SEC Info - First Financial Bankshares Inc.

2022

(Unaudited)

ASSETS

CASH AND DUE FROM BANKS

i 255,018

i 242,665

i 293,286

INTEREST-BEARING DEMAND DEPOSITS IN BANKS

i 23,839

i 222,899

i 37,392

Total cash and cash equivalents

i 278,857

i 465,564

i 330,678

SECURITIES AVAILABLE-FOR-SALE, at fair value (amortized cost of
these securities was $ i 5,687,352, $ i 6,722,336 and $ i 6,152,348 as of
June 30, 2023 and 2022, and December 31, 2022, respectively)

i 5,066,262

i 6,215,036

i 5,474,359

LOANS:

Held-for-investment, excluding PPP loans

i 6,777,429

i 5,876,281

i 6,441,699

PPP loans

i 141

i 2,301

i 169

Total loans held-for-investment

i 6,777,570

i 5,878,582

i 6,441,868

Less—allowance for credit losses

( i 86,541

)

( i 71,932

)

( i 75,834

)

Net loans held-for-investment

i 6,691,029

i 5,806,650

i 6,366,034

Held-for-sale ($ i 18,089, $ i 23,848 and $ i 10,497 at fair value at
June 30, 2023 and 2022, and December 31, 2022, respectively)

i 19,220

i 26,445

i 11,965

BANK PREMISES AND EQUIPMENT, net

i 152,876

i 149,280

i 152,973

INTANGIBLE ASSETS, net

i 315,078

i 316,139

i 315,534

OTHER ASSETS

i 302,115

i 281,098

i 322,523

Total assets

i 12,825,437

i 13,260,212

i 12,974,066

LIABILITIES AND SHAREHOLDERS’ EQUITY

NONINTEREST-BEARING DEPOSITS

i 3,578,483

i 4,104,034

i 4,061,788

INTEREST-BEARING DEPOSITS

i 7,229,077

i 7,018,949

i 6,943,719

Total deposits

i 10,807,560

i 11,122,983

i 11,005,507

DIVIDENDS PAYABLE

i 25,714

i —

i 24,278

BORROWINGS

i 587,656

i 768,364

i 642,507

OTHER LIABILITIES

i 37,274

i 39,847

i 36,037

Total liabilities

i 11,458,204

i 11,931,194

i 11,708,329

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:

COMMON STOCK — ($ i  i  i 0.01 /  /  par value, authorized i  i  i 200,000,000 /  /  shares;
    i 142,741,196, i 142,586,601 and i 142,657,871 shares issued at
   June 30, 2023 and 2022, and December 31, 2022, respectively)

i 1,427

i 1,426

i 1,427

CAPITAL SURPLUS

i 680,676

i 675,653

i 677,593

RETAINED EARNINGS

i 1,175,410

i 1,052,453

i 1,121,945

TREASURY STOCK (shares at cost: i 927,608, i 937,924 and i 929,210 at
June 30, 2023 and 2022, and December 31, 2022, respectively)

( i 11,466

)

( i 10,656

)

( i 11,035

)

DEFERRED COMPENSATION

i 11,466

i 10,656

i 11,035

ACCUMULATED OTHER COMPREHENSIVE EARNINGS (LOSS), net

( i 490,280

)

( i 400,514

)

( i 535,228

)

Total shareholders’ equity

i 1,367,233

i 1,329,018

i 1,265,737

Total liabilities and shareholders’ equity

i 12,825,437

i 13,260,212

i 12,974,066

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS—(UNAUDITED)

(Dollars in thousands, except per share amounts)

Three-Months Ended June 30,

Six-Months Ended June 30,

2022

2023

2022

INTEREST INCOME:

Interest and fees on loans

i 98,067

i 68,158

i 187,076

i 132,656

Interest on investment securities:

Taxable

i 20,033

i 19,151

i 40,815

i 36,974

Exempt from federal income tax

i 9,321

i 14,120

i 19,388

i 28,712

Interest on federal funds sold and interest-bearing demand
deposits in banks

i 1,584

i 552

i 3,234

i 648

Total interest income

i 129,005

i 101,981

i 250,513

i 198,990

INTEREST EXPENSE:

Interest on deposits

i 27,629

i 2,966

i 49,441

i 4,336

Interest on borrowings

i 5,510

i 233

i 8,920

i 433

Total interest expense

i 33,139

i 3,199

i 58,361

i 4,769

Net interest income

i 95,866

i 98,782

i 192,152

i 194,221

PROVISION FOR CREDIT LOSSES

i 5,573

i 5,350

i 8,354

i 10,132

Net interest income after provision for credit losses

i 90,293

i 93,432

i 183,798

i 184,089

NONINTEREST INCOME:

Trust fees

i 9,883

i 9,742

i 19,728

i 19,559

Service charges on deposit accounts

i 6,310

i 6,038

i 12,346

i 11,744

Debit card fees

i 6,720

i 9,868

i 11,656

i 18,795

Credit card fees

i 711

i 700

i 1,320

i 1,301

Gain on sale and fees on mortgage loans

i 3,534

i 5,728

i 6,508

i 12,061

Net gain on sale of available-for-sale securities

i 46

i 1,648

i 58

i 1,679

Net gain (loss) on sale of foreclosed assets

( i 1

)

i 18

i 33

i 1,102

Net gain (loss) on sale of other assets

i —

i 6

i 930

( i 4

)

Interest on loan recoveries

i 475

i 1,649

i 821

i 1,932

Other

i 2,269

i 1,920

i 4,554

i 4,029

Total noninterest income

i 29,947

i 37,317

i 57,954

i 72,198

NONINTEREST EXPENSE:

Salaries, commissions and employee benefits

i 31,766

i 33,147

i 63,227

i 67,285

Net occupancy expense

i 3,423

i 3,292

i 6,853

i 6,517

Equipment expense

i 2,198

i 2,346

i 4,325

i 4,603

FDIC insurance premiums

i 1,417

i 904

i 3,071

i 1,773

Debit card expense

i 3,221

i 3,200

i 6,420

i 6,164

Professional and service fees

i 2,397

i 2,191

i 4,762

i 4,415

Printing, stationery and supplies

i 740

i 501

i 1,450

i 1,041

Operational and other losses

i 856

i 782

i 1,787

i 1,378

Software amortization and expense

i 2,519

i 2,522

i 4,830

i 4,979

Amortization of intangible assets

i 228

i 320

i 456

i 640

Other

i 8,848

i 9,128

i 17,688

i 18,763

Total noninterest expense

i 57,613

i 58,333

i 114,869

i 117,558

EARNINGS BEFORE INCOME TAXES

i 62,627

i 72,416

i 126,883

i 138,729

INCOME TAX EXPENSE

i 11,754

i 11,922

i 23,442

i 22,263

NET EARNINGS

i 50,873

i 60,494

i 103,441

i 116,466

NET EARNINGS PER SHARE, BASIC

i 0.36

i 0.42

i 0.72

i 0.82

NET EARNINGS PER SHARE, DILUTED

i 0.36

i 0.42

i 0.72

i 0.81

DIVIDENDS PER SHARE

i 0.18

i 0.17

i 0.35

i 0.32

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS) —(UNAUDITED)

(Dollars in thousands)

Three-Months Ended June 30,

Six-Months Ended June 30,

2022

2023

2022

NET EARNINGS

i 50,873

i 60,494

i 103,441

i 116,466

OTHER ITEMS OF COMPREHENSIVE EARNINGS (LOSS):

Change in unrealized gain (loss) on investment securities available-for-
sale, before income taxes

( i 40,500

)

( i 240,038

)

i 56,954

( i 630,937

)

Reclassification adjustment for realized gains on investment
securities included in net earnings, before income taxes

( i 46

)

( i 1,648

)

( i 58

)

( i 1,679

)

Total other items of comprehensive earnings (loss)

( i 40,546

)

( i 241,686

)

i 56,896

( i 632,616

)

Income tax benefit (expense) related to:

Change in unrealized gain (loss) on investment securities available-for-
sale

i 8,506

i 50,409

( i 11,960

)

i 132,497

Reclassification adjustment for realized gains on investment
securities included in net earnings

i 9

i 346

i 12

i 353

Total income tax benefit (expense)

i 8,515

i 50,754

( i 11,948

)

i 132,849

COMPREHENSIVE EARNINGS (LOSS)

i 18,842

( i 130,438

)

i 148,389

( i 383,301

)

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share amounts)

Common Stock

Capital

Retained

Treasury Stock

Deferred

Accumulated
Other
Comprehensive
Earnings

Total
Shareholders’

Amount

Surplus

Earnings

Amounts

Compensation

(Loss)

Equity

Balances at March 31, 2022 (unaudited)

i 142,704,495

i 1,427

i 680,665

i 1,016,239

( i 936,847

)

( i 10,404

)

i 10,404

( i 209,582

)

i 1,488,749

Net earnings (unaudited)

—

i 60,494

—

i 60,494

Stock option exercises (unaudited)

i 61,834

i 1

i 1,424

—

i 1,425

Restricted stock grant/forfeiture,
net (unaudited)

i 12,259

—

i 651

—

i 651

Cash dividends declared, $ i 0.17
per share (unaudited)

—

( i 24,280

)

—

( i 24,280

)

Change in unrealized gain (loss)
   in investment securities
   available-for-sale, net of related
   income taxes (unaudited)

—

( i 190,932

)

( i 190,932

)

Shares purchased in connection
   with directors’ deferred
   compensation plan, net
   (unaudited)

—

( i 1,077

)

( i 252

)

i 252

—

Stock option expense (unaudited)

—

i 316

—

i 316

Shares repurchased under stock
repurchase authorization
(unaudited)

( i 191,987

)

( i 2

)

( i 7,403

)

—

( i 7,405

)

Balances at June 30, 2022 (unaudited)

i 142,586,601

i 1,426

i 675,653

i 1,052,453

( i 937,924

)

( i 10,656

)

i 10,656

( i 400,514

)

i 1,329,018

Balances at March 31, 2023 (unaudited)

i 142,703,531

i 1,427

i 679,429

i 1,150,246

( i 927,789

)

( i 11,271

)

i 11,271

( i 458,249

)

i 1,372,853

Net earnings (unaudited)

—

i 50,873

—

i 50,873

Stock option exercises (unaudited)

i 12,475

—

i 215

—

i 215

Restricted stock grant/forfeiture,
net (unaudited)

i 25,190

—

i 587

—

i 587

Cash dividends declared, $ i 0.18
per share (unaudited)

—

( i 25,709

)

—

( i 25,709

)

Change in unrealized gain (loss)
   in investment securities
   available-for-sale, net of related
   income taxes (unaudited)

—

( i 32,031

)

( i 32,031

)

Shares purchased in connection
   with directors’ deferred
   compensation plan, net
   (unaudited)

—

i 181

( i 195

)

i 195

—

Stock option expense (unaudited)

—

i 445

—

i 445

Balances at June 30, 2023 (unaudited)

i 142,741,196

i 1,427

i 680,676

i 1,175,410

( i 927,608

)

( i 11,466

)

i 11,466

( i 490,280

)

i 1,367,233

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share amounts)

Common Stock

Capital

Retained

Treasury Stock

Deferred

Accumulated
Other
Comprehensive
Earnings

Total
Shareholders’

Amount

Surplus

Earnings

Amounts

Compensation

(Loss)

Equity

Balances at December 31, 2021

i 142,532,116

i 1,425

i 676,871

i 981,675

( i 936,897

)

( i 10,090

)

i 10,090

i 99,253

i 1,759,224

Net earnings (unaudited)

—

i 116,466

—

i 116,466

Stock option exercises
(unaudited)

i 234,585

i 3

i 4,343

—

i 4,346

Restricted stock
grant/forfeiture,
net (unaudited)

i 11,887

—

i 1,210

—

i 1,210

Cash dividends declared,
$ i 0.32 per share (unaudited)

—

( i 45,688

)

—

( i 45,688

)

Change in unrealized gain
   (loss) in investment
   securities available-for-sale,
   net of related income taxes
   (unaudited)

—

( i 499,767

)

( i 499,767

)

Shares purchased in
   connection with directors’
   deferred compensation
   plan, net (unaudited)

—

( i 1,027

)

( i 566

)

i 566

—

Stock option expense
(unaudited)

—

i 632

—

i 632

Shares repurchased under
stock repurchase
authorization (unaudited)

