial condition and results of operations. 15 Although the Federal Reserve Board increased the target federal funds rate in 2023 to combat inflationary trends, the Federal Reserve Board held the federal funds rate steady in December 2023 for the third consecutive time and indicated that the rate is likely to be decreased in 2024 and beyond.
Added
Beginning early in 2022, in response to growing signs of inflation, the Federal Reserve Board increased interest rates rapidly; however, interest rates have begun to decrease following three cuts to the Federal Funds rate by the Federal Reserve Board in 2024 in response to declining inflation.
Removed
Sustained higher interest rates by the Federal Reserve Board may be needed to address persistent inflationary price pressures, which could push down asset prices and weaken economic activity. Meanwhile, economic and inflationary pressure on consumers and uncertainty regarding the prospects for economic improvement could alter consumer and business spending, borrowing and savings habits.
Added
Despite recent interest rate cuts, any future need to increase rates to address persistent or renewed inflationary pressures could increase borrowing costs for customers, potentially leading to reduced loan demand, increased credit risk, and weakened asset values in the Company’s lending portfolio.
Removed
A deterioration in economic conditions in the United States and the Company’s markets could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values and a decrease in demand for its products and services, all of which, in turn, would adversely affect its business, financial condition and results of operations.
Added
Changes in trade policies by the United States or other countries, such as tariffs or retaliatory tariffs, may cause inflation which could impact the prices of products sold by the Company’s borrowers and have the potential to reduce demand for their products impacting their profitability and making it difficult for borrowers to repay their loans.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeGovernance The Chief Information Security Officer is accountable for managing the enterprise information security department and delivering the information security program. The responsibilities of this department include cybersecurity risk assessment, a portion of defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance and third-party risk management.
Biggest changeThe responsibilities of the information security department include threat detection and prevention, cybersecurity risk assessment, a portion of defense operations, incident management, vulnerability assessment, threat intelligence, and third-party risk management. The department also provides security awareness training. The Company’s information technology department works together with information security in defense operations and is responsible for business resilience, including identity management.
The Company maintains an Information Security Incident Response Policy (“Incident Response Policy”) and related procedures that provide a documented framework for responding to actual or potential cybersecurity incidents, including timely notification of and escalation to the Crisis Management Team and to the appropriate regulatory and governmental authorities.
The Company maintains an Information Security Incident Response Policy (“Incident Response Policy”) and related procedures that provide a documented framework for responding to actual or potential cybersecurity incidents, including timely escalation of incidents to the Crisis Management Team and notification to the appropriate regulatory and governmental authorities.
The Chief Information Security Officer and Chief Information Officer, who reports directly to the Director of Corporate Strategy, along with key members of their teams, regularly collaborate with peer banks and industry groups to discuss cybersecurity trends and issues and identify best practices.
The Chief Information Security Officer (CISO), who reports directly to the Chief Risk Officer, and the Chief Information Officer (CIO), who reports directly to the Director of Corporate Strategy, along with key members of their teams, regularly collaborate with peer banks and industry groups to discuss cybersecurity trends, issues and best practices.
ITEM 1C. CYBERSECURITY Risk Management and Strategy The Company’s risk management program is designed to identify, assess, and mitigate risks across various areas and functions, including financial, operational, technological, regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber threats.
ITEM 1C. CYBERSECURITY Risk Management and Strategy The Company’s risk management program is designed to identify, assess, and mitigate risks across various areas and functions, including financial, operational, technological, regulatory, reputational, and legal. Cybersecurity is a critical component of the risk management program.
The Company’s Chief Information Security Officer and its Chief Information Officer provide quarterly reports to the STOC regarding the information security program and the technology program, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The Chief Information Security Officer also reports summaries of key issues, including significant cybersecurity and/or privacy incidents.
The CISO and the CIO provide quarterly reports to the STOC regarding the information security and technology programs, key enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The CISO also reports summaries of key issues, including significant cybersecurity and/or privacy incidents.
The information security program is periodically reviewed by such personnel with the goal of addressing changing threats and conditions. The Company employs an in-depth, layered, defensive strategy that embraces a “trust by design” philosophy when designing new products, services, and technology. The Company leverages people, processes, and technology as part of its efforts to manage and maintain cybersecurity controls.
The information security program is periodically reviewed with the goal of addressing changing threats and conditions. The Company employs an in-depth, layered, defensive strategy that embraces a “secure by design” philosophy when designing new products, services, and technology.
STOC is responsible for overseeing the Company’s technology program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
The Strategic Technology Oversight Committee (“STOC”) of the Board has primary responsibility for overseeing the technology program, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
The structure of the Company’s information security program is designed around the National Institute of Standards and Technology Cybersecurity Framework, regulatory guidance, and other industry standards. In addition, the Company leverages certain industry and government associations, third-party benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness.
In addition, the Company leverages certain industry and government associations, third-party benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness.
As needed, the notification may include the CEO and/or the Company’s and Bank’s Board of Directors. The Incident Response Policy and procedures are coordinated through the Chief Risk Officer and key members of management are embedded into the procedures by their design. The Incident Response Policy facilitates coordination across multiple parts of the organization and is evaluated at least annually.
As needed, the notification may include the CEO and/or the Company’s and Bank’s Board of Directors. The Incident Response Policy and related procedures are coordinated through the Chief Risk Officer and key members of management, including but not limited to representatives from the information security, information technology and legal teams that are embedded into the procedures by design.
The Operations Committee is chaired by the Chief Operating Officer and includes the Chief Information Security Officer and Chief Information Officer and other key departmental managers from throughout the Company. This committee generally meets bi-weekly to discuss various operational 30 strategy and issues, including information technology and information security policies, practices, controls, and mitigation and prevention efforts.
This committee generally meets bi-weekly to discuss various operational strategy and issues, including information technology and information security policies, practices, controls, and mitigation and prevention efforts. The CISO is accountable for managing the enterprise information security department and delivering the information security program.
The Company has established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. It engages in regular assessments of its infrastructure, software systems, and network architecture, using internal cybersecurity experts and third-party specialists.
The Company also actively monitors its email gateways for malicious phishing email campaigns and monitors remote connections as a portion of its workforce has the option to work remotely. The Company has established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests.
The Company also maintains a third-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and its supply chain. The Company also actively monitors its email gateways for malicious phishing email campaigns and monitors remote connections as a portion of its workforce has the option to work remotely.
It engages in regular assessments of its infrastructure, software systems, and network architecture, using internal cybersecurity experts and third-party specialists. The Company also maintains a third-party risk management program designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and its supply chain.
It also employs a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced persistent threats.
The Company leverages people, processes, and technology as part of its efforts to manage and maintain cybersecurity controls and employs a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity.
The ERM Committee meets quarterly and oversees the information security program. It approves the broad objectives, strategies and major policies governing the Company’s protection of data assets and provides agreement on the definition and scope of the information security framework.
In addition to the STOC, the management-level Operations Committee and the Enterprise Risk Management Committee (“ERM Committee”) focus on and provide oversight of the information security program. The ERM Committee reviews and, as appropriate, approves the broad objectives, strategies and policies governing the Company’s protection of data assets and information 28 security framework.
Removed
The Company’s Chief Information Security Officer is primarily responsible for this cybersecurity component and is a key member of the risk management organization, reporting directly to the Chief Risk Officer and as discussed below, periodically to the Strategic Technology Committee of the Bank’s board of directors. 29 The Company’s objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse its systems or information.
