Financial Data and Key Metrics Changes - The company reported net income of $4.9 million, a decrease of $16.9 million or 77.5% compared to the previous quarter [10] - Diluted earnings per share were $0.16, down from $0.72 linked quarter [10] - Net interest income increased by $1.45 million or 2.7% compared to the linked quarter [14] - The tax equivalent net interest margin decreased by one basis point to 2.94% [14] Business Line Data and Key Metrics Changes - Loans increased to $4.77 billion, a linked quarter increase of $163.4 million or 3.5% [10] - The increase in loans was driven by $82.6 million in commercial real estate loans, $49.3 million in commercial loans, and $49.1 million in construction loans [10] - Non-performing assets increased to approximately $2.7 million, representing 0.42% of total assets [9][11] Market Data and Key Metrics Changes - The company’s securities portfolio was $2.56 billion, a decrease of $174.2 million or 6.4% from the previous quarter [11] - Deposits increased by $329.6 million or 5% on a linked quarter basis [13] Company Strategy and Development Direction - The company is focused on repositioning its available-for-sale (AFS) securities portfolio to enhance future net interest income and provide balance sheet flexibility [3] - There is an ongoing interest in potential acquisitions and hiring due to market disruptions caused by larger banks [24] Management's Comments on Operating Environment and Future Outlook - The Texas economy is expected to grow at a faster pace than the overall U.S. growth rate [5] - Management anticipates a slight increase in net interest margin for the fourth quarter, driven by loan growth and securities restructuring [19][20] Other Important Information - The company issued $150 million of subordinated notes at a fixed to floating rate [4] - The allowance for credit losses increased to $48.5 million, while the allowance for loan losses as a percentage of total loans decreased to 0.95% [11] Q&A Session Summary Question: What is the expected net interest margin for the fourth quarter? - Management expects the net interest margin to be up slightly due to the impact of subordinated notes and loan growth [19][20] Question: Any updates on potential acquisitions or hiring? - Management is looking at a few institutions for potential acquisition and has made some new hires due to market disruptions [24] Question: How is the loan pipeline looking entering the fourth quarter? - The loan pipeline rebounded to $1.8 billion, indicating strong future loan production [32] Question: What is the pricing competition like in the market? - There is intense competition in both commercial real estate and C&I lending, but the company is maintaining a disciplined pricing approach [34] Question: What are the expectations for trust fee growth? - Management anticipates double-digit revenue growth in trust fees due to a strong team and new client acquisitions [42] Question: How many rate cuts are expected through year-end and into 2026? - Management anticipates at least two rate cuts next year, depending on inflation and employment conditions [44]

Financial Data and Key Metrics Changes - The company reported net income of $4,900,000, a decrease of $16,900,000 or 77.5% compared to the previous quarter [13] - Diluted earnings per share were $0.16 for the third quarter, down from $0.56 per share linked quarter [13] - Net interest income increased by $1,450,000 or 2.7% compared to the linked quarter [19] - The tax equivalent net interest margin was 2.94%, a decrease of one basis point from 2.95% [19] - Non-interest expense was $37,500,000, a decrease of $1,700,000 or 4.4% on a linked quarter basis [19] Business Line Data and Key Metrics Changes - Loans increased to $4,770,000,000, a linked quarter increase of $163,400,000 or 3.5% [13] - The increase in loans was driven by $82,600,000 in commercial real estate loans, $49,300,000 in commercial loans, and $49,100,000 in construction loans [14] - Non-performing assets increased by approximately $2,700,000, remaining at 0.42% of total assets [11][14] Market Data and Key Metrics Changes - The Texas economy is anticipated to grow at a faster pace than the overall U.S. growth rate [6] - The loan pipeline rebounded to approximately $1,800,000,000, indicating strong market conditions [10] Company Strategy and Development Direction - The company is focusing on repositioning its available-for-sale securities portfolio to enhance future net interest income and provide balance sheet flexibility [4][5] - There is an interest in potential