Third Coast Bancshares, Inc. (TCBX)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) and in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on March 4, 2026. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us,” and the “Company” refer to Third Coast Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries, references in this Form 10-Q to the “Bank” refer to Third Coast Bank, a Texas banking association and our wholly owned bank subsidiary, and references in this Form 10-Q to “TCCC” refer to Third Coast Commercial Capital, Inc., a Texas corporation and wholly owned subsidiary of the Bank.

The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements.” Also, see the risk factors and other cautionary statements described under the heading “Risk Factors” included in our Annual Report on Form 10-K filed with the SEC on March 4, 2026 and in Item 1A of this Form 10-Q. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

We are a bank holding company with headquarters in Humble, Texas that operates through our wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiary, TCCC. We focus on providing commercial banking solutions to small and medium-sized businesses and professionals with operations in our markets. We provide financial results based on a fiscal year ending December 31 as a single reportable segment. Our market expertise, coupled with a deep understanding of our customers’ needs, allows us to deliver tailored financial products and services. We currently operate twenty-one branches, with ten branches in the Greater Houston market, three branches in the Dallas-Fort Worth market, six branches in the Austin-San Antonio market, one branch in Detroit, Texas, and one branch in Ballinger, Texas. As of March 31, 2026, we had, on a consolidated basis, total assets of $6.58 billion, total loans of $5.25 billion, total deposits of $5.72 billion and total shareholders’ equity of $650.5 million.

As a bank holding company that operates through one segment, community banking, we generate most of our revenue from interest on loans, and customer service and loan fees. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and interest-bearing time deposits in other banks, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between average rates earned on interest-earning assets and average rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing liabilities and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas.

Keystone Merger

On February 1, 2026, we completed our merger with Keystone Bancshares, Inc. (“Keystone”), the parent company of Keystone Bank, SSB (“Keystone Bank”), a Texas state savings bank, pursuant to the terms of the Agreement and Plan of Reorganization, dated as of October 22, 2025, by and among the Company, Arch Merger Sub, Inc. (“Merger Sub”), a Texas corporation and a wholly owned subsidiary of the Company, and Keystone (the “Merger Agreement”).

Pursuant to the Merger Agreement, on February 1, 2026, Merger Sub merged with and into Keystone (the “Merger”), with Keystone surviving as a wholly owned subsidiary of the Company. Immediately following the Merger, Keystone merged with and into the Company, with the Company surviving the merger (the “Second Step Merger”). Immediately following the Second Step Merger, Keystone Bank merged with and into the Bank, with the Bank surviving the merger. The total aggregate consideration payable in the Merger was approximately 2.6 million shares of our common stock and $20 million in cash.

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Results of Operations

Our results of operations depend substantially on net interest income and noninterest income. Other factors contributing to our results of operations include our level of our noninterest expenses, such as salaries and employee benefits, occupancy and equipment and other miscellaneous operating expenses. See the analysis of the material fluctuations in the related discussions that follow.

Net Interest Income

Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Three months ended March 31, 2026 vs. Three months ended March 31, 2025

Net interest income increased $10.8 million, or 25.3%, during the three months ended March 31, 2026, compared to the three months ended March 31, 2025, primarily due to increased interest income, partially offset by increased interest expense. The increase in interest income primarily resulted from an increase in loans, slightly offset by a $1.0 million reversal of interest income on a loan placed on nonaccrual and a decrease in loan yields. The increase in interest expense primarily resulted from an increase in interest-bearing demand deposits, slightly offset by a reduction in rates paid on interest-bearing demand deposits. Average loans increased from $3.98 billion for the three months ended March 31, 2025 to $4.97 billion for the three months ended March 31, 2026, primarily as a result of the Merger. The yield on loans for the three months ended March 31, 2026 was 7.01%, compared to 7.45% for the three months ended March 31, 2025. Interest expense related to interest bearing deposit accounts was $41.5 million and $36.2 million for three months ended March 31, 2026 and 2025, respectively. Average interest-bearing deposits increased from $3.65 billion for the three months ended March 31, 2025 to $4.76 billion for the three months ended March 31, 2026, primarily as a result of the Merger. The average rate paid on interest-bearing deposits decreased from 4.02% for the three months ended March 31, 2025 to 3.53% for the three months ended March 31, 2026. For the three months ended March 31, 2026, net interest margin and net interest spread were 3.67% and 3.06%, respectively, compared to 3.80% and 3.09%, respectively, for the three months ended March 31, 2025.

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The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods.