Added
The Company’s information security program is designed to protect the security, availability, integrity, and confidentiality of its computer systems, networks, software and information assets, including customer and other sensitive data. The structure of the Company’s information security program is designed around the National Institute of Standards and Technology Cybersecurity Framework, regulatory guidance, and other industry standards.
Removed
Notwithstanding the Company’s defensive measures and processes, the threat posed by cyber-attacks is severe. The Company’s internal systems, processes, and controls are designed to mitigate loss from cyber-attacks and, while it has experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have not materially affected the Company.
Added
The Incident Response Policy facilitates coordination across multiple parts of the organization and is evaluated at least annually. To date, the Company has not experienced a cybersecurity incident that has materially impacted its business strategy, results of operations, or financial condition.
Removed
For further discussion of risks from cybersecurity threats, see the section captioned “An interruption in or breach in security of the Company’s information systems may result in a loss of customer business and have an adverse effect on the Company’s results of operations, financial condition and cash flows” in Item 1A. Risk Factors.
Added
Despite the Company’s efforts, there can be no assurance that its cybersecurity risk management processes and measures described will be fully implemented, complied with, or effective in protecting its systems and information. The Company faces risks from certain cybersecurity threats that, if realized, are reasonably likely to materially affect its business strategy, results of operations or financial condition.
Removed
The Company’s information technology department works together with information security in defense operations and is responsible for business resilience. The foregoing responsibilities are covered on a day-to-day basis by a first line of defense function, and the Company’s second line of defense function, including the Chief Information Security Officer, provides guidance, oversight, monitoring and challenge of the first line’s activities.
Added
See Item 1A. “Risk Factors” in this document for further discussion of the risks associated with an interruption or breach in the Company’s information systems or infrastructure. Governance The Bank’s Board of Directors is responsible for overseeing the risks associated with cybersecurity threats.
Removed
The second line of defense function is separated from the first line of defense function through organizational structure and ultimately reports directly to the Chief Risk Officer. The department consists of information security professionals with varying degrees of education and experience. Individuals within the department are generally subject to professional education and certification requirements.
Added
The ERM Committee additionally assesses the adequacy of information security practices and reports on cyber risk to the Risk Committee of the Company’s Board of Directors. The Operations Committee is chaired by the Chief Operating Officer and includes the CISO, CIO and other key departmental managers from throughout the Company.
Removed
The Company’s Chief Information Security Officer has substantial relevant expertise and formal training in the areas of information security and cybersecurity risk management.
Removed
The Bank’s board of directors has approved the management level Operations Committee, which focuses on business impact, and the Enterprise Risk Management Committee (“ERM Committee”), which also focuses on business impact and provides oversight and governance of the information security program, and the board level Strategic Technology Oversight Committee (“STOC”), which focuses on technology impact and provides oversight and governance of the technology program.
Removed
Along with reviewing, approving, and prioritizing information security efforts, it reviews and challenges the results and adequacy of information security practices. From an enterprise perspective, the ERM Committee reviews the cybersecurity risk profile on a quarterly basis and reports on cyber risk to the Risk Committee of the Company’s board of directors.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table sets forth specific information regarding the banking centers located in each of the Company’s geographical market areas at December 31, 2023: Geographical Area Number of Banking Centers Number of Leased Banking Centers Deposits at December 31, 2023 (dollars in thousands) Bryan/College Station area 16 — $ 1,624,562 Houston area 65 13 6,891,540 Central Texas area 32 2 2,246,286 Dallas/Fort Worth area 62 23 6,154,548 East Texas area 22 — 1,134,634 West Texas area 44 10 4,490,869 South Texas area 30 3 3,085,125 Central Oklahoma area 6 1 639,008 Tulsa Oklahoma area 8 2 913,237 285 54 $ 27,179,809 ITE M 3.
Biggest changeThe following table sets forth specific information regarding the banking centers located in each of the Company’s geographical market areas at December 31, 2024: Geographical Area Number of Banking Centers Number of Leased Banking Centers Deposits at December 31, 2024 (dollars in thousands) Bryan/College Station area 15 — $ 1,627,833 Houston area 65 13 7,553,823 Central Texas area 31 2 2,153,902 Dallas/Fort Worth area 62 22 5,907,175 East Texas area 22 — 1,127,708 West Texas area 44 10 5,348,163 South Texas area 30 3 3,068,316 Central Oklahoma area 6 1 589,115 Tulsa Oklahoma area 8 2 1,005,303 283 53 $ 28,381,338 ITE M 3.
The Company also owns or leases various corporate and operations offices. The expiration dates of the leases range from 2024 to 2032 and do not include renewal periods which may be available at the Company’s option.
The Company also owns or leases various corporate and operations offices. The expiration dates of the leases range from 2025 to 2032 and do not include renewal periods which may be available at the Company’s option.
ITEM 2. PROPERTIES As of December 31, 2023, the Company conducted business at 285 full-service banking centers. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas. The Company also owns or leases other facilities in which its banking centers are located as listed below by geographical market area.
ITEM 2. PROPERTIES As of December 31, 2024, the Company conducted business at 283 full-service banking centers. The Company’s principal executive office is located at Prosperity Bank Plaza, 4295 San Felipe, Houston, Texas. The Company also owns or leases other facilities in which its banking centers are located as listed below by geographical market area.
MINE SAFETY DISCLOSURES Not applicable. 31 PART II.
MINE SAFETY DISCLOSURES Not applicable. 29 PART II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSee “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Share Repurchases” for additional information. 33 Performance Graph The following Performance Graph compares the cumulative total shareholder return on the Company’s common stock for the period beginning at the close of trading on December 31, 2018 to December 31, 2023, with the cumulative total return of the S&P 500 Total Return Index and the Nasdaq Bank Index for the same period.
Biggest changeA copy of the Company’s Inside Information and Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K. 31 Performance Graph The following Performance Graph compares the cumulative total shareholder return on the Company’s common stock for the period beginning at the close of trading on December 31, 2019 to December 31, 2024, with the cumulative total return of the S&P 500 Total Return Index, the Nasdaq Bank Index and the KBW Nasdaq Regional Banking Index for the same period.
The historical stock price performance for the Company’s common stock shown on the graph below is not necessarily indicative of future stock performance. * $100 invested on 12/31/18 in stock or index, including reinvestment of dividends.
The historical stock price performance for the Company’s common stock shown on the graph below is not necessarily indicative of future stock performance. * $100 invested on 12/31/19 in stock or index, including reinvestment of dividends.
As of December 31, 2023, the Company had shares of restricted stock outstanding under its 2020 Stock Incentive Plan, which was approved by the Company’s shareholders: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders — $ — 1,923,546 (1) Equity compensation plans not approved by security holders — — — — $ — 1,923,546 (1) All of these awards are available under the Company’s 2020 Stock Incentive Plan.
As of December 31, 2024, the Company had shares of restricted stock outstanding under its 2020 Stock Incentive Plan, which was approved by the Company’s shareholders: Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Plan Category (a) (b) (c) Equity compensation plans approved by security holders — $ — 1,508,583 (1) Equity compensation plans not approved by security holders — — — — $ — 1,508,583 (1) All of these awards are available under the Company’s 2020 Stock Incentive Plan.
The cash dividends declared per share by quarter (and paid on the first business day of the subsequent quarter) for the Company’s last two fiscal years were as follows: 2023 2022 Fourth Quarter $ 0.56 $ 0.55 Third Quarter 0.55 0.52 Second Quarter 0.55 0.52 First Quarter 0.55 0.52 Recent Sales of Unregistered Securities None. 32 Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2023 regarding the Company’s equity compensation plan under which the Company’s equity securities are authorized for issuance.