acquisitions and hiring due to market disruptions caused by larger banks acquiring smaller institutions [27] - The company plans to explore wealth management opportunities in metro markets, aiming for double-digit revenue growth in trust fees [45][46] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about net interest income growth due to favorable market conditions and loan growth expectations [6][24] - The company anticipates a slight increase in net interest margin for the fourth quarter, driven by loan growth and securities restructuring [23][24] - Future rate cuts are expected, with management anticipating at least two cuts in the next year [47][48] Other Important Information - The company repurchased 26,692 shares of common stock at an average price of $30.24 during the third quarter [18] - The allowance for credit losses increased to $48,500,000, while the allowance for loan losses as a percentage of total loans decreased to 0.95% [14] Q&A Session Summary Question: What is the expected margin for the fourth quarter considering the recent restructuring? - Management expects the net interest margin to be up slightly in the fourth quarter, with loan growth anticipated [23][24] Question: Any updates on potential acquisitions or hiring opportunities? - Management indicated interest in a few institutions potentially for sale and mentioned ongoing hiring efforts due to market disruptions [27] Question: How is the loan pipeline looking entering the fourth quarter? - The loan pipeline is strong, rebounding to $1,800,000,000, with a good pull-through rate expected [10][34] Question: What is the pricing competition like in the current market? - There is significant competition in both commercial real estate and commercial loans, but the company is maintaining a disciplined pricing approach [35] Question: What are the expectations for trust fee growth? - Management anticipates double-digit revenue growth in trust fees due to a strong team and new client acquisitions [45][46]

Financial Data and Key Metrics Changes - For Q3 2025, the company reported net income of $4.9 million, a decrease of $16.9 million or 77.5% compared to the previous quarter [12] - Diluted earnings per share were $0.16, down from $0.72 in the linked quarter [12] - Net interest income increased by $1.45 million or 2.7% compared to the linked quarter [16] - The tax equivalent net interest margin decreased by one basis point to 2.94% [16] Business Line Data and Key Metrics Changes - Loans increased to $4.77 billion, a linked quarter increase of $163.4 million or 3.5% [12] - The average rate of loans funded during the quarter was approximately 6.7% [12] - Non-interest income, excluding the net loss on the sales of available-for-sale (AFS) securities, increased by $260,000 or 2.1% [17] Market Data and Key Metrics Changes - The company’s securities portfolio was $2.56 billion, a decrease of $174.2 million or 6.4% from the previous quarter [13] - Deposits increased by $329.6 million or 5% on a linked quarter basis [15] - Non-performing assets increased to approximately $2.7 million, but remained low at 0.42% of total assets [10][13] Company Strategy and Development Direction - The company is focusing on repositioning its available-for-sale (AFS) securities portfolio to enhance future net interest income and provide balance sheet flexibility [4] - The company anticipates continued growth in the Texas economy, which is expected to outpace the overall U.S. growth rate [6] - The company is exploring potential acquisitions and hiring opportunities due to market disruptions caused by larger banks [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about net interest income growth due to favorable market conditions and loan growth [5][21] - The company expects net interest margin to improve slightly in Q4 2025, driven by loan growth and securities restructuring [21] - Management noted that competition in the market remains intense, particularly in commercial real estate and C&I lending [30] Other Important Information - The company issued $150 million of subordinated notes at a 7% fixed to floating rate in mid-August [15] - The company repurchased 26,692 shares of common stock at an average price of $30.24 during the third quarter [16] - The effective tax rate for Q3 was 3.7%, a decrease from 17.8% in the prior quarter [18] Q&A Session Summary Question: What is the expected net interest margin for Q4? - Management expects the net interest margin to be up slightly due to the impact of subordinated notes and loan growth [21] Question: Any