( i 191,987

)

( i 2

)

( i 7,403

)

—

( i 7,405

)

Balances at June 30, 2022 (unaudited)

i 142,586,601

i 1,426

i 675,653

i 1,052,453

( i 937,924

)

( i 10,656

)

i 10,656

( i 400,514

)

i 1,329,018

Balances at December 31, 2022

i 142,657,871

i 1,427

i 677,593

i 1,121,945

( i 929,210

)

( i 11,035

)

i 11,035

( i 535,228

)

i 1,265,737

Net earnings (unaudited)

—

i 103,441

—

i 103,441

Stock option exercises
(unaudited)

i 60,095

—

i 1,128

—

i 1,128

Restricted stock
grant/forfeiture,
net (unaudited)

i 23,230

—

i 1,066

—

i 1,066

Cash dividends declared,
$ i 0.35 per share (unaudited)

—

( i 49,976

)

—

( i 49,976

)

Change in unrealized gain
   (loss) in investment
   securities available-for-sale,
   net of related income taxes
   (unaudited)

—

i 44,948

Shares purchased in
   connection with directors’
   deferred compensation
   plan, net (unaudited)

—

i 1,602

( i 431

)

i 431

—

Stock option expense
(unaudited)

—

i 889

—

i 889

Balances at June 30, 2023 (unaudited)

i 142,741,196

i 1,427

i 680,676

i 1,175,410

( i 927,608

)

( i 11,466

)

i 11,466

( i 490,280

)

i 1,367,233

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(UNAUDITED)

(Dollars in thousands)


	Six-Months Ended June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	i 103,441		$	i 116,466
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		i 6,268			i 6,436
Provision for credit losses		i 8,354			i 10,132
Securities premium amortization, net		i 27,151			i 38,727
Discount accretion on purchased loans		i —			( i 746	)
Gain on sale of securities and other assets, net		( i 1,021	)		( i 2,777	)
Deferred federal income tax benefit		i 1,555			i 1,421
Change in loans held-for-sale		( i 7,167	)		i 10,980
Change in other assets		i 9,397			( i 1,077	)
Change in other liabilities		i 5,001			( i 21,216	)
Total adjustments		i 49,538			i 41,880
Net cash provided by operating activities		i 152,979			i 158,346
CASH FLOWS FROM INVESTING ACTIVITIES:
Activity in available-for-sale securities:
Sales		i 207,287			i 188,363
Maturities		i 233,935			i 2,615,256
Purchases		( i 3,322	)		( i 3,115,482	)
Net increase in loans held-for-investment		( i 336,122	)		( i 487,862	)
Purchases of bank premises and equipment		( i 8,966	)		( i 5,245	)
Proceeds from sale of bank premises and equipment and other assets		i 2,598			i 6
Net cash provided by (used in) investing activities		i 95,410			( i 804,964	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits		( i 483,305	)		i 323,804
Net increase in interest-bearing deposits		i 285,358			i 232,691
Net change in borrowings		( i 54,851	)		i 97,212
Common stock transactions:
Proceeds from stock option exercises		i 1,128			i 4,346
Dividends paid		( i 48,540	)		( i 67,054	)
Repurchases of stock		i —			( i 7,405	)
Net cash provided by (used in) financing activities		( i 300,210	)		i 583,594
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		( i 51,821	)		( i 63,024	)
CASH AND CASH EQUIVALENTS, beginning of period		i 330,678			i 528,588
CASH AND CASH EQUIVALENTS, end of period	$	i 278,857		$	i 465,564
SUPPLEMENTAL INFORMATION AND NONCASH TRANSACTIONS:
Interest paid	$	i 51,327		$	i 4,567
Federal income taxes paid		i 25,032			i 20,981
Transfer of loans to other real estate		i 190			i —
Restricted stock grant		i 1,066			i 1,210

See notes to consolidated financial statements.

FIRST FINANCIAL BANKSHARES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

Nature of Operations

First Financial Bankshares, Inc. (a Texas corporation) (“Bankshares”, “Company,” “we” or “us”) is a financial holding company which owns all of the capital stock of one bank with i 79 locations located in Texas as of June 30, 2023. The Company’s subsidiary bank is First Financial Bank, N.A. The Company’s primary source of revenue is providing loans and banking services to consumers and commercial customers in the market area in which First Financial Bank, N.A. is located. In addition, the Company also owns First Financial Trust & Asset Management Company, N.A., First Financial Insurance Agency, Inc., First Technology Services, Inc., FB Investment Paris Fund, LLC, and FFB Portfolio Management, Inc.

Basis of Presentation

A summary of significant accounting policies of the Company and its subsidiaries applied in the preparation of the accompanying consolidated financial statements follows. The accounting principles followed by the Company and the methods of applying them are in conformity with both United States generally accepted accounting principles (“GAAP”) and prevailing practices of the banking industry.

The Company evaluated subsequent events for potential recognition through the date the consolidated financial statements were issued.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include its allowance for credit losses and its valuation of financial instruments.

Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.

Stock Repurchase

On July 27, 2021, the Company’s Board of Directors authorized the repurchase of up to i 5,000,000 common shares through July 31, 2023. On July 25, 2023, the Company's Board of Directors renewed the prior authorization through July 31, 2024. The stock repurchase plan authorizes management to repurchase and retire the stock at such time as repurchases and retirements are considered beneficial to the Company and stockholders. Any repurchase of stock will be made through the open market, block trades, or in privately negotiated transactions in accordance with applicable laws and regulations. Under the repurchase plan, there is i no minimum number of shares that the Company is required to repurchase. Through June 30, 2023, i 244,559 shares were repurchased and retired (all during the months of June and July 2022) at an average price of $ i 38.61. The Company did not repurchase any shares during the first half of 2023.

Other Recently Issued and Effective Authoritative Accounting Guidance

ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. ASU 2020-04 was effective upon issuance, and based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2020-04 did not have a significant impact on our financial statements.

ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. ASU 2021-01 was effective upon issuance, and based upon the amendments provided in ASU 2022-06 discussed below, can generally be applied through December 31, 2024. The adoption of ASU 2021-01 did not have a significant impact on our financial statements.

ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings in ASC Subtopic 310-40, Receivables - Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 will also require that an entity disclose current-period gross charge-offs by year of origination for financial receivables and net investment leases within the scope of ASC Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. ASU 2022-02 will become effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. The adoption of ASU 2022-02 did not have a significant impact on our financial statements.

ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance provided by ASU 2020-04 and ASU 2021-01, which are discussed above. ASU 2022-06, which was effective upon issuance, defers the sunset date of this prior guidance from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief guidance in Topic 848. The adoption of ASU 2022-06 did not have a significant impact on our financial statements.

Investment Securities

Management classifies debt securities as held-to-maturity, available-for-sale, or trading based on its intent. Securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost, adjusted for amortization of premiums and accretion of discounts, which are recognized as adjustments to interest income using the interest method. Securities not classified as held-to-maturity or trading are classified as available-for-sale and recorded at fair value, with unrealized holding gains and losses (those for which no allowance for credit losses are recorded) reported as a component of other comprehensive income, net of tax. Management determines the appropriate classification of securities at the time of purchase.

Interest income includes amortization of purchase premiums and discounts over the period to maturity using a level-yield method, except for premiums on callable securities, which are amortized to their earliest call date. Realized gains and losses are recorded on the sale of securities in noninterest income.

The Company has made a policy election to exclude accrued interest from the amortized cost basis of securities and report accrued interest separately in other assets on the consolidated balance sheets. A security is placed on nonaccrual status at the time any principal or interest payments become more than i 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on nonaccrual is reversed against interest income. There was no accrued interest related to securities reversed against interest income for the three and six-months ended June 30, 2023 and 2022.

The Company records its available-for-sale securities portfolio at fair value. Fair values of these securities are determined based on methodologies in accordance with current authoritative accounting guidance. Fair values are volatile and may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates, credit ratings and yield curves. Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the marketplace as a result of the illiquid market, specific to the type of security.

The Company’s investment portfolio currently consists of obligations of state and political subdivisions, mortgage pass-through securities, corporate bonds and general obligation or revenue based municipal bonds. Pricing for such securities is generally readily available and transparent in the market. The Company utilizes independent third-party pricing services to value its investment securities, which the Company reviews as well as the underlying pricing methodologies for reasonableness and to ensure such prices are aligned with pricing matrices. The Company validates prices supplied by the independent pricing services by comparison to prices obtained from other third-party sources on a quarterly basis.

Allowance for Credit Losses – Available-for-Sale Securities

For available-for-sale securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, any previously recognized allowances are charged-off and the security’s amortized cost basis is written down to fair value through income as a provision for credit losses. For available-for-sale securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Management has made the accounting policy election to exclude accrued interest receivable on available-for-sale securities from the estimate of credit losses. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit losses. Available-for-sale securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

At June 30, 2023 and 2022, and December 31, 2022, i i i no / / allowance for credit losses - available-for-sale securities was recorded.

Allowance for Credit Losses – Held-to-Maturity Securities

The allowance for credit losses on held-to-maturity securities is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of held-to-maturity securities to present management’s best estimate of the net amount expected to be collected. Held-to-maturity securities are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. Management measures expected credit losses on held-to-maturity securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management has made the accounting policy election to exclude accrued interest receivable on held-to-maturity securities from the estimate of credit losses.

At June 30, 2023 and 2022, and December 31, 2022, the Company held i i i no / / securities that were classified as held-to-maturity.

Loans Held-for-Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost, net of the allowance for credit losses. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, fair value hedge accounting adjustments, deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in other assets on the condensed consolidated balance sheets.

Interest on loans is calculated by using the simple interest method on daily balances of the principal amounts outstanding. The Company defers and amortizes net loan origination fees and costs as an adjustment to yield.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. 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.

Further information regarding our accounting policies related to past due loans, nonaccrual loans and loans to borrowers experiencing financial difficulty is presented in Note 3.

Acquired Loans

Loans acquired in connection with acquisitions are recorded at their acquisition-date fair value. The allowance for credit losses related to the acquired loan portfolio is not carried over. Upon the adoption of ASC 326, acquired loans are classified into two categories based on the credit risk characteristics of the underlying borrowers as either purchased credit deteriorated (“PCD”) loans, or loans with no evidence of credit deterioration (“non-PCD”).

PCD loans are defined as a loan or pool of loans that have experienced more-than-insignificant credit deterioration since the origination date. The Company uses a combination of individual and pooled review approaches to determine if acquired loans are PCD. At acquisition, the Company considers a number of factors to determine if an acquired loan or pool of loans has experienced more-than-insignificant credit deterioration.

The initial allowance related to PCD loans that share similar risk characteristics is established using a pooled approach. The Company uses either a discounted cash flow or weighted average remaining life method to determine the required level of the allowance. PCD loans that were classified as nonaccrual as of the acquisition date and are collateral dependent are assessed for allowance on an individual basis. For PCD loans, an initial allowance is established on the acquisition date. Subsequent to the acquisition date, the initial allowance for credit losses on PCD loans will increase or decrease based on future evaluations, with changes recognized in the provision for credit losses.

Non-PCD loans are pooled into segments together with originated loans that share similar risk characteristics and have an allowance established on the acquisition date, which is recognized in the current period provision for credit losses as well as a fair value adjustment to the amortized cost of the loan and accreted into income over the life of the loan.

Determining the fair value of the acquired loans involves estimating the principal and interest payment cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considers a number of factors in evaluating the acquisition-date fair value including the remaining life, interest rate profile, market interest rate environment, payment schedules, risk ratings, probability of default and loss given default, and estimated prepayment rates. For PCD loans, the non-credit discount or premium is allocated to individual loans as determined by the difference between the loan’s unpaid principal balance and amortized cost basis. For non-PCD loans, the fair value discount or premium is allocated to individual loans and recognized into interest income on a level yield basis over the remaining expected life of the loan.

Allowance for Credit Losses - Loans

The allowance for credit losses (“allowance” or “ACL”) is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans. The ACL represents an amount which, in management’s judgement, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. Management has made the accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses.

The Company’s methodology for estimating the allowance includes: (1) a collective quantified reserve that reflects the Company’s historical default and loss experience adjusted for expected economic conditions throughout a reasonable and supportable period and the Company’s prepayment and curtailment rates; (2) collective qualitative factors that consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, early delinquencies, and factors related to credit administrations, including, among others, loan-to-value ratios, borrowers’ risk rating and credit score migrations; and (3) individual allowances on loans where borrowers are experiencing financial difficulty or when the Company determines that the foreclosure is probable.