The cash dividends declared per share by quarter (and paid on the first business day of the subsequent quarter) for the Company’s last two fiscal years were as follows: 2024 2023 Fourth Quarter $ 0.58 $ 0.56 Third Quarter 0.56 0.55 Second Quarter 0.56 0.55 First Quarter 0.56 0.55 Recent Sales of Unregistered Securities None. 30 Securities Authorized for Issuance under Equity Compensation Plans The following table provides information as of December 31, 2024 regarding the Company’s equity compensation plan under which the Company’s equity securities are authorized for issuance.
Although the Company has declared dividends on its common stock since 1994, and paid quarterly dividends aggregating $2.21 per share for 2023 and $2.11 per share for 2022, the Company could discontinue payment of dividends in the future.
Although the Company has declared dividends on its common stock since 1994, and paid quarterly dividends aggregating $2.26 per share for 2024 and $2.21 per share for 2023, the Company could discontinue payment of dividends in the future.
Dividend reinvestment has been assumed. The Performance Graph assumes $100 invested on December 31, 2018 in the Company’s common stock, the S&P 500 Total Return Index and the Nasdaq Bank Index.
Dividend reinvestment has been assumed. The Performance Graph assumes $100 invested on December 31, 2019 in the Company’s common stock, the S&P 500 Total Return Index, the Nasdaq Bank Index and the KBW Nasdaq Regional Banking Index.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers On January 17, 2023, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately 4.6 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 17, 2024, at the discretion of management.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers On January 16, 2024, the Company announced a stock repurchase program under which up to 5%, or approximately 4.7 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 16, 2025, at the discretion of management.
On January 16, 2024, Prosperity Bancshares announced a stock repurchase program under which up to 5%, or approximately 4.7 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 16, 2025, at the discretion of management.
On January 21, 2025, the Company announced a stock repurchase program under which up to 5%, or approximately 4.8 million shares, of its outstanding common stock may be acquired over a one-year period expiring on January 21, 2026, at the discretion of management.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHA REHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Information The Company’s common stock is listed on the New York Stock Exchange under the symbol “PB.” As of February 26, 2024, there were 93,529,541 shares outstanding and 4,710 shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHA REHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Stock Information The Company’s common stock is listed on the New York Stock Exchange under the symbol “PB.” As of February 24, 2025, there were 95,262,717 shares outstanding and 4,515 shareholders of record.
Under the 2023 stock repurchase program, Prosperity Bancshares repurchased approximately 1.21 million shares of its common stock at an average weighted price of $59.88 per share during the year ended December 31, 2023.
Under the 2024 stock repurchase program, the Company repurchased approximately 1.2 million shares of its common stock at an average weighted price of $60.35 per share during the year ended December 31, 2024.
Under the 2024 stock repurchase program, the Company may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions.
Under the 2025 stock repurchase program, the Company may repurchase shares from time to time at prevailing market prices, through open-market purchases or privately negotiated transactions, depending upon market conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Share Repurchases” for additional information.
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Fiscal year ended December 31. 12/18 12/19 12/20 12/21 12/22 12/23 Prosperity Bancshares, Inc. $ 100.00 $ 118.19 $ 117.70 $ 126.09 $ 130.65 $ 126.21 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 NASDAQ Bank 100.00 117.98 107.14 151.35 126.88 135.67 Copyright© 2024 Standard & Poor's, a division of S&P Global. All rights reserved. ITEM 6. [RESERVED ] 34
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Insider Trading Arrangements and Policies The Company has an insider trading policy governing the purchase, sale and other dispositions of the Company’s securities that applies to all Company personnel, including directors, officers, employees and other covered persons.
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The Company believes that its Inside Information and Insider Trading Policy is reasonably designed to promote compliance with insider trading laws, rules and regulations and listing standards applicable to the Company.
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Fiscal year ended December 31. 12/19 12/20 12/21 12/22 12/23 12/24 Prosperity Bancshares, Inc. $ 100.00 $ 99.59 $ 106.69 $ 110.55 $ 106.79 $ 122.89 S&P 500 100.00 118.40 152.39 124.79 157.59 197.02 NASDAQ Bank 100.00 90.81 128.28 107.54 114.99 141.59 KBW NASDAQ Regional Banking 100.00 91.29 124.74 116.10 115.63 130.90 Copyright© 2025 Standard & Poor's, a division of S&P Global.
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All rights reserved. ITEM 6. [RESERVED ] 32

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35 Overview 36 Recent Acquisition 37 Pending Acquisition 37 Critical Accounting Estimates 38 Results of Operations 39 Financial Condition 46 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 70 Item 8. Financial Statements and Supplementary Data 70
Biggest changeItem 6. [Reserved] 32 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Overview 34 Recent Acquisitions 35 Critical Accounting Estimates 36 Results of Operations 37 Financial Condition 44 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 68 Item 8. Financial Statements and Supplementary Data 68

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears Ended December 31, 2023 vs. 2022 2022 vs. 2021 Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in Volume Rate Total Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans held for sale $ 148 $ 140 $ 288 $ (406 ) $ 60 $ (346 ) Loans held for investment 119,480 181,759 301,239 1,271 (18,779 ) (17,508 ) Loans held for investment - Warehouse Purchase Program (9,521 ) 25,801 16,280 (29,880 ) 9,015 (20,865 ) Securities (15,929 ) 38,815 22,886 50,876 34,081 84,957 Federal funds sold and other temporary investments (2,097 ) 11,112 9,015 (646 ) 2,320 1,674 Total increase in interest income 92,081 257,627 349,708 21,215 26,697 47,912 Interest-bearing liabilities: Interest-bearing demand deposits (1,857 ) 11,236 9,379 363 (7,403 ) (7,040 ) Savings and money market accounts (5,545 ) 127,822 122,277 992 25,333 26,325 Certificates of deposit 2,641 69,936 72,577 (3,287 ) (799 ) (4,086 ) Other borrowings 120,286 67,186 187,472 18,851 — 18,851 Securities sold under repurchase agreements (394 ) 7,157 6,763 80 1,859 1,939 Subordinated debentures 38 — 38 — — — Total increase in interest expense 115,169 283,337 398,506 16,999 18,990 35,989 (Decrease) increase in net interest income $ (23,088 ) $ (25,710 ) $ (48,798 ) $ 4,216 $ 7,707 $ 11,923 Provision for Credit Losses The Company’s provision for credit losses is established through charges to income to bring the Company’s allowance for credit losses on loans and off-balance sheets credit exposures to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Allowance for Credit Losses” and “Financial Condition—Allowance for Credit Losses on Off-Balance Sheet Credit Exposures” The allowance for credit losses on loans at December 31, 2023 was $332.4 million, or 1.57% of total loans and 1.63% of total loans excluding Warehouse Purchase Program loans.