updates on potential acquisitions? - Management indicated interest in a few institutions that might be for sale and mentioned ongoing hiring efforts due to market disruptions [24] Question: How is the loan pipeline looking entering Q4? - The loan pipeline rebounded to $1.8 billion, indicating strong future growth potential despite a dip mid-quarter [28] Question: What is the outlook for trust fees? - Management anticipates double-digit revenue growth in trust fees due to a strong team and increasing client base [37] Question: How many rate cuts are anticipated through year-end and into 2026? - Management anticipates at least two rate cuts next year, depending on inflation and employment conditions [39]

Core Insights - Southside Bancshares (SBSI) reported quarterly earnings of $0.8 per share, exceeding the Zacks Consensus Estimate of $0.72 per share, and showing an increase from $0.68 per share a year ago, resulting in an earnings surprise of +11.11% [1][2] - The company achieved revenues of $70.53 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 1.04% and up from $66.25 million year-over-year [2] - Southside Bancshares has outperformed consensus EPS estimates in all four quarters over the past year and has topped revenue estimates three times during the same period [2] Earnings Outlook - The future performance of Southside Bancshares' stock will largely depend on management's commentary during the earnings call and the trends in earnings estimate revisions [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.72 on revenues of $71 million, while for the current fiscal year, the estimate is $2.86 on revenues of $276.1 million [7] Industry Context - The Banks - Southwest industry, to which Southside Bancshares belongs, is currently ranked in the top 30% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5][6]

Core Viewpoint - Southside Bancshares, Inc. reported a significant decline in net income for the third quarter of 2025, primarily due to a substantial net loss on the sale of available-for-sale securities and increased noninterest expenses, despite some growth in net interest income and noninterest income categories. Financial Performance - Net income for Q3 2025 was $4.9 million, down from $20.5 million in Q3 2024, representing a decrease of $15.6 million or 76.1% [3] - Earnings per diluted share were $0.16 for Q3 2025, compared to $0.68 for Q3 2024, a decrease of $0.52 or 76.5% [3] - The company experienced a net loss of $24.4 million on the sale of available-for-sale securities in Q3 2025, compared to a net loss of $1.9 million in Q3 2024 [3] Interest Income and Margin - Net interest income for Q3 2025 was $55.7 million, an increase of $0.3 million or 0.5% from Q3 2024 [4] - The net interest margin decreased to 2.81% for Q3 2025, down from 2.82% in Q3 2024 [5] - The company issued $150 million of subordinated debt at a fixed to floating rate during August 2025, impacting net interest margin [2] Noninterest Income and Expenses - Noninterest income, excluding net losses on available-for-sale securities, was $12.4 million for Q3 2025, up from $10.1 million in Q3 2024, an increase of $2.3 million or 22.8% [6] - Noninterest expenses increased by $1.2 million or 3.3% to $37.5 million in Q3 2025 compared to Q3 2024, primarily due to higher salaries and employee benefits [7] Tax Expense - Income tax expense decreased by $4.2 million or 95.7% for Q3 2025 compared to Q3 2024, with an effective tax rate of 3.7% [8] Balance Sheet Highlights - Total assets as of September 30, 2025, were $8.38 billion, a slight decrease from $8.52 billion at December 31, 2024 [16] - Loans increased to $4.77 billion, up $187.2 million or 4.1% from September 30, 2024 [17] - Deposits rose to $6.96 billion, an increase of $525.9 million or 8.2% compared to September 30, 2024 [18] Capital and Liquidity - The company repurchased 26,692 shares of common stock at an average price of $30.24 per share during Q3 2025 [21] - Total available contingent liquidity was $2.77 billion as of September 30, 2025 [22] Asset Quality - Nonperforming assets increased to $35.6 million or 0.42% of total assets, up from $7.7 million or 0.09% of total assets a year earlier [23] - The allowance for loan losses totaled $45.3 million or 0.95% of total loans as of September 30, 2025 [24] Dividend Declaration - The company declared a cash dividend of $0.36 per share for Q3 2025, paid on September 4, 2025 [28]