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For modeling purposes, our loan portfolio segments include Commercial and Industrial (“C&I”), Municipal, Agricultural, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied Commercial Real Estate (“CRE”), Residential, Consumer Auto, and Consumer Non-Auto. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. Refer to Note 3 for more details on the Company’s portfolio segments.

The Company applies two methodologies to estimate the allowance on its pooled portfolio segments; discounted cash flows method and weighted average remaining life method. Allowance estimates on the following portfolio segments are calculated using the discounted cash flows method: C&I, Municipal, Construction and Development, Farm, Non-Owner Occupied and Owner Occupied CRE, and Residential. Allowance estimates on the following portfolio segments are calculated using the remaining life method: Agriculture, Consumer Auto and Consumer Non-Auto. The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a one-year economic outlook for the applicable economic variables. Following the end of the reasonable and supportable forecast period, expected losses revert back to the historical mean over the next two years on a straight-line basis. Economic variables that have the most significant impact on the allowance include: Texas unemployment rate, Texas house price index and Texas retail sales index. Contractual loan level cash flows within the discounted cash flows methodology are adjusted for the Company’s historical prepayment and curtailment rate experience.

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on an ongoing basis.

Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making Q-Factor adjustments include, among other things, the impact of (i) changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries, (ii) actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools, (iii) changes in the nature, volume and size of a loan or the loan pools and in the terms of the underlying loans, (iv) changes in the experience, ability, and depth of our lending management and staff, (v) changes in volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets, (vi) changes in the quality of our credit review function, (vii) changes in the value of the underlying collateral for loans that are non-collateral dependent, (viii) the existence, growth, and effect of any concentrations of credit and (ix) other factors such as the regulatory, legal and technological environments, competition, and events such as natural disasters or health pandemics.

Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.

Allowance for Credit Losses - Off-Balance-Sheet/Reserve for Unfunded Commitments

The allowance for credit losses on off-balance-sheet credit exposures is a liability account, calculated in accordance with ASC 326, representing expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. These obligations include unfunded lines of credit, commitments to extend credit and federal funds sold to correspondent banks and standby letters of credit. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses. At June 30, 2023 and 2022, and December 31, 2022, the Company’s reserve for unfunded commitments totaled $ i 9,449,000, $ i 8,718,000 and $ i 12,323,000, respectively, which is included in other liabilities in the consolidated balance sheet.

Other Real Estate

Other real estate owned is foreclosed property held pending disposition and is initially recorded at fair value, less estimated costs to sell, and is included in other assets in the consolidated balance sheet. At foreclosure, if the fair value of the real estate, less estimated costs to sell, is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for credit losses. Any subsequent reduction in value is recognized by a charge to income. Operating and holding expenses of such properties, net of related income, and gains/losses on their disposition are included in net gain (loss) on sale of foreclosed assets as incurred.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the respective lease or the estimated useful lives of the improvements, whichever is shorter.

Business Combinations, Goodwill and Other Intangible Assets

The Company accounts for all business combinations under the purchase method of accounting. Tangible and intangible assets and liabilities of the acquired entity are recorded at fair value. Intangible assets with finite useful lives represent the future benefit associated with the acquisition of the core deposits and are amortized over i seven years, utilizing a method that approximates the expected attrition of the deposits. Goodwill with an indefinite life is not amortized, but rather tested annually for impairment as of June 30 each year. There was i i no / impairment recorded during the six-months ended June 30, 2023 or 2022, respectively.

Securities Sold Under Agreements To Repurchase

Securities sold under agreements to repurchase, which are classified as borrowings, generally mature within i one to four days from the transaction date. Securities sold under agreements to repurchase are reflected at the amount of the cash received in connection with the transaction. The Company may be required to provide additional collateral based on the estimated fair value of the underlying securities.

Segment Reporting

The Company has determined that its banking regions meet the aggregation criteria of the current authoritative accounting guidance since each of its banking regions offer similar products and services, operate in a similar manner, have similar customers and report to the same regulatory authority, and therefore operate one line of business (community banking) located in a single geographic area (Texas).

Statements of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents includes cash on hand, amounts due from banks, including interest-bearing deposits in banks with original maturity of i 90 days or less, and federal funds sold.

Accumulated Other Comprehensive Earnings (Loss)

Unrealized net losses on the Company’s available-for-sale securities, net of applicable income taxes, totaled $ i 490,280,000, $ i 400,514,000 and $ i 535,228,000 at June 30, 2023, and 2022, and December 31, 2022, respectively, are included in accumulated other comprehensive earnings (loss) as a separate component of shareholders' equity.

Income Taxes

The Company’s provision for income taxes is based on income before income taxes adjusted for permanent differences between financial reporting and taxable income. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. As of June 30, 2023, and 2022, and December 31, 2022, deferred tax assets totaled $ i 133,016,000, $ i 109,450,000 and $ i 145,511,000, respectively, and were included in other assets on the consolidated balance sheets.

Stock Based Compensation

The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value using the Black-Scholes model of the shares at the grant date. The grant date fair value is amortized over the vesting period which generally is five or six years. The Company also grants restricted stock and/or units for a fixed number of shares which generally vests over periods of one to three years, and performance stock units which vest over a 3-year period based on Company performance metrics relative to a defined peer group. For stock option grants, the exercise price is established based on the closing trading price. No adjustments have been necessary to properly value the grant based on the terms or other conditions of the grants. Expense is recognized based on the fair value of the portion of stock-based payment awards that ultimately expected to vest, reduced for forfeitures based on grant-date fair value. See Note 8 for further information.

Advertising Costs

Advertising costs are expensed as incurred.

Per Share Data

Net earnings per share (“EPS”) are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. The Company calculates dilutive EPS assuming all outstanding stock options to purchase common shares and unvested restricted stock shares and units have been exercised and/or vested at the beginning of the year (or the time of issuance, if later.) The dilutive effect of the outstanding options and restricted stock is reflected by application of the treasury stock method, whereby the proceeds from the exercised options and unearned compensation for both restricted stock and stock options are assumed to be used to purchase common shares at the average market price during the respective period. There were i 778,000 and i 485,000 anti-dilutive shares for the three and six-months ended June 30, 2023, respectively, that were excluded from the computation of EPS. There were i 207,000 and i 209,000 anti-dilutive shares for the three and six-months ended June 30, 2022, respectively, that were excluded from the computation of EPS. i The following table reconciles the computation of basic EPS to diluted EPS:

Net

Weighted

Earnings

Average

Per Share

(in thousands)

Amount

For the three-months ended June 30, 2023:

Net earnings per share, basic

i 50,873

i 142,700,905

i 0.36

Effect of stock options and stock grants

i —

i 386,650

i —

Net earnings per share, diluted

i 50,873

i 143,087,555

i 0.36

Net

Weighted

Earnings

Average

Per Share

(in thousands)

Amount

For the three-months ended June 30, 2022:

Net earnings per share, basic

i 60,494

i 142,682,251

i 0.42

Effect of stock options and stock grants

i —

i 556,418

i —

Net earnings per share, diluted

i 60,494

i 143,238,669

i 0.42

Net

Weighted

Earnings

Average

Per Share

(in thousands)

Amount

For the six-months ended June 30, 2023:

Net earnings per share, basic

i 103,441

i 142,683,322

i 0.72

Effect of stock options and stock grants

i —

i 344,181

i —

Net earnings per share, diluted

i 103,441

i 143,027,503

i 0.72

Net

Weighted

Earnings

Average

Per Share

(in thousands)

Amount

For the six-months ended June 30, 2022:

Net earnings per share, basic

i 116,466

i 142,620,838

i 0.82

Effect of stock options and stock grants

i —

i 652,553

( i 0.01

)

Net earnings per share, diluted

i 116,466

i 143,273,391

i 0.81

Note 2 - Securities

Debt securities have been classified in the consolidated balance sheets according to management’s intent. i The amortized cost, related gross unrealized gains and losses, allowance for credit losses and the fair value of available-for-sale securities are as follows (dollars in thousands):

Gross

Amortized

Unrealized

Estimated

Cost Basis

Holding Gains

Holding Losses

Fair Value

Securities available-for-sale:

U.S. Treasury securities

i 508,124

i —

( i 24,348

)

i 483,776

Obligations of states and political subdivisions

i 1,859,193

i 405

( i 166,634

)

i 1,692,964

Residential mortgage-backed securities

i 2,875,699

i 2

( i 402,760

)

i 2,472,941

Commercial mortgage-backed securities

i 331,829

i —

( i 17,442

)

i 314,387

Corporate bonds and other

i 112,507

i —

( i 10,313

)

i 102,194

Total securities available-for-sale

i 5,687,352

i 407

( i 621,497

)

i 5,066,262

Gross

Amortized

Unrealized

Estimated

Cost Basis

Holding Gains

Holding Losses

Fair Value

Securities available-for-sale:

U.S. Treasury securities

i 501,098

i 12

( i 14,752

)

i 486,358

Obligations of states and political subdivisions

i 2,419,232

i 7,737

( i 182,365

)

i 2,244,604

Residential mortgage-backed securities

i 3,265,654

i 399

( i 301,149

)

i 2,964,904

Commercial mortgage-backed securities

i 423,168

i 476

( i 8,819

)

i 414,825

Corporate bonds and other

i 113,184

i 88

( i 8,927

)

i 104,345

Total securities available-for-sale

i 6,722,336

i 8,712

( i 516,012

)

i 6,215,036

Gross

Amortized

Unrealized

Estimated

Cost Basis

Holding Gains

Holding Losses

Fair Value

Securities available-for-sale:

U.S. Treasury securities

i 508,275

i 11

( i 25,737

)

i 482,549

Obligations of states and political subdivisions

i 2,104,193

i 1,217

( i 206,799

)

i 1,898,611

Residential mortgage-backed securities

i 3,034,120

i 8

( i 417,562

)

i 2,616,566

Commercial mortgage-backed securities

i 392,914

i 1

( i 18,046

)

i 374,869

Corporate bonds and other

i 112,846

i -

( i 11,082

)

i 101,764

Total securities available-for-sale

i 6,152,348

i 1,237

( i 679,226

)

i 5,474,359

The Company did i i i no / / t hold any securities classified as held-to-maturity at June 30, 2023, June 30, 2022, or December 31, 2022.

The Company invests in mortgage-backed securities that have expected maturities that differ from their contractual maturities. These differences arise because borrowers may have the right to call or prepay obligations with or without a prepayment penalty. These securities include collateralized mortgage obligations (CMOs) and other asset backed securities. The expected maturities of these securities at June 30, 2023 and 2022, and December 31, 2022, were computed by using scheduled amortization of balances and historical prepayment rates.