Biggest changeYears Ended December 31, 2024 vs. 2023 2023 vs. 2022 Increase (Decrease) Due to Change in Increase (Decrease) Due to Change in Volume Rate Total Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans held for sale $ 76 $ (6 ) $ 70 $ 148 $ 140 $ 288 Loans held for investment 67,218 85,875 153,093 119,480 181,759 301,239 Loans held for investment - Warehouse Purchase Program 11,341 (338 ) 11,003 (9,521 ) 25,801 16,280 Securities (36,861 ) 285 (36,576 ) (15,929 ) 38,815 22,886 Federal funds sold and other temporary investments 47,664 3,916 51,580 (2,097 ) 11,112 9,015 Total increase in interest income 89,438 89,732 179,170 92,081 257,627 349,708 Interest-bearing liabilities: Interest-bearing demand deposits (949 ) 16,737 15,788 (1,857 ) 11,236 9,379 Savings and money market accounts (3,331 ) 29,464 26,133 (5,545 ) 127,822 122,277 Certificates of deposit 43,875 50,483 94,358 2,641 69,936 72,577 Other borrowings (10,588 ) (14,095 ) (24,683 ) 120,286 67,186 187,472 Securities sold under repurchase agreements (3,192 ) 742 (2,450 ) (394 ) 7,157 6,763 Subordinated debentures (38 ) — (38 ) 38 — 38 Total increase in interest expense 25,777 83,331 109,108 115,169 283,337 398,506 Increase (decrease) in net interest income $ 63,661 $ 6,401 $ 70,062 $ (23,088 ) $ (25,710 ) $ (48,798 ) Provision for Credit Losses The Company’s provision for credit losses is established through charges to income to bring the Company’s allowance for credit losses on loans and off-balance sheets credit exposures to a level deemed appropriate by management based on the factors discussed under “Financial Condition—Allowance for Credit Losses” and “Financial Condition—Allowance for Credit Losses on Off-Balance Sheet Credit Exposures”.
FirstCapital Bank operated 16 full-service banking offices in six different markets in West, North and Central Texas areas, including its main office in Midland, Texas and banking offices in Midland, Lubbock, Amarillo, Wichita Falls, Burkburnett, Byers, Henrietta, Dallas, Horseshoe Bay, Marble Falls and Fredericksburg, Texas.
FirstCapital Bank operated 16 full-service banking offices in six different markets in West, North and Central Texas areas, including its main office in Midland, and banking offices in Midland, Lubbock, Amarillo, Wichita Falls, Burkburnett, Byers, Henrietta, Dallas, Horseshoe Bay, Marble Falls and Fredericksburg, Texas.
Interest income on securities was $283.3 million during 2023, an increase of $22.9 million or 8.8% compared with 2022 due primarily to an increase the average rates on investment securities, partially offset by a decrease in the average balances on investment securities. Average interest-bearing liabilities increased $1.50 billion or 7.5% during 2023 compared with 2022.
Interest income on securities was $283.3 million during 2023, an increase of $22.9 million or 8.8% compared with 2022 due primarily to an increase in the average rates on investment securities, partially offset by a decrease in the average balances on investment securities. Average interest-bearing liabilities increased $1.50 billion or 7.5% during 2023 compared with 2022.
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.
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.
Under ASC Topic 350-20, “Intangibles—Goodwill and Other—Goodwill,” companies have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform step one of the annual test for goodwill impairment.
Under FASB ASC Topic 350-20, “Intangibles—Goodwill and Other—Goodwill,” companies have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining the need to perform step one of the annual test for goodwill impairment.
For the year ended December 31, 2023, noninterest income totaled $153.3 million, an increase of $8.1 million or 5.6% compared with 2022. This increase was primarily due to the Merger, partially offset by lower net gain on the sale or write-down of assets.
For the year ended December 31, 2023, noninterest income totaled $153.3 million, an increase of $8.1 million or 5.6% compared with 2022. This increase was primarily due to the FB Merger, partially offset by lower net gain on the sale or write-down of assets.
At December 31, 2023, the allowance for credit losses on loans totaled $332.4 million or 1.57% of total loans, including acquired loans with discounts, an increase of $50.8 million or 18.0% compared to the allowance for credit losses on loans totaling $281.6 million or 1.49% of total loans, including acquired loans with discounts, for December 31, 2022, primarily due to the Merger.
At December 31, 2023, the allowance for credit losses on loans totaled $332.4 million or 1.57% of total loans, including acquired loans with discounts, an increase of $50.8 million or 18.0% compared to the allowance for credit losses on loans totaling $281.6 million or 1.49% of total loans, including acquired loans with discounts, at December 31, 2022, primarily due to the FB Merger.
In addition, modifications to loans previously designated as troubled debt restructurings that occur on or after January 1, 2023, are accounted for under the newly adopted ASU and result in the elimination of any prior economic concession recorded in the allowance related to such loans.
In addition, modifications to loans previously designated as troubled debt restructurings that occur on or after January 1, 2023, are accounted for under the adopted ASU and result in the elimination of any prior economic concession recorded in the allowance related to such loans.
The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin. Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continual internal growth.
The level of interest rates and the volume and mix of earning assets and interest-bearing liabilities impact net interest income and margin. 34 Three principal components of the Company’s growth strategy are internal growth, efficient operations and acquisitions, including strategic merger transactions. The Company focuses on continual internal growth.
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. 50 With respect to potential problem loans, an evaluation of borrower 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 on loans.
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. 48 With respect to potential problem loans, an evaluation of borrower 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 on loans.
Regulatory assessments and FDIC insurance assessments were $40.2 million for the year ended December 31, 2023, an increase of $28.8 million, compared with $11.4 million for the year ended December 31, 2022, as a result of the FDIC special assessment of $19.9 million and the Merger.
Regulatory assessments and FDIC insurance assessments were $40.2 million for the year ended December 31, 2023, an increase of $28.8 million, compared with $11.4 million for the year ended December 31, 2022, as a result of the FDIC special assessment of $19.9 million and the FB Merger.
The increase in the allowance was due to the Merger. Leases The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception.
The increase in the allowance was due to the LSSB Merger. Leases The Company’s leases relate primarily to operating leases for office space and banking centers. The Company determines if an arrangement is a lease or contains a lease at inception.
Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net 36 interest income is the Company’s largest source of revenue.
Net interest income is the difference between interest income on earning assets such as loans and securities and interest expense on liabilities such as deposits and borrowings which are used to fund those assets. Net interest income is the Company’s largest source of revenue.
Acquired loans with a fair value discount or premium at the date of the business combination that remained at the reporting date are referred to as “fair-valued acquired loans.” All fair-valued acquired loans are further categorized into “PCD Loans” and “Non-PCD loans.” Acquired loans with evidence of more than insignificant credit quality deterioration as of the acquisition date when compared to the origination date are classified as PCD loans. 46 The following tables summarize the Company’s originated and acquired loan portfolios broken out into originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans as of the dates indicated.
Acquired loans with a fair value discount or premium at the date of the business combination that remained at the reporting date are referred to as “fair-valued acquired loans.” All fair-valued acquired loans are further categorized into “PCD Loans” and “Non-PCD loans.” Acquired loans with evidence of more than insignificant credit quality deterioration as of the acquisition date when compared to the origination date are classified as PCD loans. 44 The following tables summarize the Company’s originated and acquired loan portfolios broken out into originated loans, re-underwritten acquired loans, Non-PCD loans and PCD loans as of the dates indicated.
Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income, a loss of current fair market values, or both.
Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a 61 loss of future net interest income, a loss of current fair market values, or both.
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. 54 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.
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. 52 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 efficiency ratio is calculated by dividing total noninterest expense (excluding net gains and losses on the sale or write down of assets and securities) by the sum of net interest income and noninterest income.
The efficiency ratio is calculated by dividing total noninterest expense (excluding net gains and losses on the sale, write-down or write-up of assets and securities) by the sum of net interest income and noninterest income.
If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. At December 31, 2023 and 2022, the Company did not own securities of any one issuer (other than the U.S. government and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity at such respective dates.