Financial Performance - Net income for Q3 2025 was $4.9 million, a decrease of $15.6 million or 76.1% compared to $20.5 million in Q3 2024[4] - Earnings per diluted share were $0.16 for Q3 2025, down $0.52 or 76.5% from $0.68 in Q3 2024[4] - Net income decreased significantly to $4,913 thousand for the quarter ended September 30, 2025, down from $21,813 thousand in the previous quarter, a decline of 77.54%[42] - The company reported a net income of $48,233 for the nine months ended September 30, 2025, down from $66,708 in 2024[73] Income and Expenses - Net interest income for Q3 2025 was $55.7 million, an increase of $0.3 million or 0.5% year-over-year[4] - Noninterest income, excluding net losses on AFS securities, rose to $12.4 million, an increase of $2.3 million or 22.8% year-over-year[5] - Noninterest expense increased by $1.2 million or 3.3% to $37.5 million in Q3 2025 compared to Q3 2024[6] - Noninterest expense totaled $37,534 thousand, a decrease from $39,257 thousand in the previous quarter, reflecting a reduction of 4.39%[42] - Total noninterest income for the nine months ended September 30, 2025, was $10,378 thousand, significantly lower than $29,452 thousand in the same period of 2024, a decline of 64.8%[49] Assets and Liabilities - Total assets were $8.38 billion as of September 30, 2025, down from $8.52 billion at December 31, 2024[12] - Total assets as of September 30, 2025, were $8,338,477, a slight decrease from $8,367,814 in 2024[69] - Total liabilities amounted to $7.636 billion, with shareholders' equity at $824.893 million as of March 31, 2025[62] Loans and Credit Quality - Total loans increased by $163.4 million or 3.5% linked quarter, reaching $4.77 billion as of September 30, 2025[13] - Nonperforming assets increased to $35.6 million or 0.42% of total assets, up from $7.7 million or 0.09% at September 30, 2024[19] - The allowance for loan losses was $45.3 million or 0.95% of total loans as of September 30, 2025, compared to $44.3 million or 0.97% a year earlier[20] - The provision for credit losses was $1,092 thousand, compared to $622 thousand in the previous quarter, indicating an increase of 75.73%[42] - The net charge-offs for Q3 2025 were $844 thousand, compared to $852 thousand in Q2 2025, showing a decrease of 0.94%[47] - Nonperforming assets increased significantly to $35,608 thousand in 2025 from $7,656 thousand in 2024, reflecting a substantial rise in asset quality concerns[52] Capital and Ratios - The common equity tier 1 capital ratio was 12.97% as of September 30, 2025, down from 13.36% in June 30, 2025[44] - The capital ratios showed a strong position, with total risk-based capital at 19.01% in 2025, up from 16.59% in 2024, indicating improved capital adequacy[52] - The efficiency ratio (FTE) improved to 53.89% for the nine months ended September 30, 2025, compared to 53.35% in the same period of 2024[49] - Return on average tangible common equity for the nine months ended September 30, 2025, was 10.59%, compared to 15.20% in 2024[73] Dividends and Shareholder Returns - Southside Bancshares, Inc. declared a third quarter cash dividend of $0.36 per share, paid on September 4, 2025[23] - Cash dividends paid per common share remained stable at $0.36 for the quarter[42] Forward-Looking Statements and Risks - Forward-looking statements indicate potential risks including economic conditions, interest rate fluctuations, and impacts from inflation and unemployment[36]

Core Viewpoint - Southside Bancshares, Inc. will release its third quarter financial results on October 24, 2025, and will host a conference call to discuss these results [1][2]. Group 1: Financial Results Announcement - Southside Bancshares, Inc. is set to announce its third quarter financial results before the market opens on October 24, 2025 [1]. - A conference call will be held on the same day at 11:00 a.m. CDT to discuss the financial results [1][2]. Group 2: Conference Call Details - The conference call will be hosted by key executives including the CEO, President, CFO, and VP of Investor Relations [2]. - Participants can access the call via webcast or by registering for a dial-in number [3][4]. - A recording of the conference call will be available on the company website for at least 30 days after the event [5]. Group 3: Company Overview - Southside Bancshares, Inc. is headquartered in Tyler, Texas, with approximately $8.34 billion in assets as of June 30, 2025 [6]. - The company operates 53 branches and a network of 70 ATMs/ITMs across East Texas and major metropolitan areas [6]. - Southside Bank offers a comprehensive range of financial products and services, including loans, mortgages, deposit accounts, and wealth management [6].