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[Excerpt truncated for page length; source filing is linked above.]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Annual Report on Form 10-K (this “Form 10-K”). Unless we state otherwise or the context otherwise requires, references in this Form 10-K to “we,” “our,” “us,” and the “Company” refer to Third Coast Bancshares, Inc., a Texas corporation, and its consolidated subsidiaries, references in this Form 10-K to the “Bank” refer to Third Coast Bank, a Texas banking association and our wholly owned bank subsidiary, and references in this Form 10-K to “TCCC” refer to Third Coast Commercial Capital, Inc., a Texas corporation and wholly owned subsidiary of the Bank.

The following discussion contains “forward-looking statements” that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See “Cautionary Note Regarding Forward-Looking Statements” and the risk factors and other cautionary statements described under the heading “Risk Factors” included in Item 1A of this Form 10-K. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

We are a bank holding company headquartered in Humble, Texas and operated through our wholly owned subsidiary, the Bank, and the Bank’s wholly owned subsidiary, TCCC. We focus on providing commercial banking solutions to small- and medium-sized businesses and professionals with operations in our markets. Our market expertise, coupled with a deep understanding of our customers’ needs, allows us to deliver tailored financial products and services. Following the completion of our merger with Keystone Bancshares, Inc., a Texas corporation (“Keystone”), discussed below, we currently operate twenty-two branches, with ten branches in the Greater Houston market, three branches in the Dallas-Fort Worth market, seven branches in the Austin-San Antonio market, one branch in Ballinger, Texas, and one branch in Detroit, Texas. As of December 31, 2025, we had, on a consolidated basis, total assets of $5.34 billion, total loans of $4.39 billion, total deposits of $4.63 billion and total shareholders’ equity of $531.0 million.

As a bank holding company that operates through one segment, community banking, we generate most of our revenue from interest on loans, and customer service and loan fees. We incur interest expense on deposits and other borrowed funds, as well as noninterest expense, such as salaries and employee benefits and occupancy expenses. We analyze our ability to maximize income generated from interest-earning assets and control the interest expenses of our liabilities, measured as net interest income, through our net interest margin and net interest spread. Net interest income is the difference between interest income on interest-earning assets, such as loans and interest-bearing time deposits in other banks, and interest expense on interest-bearing liabilities, such as deposits and borrowings, which are used to fund those assets. Net interest margin is a ratio calculated as net interest income divided by average interest-earning assets. Net interest spread is the difference between average rates earned on interest-earning assets and average rates paid on interest-bearing liabilities.

Changes in market interest rates and the interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as in the volume and types of interest-earning assets, interest-bearing liabilities and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income. Fluctuations in market interest rates are driven by many factors, including governmental monetary policies, inflation, deflation, macroeconomic developments, changes in unemployment, the money supply, political and international conditions and conditions in domestic and foreign financial markets. Periodic changes in the volume and types of loans in our loan portfolio are affected by, among other factors, economic and competitive conditions in Texas, as well as developments affecting the real estate, technology, financial services, insurance, transportation, manufacturing and energy sectors within our target markets and throughout the state of Texas.

Keystone Merger

On February 1, 2026, we completed our merger with Keystone, the parent company of Keystone Bank, SSB (“Keystone Bank”), a Texas state savings bank, pursuant to the terms of the Agreement and Plan of Reorganization, dated as of October 22, 2025, by and among the Company, Arch Merger Sub, Inc. (“Merger Sub”), a Texas corporation and a wholly owned subsidiary of the Company, and Keystone (the “Merger Agreement”). Pursuant to the Merger Agreement, on February 1, 2026, Merger Sub merged with and into Keystone (the “Merger”), with Keystone surviving as a wholly owned subsidiary of the Company. Immediately following the Merger, Keystone merged with and into the Company, with the Company surviving the merger (the “Second Step Merger”). Immediately following the Second Step Merger, Keystone Bank merged with and into the Bank, with the Bank surviving the merger. The total aggregate consideration payable in the Merger was approximately 2.6 million shares of our common stock and $20 million in cash.

Registration of Securities Issued in Private Placement

The Company filed a Registration Statement on Form S-3 with the SEC on September 25, 2024 registering the resale from time to time by the securityholders named therein of the shares of Series A Preferred Stock and warrants to purchase an aggregate of 175,000 shares of the Company's common stock (or, at the election of the warrant holder in accordance with the terms of the warrant agreement, Series B Preferred Stock or non-voting common stock of the Company) (the “Preferred Warrants”)), issued to such securityholders in the private placement completed on September 30, 2022 and the securities issuable upon conversion of shares of

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Series A Preferred Stock, Series B Preferred Stock or non-voting common stock, or upon exercise of the Preferred Warrants. The Registration Statement was declared effective by the SEC on October 4, 2024.