The amortized cost and estimated fair value of available-for-sale securities at June 30, 2023, by contractual and expected maturity, are shown below (dollars in thousands):


	Amortized		Estimated
	Cost Basis		Fair Value
Due within one year	$	i 326,804	$	i 320,734
Due after one year through five years		i 1,487,053		i 1,379,040
Due after five years through ten years		i 2,817,340		i 2,473,140
Due after ten years		i 1,056,155		i 893,348
Total	$	i 5,687,352	$	i 5,066,262

The following tables disclose as of June 30, 2023 and 2022, and December 31, 2022, the Company’s investment securities that have been in a continuous unrealized-loss position for less than i 12 months and for 12 or more months (dollars in thousands):

Less than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

U.S. Treasury securities

i 47,498

i 1,614

i 436,278

i 22,734

i 483,776

i 24,348

Obligations of states and political subdivisions

i 137,728

i 1,838

i 1,457,431

i 164,796

i 1,595,159

i 166,634

Residential mortgage-backed securities

i 68,439

i 3,609

i 2,403,837

i 399,151

i 2,472,276

i 402,760

Commercial mortgage-backed securities

i 99,347

i 4,771

i 215,040

i 12,671

i 314,387

i 17,442

Corporate bonds and other

i 38,042

i 1,282

i 64,152

i 9,031

i 102,194

i 10,313

Total

i 391,054

i 13,114

i 4,576,738

i 608,383

i 4,967,792

i 621,497

Less than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

U.S. Treasury securities

i 466,438

i 14,752

i —

i 466,438

i 14,752

Obligations of states and political subdivisions

i 1,623,146

i 178,446

i 24,038

i 3,919

i 1,647,184

i 182,365

Residential mortgage-backed securities

i 2,631,511

i 266,352

i 277,404

i 34,797

i 2,908,915

i 301,149

Commercial mortgage-backed securities

i 341,997

i 8,819

i —

i 341,997

i 8,819

Corporate bonds and other

i 73,358

i 4,287

i 26,397

i 4,640

i 99,755

i 8,927

Total

i 5,136,450

i 472,656

i 327,839

i 43,356

i 5,464,289

i 516,012

Less than 12 Months

12 Months or Longer

Total

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

Fair Value

Unrealized
Loss

U.S. Treasury securities

i 307,012

i 11,650

i 173,105

i 14,087

i 480,117

i 25,737

Obligations of states and political subdivisions

i 770,469

i 55,943

i 946,571

i 150,856

i 1,717,040

i 206,799

Residential mortgage-backed securities

i 470,970

i 37,065

i 2,143,869

i 380,497

i 2,614,839

i 417,562

Commercial mortgage-backed securities

i 319,303

i 11,677

i 54,862

i 6,369

i 374,165

i 18,046

Corporate bonds and other

i 41,920

i 1,698

i 59,844

i 9,384

i 101,764

i 11,082

Total

i 1,909,674

i 118,033

i 3,378,251

i 561,193

i 5,287,925

i 679,226

The number of investments in an unrealized loss position totaled i 934 at June 30, 2023. We believe any unrealized losses in the U.S. treasury securities, obligations of state and political subdivisions, residential and commercial mortgage-backed and asset-backed investment securities, and corporate bonds and other at June 30, 2023 and 2022, and December 31, 2022, are due to changes in interest rates and not credit-related events. As such, no allowance for credit losses is required on these securities at June 30, 2023 and 2022, and December 31, 2022. Unrealized losses on investment securities are expected to recover over time as these securities approach maturity. Our mortgage related securities are backed by GNMA, FNMA and FHLMC or are collateralized by securities backed by these agencies. At June 30, 2023, i 69.19% of our available-for-sale securities that are obligations of states and political subdivisions were issued within the State of Texas, of which i 52.59% are guaranteed by the Texas Permanent School Fund.

Securities, carried at approximately $ i 3,447,659,000 on June 30, 2023, were pledged as collateral for public or trust fund deposits, repurchase agreements, borrowings and for other purposes required or permitted by law.

During the three-months ended June 30, 2023 and 2022, sales of investment securities that were classified as available-for-sale were $ i 61,339,000 and $ i 188,363,000, respectively. Gross realized security gains from sales and calls during the second quarter of 2023 and 2022 totaled $ i 596,000 and $ i 3,990,000, respectively. Gross realized security losses from sales or calls during the second quarter of 2023 or 2022 totaled $ i 550,000 and $ i 2,342,000, respectively.

During the six-months ended June 30, 2023 and 2022, sales of investment securities that were classified as available-for-sale were $ i 207,287,000 and $ i 188,363,000, respectively. Gross realized security gains from sales and calls during the six-months ended June 30, 2023 and 2022 totaled $ i 1,648,000 and $ i 4,023,000, respectively. Gross realized security losses from sales or calls during the six-months ended June 30, 2023 and 2022 totaled $ i 1,590,000 and $ i 2,344,000, respectively.

The specific identification method was used to determine cost in order to compute the realized gains and losses.

Note 3 – Loans Held-for-Investment and Allowance for Credit Losses

For the periods ended June 30, 2023 and 2022, and December 31, 2022, the following tables outline the Company’s loan portfolio by the ten portfolio segments where applicable.

Loans held-for-investment by portfolio segment are as follows (dollars in thousands):

June 30,

2022

Commercial:

C&I*

i 1,021,863

i 839,928

i 917,317

Municipal

i 215,977

i 200,577

i 221,090

Total Commercial

i 1,237,840

i 1,040,505

i 1,138,407

Agricultural

i 82,032

i 90,420

i 76,947

Real Estate:

Construction & Development

i 915,221

i 928,644

i 959,426

Farm

i 335,644

i 250,028

i 306,322

Non-Owner Occupied CRE

i 811,347

i 636,432

i 732,089

Owner Occupied CRE

i 1,011,511

i 909,899

i 954,400

Residential

i 1,698,679

i 1,412,125

i 1,575,758

Total Real Estate

i 4,772,402

i 4,137,128

i 4,527,995

Consumer:

Auto

i 534,603

i 468,147

i 550,635

Non-Auto

i 150,693

i 142,382

i 147,884

Total Consumer

i 685,296

i 610,529

i 698,519

Total Loans

i 6,777,570

i 5,878,582

i 6,441,868

Less: Allowance for credit losses

( i 86,541

)

( i 71,932

)

( i 75,834

)

Loans, net

i 6,691,029

i 5,806,650

i 6,366,034

* All disclosures for the C&I loan segment include PPP loan balances, net of deferred fees and costs, as disclosed on the face of the consolidated balance sheet.

Outstanding loan balances at June 30, 2023 and 2022, and December 31, 2022, are net of unearned income, including net deferred loan fees.

At June 30, 2023, $ i 4,717,880,000 in loans held by our bank subsidiary were subject to blanket liens as security for a line of credit with the Federal Home Loan Bank of Dallas ("FHLB"). At June 30, 2023, this available line of credit was $ i 2,516,497,000. At June 30, 2023, there was i no balance outstanding under this line of credit.

The Company’s nonaccrual loans and loans still accruing and past due 90 days or more are as follows (dollars in thousands):

June 30,

2022

Nonaccrual loans

i 28,672

i 25,495

i 24,325

Loans still accruing and past due 90 days or more

i 552

i 22

i —

Total nonperforming loans (1)

i 29,224

i 25,517

i 24,325

(1) With the adoption of ASU 2022-02, effective January 1, 2023, troubled debt restructuring ("TDR") accounting has been eliminated.

The Company had $ i 29,249,000, $ i 25,517,000 and $ i 24,325,000 in nonaccrual, past due 90 days or more and still accruing, and foreclosed assets at June 30, 2023 and 2022, and December 31, 2022, respectively. i Nonaccrual loans at June 30, 2023 and 2022, and December 31, 2022, consisted of the following (dollars in thousands):

June 30,

2022

Commercial:

C&I

i 4,818

i 6,695

i 5,057

Municipal

—

i —

Total Commercial

i 4,818

i 6,695

i 5,057

Agricultural

i 133

i 482

i 324

Real Estate:

Construction & Development

i 2,835

i 990

i 1,567

Farm

i 701

i 97

i 85

Non-Owner Occupied CRE

i 5,329

i 2,477

i 2,321

Owner Occupied CRE

i 7,308

i 6,823

i 7,092

Residential

i 6,769

i 7,512

i 7,419

Total Real Estate

i 22,942

i 17,899

i 18,484

Consumer:

Auto

i 649

i 389

i 429

Non-Auto

i 130

i 30

i 31

Total Consumer

i 779

i 419

i 460

Total

i 28,672

i 25,495

i 24,325

i No significant additional funds are committed to be advanced in connection with nonaccrual loans as of June 30, 2023.

Summary information on the allowance for credit losses for the three and six-months ended June 30, 2023 and 2022, are outlined by portfolio segment in the following tables (dollars in thousands):

Three-Months Ended June 30, 2023

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Beginning balance

i 16,083

i 1,067

i 1,214

i 28,627

i 1,937

Provision for loan losses

i 988

( i 880

)

( i 153

)

i 339

i 867

Recoveries

i 113

i —

i 21

i —

Charge-offs

( i 654

)

i —

Ending balance

i 16,530

i 187

i 1,082

i 28,966

i 2,804

Three-Months Ended June 30, 2023 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Beginning balance

i 9,051

i 11,948

i 9,702

i 857

i 332

i 80,818

Provision for loan losses

i 4,398

i 610

i 167

i 99

i 87

i 6,522

Recoveries

i 22

i 14

i 12

i 101

i 36

i 319

Charge-offs

i —

( i 114

)

( i 228

)

( i 122

)

( i 1,118

)

Ending balance

i 13,471

i 12,572

i 9,767

i 829

i 333

i 86,541

Three-Months Ended June 30, 2022

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Beginning balance

i 15,737

i 1,418

i 1,911

i 17,887

i 873

Provision for loan losses

i 2,521

( i 66

)

( i 832

)

i 3,198

i 133

Recoveries

i 402

i —

i 92

i —

Charge-offs

( i 71

)

i —

( i 9

)

i —

Ending balance

i 18,589

i 1,352

i 1,162

i 21,085

i 1,006

Three-Months Ended June 30, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Beginning balance

i 8,499

i 11,536

i 7,829

i 869

i 354

i 66,913

Provision for loan losses

( i 576

)

( i 809

)

i 466

i 64

i 4

i 4,103

Recoveries

i 487

i 13

i 12

i 102

i 83

i 1,191

Charge-offs

i —

( i 3

)

( i 123

)

( i 69

)

( i 275

)

Ending balance

i 8,410

i 10,740

i 8,304

i 912

i 372

i 71,932

Six-Months Ended June 30, 2023

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Beginning balance

i 16,129

i 1,026

i 1,041

i 26,443

i 1,957

Provision for loan losses

i 924

( i 839

)

( i 181

)

i 2,423

i 847

Recoveries

i 165

i —

i 222

i 100

i —

Charge-offs

( i 688

)

i —

Ending balance

i 16,530

i 187

i 1,082

i 28,966

i 2,804

Six-Months Ended June 30, 2023 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-
Auto

Total

Beginning balance

i 9,075

i 9,928

i 9,075

i 845

i 315

i 75,834

Provision for loan losses

i 4,349

i 2,623

i 791

i 169

i 123

i 11,229

Recoveries

i 47

i 21

i 15

i 233

i 81

i 884

Charge-offs

i —

( i 114

)

( i 418

)

( i 186

)

( i 1,406

)

Ending balance

i 13,471

i 12,572

i 9,767

i 829

i 333

i 86,541

Six-Months Ended June 30, 2022

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Beginning balance

i 12,280

i 348

i 1,597

i 17,627

i 663

Provision for loan losses

i 5,976

i 1,004

( i 543

)

i 3,558

i 343

Recoveries

i 558

i —

i 117

i —

Charge-offs

( i 225

)

i —

( i 9

)

( i 100

)

i —

Ending balance

i 18,589

i 1,352

i 1,162

i 21,085

i 1,006

Six-Months Ended June 30, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-
Auto

Total

Beginning balance

i 10,722

i 10,828

i 8,133

i 896

i 371

i 63,465

Provision for loan losses

( i 2,854

)

( i 20

)

i 303

i 44

i 39

i 7,850

Recoveries

i 542

i 20

i 17

i 168

i 129

i 1,551

Charge-offs

i —

( i 88

)

( i 149

)

( i 196

)

( i 167

)

( i 934

)

Ending balance

i 8,410

i 10,740

i 8,304

i 912

i 372

i 71,932

Additionally, the Company records a reserve for unfunded commitments in other liabilities which totaled $ i 9,449,000, $ i 8,718,000 and $ i 12,323,000 at June 30, 2023 and 2022, and December 31, 2022, respectively. The provision for loan losses of $ i 6,522,000 for the three-months ended June 30, 2023 is combined with the reversal of the provision for unfunded commitments of $ i 949,000 and reported in the net aggregate of $ i 5,573,000 under the provision for credit losses in the consolidated statement of earnings for the three-months ended June 30, 2023. The provision for loan losses of $ i 11,229,000 for the six-months ended June 30, 2023 is combined with the reversal of the provision for unfunded commitments of $ i 2,875,000 and reported in the net aggregate of $ i 8,354,000 under the provision for credit losses in the consolidated statement of earnings for the six-months ended June 30, 2023.

The $ i 4,103,000 provision for loan losses for the three-months ended June 30, 2022 above is combined with the provision for unfunded commitments of $ i 1,247,000 and reported in the aggregate of $ i 5,350,000 under the provision for credit losses for the three-months ended June 30, 2022. The $ i 7,850,000 provision for loan losses for the six-months ended June 30, 2022 above is combined with the provision for unfunded commitments of $ i 2,282,000 and reported in the aggregate of $ i 10,132,000 under the provision for credit losses for the six-months ended June 30, 2022.