If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of this security. At December 31, 2024 and 2023, the Company did not own securities of any one issuer (other than the U.S. government and its agencies) for which aggregate adjusted cost exceeded 10% of the consolidated shareholders’ equity at such respective dates.
While the Company believes no impairment existed at December 31, 2023, under accounting standards applicable at that date, different conditions or assumptions, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation and financial condition or future results of operations.
While the Company believes no impairment existed at December 31, 2024, under accounting standards applicable at that date, different conditions or assumptions, or changes in cash flows or profitability, if significantly negative or unfavorable, could have a material adverse effect on the outcome of the Company’s impairment evaluation and financial condition or future results of operations.
Additionally, reserves on PCD loans increased by $76.8 million due to the Merger and $23.5 million of reserves on resolved PCD loans was released to the general reserve.
Additionally, reserves on PCD loans increased by $76.8 million due to the FB Merger and $23.5 million of reserves on resolved PCD loans was released to the general reserve.
The Company manages its sensitivity position within established guidelines. 63 As a financial institution, the Company’s primary component of market risk is interest rate volatility.
The Company manages its sensitivity position within established guidelines. As a financial institution, the Company’s primary component of market risk is interest rate volatility.
These possible events or factors include, but are not limited to: • changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or reduced demand for credit, including the result and effect on the Company’s loan portfolio and allowance for credit losses; • adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, the Company’s stock price, liquidity and regulatory responses to these developments (including increases in the cost of the Company’s deposit insurance assessments); • the Company's ability to effectively manage its liquidity risk and the availability of capital and funding; • volatility in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations; • prolonged periods of high inflation and their effects on our business, profitability, and our stock price; • changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio; • changes in local economic and business conditions, including fluctuations in the price of oil, natural gas and other commodities, which adversely affect the Company’s customers and their ability to transact profitable business with the company, including the ability of the Company’s borrowers to repay their loans according to their terms or a change in the value of the related collateral; • the potential impacts of climate change; • increased competition for deposits and loans adversely affecting balances, rates and terms; • the timing, impact and other uncertainties of any future acquisitions, including the pending acquisition of Lone Star, and the Company’s ability to identify suitable future acquisition candidates, the success or failure in the integration of their operations, and the ability to enter new markets successfully and capitalize on growth opportunities; • the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and the potential to reduce anticipated benefits from such mergers or combinations; • the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations; • increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio; • the concentration of the Company’s loan portfolio in loans collateralized by residential and commercial real estate; • the failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses, including such assumptions related to potential, pending or recent acquisitions; • changes in the availability of funds resulting in increased costs or reduced liquidity; • a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company’s securities portfolio; • increased asset levels and changes in the composition of assets and the resulting impact on the Company’s capital levels and regulatory capital ratios; 35 • the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes; • the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; • government intervention in the U.S. financial system; • changes in statutes and government regulations or their interpretations applicable to financial holding companies and the Company’s present and future banking and other subsidiaries, including changes in tax requirements and tax rates; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; • the Company’s ability to identify and address cybersecurity risks such as data security breaches, malware, "denial of service" attacks, "hacking", and identity theft, a failure of which could disrupt business and result in significant losses or adverse effects to the Company’s reputation; • poor performance by, or breach of the operational or security systems of, third-party vendors and other service providers; • exposure to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to the Company under that relationship or under any other arrangement; • the failure of analytical and forecasting models and tools used by the Company to estimate expected credit losses and to measure the fair value of financial instruments; • additional risks from new lines of businesses or new products and services; • risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions, including those related to cybersecurity breaches, intellectual property or fiduciary responsibilities; • the failure of the Company’s enterprise risk management framework to identify or address risks adequately; • potential risk of environmental liability associated with lending activities; • acts of terrorism, an outbreak of hostilities, or other international or domestic calamities, civil unrest, insurrections, other political, economic or diplomatic developments, including those caused by public health issues, outbreaks of diseases and pandemics, weather or other acts of God and other matters beyond the Company’s control; and • other risks and uncertainties described in this Annual Report on Form 10-K or in the Company’s other reports and documents filed with the Securities and Exchange Commission.
These possible events or factors include, but are not limited to: • changes in the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations resulting in, among other things, a deterioration in credit quality or reduced demand for credit, including the result and effect on the Company’s loan portfolio and allowance for credit losses; • adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, the Company’s stock price, liquidity and regulatory responses to these developments (including increases in the cost of the Company’s deposit insurance assessments); • the Company’s ability to effectively manage its liquidity risk and the availability of capital and funding; • volatility in interest rates and market prices, which could reduce the Company’s net interest margins, asset valuations and expense expectations; • prolonged periods of high inflation and their effects on the Company’s business, profitability and stock price; • changes in the levels of loan prepayments and the resulting effects on the value of the Company’s loan portfolio; • changes in local economic and business conditions, including fluctuations in the price of oil, natural gas and other commodities, which adversely affect the Company’s customers and their ability to transact profitable business with the company, including the ability of the Company’s borrowers to repay their loans according to their terms or a change in the value of the related collateral; • the potential impacts of climate change; • increased competition for deposits and loans adversely affecting balances, rates and terms; • the timing, impact and other uncertainties of any future acquisitions and the Company’s ability to identify suitable future acquisition candidates, the success or failure in the integration of their operations, and the ability to enter new markets successfully and capitalize on growth opportunities; • the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and the potential to reduce anticipated benefits from such mergers or combinations; • the possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on the results of operations; • increased credit risk in the Company’s assets and increased operating risk caused by a material change in commercial, consumer and/or real estate loans as a percentage of the total loan portfolio; • the concentration of the Company’s loan portfolio in loans collateralized by residential and commercial real estate; • the failure of assumptions underlying the establishment of and provisions made to the allowance for credit losses, including such assumptions related to potential or recent acquisitions; • changes in the availability of funds resulting in increased costs or reduced liquidity; • a deterioration or downgrade in the credit quality and credit agency ratings of the securities in the Company’s securities portfolio; • increased asset levels and changes in the composition of assets and the resulting impact on the Company’s capital levels and regulatory capital ratios; • the Company’s ability to acquire, operate and maintain cost effective and efficient systems without incurring unexpectedly difficult or expensive but necessary technological changes; 33 • the loss of senior management or operating personnel and the potential inability to hire qualified personnel at reasonable compensation levels; • government intervention in the U.S. financial system; • changes in statutes and government regulations or their interpretations applicable to financial holding companies and the Company’s present and future banking and other subsidiaries, including changes in tax requirements and tax rates; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; • the Company’s ability to identify and address cybersecurity risks such as data security breaches, malware, “denial of service” attacks, “hacking”, and identity theft, a failure of which could disrupt business and result in significant losses or adverse effects to the Company’s reputation; • poor performance by, or breach of the operational or security systems of, third-party vendors and other service providers; • risks related to the use of new technologies, including artificial intelligence and machine learning; • exposure to potential losses in the event of fraud and/or theft, or in the event that a third-party vendor, obligor, or business partner fails to pay amounts due to the Company under that relationship or under any other arrangement; • the failure of analytical and forecasting models and tools used by the Company to estimate expected credit losses and to measure the fair value of financial instruments; • additional risks from new lines of businesses or new products and services; • risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions, including those related to cybersecurity breaches, intellectual property or fiduciary responsibilities; • the failure of the Company’s enterprise risk management framework to identify or address risks adequately; • potential risk of environmental liability associated with lending activities; • acts of terrorism, an outbreak of hostilities, or other international or domestic calamities, civil unrest, insurrections, other political, economic or diplomatic developments, including those caused by public health issues, outbreaks of diseases and pandemics, weather or other acts of God and other matters beyond the Company’s control; and • other risks and uncertainties described in this Annual Report on Form 10-K or in the Company’s other reports and documents filed with the Securities and Exchange Commission.
Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party or the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.
Mineral reserve values supporting commitments to producers are normally re-determined semi-annually using reserve studies prepared by a third-party and verified by the Company’s oil and gas engineer. Accounts receivable and inventory borrowing bases for service companies are typically re-determined monthly. Funding requests by both producers and service companies are monitored relative to the most recently determined borrowing base.
Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of the Company’s adoption of CECL on January 1, 2020 and 25% of subsequent changes in the Company’s allowance for credit losses during each quarter of the two-year period ending December 31, 2021.
Under the interim final rule, the amount of adjustments to regulatory capital deferred until the phase-in period include both the initial impact of the Company’s adoption of CECL on January 1, 2020 and 25% of subsequent changes in the Company’s allowance for credit losses during each quarter of the two-year period ended December 31, 2021.
The Company separates its loan portfolio into two general categories of loans: (1) “originated loans,” which are loans originated by Prosperity Bank and made pursuant to the Company’s loan policy and procedures in effect at the time the loan was made, and (2) “acquired loans,” which are loans acquired in a business combination and recorded at fair value at the acquisition date.
The Company separates its loan portfolio into two general categories of loans: (1) “originated loans,” which are loans originated by the Company and made pursuant to the Company’s loan policy and procedures in effect at the time the loan was made, and (2) “acquired loans,” which are loans acquired in a business combination and recorded at fair value at the acquisition date.
The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.” 2023 versus 2022 .
The Company’s net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.” 2024 versus 2023 .
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements. As of December 31, 2023, the Company had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements. As of December 31, 2024, the Company had no exposure to future cash requirements associated with known uncertainties or capital expenditures of a material nature.
As of December 31, 2023, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost.
As of December 31, 2024, management does not have the intent to sell any of the securities classified as available for sale before a recovery of cost. In addition, management believes it is more likely than not that the Company will not be required to sell any of its investment securities before a recovery of cost.
In general, commercial loans involve more credit risk than residential 47 mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return.
In general, commercial loans involve more credit risk than residential mortgage loans and commercial mortgage loans and, therefore, usually yield a higher return.
Loans for which specific reserves are provided are excluded from the general valuation allowance described below. 53 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.
Loans for which specific reserves are provided are excluded from the general valuation allowance described below. 51 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.
Share Repurchases On January 16, 2024, the Company announced a stock repurchase program under which the Company could repurchase up to 5%, or approximately 4.7 million shares, of its outstanding common stock over a one-year period expiring on January 16, 2025, at the discretion of management.
On January 16, 2024, the Company announced a stock repurchase program under which the Company could repurchase up to 5%, or approximately 4.7 million shares, of its outstanding common stock over a one-year period expiring on January 16, 2025, at the discretion of management.
During the fourth quarter of 2023, Prosperity accrued for the FDIC special assessment of $19.9 million, which was imposed by the FDIC to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in early 2023.
During the fourth quarter of 2023, the Company accrued for the FDIC special assessment of $19.9 million, which was imposed by the FDIC to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in early 2023.
The allowance must reflect changes in the balance of loans subject to the allowance methodology, as well as the estimated lifetime losses associated with those loans. 55 The following table shows the allocation of the allowance for credit losses among various categories of loans and certain other information as of the dates indicated.
The allowance must reflect changes in the balance of loans subject to the allowance methodology, as well as the estimated lifetime losses associated with those loans. 53 The following table shows the allocation of the allowance for credit losses among various categories of loans and certain other information as of the dates indicated.
(2) In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates for the years ended December 31, 2023, 2022 and 2021. 41 The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates.
(2) In order to make pretax income and resultant yields on tax-exempt investments and loans comparable to those on taxable investments and loans, a tax equivalent adjustment has been computed using a federal income tax rate of 21% and other applicable effective tax rates for the years ended December 31, 2024, 2023 and 2022. 39 The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes in interest rates.
Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2023, management believes that there is no potential for credit losses on available for sale securities. Held to maturity securities .
Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2024, management believes that there is no potential for credit losses on available for sale securities. Held to maturity securities .
As of March 31, 2023, First Bancshares, on a consolidated basis, reported total assets of $2.14 billion, total loans of $1.65 billion and total deposits of $1.71 billion. Pursuant to the terms of the definitive agreement, the Company issued 3,583,370 shares of its common stock and approximately $91.5 million in cash for all outstanding shares of First Bancshares capital stock.
As of March 31, 2023, First Bancshares, on a consolidated basis, reported total assets of $2.14 billion, total loans of $1.65 billion and total deposits of $1.71 billion. 35 Pursuant to the terms of the definitive agreement, the Company issued 3,583,370 shares of its common stock plus approximately $91.5 million in cash for all outstanding shares of First Bancshares.
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. 48 Warehouse Purchase Program.
Although the Company has underwriting procedures designed to 46 identify what it believes to be acceptable levels of risks in construction lending, these procedures may not prevent losses from the risks described above. Warehouse Purchase Program.
A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of December 31, 2023, the Company’s municipal securities represent 0.9% of the securities portfolio.
A significant portion are guaranteed or insured by either the Texas Permanent School Fund, Assured Guaranty or Build America Mutual. As of December 31, 2024, the Company’s municipal securities represent 0.9% of the securities portfolio.
The Company’s commitments associated with outstanding standby letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit expiring by period as of December 31, 2023 are summarized below.
The Company’s commitments associated with outstanding standby letters of credit, unused capacity on Warehouse Purchase Program loans and commitments to extend credit expiring by period as of December 31, 2024 are summarized below.
Based on the Company’s annual goodwill impairment test as of October 1, 2023, management does not believe any of its goodwill is impaired as of December 31, 2023, because the fair value of the Company’s equity exceeded its carrying value.
Based on the Company’s annual goodwill impairment test as of October 1, 2024, management does not believe any of its goodwill is impaired as of December 31, 2024, because the fair value of the Company’s equity exceeded its carrying value.
The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial and the Company has one sublease arrangement. Sublease income for the years ended December 31, 2023, 2022 and 2021 was $3.1 million, $3.2 million and $3.1 million, respectively.
The Company uses its incremental collateralized borrowing rate to determine the present value of lease payments. Short-term leases and leases with variable lease costs are immaterial and the Company has one sublease arrangement. Sublease income for the years ended December 31, 2024, 2023 and 2022 was $3.4 million, $3.1 million and $3.2 million, respectively.
If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. The Company had no intangible assets with indefinite useful lives at December 31, 2023.
If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. The Company had no intangible assets with indefinite useful lives at December 31, 2024.
As of December 31, 2023, these interest rate shocks consisted of instantaneous and parallel shifts in the yield curve moving from – 400 basis points to + 400 basis points, in 100 basis-point increments.
As of December 31, 2024, these interest rate shocks consisted of instantaneous and parallel shifts in the yield curve moving from – 400 basis points to + 400 basis points, in 100 basis-point increments.
If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses. See “Critical Accounting Estimates” above for more information. As described in the section captioned “Critical Accounting Estimates” above, the Company’s determination of the allowance for credit losses involves a high degree of judgment and complexity.