Conversion to State Bank

On March 13, 2024, the Bank completed its conversion from a Texas state savings bank to a Texas banking association. As a result of the conversion, the TDB is the Bank’s primary state regulator. The Bank remains as a member of the Federal Reserve System, and the Federal Reserve is the Bank’s primary federal regulator. The Federal Reserve also continues to be the Company’s primary federal regulator.

Results of Operations

This section provides a comparative discussion of the Company’s results of operations for the two-year period ended December 31, 2025, unless otherwise specified. See “Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of 2024 versus 2023 results.

Our results of operations depend substantially on net interest income and noninterest income. Other factors contributing to our results of operations include our level of our noninterest expenses, such as salaries and employee benefits, occupancy and equipment and other miscellaneous operating expenses. See the analysis of the material fluctuations in the related discussions that follow.

Net Interest Income

Our operating results depend primarily on our net interest income, calculated as the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Fluctuations in market interest rates impact the yield and rates paid on interest-earning assets and interest-bearing liabilities, respectively. Changes in the amount and type of interest-earning assets and interest-bearing liabilities also impact our net interest income. To evaluate net interest income, we measure and monitor (1) yields on our loans and other interest-earning assets, (2) the costs of our deposits and other funding sources, (3) our net interest spread and (4) our net interest margin. Because noninterest-bearing sources of funds, such as noninterest-bearing deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing sources.

Year ended December 31, 2025 vs. Year ended December 31, 2024

Net interest income increased $34.5 million, or 21.4%, during the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to increased interest income from loan growth, a portion of which loans were securitized, and the purchase of associated securities resulted in an increase in investment yields, and decreased rates paid on interest-bearing deposits. Average loans were $4.12 billion for the year ended December 31, 2025, compared to $3.79 billion for the year ended December 31, 2024, with the increase primarily due to loan growth in commercial and industrial loans. Average yield on loans was 7.68% for the year ended December 31, 2025, compared to 7.80% for the year ended December 31, 2024. Interest expense related to interest bearing deposit accounts was $150.3 million and $159.7 million for the years ended December 31, 2025 and 2024, respectively. Average interest-bearing deposits were $3.83 billion for the year ended December 31, 2025, compared to $3.46 billion for the year ended December 31, 2024. The average cost of interest-bearing deposits was 3.93% for the year ended December 31, 2025 and 4.62% for the year ended December 31, 2024. For the year ended December 31, 2025, net interest margin and net interest spread were 4.06% and 3.36%, respectively, compared to 3.67% and 2.81%, respectively, for the year ended December 31, 2024.

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The following table presents an analysis of net interest income and net interest spread for the periods indicated, including average outstanding balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid on such amounts, and the average rate earned or paid on such assets or liabilities, respectively. The table also sets forth the net interest margin on average total interest-earning assets for the same periods.

(1)
Net interest spread is the average yield on interest-earning assets minus the average rate on interest-bearing liabilities.

(2)
Net interest margin is equal to net interest income divided by average interest-earning assets.

(3)
Interest earned/paid includes accretion of deferred loan fees, premiums and discounts. Interest income on loans includes loan fees and discount accretion of $13.4 million, $10.7 million, and $8.8 million for the years ended December 31, 2025, 2024, and 2023, respectively.

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest-earning assets and interest-bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to rate.

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Provision for Credit Losses

Provision for credit losses is determined by management as the amount to be added to the allowance for credit losses account for various types of financial instruments, including loans, securities and off-balance sheet credit exposures, to bring the allowances to a level which, in management's best estimate, is necessary to absorb expected credit losses over the lives of the respective financial instruments. Prior to the January 1, 2023 adoption of ASC 326, the provision for credit losses was an expense we used to maintain an allowance for credit losses for loans at a level which was deemed appropriate by management to absorb known and inherent losses on existing loans.

The provision for credit losses for the year ended December 31, 2025 was $7.6 million, compared to $5.7 million for the year ended December 31, 2024. The provision for credit losses for the year ended December 31, 2025 related primarily to provisioning for new loans and commitments. No provision for credit losses for securities was recorded for the years ended December 31, 2025 and 2024.