Core Points - Southside Bancshares, Inc. announced the retirement of CEO Lee Gibson effective December 31, 2025, with Keith Donahoe set to succeed him [1][2] - Lee Gibson has been with Southside Bank since 1984 and has served as CEO since 2017, contributing significantly to the bank's growth and stability [2][3] - Southside Bank operates 53 branches and has approximately $8.34 billion in assets as of June 30, 2025, serving various regions in Texas [4] Leadership Transition - Keith Donahoe, the current President of Southside, will take over as CEO, bringing over 30 years of banking experience [1][3] - Donahoe has been with Southside since 2021, previously serving as Austin Market President and Central Texas Regional President [3] Company Overview - Southside Bancshares, Inc. is headquartered in Tyler, Texas, and is publicly traded on the New York Stock Exchange [2][4] - The bank focuses on community-oriented financial services, offering a full range of products to individuals and businesses [4]

Core Insights - Southside Bancshares reported a net income of $21.8 million for Q2 2025, reflecting a 1.4% increase from the previous quarter [2][26] - The company experienced growth in net interest margin and net interest income, while lowering loan growth expectations due to elevated payoffs in core portfolios [12][32] Financial Performance - Diluted earnings per share reached $0.72, up $0.01 from Q1 2025 [3][26] - Annualized return on average assets was 1.07%, and return on average tangible common equity was 14.38% [3][26] - Net interest margin increased by nine basis points to 2.95% [3][32] - Net interest income rose to $54.3 million, a 0.8% increase over the prior quarter [3][32] Loan Production and Growth - New loan production totaled $293 million, with $228 million funded during the quarter [4][21] - Total loans reached $4.6 billion, a 0.8% increase from the prior quarter, driven by growth in commercial real estate and construction loans [5][26] - Loan growth guidance was reduced to 3%-4% year-over-year due to moderated expectations [6][23] Asset Quality - Nonperforming assets remained stable at 0.39% of total assets, concentrated in a single large construction loan [7][24] - Classified loans decreased from $67 million to $55.4 million, indicating improved asset quality [7][25] Securities and Deposits - The securities portfolio was valued at $2.73 billion, a slight decrease from the previous quarter [8][28] - Deposits increased by $41.1 million, attributed to broker deposits and commercial/retail deposits, despite a decrease in public fund deposits [9][30] Operational Efficiency - Noninterest income rose by 12.7% to $1.4 million, primarily from swap fee and services income [10][32] - Noninterest expense increased by 5.8% to $39.3 million, influenced by a write-off from branch demolition [10][33] - The efficiency ratio improved to 53.7% from 55.04% in the previous quarter [11][33] Management Outlook - Management expressed optimism for 2025, citing strong second-quarter results and a solid loan pipeline [12][49] - The company anticipates continued competition from debt funds impacting credit spreads, particularly in commercial real estate [12][41]

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20%28UNAUDITED%29) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes [Consolidated Balance Sheets](index=6&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of June 30, 2025, total assets were $8.34 billion, a decrease from $8.52 billion at December 31, 2024, primarily driven by reductions in securities and loans Consolidated Balance Sheets (in thousands) | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$8,339,966** | **$8,517,448** | | Net loans | $4,557,512 | $4,616,713 | | Total securities (AFS & HTM) | $2,730,030 | $2,813,128 | | Total cash and cash equivalents | $390,095 | $426,161 | | **Total Liabilities** | **$7,532,766** | **$7,705,506** | | Total deposits | $6,631,964 | $6,654,248 | | FHLB borrowings | $511,526 | $731,909 | | **Total Shareholders' Equity** | **$807,200** | **$811,942** | [Consolidated Statements of Income](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) Net income for Q2 2025 was $21.8 million, a decrease from $24.7 million in Q2 2024, primarily due to lower net interest income and higher expenses Consolidated Statements of Income Highlights (in thousands, except per share data) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | Net Interest Income | $54,266 | $53,608 | $108,118 | $106,956 | | Provision for (reversal of) credit losses | $622 | $(485) | $1,380 | $(427) | | Total Noninterest Income | $12,145 | $11,557 | $22,368 | $21,281 | | Total Noninterest Expense | $39,257 | $35,765 | $76,346 | $72,646 | | **Net Income** | **$21,813** | **$24,673** | **$43,320** | **$46,184** | | **Earnings per share – diluted** | **$0.72** | **$0.81** | **$1.42** | **$1.52** | [Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20%28LOSS%29) Comprehensive