The Company’s loans that are individually evaluated for credit losses (both collateral and non-collateral dependent) and their related allowances as of June 30, 2023 and 2022, and December 31, 2022, are summarized in the following tables by loan segment (dollars in thousands):

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance

Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses

Total Loans
Individually
Evaluated
for Credit
Losses

Related
Allowance
on Collateral
Dependent
Loans

Related
Allowance on
Non-Collateral
Dependent
Loans

Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses

Commercial:

C&I

i 610

i 4,208

i 23,282

i 28,100

i 2,780

i 5,671

i 8,451

Municipal

—

i 1,507

—

Total Commercial

i 610

i 4,208

i 24,789

i 29,607

i 2,780

i 5,671

i 8,451

Agricultural

—

i 133

i 1,855

i 1,988

i 37

i 517

i 554

Real Estate:

Construction & Development

i 2,672

i 163

i 21,787

i 24,622

i 15

i 2,194

i 2,209

Farm

i 578

i 123

i 7,038

i 7,739

i 18

i 1,117

i 1,135

Non-Owner Occupied CRE

i 2,062

i 3,267

i 27,112

i 32,441

i 421

i 2,502

i 2,923

Owner Occupied CRE

i 5,643

i 1,665

i 31,870

i 39,178

i 299

i 1,769

i 2,068

Residential

i 4,283

i 2,486

i 29,923

i 36,692

i 261

i 1,611

i 1,872

Total Real Estate

i 15,238

i 7,704

i 117,730

i 140,672

i 1,014

i 9,193

i 10,207

Consumer:

Auto

i 29

i 620

i 1,571

i 2,220

i 1

i 2

i 3

Non-Auto

—

i 130

i 522

i 652

—

i 1

Total Consumer

i 29

i 750

i 2,093

i 2,872

i 1

i 3

i 4

Total

i 15,877

i 12,795

i 146,467

i 175,139

i 3,832

i 15,384

i 19,216

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance

Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses

Total Loans
Individually
Evaluated
for Credit
Losses

Related
Allowance
on Collateral
Dependent
Loans

Related
Allowance on
Non-Collateral
Dependent
Loans

Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses

Commercial:

C&I

i 1,224

i 5,471

i 25,674

i 32,369

i 2,794

i 6,797

i 9,591

Municipal

—

i 84

—

Total Commercial

i 1,224

i 5,471

i 25,758

i 32,453

i 2,794

i 6,797

i 9,591

Agricultural

i 178

i 304

i 270

i 752

i 146

i 214

i 360

Real Estate:

Construction & Development

i 441

i 549

i 9,622

i 10,612

i 34

i 352

i 386

Farm

i —

i 97

i 1,565

i 1,662

i 3

i 43

i 46

Non-Owner Occupied CRE

i 2,391

i 86

i 32,225

i 34,702

i 7

i 2,836

i 2,843

Owner Occupied CRE

i 5,727

i 1,096

i 30,616

i 37,439

i 58

i 2,527

i 2,585

Residential

i 4,307

i 3,205

i 25,642

i 33,154

i 355

i 1,297

i 1,652

Total Real Estate

i 12,866

i 5,033

i 99,670

i 117,569

i 457

i 7,055

i 7,512

Consumer:

Auto

—

i 389

i 1,002

i 1,391

i 1

i 2

i 3

Non-Auto

—

i 30

i 473

i 503

—

i 1

Total Consumer

—

i 419

i 1,475

i 1,894

i 1

i 3

i 4

Total

i 14,268

i 11,227

i 127,173

i 152,668

i 3,398

i 14,069

i 17,467

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
Without an
Allowance

Collateral
Dependent Loans
Individually
Evaluated for
Credit Losses
With an
Allowance

Non-Collateral
Dependent
Loans
Individually
Evaluated for
Credit Losses

Total Loans
Individually
Evaluated
for Credit
Losses

Related
Allowance
on Collateral
Dependent
Loans

Related
Allowance on
Non-Collateral
Dependent
Loans

Total
Allowance for
Credit Losses
on Loans
Individually
Evaluated for
Credit Losses

Commercial:

C&I

i —

i 5,057

i 24,325

i 29,382

i 3,513

i 4,885

i 8,398

Municipal

—

i 58

—

Total Commercial

i —

i 5,057

i 24,383

i 29,440

i 3,513

i 4,885

i 8,398

Agricultural

i 116

i 209

i 354

i 679

i 122

i 276

i 398

Real Estate:

Construction & Development

i 577

i 990

i 4,873

i 6,440

i 193

i 112

i 305

Farm

i —

i 85

i 1,578

i 1,663

i 2

i 34

i 36

Non-Owner Occupied CRE

i 2,062

i 259

i 36,037

i 38,358

i 16

i 2,341

i 2,357

Owner Occupied CRE

i 4,363

i 2,728

i 29,115

i 36,206

i 91

i 1,509

i 1,600

Residential

i 5,132

i 2,287

i 28,564

i 35,983

i 229

i 1,215

i 1,444

Total Real Estate

i 12,134

i 6,349

i 100,167

i 118,650

i 531

i 5,211

i 5,742

Consumer:

Auto

—

i 429

i 931

i 1,360

i 1

i 2

Non-Auto

—

i 31

i 538

i 569

—

i 1

Total Consumer

—

i 460

i 1,469

i 1,929

i 1

i 2

i 3

Total

i 12,250

i 12,075

i 126,373

i 150,698

i 4,167

i 10,374

i 14,541

The Company’s allowance for loans that are individually evaluated for credit losses and collectively evaluated for credit losses as of June 30, 2023 and 2022, and December 31, 2022, are summarized in the following table by loan segment (dollars in thousands). Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 8,451

—

i 554

i 2,209

i 1,135

Loans collectively evaluated for credit losses

i 8,079

i 187

i 528

i 26,757

i 1,669

Total

i 16,530

i 187

i 1,082

i 28,966

i 2,804

June 30, 2023 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 2,923

i 2,068

i 1,872

i 3

i 1

i 19,216

Loans collectively evaluated for credit losses

i 10,548

i 10,504

i 7,895

i 826

i 332

i 67,325

Total

i 13,471

i 12,572

i 9,767

i 829

i 333

i 86,541

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 9,591

—

i 360

i 386

i 46

Loans collectively evaluated for credit losses

i 8,998

i 1,352

i 802

i 20,699

i 960

Total

i 18,589

i 1,352

i 1,162

i 21,085

i 1,006

June 30, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 2,843

i 2,585

i 1,652

i 3

i 1

i 17,467

Loans collectively evaluated for credit losses

i 5,567

i 8,155

i 6,652

i 909

i 371

i 54,465

Total

i 8,410

i 10,740

i 8,304

i 912

i 372

i 71,932

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 8,398

—

i 398

i 305

i 36

Loans collectively evaluated for credit losses

i 7,731

i 1,026

i 643

i 26,138

i 1,921

Total

i 16,129

i 1,026

i 1,041

i 26,443

i 1,957

December 31, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 2,357

i 1,600

i 1,444

i 2

i 1

i 14,541

Loans collectively evaluated for credit losses

i 6,718

i 8,328

i 7,631

i 843

i 314

i 61,293

Total

i 9,075

i 9,928

i 9,075

i 845

i 315

i 75,834

The Company’s recorded investment in loans as of June 30, 2023 and 2022, and December 31, 2022, related to the balance in the allowance for credit losses follows below (dollars in thousands):

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 28,100

i 1,507

i 1,988

i 24,622

i 7,739

Loans collectively evaluated for credit losses

i 993,763

i 214,470

i 80,044

i 890,599

i 327,905

Total

i 1,021,863

i 215,977

i 82,032

i 915,221

i 335,644

June 30, 2023 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 32,441

i 39,178

i 36,692

i 2,220

i 652

i 175,139

Loans collectively evaluated for credit losses

i 778,906

i 972,333

i 1,661,987

i 532,383

i 150,041

i 6,602,431

Total

i 811,347

i 1,011,511

i 1,698,679

i 534,603

i 150,693

i 6,777,570

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 32,369

i 84

i 752

i 10,612

i 1,662

Loans collectively evaluated for credit losses

i 807,559

i 200,493

i 89,668

i 918,032

i 248,366

Total

i 839,928

i 200,577

i 90,420

i 928,644

i 250,028

June 30, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 34,702

i 37,439

i 33,154

i 1,391

i 503

i 152,668

Loans collectively evaluated for credit losses

i 601,730

i 872,460

i 1,378,971

i 466,756

i 141,879

i 5,725,914

Total

i 636,432

i 909,899

i 1,412,125

i 468,147

i 142,382

i 5,878,582

C&I

Municipal

Agricultural

Construction
&
Development

Farm

Loans individually evaluated for credit losses

i 29,382

i 58

i 679

i 6,440

i 1,663

Loans collectively evaluated for credit losses

i 887,935

i 221,032

i 76,268

i 952,986

i 304,659

Total

i 917,317

i 221,090

i 76,947

i 959,426

i 306,322

December 31, 2022 (continued)

Non-Owner
Occupied
CRE

Owner
Occupied
CRE

Residential

Auto

Non-Auto

Total

Loans individually evaluated for credit losses

i 38,358

i 36,206

i 35,983

i 1,360

i 569

i 150,698

Loans collectively evaluated for credit losses

i 693,731

i 918,194

i 1,539,775

i 549,275

i 147,315

i 6,291,170

Total

i 732,089

i 954,400

i 1,575,758

i 550,635

i 147,884

i 6,441,868

From a credit risk standpoint, the Company rates its loans in one of five categories: (i) pass, (ii) special mention, (iii) substandard, (iv) doubtful or (v) loss (which are charged-off).

The ratings of loans reflect a judgment about the risks of default and loss associated with the loan. The Company reviews the ratings on our credits as part of our ongoing monitoring of the credit quality of our loan portfolio. Ratings are adjusted to reflect the degree of risk and loss that are felt to be inherent in each credit as of each reporting period. Our methodology is structured so that specific allocations are increased in accordance with deterioration in credit quality (and a corresponding increase in risk and loss) or decreased in accordance with improvement in credit quality (and a corresponding decrease in risk and loss).

Credits rated special mention show clear signs of financial weaknesses or deterioration in credit worthiness, however, such concerns are not so pronounced that the Company generally expects to experience significant loss within the short-term. Such credits typically maintain the ability to perform within standard credit terms and credit exposure is not as prominent as credits rated more harshly.

Credits rated substandard are those in which the normal repayment of principal and interest may be, or has been, jeopardized by reason of adverse trends or developments of a financial, managerial, economic or political nature, or important weaknesses exist in collateral. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed.

Credits rated doubtful are those in which full collection of principal appears highly questionable, and which some degree of loss is anticipated, even though the ultimate amount of loss may not yet be certain and/or other factors exist which could affect collection of debt. Based upon available information, positive action by the Company is required to avert or minimize loss. Credits rated doubtful are generally also placed on nonaccrual.