As of December 31, 2025, the allowance for credit losses for loans totaled $43.9 million, or 1.00% of total loans, compared to $40.3 million, or 1.02% of total loans, as of December 31, 2024. At December 31, 2025 and 2024, the allowance for credit losses for off-balance sheet commitments was $1.8 million and $1.4 million, respectively. No allowance for credit losses for securities was recorded as of December 31, 2025 and 2024.

See the sections captioned “Allowance for Credit Losses” and “Securities” elsewhere in this discussion for additional information regarding the provision for credit losses related to loans, off-balance sheet credit exposures and securities.

Noninterest Income

Our primary sources of recurring noninterest income are service charges and fees, earnings from bank-owned life insurance (“BOLI”), gains from the sale of securities and SBA loans, derivative fees, and our investment in the Small Business Investment Company.

The following table presents, for the periods indicated, the major categories of noninterest income:

Year ended December 31, 2025 vs. Year ended December 31, 2024

The increase in noninterest income of $3.0 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to increased service charges and fees and increased earnings on BOLI, offset by losses on the sales of investment securities and a decrease in Small Business Investment income. In addition, the Company recognized $610,000 in losses on the sales of investment securities during the year ended December 31, 2025, compared to losses of $4,000 recognized during the year ended December 31, 2024.

Noninterest Expense

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest component of noninterest expense is salaries and employee benefits. Noninterest expense also includes operational expenses, such as occupancy expenses, depreciation and amortization of our facilities and our furniture, fixtures and office equipment, legal and professional fees, data processing and network expenses, regulatory fees, including FDIC assessments, advertising and marketing expenses, and loan operations related expenses.

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The following table presents, for the periods indicated, the major categories of noninterest expense:

Year ended December 31, 2025 vs. Year ended December 31, 2024

The increase in noninterest expense of $14.2 million for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to increased salaries and employee benefit expenses and increased legal and professional fees.

Salaries and employee benefits are the largest component of noninterest expense and include payroll expense, the cost of incentive compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $77.2 million for the year ended December 31, 2025, an increase of $12.1 million, or 18.5%, compared to $65.1 million for the same period in 2024. The increase was primarily due to increased salary expense resulting from new hires, increased bonus expense and a reduction in salary expense deferral related to loan fundings during the first half of 2025. For the year ended December 31, 2025, the average number of employees was 390, compared to an average number of employees of 363 for the year ended December 31, 2024.

Legal and professional fees were $7.5 million and $5.6 million for the years ended December 31, 2025 and 2024, respectively. The increase was primarily due to merger-related expenses during the fourth quarter of 2025 and the securitization of loans during the second quarter of 2025.

Income Tax Expense

The amount of income tax expense we incur is impacted by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax expense and effective tax rates for the periods shown below were as follows:

Year ended December 31, 2025 vs. Year ended December 31, 2024

For the years ended December 31, 2025 and 2024, income tax expense totaled $16.5 million and $13.7 million, respectively. Our effective tax rates were at 19.9% and 22.3% for the years ended December 31, 2025 and 2024, respectively. The decrease in effective tax rate was primarily due to tax credit purchased in 2025.

Financial Condition

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Total assets were $5.34 billion as of December 31, 2025, compared to $4.94 billion as of December 31, 2024. The increase of $398.3 million, or 8.1%, was primarily due to organic loan growth and investment security and BOLI purchases offset by a decrease in cash and cash equivalents resulting from a decrease in noninterest bearing deposits.

Loan Portfolio

Our primary source of income is derived through interest earned on loans to small- to medium-sized businesses, commercial companies, professionals and individuals located in our primary market areas. A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in our primary market areas. Our loan portfolio represents the highest yielding component of our earning assets.

As of December 31, 2025, total loans were $4.39 billion, an increase of $428.3 million, or 10.8%, compared to $3.97 billion as of December 31, 2024. Commercial and industrial loans accounted for most of the loan growth for the year ended December 31, 2025. Total loans as a percentage of deposits were 95.0% and 92.0% as of December 31, 2025 and 2024, respectively. Total loans as a percentage of assets were 82.3% and 80.3% as of December 31, 2025 and 2024, respectively.

The following table summarizes our loan portfolio by type of loan as of the dates indicated:

Commercial Real Estate Loans. Commercial real estate loans are underwritten primarily based on cash flows of the borrower and, secondarily, the value of the underlying collateral. These loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the portfolio are located primarily throughout our markets and are generally diverse in terms of type. This diversity helps reduce the exposure to adverse economic events that affect any single industry.