income for Q2 2025 was $12.1 million, down from $24.6 million in Q2 2024, driven by a net loss in other comprehensive income Consolidated Statements of Comprehensive Income (Loss) (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | Net Income | $21,813 | $24,673 | $43,320 | $46,184 | | Other comprehensive income (loss), net of tax | $(9,671) | $(95) | $(16,587) | $2,508 | | **Comprehensive income (loss)** | **$12,142** | **$24,578** | **$26,733** | **$48,692** | [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20SHAREHOLDERS%27%20EQUITY) Shareholders' equity decreased to $807.2 million at June 30, 2025, primarily due to dividends, treasury stock purchases, and other comprehensive loss - Key drivers for the change in shareholders' equity during the first six months of 2025 include net income of **$43.3 million**, offset by other comprehensive loss of **$16.6 million**, cash dividends of **$21.8 million**, and common stock repurchases of **$11.9 million**[15](index=15&type=chunk)[152](index=152&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For the six months ended June 30, 2025, net cash provided by operating activities was $29.9 million, while net cash used in financing activities was $251.6 million Six Months Ended June 30, 2025 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $29,885 | $74,777 | | Net cash provided by (used in) investing activities | $185,602 | $(146,431) | | Net cash provided by (used in) financing activities | $(251,553) | $(36,860) | | **Net increase (decrease) in cash and cash equivalents** | **$(36,066)** | **$(108,514)** | [Notes to Consolidated Financial Statements](index=13&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed explanations of accounting policies and financial data, including securities, loans, borrowings, and derivatives - The company's securities portfolio (AFS and HTM) totaled **$2.73 billion** at June 30, 2025, with unrealized losses of **$68.7 million** in the AFS portfolio and **$192.1 million** in the HTM portfolio, primarily due to changes in interest rates[30](index=30&type=chunk) - Total loans decreased to **$4.60 billion** at June 30, 2025. Nonperforming assets increased significantly to **$32.9 million** (**0.39% of total assets**) from **$3.6 million** at year-end 2024, mainly due to a **$27.5 million** commercial real estate loan being restructured[46](index=46&type=chunk)[59](index=59&type=chunk)[149](index=149&type=chunk) - The company utilizes interest rate swaps to manage interest rate risk. As of June 30, 2025, it had **$810.0 million** in cash flow hedges and **$631.1 million** in fair value hedges by notional amount[82](index=82&type=chunk)[84](index=84&type=chunk)[90](index=90&type=chunk) - Off-balance-sheet commitments, primarily commitments to extend credit, totaled **$821.0 million** at June 30, 2025, a decrease from **$881.7 million** at year-end 2024[121](index=121&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=48&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's financial condition and results, highlighting decreased net income due to higher expenses and credit loss provisions [Overview](index=52&type=section&id=MD%26A_Overview) Net income for Q2 2025 was $21.8 million, down 11.6% from Q2 2024, primarily due to higher noninterest expense and credit loss provisions Key Performance Indicators | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (millions) | $21.8 | $24.7 | $43.3 | $46.2 | | Diluted EPS | $0.72 | $0.81 | $1.42 | $1.52 | - Total assets decreased by **$177.5 million** (**2.1%**) to **$8.34 billion** at June 30, 2025, from December 31, 2024[147](index=147&type=chunk) - Nonperforming assets increased significantly to **$32.9 million** (**0.39% of total assets**) at June 30, 2025, up from **$3.6 million** at year-end, primarily due to a single **$27.5 million** commercial real estate loan restructure[149](index=149&type=chunk) [Balance Sheet Strategy](index=54&type=section&id=MD%26A_Balance_Sheet_Strategy) The company actively manages its balance sheet, maintaining significant liquidity and utilizing wholesale funding and derivatives - The company has substantial available liquidity, including **$1.87 billion** from FHLB and **$383.6 million** from the FRDW as of June 30, 2025[155](index=155&type=chunk) - Cash flow hedges with a notional value of **$810 million** were in place to hedge brokered deposits and FHLB advances, mitigating interest rate risk[156](index=156&type=chunk) - During H1 2025, the company sold **$119.6 million** of MBS, resulting in a net realized loss of **$554,000**, and purchased **$171.3 million** in new MBS as part of its portfolio management[163](index=163&type=chunk) [Results of Operations](index=56&type=section&id=MD%26A_Results_of_Operations) Net interest income for Q2 2025 increased 1.2% YoY to $54.3 million, with the net interest margin expanding to 2.95% Net Interest Margin (FTE) Comparison | Period | Net Interest Margin (FTE) | Net Interest Spread (FTE) | | :--- | :--- | :--- | | Q2 2025 | 2.95% | 2.27% | | Q2 2024 | 2.87% | 2.13% | | H1 2025 | 2.91% | 2.23% | | H1 2024 | 2.87% | 2.15% | - Noninterest expense for Q2 2025 increased by **$3.5 million** (**9.8%**) YoY, primarily due to a **$1.2 million** one-time charge for a branch demolition and increased professional fees[192](index=192&type=chunk)[201](index=201&type=chunk) - The effective tax rate for Q2 2025 was **17.8%**, slightly higher than **17.4%** in Q2 2024, mainly due to increased state income tax expense[202](index=202&type=chunk) [Loan Portfolio and Asset Quality](index=64&type=section&id=MD%26A_Loan%20Portfolio) Total loans decreased 1.3% to $4.60 billion at June 30, 2025, while nonperforming assets surged to $32.9 million due to a commercial real estate loan restructure Loan Composition (in thousands) | Loan Type | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Construction | $470,380 | $537,827 | (12.5)% | | Commercial Real Estate | $2,606,072 | $2,579,735 | 1.0% | | Commercial loans | $380,612 | $363,167 | 4.8% | | Municipal loans | $363,746 | $390,968 | (7.0)% | | **Total loans** | **$4,601,933** | **$4,661,597** | **(1.3)%** | Asset Quality Ratios | Ratio | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.39% | 0.04% | | Allowance for loan losses to total loans | 0.97% | 0.96% | - The allowance for loan losses decreased slightly to **$44.4 million** at June 30, 2025, from **$44.9 million** at December 31, 2024[216](index=216&type=chunk) [Capital Resources and Liquidity](index=67&type=section&id=MD%26A_Capital_and_Liquidity) The company maintains a strong and well-capitalized position with robust liquidity and significant borrowing capacity Regulatory Capital Ratios (Consolidated) | Ratio | June 30, 2025 | For Capital Adequacy | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 13.36% | 4.50% | | Tier 1 Capital | 14.41% | 6.00% | | Total Capital | 16.91% | 8.00% | | Tier 1 Leverage | 10.03% | 4.00% | - Shareholders' equity decreased by **$4.7 million** in H1 2025, as net income of **$43.3 million** was offset by **$21.8 million** in dividends, **$16.6 million** in OCI loss, and **$11.9 million** in share repurchases[219](index=219&type=chunk) - The company maintains significant liquidity sources, including approximately **$1.87 billion** in additional funding capacity from the FHLB and **$383.6 million** from the FRDW as of June 30, 2025[229](index=229&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risk is interest rate risk, managed through net income simulation and MVPE modeling, indicating an asset-sensitive position Anticipated Impact on Net Interest Income Over Next 12 Months | Rate Scenario | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | +200 bps | +5.34% | +7.13% | | +100 bps | +2.69% | +3.78% | | -50 bps | (0.65)% | (3.00)% | | -100 bps | (1.06)% | (4.85)% | | -200 bps | (1.51)% | (6.95)% | - The company's interest rate risk profile shows it is asset-sensitive, meaning net interest income is expected to rise in a rising rate environment and fall in a declining rate environment. The sensitivity to rate changes has decreased compared to the prior year[238](index=238&type=chunk)[239](index=239&type=chunk) [Controls and Procedures](index=71&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the reporting period[242](index=242&type=chunk) - No material changes were made to internal control over financial reporting during the quarter ended June 30, 2025[243](index=243&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=71&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various litigation in the normal course of business, with no expected material effect on its financial position - Management does not expect ongoing litigation to have a material effect on the company's financial condition[244](index=244&type=chunk) [Risk Factors](index=71&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes in risk factors were reported since the 2024 Form 10-K[245](index=245&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q2 2025, the company repurchased 424,435 shares of common stock at an average price of $28.13 per share under its repurchase plan Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 196,419 | $27.08 | | May 2025 | — | — | | June 2025 | 228,016 | $29.04 | | **Total** | **424,435** | **$28.13** | - The stock repurchase plan was approved on July 20, 2023, authorizing the repurchase of up to **1.0 million shares**[246](index=246&type=chunk) [Other Information](index=72&type=section&id=ITEM%205.%20OTHER%20INFORMATION) No directors or executive officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q2 2025 - No directors or executive officers adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement in Q2 2025[250](index=250&type=chunk) [Exhibits](index=73&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO, and interactive data files