The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at June 30, 2023 (dollars in millions):


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
C&I
Risk rating:
Pass	$	i 333	$	i 468	$	i 105	$	i 44	$	i 18	$	i 26	$	—	$	i 994
Special mention		i 8		i 1		—		—		i 1		—		—		i 10
Substandard		i 3		i 7		i 4		i 2		—		i 2		—		i 18
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 344	$	i 476	$	i 109	$	i 46	$	i 19	$	i 28	$	—	$	i 1,022
Year-to-Date Gross Charge-Offs	$	—	$	—	$	i 1	$	—	$	—	$	—	$	—	$	i 1


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Municipal
Risk rating:
Pass	$	i 11	$	i 84	$	i 17	$	i 14	$	i 1	$	i 87	$	—	$	i 214
Special mention		—		—		—		—		i 1		—		—		i 1
Substandard		—		—		i 1		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 11	$	i 84	$	i 18	$	i 14	$	i 2	$	i 87	$	—	$	i 216
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Agricultural
Risk rating:
Pass	$	i 30	$	i 42	$	i 5	$	i 2	$	i 1	$	—	$	—	$	i 80
Special mention		—		i 1		—		—		—		—		—		i 1
Substandard		—		i 1		—		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 30	$	i 44	$	i 5	$	i 2	$	i 1	$	—	$	—	$	i 82
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Construction & Development
Risk rating:
Pass	$	i 242	$	i 498	$	i 103	$	i 24	$	i 11	$	i 12	$	—	$	i 890
Special mention		i 8		i 4		—		—		—		—		—		i 12
Substandard		i 4		i 8		i 1		—		—		—		—		i 13
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 254	$	i 510	$	i 104	$	i 24	$	i 11	$	i 12	$	—	$	i 915
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Farm
Risk rating:
Pass	$	i 63	$	i 126	$	i 78	$	i 26	$	i 9	$	i 26	$	—	$	i 328
Special mention		—		—		—		i 5		—		—		—		i 5
Substandard		—		i 1		i 1		—		—		i 1		—		i 3
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 63	$	i 127	$	i 79	$	i 31	$	i 9	$	i 27	$	—	$	i 336
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Owner Occupied CRE
Risk rating:
Pass	$	i 101	$	i 234	$	i 185	$	i 125	$	i 46	$	i 88	$	—	$	i 779
Special mention		—		i 5		i 1		—		i 11		i 2		—		i 19
Substandard		—		i 1		i 4		i 1		i 2		i 5		—		i 13
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 101	$	i 240	$	i 190	$	i 126	$	i 59	$	i 95	$	—	$	i 811
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Owner Occupied CRE
Risk rating:
Pass	$	i 67	$	i 321	$	i 240	$	i 121	$	i 68	$	i 156	$	—	$	i 973
Special mention		—		—		—		—		i 6		i 1		—		i 7
Substandard		i 2		i 5		i 1		i 1		i 6		i 17		—		i 32
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 69	$	i 326	$	i 241	$	i 122	$	i 80	$	i 174	$	—	$	i 1,012
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Residential
Risk rating:
Pass	$	i 228	$	i 461	$	i 335	$	i 172	$	i 73	$	i 255	$	i 138	$	i 1,662
Special mention		—		i 2		i 3		i 2		—		i 3		i 1		i 11
Substandard		i 1		i 6		i 4		i 3		i 2		i 8		i 2		i 26
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 229	$	i 469	$	i 342	$	i 177	$	i 75	$	i 266	$	i 141	$	i 1,699
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Auto
Risk rating:
Pass	$	i 110	$	i 265	$	i 99	$	i 39	$	i 16	$	i 4	$	—	$	i 533
Special mention		—		—		—		—		—		—		—		—
Substandard		—		i 1		i 1		—		—		—		—		i 2
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 110	$	i 266	$	i 100	$	i 39	$	i 16	$	i 4	$	—	$	i 535
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Auto
Risk rating:
Pass	$	i 41	$	i 63	$	i 29	$	i 6	$	i 2	$	i 1	$	i 8	$	i 150
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 41	$	i 63	$	i 29	$	i 6	$	i 2	$	i 1	$	i 8	$	i 150
Year-to-Date Gross Charge-Offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


June 30,	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
Total Loans
Risk rating:
Pass	$	i 1,226	$	i 2,562	$	i 1,196	$	i 573	$	i 245	$	i 655	$	i 146	$	i 6,603
Special mention		i 16		i 13		i 4		i 7		i 19		i 6		i 1		i 66
Substandard		i 10		i 30		i 17		i 7		i 10		i 33		i 2		i 109
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 1,252	$	i 2,605	$	i 1,217	$	i 587	$	i 274	$	i 694	$	i 149	$	i 6,778
Year-to-Date Gross Charge-Offs	$	—	$	—	$	i 1	$	—	$	—	$	—	$	—	$	i 1

The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at June 30, 2022 (dollars in millions):


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
C&I
Risk rating:
Pass	$	i 342	$	i 317	$	i 79	$	i 28	$	i 20	$	i 22	$	i —	$	i 808
Special mention		i 4		i 1		—		i 2		—		—		—		i 7
Substandard		i 11		i 5		i 3		i 3		i 3		—		—		i 25
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 357	$	i 323	$	i 82	$	i 33	$	i 23	$	i 22	$	i —	$	i 840


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Municipal
Risk rating:
Pass	$	i 49	$	i 21	$	i 14	$	i 5	$	i 21	$	i 91	$	i —	$	i 201
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 49	$	i 21	$	i 14	$	i 5	$	i 21	$	i 91	$	i —	$	i 201


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Agricultural
Risk rating:
Pass	$	i 39	$	i 41	$	i 4	$	i 3	$	i 1	$	i 1	$	i —	$	i 89
Special mention		—		—		—		—		—		—		—		—
Substandard		i 1		—		—		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 40	$	i 41	$	i 4	$	i 3	$	i 1	$	i 1	$	i —	$	i 90


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Construction & Development
Risk rating:
Pass	$	i 330	$	i 440	$	i 104	$	i 22	$	i 11	$	i 11	$	i —	$	i 918
Special mention		—		i 4		—		—		—		—		—		i 4
Substandard		i 2		i 5		—		—		—		—		—		i 7
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 332	$	i 449	$	i 104	$	i 22	$	i 11	$	i 11	$	i —	$	i 929


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Farm
Risk rating:
Pass	$	i 63	$	i 104	$	i 35	$	i 13	$	i 8	$	i 26	$	i —	$	i 249
Special mention		—		—		—		—		—		—		—		—
Substandard		—		i —		—		—		i —		i 1		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 63	$	i 104	$	i 35	$	i 13	$	i 8	$	i 27	$	i —	$	i 250


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Owner Occupied CRE
Risk rating:
Pass	$	i 130	$	i 203	$	i 109	$	i 52	$	i 24	$	i 83	$	i —	$	i 601
Special mention		—		—		i 1		i 11		—		i 7		—		i 19
Substandard		i 6		—		i 1		i 2		i 1		i 6		—		i 16
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 136	$	i 203	$	i 111	$	i 65	$	i 25	$	i 96	$	i —	$	i 636


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Owner Occupied CRE
Risk rating:
Pass	$	i 240	$	i 218	$	i 122	$	i 88	$	i 71	$	i 133	$	i —	$	i 872
Special mention		—		i 2		i 2		i 1		—		i 1		—		i 6
Substandard		i 1		i 4		i 2		i 3		i 11		i 11		—		i 32
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 241	$	i 224	$	i 126	$	i 92	$	i 82	$	i 145	$	i —	$	i 910


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Residential
Risk rating:
Pass	$	i 277	$	i 399	$	i 188	$	i 94	$	i 70	$	i 239	$	i 112	$	i 1,379
Special mention		i 1		i 2		i 2		i 1		—		i 4		i —		i 10
Substandard		i 2		i 3		i 2		i 2		i 2		i 8		i 4		i 23
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 280	$	i 404	$	i 192	$	i 97	$	i 72	$	i 251	$	i 116	$	i 1,412


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Auto
Risk rating:
Pass	$	i 168	$	i 171	$	i 77	$	i 36	$	i 11	$	i 4	$	i —	$	i 467
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		i 1		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 168	$	i 171	$	i 77	$	i 37	$	i 11	$	i 4	$	i —	$	i 468


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Auto
Risk rating:
Pass	$	i 54	$	i 56	$	i 15	$	i 5	$	i 2	$	i 2	$	i 7	$	i 141
Special mention		i 1		—		—		—		—		—		—		i 1
Substandard		—		—		—		—		—		—		—		i —
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 55	$	i 56	$	i 15	$	i 5	$	i 2	$	i 2	$	i 7	$	i 142


June 30,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Total Loans
Risk rating:
Pass	$	i 1,692	$	i 1,970	$	i 747	$	i 346	$	i 239	$	i 612	$	i 119	$	i 5,725
Special mention		i 6		i 9		i 5		i 15		i —		i 12		—		i 47
Substandard		i 23		i 17		i 8		i 11		i 17		i 26		i 4		i 106
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 1,721	$	i 1,996	$	i 760	$	i 372	$	i 256	$	i 650	$	i 123	$	i 5,878

The following summarizes the Company’s internal ratings of its loans held-for-investment, including the year of origination, by portfolio segments, at December 31, 2022 (dollars in millions):


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
C&I
Risk rating:
Pass	$	i 627	$	i 157	$	i 52	$	i 22	$	i 16	$	i 13	$	i —	$	i 887
Special mention		i 4		i 1		i 2		i 1		—		—		—		i 8
Substandard		i 13		i 5		i 2		i 1		i 1		—		—		i 22
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 644	$	i 163	$	i 56	$	i 24	$	i 17	$	i 13	$	i —	$	i 917


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Municipal
Risk rating:
Pass	$	i 79	$	i 19	$	i 15	$	i 4	$	i 20	$	i 84	$	i —	$	i 221
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 79	$	i 19	$	i 15	$	i 4	$	i 20	$	i 84	$	i —	$	i 221


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Agricultural
Risk rating:
Pass	$	i 60	$	i 9	$	i 3	$	i 2	$	i 1	$	i 1	$	i —	$	i 76
Special mention		—		—		—		—		—		—		—		—
Substandard		—		i 1		—		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 60	$	i 10	$	i 3	$	i 2	$	i 1	$	i 1	$	i —	$	i 77


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Construction & Development
Risk rating:
Pass	$	i 638	$	i 218	$	i 70	$	i 13	$	i 8	$	i 7	$	i —	$	i 954
Special mention		i 1		—		—		—		—		—		—		i 1
Substandard		i 4		i 1		—		—		—		—		—		i 5
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 643	$	i 219	$	i 70	$	i 13	$	i 8	$	i 7	$	i —	$	i 960


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Farm
Risk rating:
Pass	$	i 147	$	i 85	$	i 32	$	i 11	$	i 8	$	i 21	$	i —	$	i 304
Special mention		—		—		—		—		—		—		—		—
Substandard		i 1		—		—		—		—		i 1		—		i 2
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 148	$	i 85	$	i 32	$	i 11	$	i 8	$	i 22	$	i —	$	i 306


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Owner Occupied CRE
Risk rating:
Pass	$	i 258	$	i 191	$	i 100	$	i 49	$	i 21	$	i 75	$	i —	$	i 694
Special mention		—		i 1		i 1		i 11		—		i 7		—		i 20
Substandard		i 8		i 1		i 1		i 2		i 1		i 5		—		i 18
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 266	$	i 193	$	i 102	$	i 62	$	i 22	$	i 87	$	i —	$	i 732


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Owner Occupied CRE
Risk rating:
Pass	$	i 316	$	i 224	$	i 128	$	i 74	$	i 63	$	i 113	$	i —	$	i 918
Special mention		i 1		i —		i 1		i 8		—		i 1		—		i 11
Substandard		i 1		i 2		i 1		i 2		i 9		i 10		—		i 25
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 318	$	i 226	$	i 130	$	i 84	$	i 72	$	i 124	$	i —	$	i 954


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Residential
Risk rating:
Pass	$	i 513	$	i 355	$	i 173	$	i 82	$	i 64	$	i 214	$	i 139	$	i 1,540
Special mention		i 1		i 3		i 2		—		i —		i 3		i 1		i 10
Substandard		i 6		i 3		i 2		i 2		i 1		i 9		i 3		i 26
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 520	$	i 361	$	i 177	$	i 84	$	i 65	$	i 226	$	i 143	$	i 1,576


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Auto
Risk rating:
Pass	$	i 331	$	i 131	$	i 55	$	i 25	$	i 6	$	i 2	$	i —	$	i 550
Special mention		—		—		—		—		—		—		—		—
Substandard		—		—		i 1		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 331	$	i 131	$	i 56	$	i 25	$	i 6	$	i 2	$	i —	$	i 551


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Non-Auto
Risk rating:
Pass	$	i 85	$	i 41	$	i 9	$	i 3	$	i 1	$	i 1	$	i 7	$	i 147
Special mention		—		—		—		—		—		—		—		—
Substandard		—		i 1		—		—		—		—		—		i 1
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 85	$	i 42	$	i 9	$	i 3	$	i 1	$	i 1	$	i 7	$	i 148


December 31,	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
Total Loans
Risk rating:
Pass	$	i 3,054	$	i 1,430	$	i 637	$	i 285	$	i 208	$	i 531	$	i 146	$	i 6,291
Special mention		i 7		i 5		i 6		i 20		i —		i 11		i 1		i 50
Substandard		i 33		i 14		i 7		i 7		i 12		i 25		i 3		i 101
Doubtful		—		—		—		—		—		—		—		—
Total	$	i 3,094	$	i 1,449	$	i 650	$	i 312	$	i 220	$	i 567	$	i 150	$	i 6,442