If the Company determines that losses arose after the acquisition date, the additional losses will be reflected as a provision for credit losses. As described in the section captioned “Critical Accounting Estimates” above, the Company’s determination of the allowance for credit losses involves a high degree of judgment and complexity.
December 31, 2023 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) U.S. Treasury securities and obligations of U.S.
December 31, 2024 Within One Year After One Year but Within Five Years After Five Years but Within Ten Years After Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Total Yield (Dollars in thousands) U.S. Treasury securities and obligations of U.S.
Borrowings consist of funds from Federal Reserve Board’s Bank Term Funding Program (“BTFP”), the Federal Home Loan Bank (“FHLB”) and securities sold under repurchase agreements.
Borrowings consist of funds from the Federal Reserve Board Bank Term Funding Program (“BTFP”), the Federal Home Loan Bank (“FHLB”) and securities sold under repurchase agreements.
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. 49 Loan Maturities .
Furthermore, the application of various federal and state laws may limit the amount which can be recovered on such loans. 47 Loan Maturities .
Accordingly, as of December 31, 2023, management believes that there is no potential for material credit losses on held to maturity securities. 60 The following table summarizes the contractual maturity of securities and their weighted average yields as of December 31, 2023. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
Accordingly, as of December 31, 2024, management believes that there is no potential for material credit losses on held to maturity securities. 58 The following table summarizes the contractual maturity of securities and their weighted average yields as of December 31, 2024. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
The following table summarizes the simulated change in net interest income at the 12-month horizon, considering the balance sheet composition as of December 31, 2023 and 2022: Percent Change in Net Interest Income Change in Interest Rates (Basis Points) December 31, 2023 December 31, 2022 +200 (5.5)% 2.0% +100 (2.4)% 1.2% Base 0.0% 0.0% -100 3.1% (3.4)% -200 3.2% (7.65)% The Company continues to manage its asset sensitivity within the scope of its risk tolerances and changing market conditions.
The following table summarizes the simulated change in net interest income at the 12-month horizon, considering the balance sheet composition as of December 31, 2024 and 2023: Percent Change in Net Interest Income Change in Interest Rates (Basis Points) December 31, 2024 December 31, 2023 +200 1.0% (5.5)% +100 0.9% (2.4)% Base 0.0% 0.0% -100 (2.3)% 3.1% -200 (5.0)% 3.2% The Company continues to manage its asset sensitivity within the scope of its risk tolerances and changing market conditions.
If a deterioration in cash flows is identified, an increase to the PCD reserves for that individual loan or pool of loans is made. PCD loans were recorded at their acquisition date fair values, which were based on expected cash flows and considers estimates of expected future credit losses.
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.
Total deposits at December 31, 2023 were $27.18 billion, a decrease of $1.35 billion or 4.7% compared with $28.53 billion at December 31, 2022, primarily due to a decrease in business deposits and public fund deposits, partially offset by an increase in Merger acquired deposits.
Total deposits at December 31, 2023 were $27.18 billion, a decrease of $1.35 billion or 4.7% compared with $28.53 billion at December 31, 2022, primarily due to a decrease in business deposits and public fund deposits, partially offset by the FB Merger acquired deposits.
Year Ended December 31, 2023 2022 (Dollars in thousands) Balance at beginning of period $ 29,947 $ 29,947 Provision for credit losses on off-balance sheet credit exposures 6,556 — Balance at end of period $ 36,503 $ 29,947 Securities The Company uses its securities portfolio to manage interest rate risk and as a source of income and liquidity for cash requirements.
Year Ended December 31, 2024 2023 (Dollars in thousands) Balance at beginning of period $ 36,503 $ 29,947 Provision for credit losses on off-balance sheet credit exposures 1,143 6,556 Balance at end of period $ 37,646 $ 36,503 Securities The Company uses its securities portfolio to manage interest rate risk and as a source of income and liquidity for cash requirements.
Rent expense under all operating lease obligations aggregated approximately $12.1 million, $10.9 million, and $11.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Capital Resources Capital management consists of providing equity to support the Company’s current and future operations.
Rent expense under all operating lease obligations aggregated approximately $11.5 million, $12.1 million, and $10.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. 65 Capital Resources Capital management consists of providing equity to support the Company’s current and future operations.
Credit and Debit Card, Data Processing and Software Amortization . Credit and debit card, data processing and software amortization expenses were $41.6 million for the year ended December 31, 2023, an increase of $4.2 million or 11.4% compared with 2022, primarily due to an increase in data processing costs and the Merger.
Credit and debit card, data processing and software amortization expenses were $41.6 million for the year ended December 31, 2023, an increase of $4.2 million or 11.4% compared with 2022, primarily due to an increase in data processing costs and the FB Merger. Regulatory Assessments and FDIC Insurance .
The Company records an allowance for credit losses on off-balance sheet credit exposure that is adjusted through a charge to provision for credit losses on the Company’s consolidated statement of income. At December 31, 2023 and 2022, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $36.5 million and $29.9 million, respectively.
The Company records an allowance for credit losses on off-balance sheet credit exposure that is adjusted through a charge to provision for credit losses on the Company’s consolidated statement of income. At December 31, 2024 and 2023, this allowance, reported as a separate line item on the Company’s consolidated balance sheet, totaled $37.6 million and $36.5 million, respectively.
(2) The FDIC may require the Bank to maintain a leverage ratio above the required minimum. 69
(2) The FDIC may require the Bank to maintain a leverage ratio above the required minimum. 67
The cumulative amount of the transition adjustments is being phased in over the three-year transition period that began on January 1, 2022, with 75% recognized in 2022, 50% recognized in 2023, and 25% recognized in 2024.
The cumulative amount of the transition adjustments was phased in over a three-year transition period that began on January 1, 2022, with 75% recognized in 2022, 50% recognized in 2023, and 25% recognized in 2024.
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.
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.
The allowance for credit losses is adjusted through charges to earnings in the form of a provision for credit losses. Management has established an allowance for credit losses which it believes is adequate as of December 31, 2023 for estimated losses in the Company’s loan portfolio.
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 Company’s loan portfolio as of December 31, 2024.
The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac”).
The Company’s held to maturity investments include mortgage-related bonds issued by either the Government National Mortgage Corporation (“Ginnie Mae”), Fannie Mae or Federal Home Loan Mortgage Corporation (“Freddie Mac”).
During the fourth quarter of 2023, Prosperity accrued for the FDIC special assessment of $19.9 million, which was imposed by the FDIC to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in early 2023.
During the fourth quarter of 2023, the Company accrued for the FDIC special assessment of $19.9 million, which was imposed by the FDIC to recover the cost associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in early 2023. Core Deposit Intangibles Amortization .
Repurchase agreements are generally settled on the following business day; however, approximately $3.0 million of repurchase agreements outstanding at December 31, 2023 have maturity dates ranging from 12 to 24 months. All securities sold under repurchase agreements are collateralized by certain pledged securities.
Repurchase agreements are generally settled on the following business day; however, approximately $2.7 million of repurchase agreements outstanding at December 31, 2024 have maturity dates ranging from 12 to 24 months. All securities sold under repurchase agreements are collateralized by certain pledged securities.
(2) Includes troubled debt restructurings of $4.6 million and $4.2 million for the years ended December 31, 2022 and 2021, respectively. (3) There were no nonperforming of Warehouse Purchase Program loans or Warehouse Purchase Program lines of credit for the periods presented.
(2) Includes troubled debt restructurings of $4.6 million for the year ended December 31, 2022. (3) There were no nonperforming Warehouse Purchase Program loans or Warehouse Purchase Program lines of credit for the periods presented.
Net interest margin was 3.00% on a tax equivalent basis for 2022, a decrease of 14 basis points compared with 3.14% for 2021. 40 The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.
Net interest margin was 2.78% on a tax equivalent basis for 2023, a decrease of 22 basis points compared with 3.00% for 2022. 38 The following table presents, for the periods indicated, the total dollar amount of average balances, interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.
The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards as required by United States government-sponsored enterprise agencies, “Agencies” such as Fannie Mae, private investors to which the mortgage loans are ultimately sold and/or mortgage insurers.
The Clients are located across the U.S. and originate mortgage loans primarily through traditional retail and/or wholesale business models using underwriting standards as required by United States government-sponsored enterprise agencies, “Agencies” such as Federal National Mortgage Association (“Fannie Mae”), private investors to which the mortgage loans are ultimately sold and/or mortgage insurers.
Total salaries and benefits for the year ended December 31, 2023 included $12.2 million in stock‑based compensation expense compared with $11.8 million and $12.6 million recorded for each of the years ended December 31, 2022 and 2021, respectively.
Total salaries and benefits for the year ended December 31, 2024 included $12.8 million in stock‑based compensation expense compared with $12.2 million and $11.8 million recorded for the years ended December 31, 2023 and 2022, respectively.
At December 31, 2023, a projected 200 basis point increase in rates resulted in a projected decrease in net interest income of 5.5% compared with a projected 2.0% increase in net interest income at December 31, 2022.
At December 31, 2024, a projected 200 basis point increase in rates resulted in a projected increase in net interest income of 1.0% compared with a projected 5.5% decrease in net interest income at December 31, 2023.
Securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment as prepayments result in an acceleration of discount accretion. At December 31, 2023, 81.6% of the mortgage-backed securities held by the Company had contractual final maturities of more than ten years with a weighted average life of 5.54 years.
Securities purchased at a discount will obtain higher net yields in a decreasing interest rate environment as prepayments result in an acceleration of discount accretion. At December 31, 2024, 85.0% of the mortgage-backed securities held by the Company had contractual final maturities of more than ten years with a weighted average life of 5.24 years.
A change in the allowance for credit losses can be attributable to several factors, most notably (1) specific reserves identified for impaired loans, (2) historical lifetime credit loss information, (3) changes in current and forecasted environmental factors and (4) growth in the balance of loans. Changes in the Company’s asset quality are reflected in the allowance in several ways.
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.
Lone Star Bank operates five banking offices in the West Texas area, including its main office in 37 Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas.
Lone Star Bank operated five full-service banking offices in the West Texas area, including its main office in Lubbock, and one banking center in each of Brownfield, Midland, Odessa and Big Spring, Texas.
As of December 31, 2023 and 2022, the Company had $36.5 million and $29.9 million, respectively, in allowance for credit losses on off-balance sheet credit exposures, with the increase due to the 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 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.
The Company’s average loans increased 13.0% for the year ended December 31, 2023 compared with the year ended December 31, 2022. The Company predominantly invests excess deposits in government-backed securities until the funds are needed to fund loan growth.
The Company’s average loans increased 6.7% for the year ended December 31, 2024 compared with the year ended December 31, 2023. The Company predominantly invests excess deposits in government-backed securities until the funds are needed to fund loan growth.
Subordinated debentures — On May 1, 2023, in connection with the acquisition of First Bancshares, the Company assumed the obligation related to $3.1 million of Floating Rate Junior Subordinated Deferrable Interest Debentures and trust preferred securities (the "Subordinated Debentures"), which the Company redeemed on September 18, 2023. Accordingly, as of December 31, 2023, the Company had no Subordinated Debentures outstanding.
Subordinated debentures — On May 1, 2023, in connection with the acquisition of First Bancshares, the Company assumed the obligation related to $3.1 million of Floating Rate Junior Subordinated Deferrable Interest Debentures and trust preferred securities (the "Subordinated Debentures"), which the Company redeemed on September 18, 2023.
Net income was $419.3 million, $524.5 million and $519.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, and diluted earnings per share were $4.51, $5.73 and $5.60, respectively, for these same periods.
Net income was $479.4 million, $419.3 million and $524.5 million for the years ended December 31, 2024, 2023 and 2022, respectively, and diluted earnings per share were $5.05, $4.51 and $5.73, respectively, for these same periods.
During 2023 and 2022, the Company’s liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. During 2023, the Company also utilized advances from the FHLB of Dallas and Federal Reserve Board’s BTFP.
During 2024 and 2023, the Company’s liquidity needs were primarily met by core deposits, security and loan maturities and amortizing investment and loan portfolios. Additionally, the Company utilized advances from the FHLB of Dallas and the Federal Reserve Board BTFP.
The weighted average life of the Company’s securities portfolio is 4.95 years, with a modified duration of 4.07 at December 31, 2023. Available for sale securities are shown at fair value and held to maturity securities are shown at amortized cost. For purposes of the table below, tax-exempt states and political subdivisions are calculated on a tax equivalent basis.
The weighted average life of the Company’s securities portfolio was 4.82 years, with a modified duration of 3.97 years at December 31, 2024. Available for sale securities are shown at fair value and held to maturity securities are shown at amortized cost. For purposes of the table below, tax-exempt states and political subdivisions are calculated on a tax equivalent basis.
The Company does not expect a change in the source or use of its funds in the foreseeable future. The Company’s average deposits decreased 8.6% for the year ended December 31, 2023 compared with the year ended December 31, 2022.
The Company does not expect a change in the source or use of its funds in the foreseeable future. The Company’s average deposits increased 1.8% for the year ended December 31, 2024 compared with the year ended December 31, 2023.
Recent Acquisition Merger of First Bancshares of Texas, Inc. — Effective May 1, 2023, the Company completed the merger of First Bancshares into the Company and the subsequent merger of its wholly owned subsidiary, FirstCapital Bank, into the Bank (collectively, the “Merger”).
Merger of First Bancshares of Texas, Inc. — Effective May 1, 2023, the Company completed the merger of First Bancshares into the Company and the subsequent merger of its wholly owned subsidiary, FirstCapital Bank, into the Bank (collectively, the “FB Merger”).
The weighted average discount rate used to determine the lease liabilities as of December 31, 2023 for the Company’s operating leases was 2.7%. Cash paid for the Company’s operating leases for the years ended December 31, 2023, 2022 and 2021 was $12.0 million, $10.9 million and $12.2 million, respectively.
The weighted average discount rate used to determine the lease liabilities as of December 31, 2024 for the Company’s operating leases was 3.0%. Cash paid for the Company’s operating leases for the years ended December 31, 2024, 2023 and 2022 was $11.5 million, $12.0 million and $10.9 million, respectively.
At December 31, 2023, Warehouse Purchase Program loans totaled $822.2 million, compared to an average balance of $815.9 million. Because the capital ratios above are calculated using ending risk-weighted assets and Warehouse Purchase Program loans are risk-weighted at 100%, the end-of-period increase in these balances can significantly impact the Company’s reported capital ratios.
At December 31, 2024, Warehouse Purchase Program loans totaled $1.08 billion, compared to an average balance of $973.2 million. Because the capital ratios above are calculated using ending risk-weighted assets and Warehouse Purchase Program loans are risk-weighted at 100%, the end-of-period increase in these balances can significantly impact the Company’s reported capital ratios.

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