At June 30, 2023 and 2022, and December 31, 2022, the Company’s past due loans are as follows (dollars in thousands):

15-59
Days
Past
Due*

60-89
Days
Past
Due

Greater
Than 90
Days

Total Past
Due

Current

Total Loans

90 Days
Past Due
Still
Accruing

Commercial:

C&I

i 3,734

i 722

i 1,651

i 6,107

i 1,015,756

i 1,021,863

i 3

Municipal

i 215

—

i 215

i 215,762

i 215,977

—

Total Commercial

i 3,949

i 722

i 1,651

i 6,322

i 1,231,518

i 1,237,840

i 3

Agricultural

i 580

i 1,024

i 15

i 1,619

i 80,413

i 82,032

—

Real Estate:

Construction & Development

i 14,390

i 2,062

—

i 16,452

i 898,769

i 915,221

—

Farm

i 776

i 205

i 372

i 1,353

i 334,291

i 335,644

—

Non-Owner Occupied CRE

i 1,395

—

i 2,988

i 4,383

i 806,964

i 811,347

—

Owner Occupied CRE

i 3,356

i 3,818

—

i 7,174

i 1,004,337

i 1,011,511

—

Residential

i 7,265

i 2,210

i 1,301

i 10,776

i 1,687,903

i 1,698,679

i 520

Total Real Estate

i 27,182

i 8,295

i 4,661

i 40,138

i 4,732,264

i 4,772,402

i 520

Consumer:

Auto

i 574

i 118

i 14

i 706

i 533,897

i 534,603

—

Non-Auto

i 135

i 18

i 65

i 218

i 150,475

i 150,693

i 29

Total Consumer

i 709

i 136

i 79

i 924

i 684,372

i 685,296

i 29

Total

i 32,420

i 10,177

i 6,406

i 49,003

i 6,728,567

i 6,777,570

i 552

15-59
Days
Past
Due*

60-89
Days
Past Due

Greater
Than 90
Days

Total Past
Due

Current

Total Loans

90 Days
Past Due
Still
Accruing

Commercial:

C&I

i 3,240

i 2,704

i 1,470

i 7,414

i 832,514

i 839,928

—

Municipal

i —

—

i —

i 200,577

—

Total Commercial

i 3,240

i 2,704

i 1,470

i 7,414

i 1,033,091

i 1,040,505

—

Agricultural

i 432

i 30

i 27

i 489

i 89,931

i 90,420

—

Real Estate:

Construction & Development

i 2,841

i 734

i —

i 3,575

i 925,069

i 928,644

—

Farm

i 1,005

—

i —

i 1,005

i 249,023

i 250,028

—

Non-Owner Occupied CRE

i 569

—

i 107

i 676

i 635,756

i 636,432

—

Owner Occupied CRE

i 4,061

i 495

i 1,292

i 5,848

i 904,051

i 909,899

—

Residential

i 5,387

i 92

i 596

i 6,075

i 1,406,050

i 1,412,125

i 2

Total Real Estate

i 13,863

i 1,321

i 1,995

i 17,179

i 4,119,949

i 4,137,128

i 2

Consumer:

Auto

i 292

i 104

i 30

i 426

i 467,721

i 468,147

i 14

Non-Auto

i 161

—

i 7

i 168

i 142,214

i 142,382

i 6

Total Consumer

i 453

i 104

i 37

i 594

i 609,935

i 610,529

i 20

Total

i 17,988

i 4,159

i 3,529

i 25,676

i 5,852,906

i 5,878,582

i 22

15-59
Days
Past
Due*

60-89
Days
Past Due

Greater
Than 90
Days

Total Past
Due

Current

Total Loans

90 Days
Past Due
Still
Accruing

Commercial:

C&I

i 3,924

i 297

i 1,646

i 5,867

i 911,450

i 917,317

—

Municipal

i 76

i 783

—

i 859

i 220,231

i 221,090

—

Total Commercial

i 4,000

i 1,080

i 1,646

i 6,726

i 1,131,681

i 1,138,407

—

Agricultural

i 243

—

i 243

i 76,704

i 76,947

—

Real Estate:

Construction & Development

i 3,751

—

i 175

i 3,926

i 955,500

i 959,426

—

Farm

i 668

—

i 668

i 305,654

i 306,322

—

Non-Owner Occupied CRE

i 1,444

i 160

—

i 1,604

i 730,485

i 732,089

—

Owner Occupied CRE

i 1,151

i —

—

i 1,151

i 953,249

i 954,400

—

Residential

i 8,720

i 707

i 266

i 9,693

i 1,566,065

i 1,575,758

—

Total Real Estate

i 15,734

i 867

i 441

i 17,042

i 4,510,953

i 4,527,995

—

Consumer:

Auto

i 779

i 30

—

i 809

i 549,826

i 550,635

—

Non-Auto

i 50

i —

—

i 50

i 147,834

i 147,884

—

Total Consumer

i 829

i 30

—

i 859

i 697,660

i 698,519

—

Total

i 20,806

i 1,977

i 2,087

i 24,870

i 6,416,998

i 6,441,868

—

* The Company monitors commercial, agricultural and real estate loans after such loans are 15 days past due. Consumer loans are monitored after such loans are 30 days past due.

Modifications of receivables to debtors experiencing financial difficulty

On January 1, 2023, the Company adopted the accounting guidance in ASU 2022-02, which eliminates the recognition and measurement of a TDR. Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, term extensions, interest rate reduction, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses due to the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. During the six-months ended June 30, 2023, loan modifications made to borrowers experiencing financial difficulty was insignificant.

Note 4 - Loans Held-for-Sale

Loans held-for-sale totaled $ i 19,220,000, $ i 26,445,000 and $ i 11,965,000 at June 30, 2023 and 2022, and December 31, 2022, respectively. At June 30, 2023 and 2022, and December 31, 2022, $ i 1,131,000, $ i 2,597,000 and $ i 1,468,000, respectively, are valued at the lower of cost or fair value, and the remaining amounts are valued under the fair value option.

These loans, which are sold on a servicing released basis, are valued using a market approach by utilizing either: (i) the fair value of the securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from market observable inputs, the Company classifies these valuations as Level 2 in the fair value disclosures (see Note 9). Interest income on mortgage loans held-for-sale is recognized based on the contractual rates and reflected in interest income on loans in the consolidated statements of earnings. The Company has no continuing ownership in any residential mortgage loans sold.

The Company originates certain mortgage loans for sale in the secondary market. The mortgage loan sales contracts contain indemnification clauses should the loans default, generally in the first three to six months, or if documentation is determined not to be in compliance with regulations. The Company’s historic losses as a result of these indemnities have been insignificant.

Note 5 - Derivative Financial Instruments

The Company enters into interest rate lock commitments (“IRLCs”) with customers to originate residential mortgage loans at a specific interest rate that are ultimately sold in the secondary market. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company.

The Company purchases forward mortgage-backed securities contracts to manage the changes in fair value associated with changes in interest rates related to a portion of the IRLCs. These instruments are typically entered into at the time the IRLC is made in the aggregate.

The fair values of IRLCs are based on current secondary market prices for underlying loans and estimated servicing value with similar coupons, maturity and credit quality, subject to the anticipated loan funding probability (pull-through rate) net of estimated costs to originate the loan. The fair value of IRLCs is subject to change primarily due to changes in interest rates and the estimated pull-through rate. These commitments are classified as Level 2 in the fair value disclosures (see Note 9), as the valuations are based on observable market inputs.

Forward mortgage-backed securities contracts are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, the Company utilizes the exchange price or dealer market price for the particular derivative contract and these instruments are therefore classified as Level 2 in the fair value disclosures (see Note 9). The estimated fair values are subject to change primarily due to changes in interest rates. The impact of these forward contracts is included in gain on sale and fees on mortgage loans in the statement of earnings.

These financial instruments are not designated as hedging instruments for accounting purposes. All derivatives are carried at fair value in either other assets or other liabilities and are reflected in the gain on sale and fees on mortgage loans in the consolidated statement of earnings.

The following tables provide the outstanding notional balances and fair values of outstanding derivative positions (dollars in thousands):

June 30, 2023:

Outstanding
Notional
Balance

Asset
Derivative
Fair Value

Liability
Derivative
Fair Value

IRLCs

i 47,824

i 455

i —

Forward mortgage-backed securities trades

i 66,000

i 160

i —

June 30, 2022:

Outstanding
Notional
Balance

Asset
Derivative
Fair Value

Liability
Derivative
Fair Value

IRLCs

i 99,429

i 1,414

i —

Forward mortgage-backed securities trades

i 101,500

i 58

i —

December 31, 2022:

Outstanding
Notional
Balance

Asset
Derivative
Fair
Value

Liability
Derivative
Fair
Value

IRLCs

i 41,664

i 400

i —

Forward mortgage-backed securities trades

i 45,000

i 85

i —

Note 6 – Borrowings

Borrowings consisted of the following (dollars in thousands):

June 30,

2022

Securities sold under agreements with customers to repurchase

i 559,478

i 738,986

i 618,829

Federal funds purchased

i 7,125

i 8,325

i 2,625

Other borrowings

i 21,053

Total

i 587,656

i 768,364

i 642,507

Securities sold under repurchase agreements are generally with significant customers of the Company that require short-term liquidity for their funds for which the Company pledges certain securities that have a fair value equal to at least the amount of the borrowings. The agreements mature daily and therefore the risk arising from a decline in the fair value of the collateral pledged is minimal. The securities pledged are mortgage-backed securities. These agreements do not include “right of set-off” provisions and therefore the Company does not offset such agreements for financial reporting purposes.

The Company renewed its loan agreement, effective i June 30, 2023, with Frost Bank. Under the loan agreement, as renewed and amended, we are permitted to draw up to $ i 25,000,000 on a revolving line of credit. There was i no outstanding balance under the line of credit as of June 30, 2023.

During 2021, the Company began investing in qualifying Community Development Entities ("CDE") under the federal New Market Tax Credits ("NMTC") program. See Note 7 for further discussion of our activity and related balances on the consolidated balance sheets, including the $ i 21,053,000 in other borrowings shown above.

Note 7 - Income Taxes

Income tax expense was $ i 11,754,000 for the second quarter of 2023 as compared to $ i 11,922,000 for the same period in 2022. The Company’s effective tax rates on pretax income were i 18.77% and i 16.46% for the second quarters of 2023 and 2022, respectively. Income tax expense was $ i 23,442,000 for the first six months of 2023 as compared to $ i 22,263,000 for the same period is 2022. The Company's effective tax rates on pretax income were i 18.48% and i 16.05% for first six months of 2023 and 2022, respectively. The effective tax rates differ from the statutory federal tax rate of i 21% primarily due to tax exempt interest income earned on certain investment securities and loans, the deductibility of dividends paid to our employee stock ownership plan, excess tax benefits for distributions under our deferred compensation plan and vesting of equity awards, and NMTC benefits.

Low Income Housing Tax Credit Investments - During 2021, the Company began investing in an affordable housing fund that will invest in real estate projects that qualify for the federal low income housing tax credit ("LIHTC") program designed to promote private development of low income housing. The investments made by the fund will generate a return to the Company primarily through the realization of LIHTCs, and also through federal tax deductions generated from the ongoing operating losses from the investees of the fund. The Company's investment in the fund will be amortized through income tax expense using the proportional amortization method as related tax credits are utilized by the Company. The initial capital contribution commitment to the fund was for up to $ i 5,500,000. Contributions were $ i 218,000 at June 30, 2023, $ i 55,000 at June 30, 2022, and $ i 131,000 at December 31, 2022, which is included in other assets on the consolidated balance sheet.

New Market Tax Credit Investments - During 2021, the Company began investing in qualifying CDEs under the federal NMTC program. NMTC investments are made through the third-party CDEs which are qualified through the U.S. Department of Treasury and receive periodic allocation of amounts under the NMTC program. NMTCs are generated from qualified investments by the CDEs utilizing equity investments made by a taxpayer, like the Company. Through these equity investments, the Company will receive the tax benefits from the NMTCs equal to i 39% of the qualified investment from the CDE yield method and related tax credits are allocated to the Company. At June 30, 2023, June 30, 2022, and December 31, 2022, the consolidated balance sheet of the Company included a $ i i i 18,000,000 / / loan to the investee in loans and the $ i i i 21,053,000 / / leveraged loan from the investee in other borrowings (see Note 6). At June 30, 2023 and 2022, and December 31, 2022, the consolidated balance sheet of the Company included CDE investments in other assets of $ i 26,281,000, $ i 29,000,000, and $ i 26,825,000, respectively.

Note 8 - Stock Based Compensation

On April 27, 2021, the Company’s shareholders approved the 2021 Omnibus Stock and Incentive Plan (“2021 Plan”) and reserved i 2,500,000 shares of the Company’s common stock for issuance under this plan. At June 30, 2023, the Company had i 1,911,022 shares of stock remaining for issuance under the plan. The 2021 Plan superseded all prior stock option and restricted stock plans with shares previously reserved for issuance under such plans cancelled.

Restricted Stock Units

Under the 2021 Plan, the Company grants restricted stock units under compensation arrangements for the benefit of employees, senior and executive officers and directors. Restricted stock unit grants are subject to time-based vesting. The total number of restricted stock units granted represents the maximum number of restricted stock units eligible to vest based upon the service conditions set forth in the grant agreements. i The following table summarizes information about the changes in restricted stock units for the six-months ended June 30, 2023 and 2022.

For the Six-Months Ended June 30,

2022

Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value

Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value

Balance at beginning of period

i 39,657

i 47.83

i 22,597

i 48.91

Grants

i —

Vesting

i —

Forfeited/expired

( i 2,888

)

i 47.87

i —

Balance at end of period

i 36,769

i 47.83

i 22,597

i 48.91

Performance Stock Units

Also under the 2021 Plan, the Company awards performance-based restricted stock units ("PSUs") to employees, senior and executive officers and directors. Under the terms of the award, the number of units that will vest and convert to shares of common stock will be based on the extent to which the Company achieves specific performance criteria during the fixed i three-year performance period. The number of shares issued upon vesting will range from i 0% to i 200% of the PSUs granted. The PSUs vest at the end of a i three-year period based i 50% each on average adjusted earnings per share growth and return on average assets as reported, adjusted for unusual gains/losses, merger expenses, and other items as approved by the compensation committee of the Company's board of directors. Performance for each period is measured relative to other U.S. publicly traded banks with $ i 10 billion to $ i 50 billion in assets. Compensation expense for the PSUs will be estimated each period based on the fair value of the stock at the grant date and the most probable outcome of the performance condition, adjusted for the passage of time within the vesting period of the awards.

The following table summarizes information about the changes in PSUs as of and for the six-months ended June 30, 2023 and 2022.

For the Six-Months Ended June 30,

2022

Performance-Based Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value

Performance-Based Restricted
Stock Units
Outstanding

Weighted
Average
Grant Date
Fair Value

Balance at beginning of period

i 47,082

i 48.00

i 22,597

i 48.91

Grants

i —

Vesting

i —

Forfeited/expired

( i 3,456

)

i 48.04

i —

Balance at end of period

i 43,626

i 48.00

i 22,597

i 48.91

Restricted Stock Awards

Under the 2021 Plan, the Company grants restricted stock awards under compensation arrangements for the benefit of employees, senior and executive officers and directors. Restricted stock awards are subject to time-based vesting. The total number of restricted stock awards granted represents the maximum number of shares of restricted stock eligible to vest based upon the service conditions set forth in the grant agreements.

The following table summarizes information about vested and unvested restricted stock.

For the Six-Months Ended June 30,

2022

Restricted
Stock
Outstanding

Weighted
Average
Grant Date
Fair Value

Restricted
Stock
Outstanding

Weighted
Average
Grant Date
Fair Value

Balance at beginning of period

i 24,813

i 36.21

i 46,598

i 35.75

Grants

i 25,190

i 27.79

i 15,425

i 40.89

Vesting

( i 17,682

)

i 38.54

( i 23,898

)

i 40.40

Forfeited/expired

( i 1,105

)

i 29.70

( i 200

)

i 29.70

Balance at end of period

i 31,216

i 28.25

i 37,925

i 34.94

The total fair value of restricted stock vested for the six-months ended June 30, 2023 and 2022, was $ i 510,000 and $ i 980,000, respectively.

The Company recorded restricted stock unit, performance-based restricted stock unit and restricted stock award expense for employees of $ i i i 420,000 / / and $ i i i 594,000 / / for the three-months ended June 30, 2023 and 2022, respectively. The Company recorded restricted stock unit, performance-based restricted stock unit and restricted stock award expense for employees of $ i i i 779,000 / / and $ i i i 1,020,000 / / for the six-months ended June 30, 2023 and 2022, respectively. The Company recorded director expense related to these restricted stock grants of $ i 167,000 and $ i 160,000, for the three-months ended June 30, 2023 and 2022, respectively. The Company recorded director expense related to these restricted stock grants of $ i 317,000 and $ i 331,000, for the six-months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and 2022, there were $ i 2,689,000 and $ i 2,281,000 respectively, of total unrecognized compensation cost related to unvested restricted stock, restricted stock units and performance-based restricted stock units which is expected to be recognized over a weighted-average period of i 1.08 years and i 1.10 years, respectively. At June 30, 2023 and 2022, and December 31, 2022, there was $ i 92,000, $ i 57,000 and $ i 74,000, respectively, accrued in other liabilities related to dividends declared to be paid upon vesting.

Stock Option Plans

Prior to the approval of the 2021 Plan, the 2012 Incentive Stock Option Plan (the “2012 Plan”) provided for the granting of options to employees of the Company at prices not less than market value at the date of the grant. The 2012 Plan provided that options granted vest and are exercisable after i two years from the date of grant and vest at a rate of i 20% each year thereafter and have a i 10-year term. The most recent grants from the 2021 Plan provided that i 20% of the options granted vest and are exercisable after one year from the date of grant and the remaining options vest and are exercisable at a rate of i 20% each year thereafter and have a 10-year term. Shares are issued under the 2012 Plan and the 2021 Plan from available authorized shares. i An analysis of stock option activity for the six-months ended June 30, 2023 is presented in the table and narrative below:


	Shares			Weighted- Average Ex. Price
Outstanding, December 31, 2022		i 1,490,413		$	i 29.99
Granted		—			—
Exercised		( i 60,095	)		i 18.65
Cancelled		( i 44,355	)		i 42.96
Outstanding, June 30, 2023		i 1,385,963			i 30.07
Exercisable, June 30, 2023		i 883,853		$	i 22.68

The options outstanding at June 30, 2023 had exercise prices ranging between $ i 15.43 and $ i 48.91. Stock options have been adjusted retroactively for the effects of stock dividends and splits.

The Company grants incentive stock options for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant to employees.

The Company recorded stock option expense totaling $ i 445,000 and $ i 316,000 for the three-months ended June 30, 2023 and 2022, respectively. The Company recorded stock option expense totaling $ i 889,000 and $ i 632,000 for the six-months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, there was $ i 4,398,000 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the plans. That cost is expected to be recognized over a weighted-average period of i 1.82 years. The total fair value of shares vested during the six-months ended June 30, 2023 and 2022 was $ i 1,048,000 and $ i 1,221,000, respectively.

Note 9 - Fair Value Disclosures

The authoritative accounting guidance for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The authoritative accounting guidance requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, the authoritative guidance establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

•

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities classified as available-for-sale and trading are reported at fair value utilizing Level 1 and Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other items.

See Notes 4 and 5 related to the determination of fair value for loans held-for-sale, IRLCs and forward mortgage-backed securities trades.

There were i i i no / / transfers between Level 2 and Level 3 during the three and six-months ended June 30, 2023 and 2022, and the year ended December 31, 2022.

The following table summarizes the Company’s available-for-sale securities, loans held-for-sale, and derivatives which are measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

Available-for-sale investment securities:

U.S. Treasury securities

i 483,776

i —

i 483,776

Obligations of state and political subdivisions

i —

i 1,692,964

i —

i 1,692,964

Corporate bonds

i —

i 98,280

i —

i 98,280

Residential mortgage-backed securities

i —

i 2,472,941

i —

i 2,472,941

Commercial mortgage-backed securities

i —

i 314,387

i —

i 314,387

Other securities

i 3,914

i —

i 3,914

Total

i 487,690

i 4,578,572

i —

i 5,066,262

Loans held-for-sale

i —

i 18,089

i —

i 18,089

IRLCs

i —

i 455

i —

i 455

Forward mortgage-backed securities trades

i —

i 160

i —

i 160

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

Available-for-sale investment securities:

U.S. Treasury securities

i 486,358

i —

i 486,358

Obligations of states and political subdivisions

i —

i 2,244,604

i —

i 2,244,604

Corporate bonds

i —

i 100,267

i —

i 100,267

Residential mortgage-backed securities

i —

i 2,964,904

i —

i 2,964,904

Commercial mortgage-backed securities

i —

i 414,825

i —

i 414,825

Other securities

i 4,078

i —

i 4,078

Total

i 490,436

i 5,724,600

i —

i 6,215,036

Loans held-for-sale

i —

i 23,848

i —

i 23,848

IRLCs

i —

i 1,414

i —

i 1,414

Forward mortgage-backed securities trades

i —

i 58

i —

i 58

Level 1
Inputs

Level 2
Inputs

Level 3
Inputs

Total Fair
Value

Available-for-sale investment securities:

U.S. Treasury securities

i 482,549

i —

i 482,549

Obligations of state and political subdivisions

i —

i 1,898,611

i —

i 1,898,611

Corporate bonds

i —

i 97,850

i —

i 97,850

Residential mortgage-backed securities

i —

i 2,616,566

i —

i 2,616,566

Commercial mortgage-backed securities

i —

i 374,869

i —

i 374,869

Other securities

i 3,914

—

i —

i 3,914

Total

i 486,463

i 4,987,896

i —

i 5,474,359

Loans held-for-sale

i —

i 10,497

i —

i 10,497

IRLCs

i —

i 400

i —

i 400

Forward mortgage-backed securities trades

i —

i 85

i —

i 85

The following table summarizes the Company’s loans held-for-sale at fair value and the net unrealized gains as of the balance sheet dates shown below (dollars in thousands):

June 30,

2022

Unpaid principal balance on loans held-for-sale

i 17,730

i 23,312

i 10,226

Net unrealized gains on loans held-for-sale

i 359

i 536

i 271

Loans held-for-sale at fair value

i 18,089

i 23,848

i 10,497

The following table summarizes the Company’s gains on sale and fees of mortgage loans for the three and six-months ended June 30, 2023 and 2022 (dollars in thousand):


	Three-Months Ended June 30,						Six-Months Ended June 30,
	2023			2022			2023		2022
Realized gain on sale and fees on mortgage loans*	$	i 3,429		$	i 6,311		$	i 6,288	$	i 12,309
Change in fair value on loans held-for-sale and IRLCs		( i 389	)		i 1,462			i 145		( i 453	)
Change in forward mortgage-backed securities trades		i 494			( i 2,045	)		i 75		i 205
Total gain on sale of mortgage loans	$	i 3,534		$	i 5,728		$	i 6,508	$	i 12,061

* This includes gains on loans held-for-sale carried under the fair value method and lower of cost or market.

i i i No / / residential mortgage loans held-for-sale were 90 days or more past due or considered nonaccrual as of June 30, 2023, June 30, 2022, or December 31, 2022. i i No / significant credit losses were recognized on mortgage loans held-for-sale for the three and six-months ended June 30, 2023 and 2022.

Certain non-financial assets and non-financial liabilities measured at fair value on a nonrecurring basis include other real estate owned, goodwill and other intangible assets, and other non-financial long-lived assets. Non-financial assets measured at fair value on a non-recurring basis during the six-months ended June 30, 2023 include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were re-measured at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from i 5% to i 25% of the appraised value. Re-evaluation of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were i i no / other real estate owned properties that were re-measured subsequent to their initial transfer to other real estate owned during the three and six-months ended June 30, 2023 and 2022.

At June 30, 2023, other real estate owned totaled $ i 15,000. At June 30, 2022 and December 31, 2022, the Company had i i no / other real estate owned.

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Cash and due from banks, federal funds sold, interest-bearing deposits in banks and accrued interest receivable and payable are liquid in nature and considered Levels 1 or 2 of the fair value hierarchy.

Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarchy.

The carrying value and the estimated fair value of the Company’s contractual off-balance-sheet unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.

The estimated fair values and carrying values of all financial instruments under current authoritative guidance were as follows (dollars in thousands).

June 30,