Owner occupied commercial real estate loans are a key component of our lending strategy to owner-operated businesses, representing a large percentage of our total commercial real estate loans. Owner occupied commercial real estate loans decreased $13.4 million, or 3.0%, to $434.7 million as of December 31, 2025 from $448.1 million as of December 31, 2024.

Non-owner occupied commercial real estate loans are loans for income producing properties and are generally for retail strip centers, office buildings, self-storage facilities, and multi and single tenant office warehouses, all within our markets. Non-owner occupied commercial real estate loans increased $58.3 million, or 8.9%, to $710.4 million as of December 31, 2025 from $652.1 million as of December 31, 2024.

The following table summarizes our commercial real estate loans by type of property securing the loans:

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Residential Real Estate Loans. Residential real estate loans consists of 1-4 family residential loans and multi-family residential loans. Our 1-4 family residential loan portfolio is comprised of owner-occupied and investor owned loans secured by 1-4 family homes. Our multi-family residential loan portfolio is comprised of loans secured by properties deemed multi-family, which includes apartment buildings. Our current multifamily loans are to operators who we believe are seasoned and successful and possess quality alternative repayment sources. Residential real estate loans decreased $3.3 million, or 1.0%, to $333.4 million as of December 31, 2025 from $336.7 million as of December 31, 2024.

Construction, Development and Other Loans. Construction and development loans are comprised of loans used to fund construction, land acquisition and land development. The properties securing the portfolio are primarily in our Texas markets and are generally diverse in terms of type. Our builder finance group provides traditional homebuilder lines secured by lots and single-family homes, and land acquisition and development loans. This group also finances bond anticipation notes and lines of credit to large national institutional tier-one funds that invest equity in various real estate assets. Construction, development and other loans decreased $48.0 million, or 5.5%, to $823.4 million as of December 31, 2025 from $871.4 million as of December 31, 2024.

Commercial and Industrial Loans. Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and effectively. These loans are primarily made based on the borrower's ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable or inventory, and generally include personal guarantees. Our commercial and industrial loan portfolio consists of loans principally to retail trade, service, and manufacturing firms located in our market areas.

In addition, the commercial and industrial loan category includes factored receivables. TCCC provides working capital solutions for small- to medium-sized businesses throughout the United States. TCCC provides working capital financing through the purchase of accounts receivables. Our factored receivables portfolio consists primarily of customers in the transportation, energy services and service industries. At December 31, 2025 and 2024, outstanding factored receivables were $26.7 million and $36.8 million, respectively.

Commercial and industrial loans increased $409.2 million, or 27.3%, to $1.91 billion as of December 31, 2025 from $1.50 billion as of December 31, 2024. The increase was primarily a result of increased productivity of existing lenders in response to market demand.

Other Loan Categories. Other categories of loans included in our loan portfolio include farmland loans, lease financing, Bond Anticipation Notes (BANs), consumer loans, and agricultural loans made to farmers and ranchers relating to their operations. None of these categories of loans represents a material portion of our total loan portfolio.

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of the date indicated are summarized in the following table:

Nonperforming Assets

Nonperforming assets include nonaccrual loans, loans that are accruing over 90 days past due, restructured loans - accruing, and foreclosed assets. Effective January 1, 2023, the Company adopted the provisions of ASU 2022-02, which discontinued the recognition and measurement guidance previously required on troubled debt restructurings. Therefore, restructure loans included in nonperforming assets as of December 31, 2025 exclude any loan modifications that are performing but would have previously required disclosure as troubled debt restructurings. Generally, loans are placed on nonaccrual status when they become more than 90 days past due and/or collection of principal or interest is in doubt.

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The following table presents information regarding nonperforming assets at the dates indicated:

(1)
Restructured loans-nonaccrual are included in nonaccrual loans.

We had $29.9 million in nonperforming assets as of December 31, 2025, compared to $28.8 million as of December 31, 2024. As of December 31, 2025, the nonperforming assets to total assets was 0.56%, compared to 0.58% as of December 31, 2024.

The following table summarizes our nonaccrual loans by category as of the dates indicated:

Risk Gradings

As part of the on-going monitoring of the credit quality of the Company's loan portfolio and methodology for calculating the allowance for credit losses, management assigns and tracks risk gradings as indicated below that are used as credit quality indicators.

The following table summarizes the internal ratings of our loans as of the dates indicated:

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Allowance for Credit Losses on Loans

In accordance with ASC 326 which the Company adopted January 1, 2023, the allowance for credit losses on loans is estimated and recognized upon origination of the loan based on current expected credit losses. The amount of the allowance for credit losses represents management's best estimate of current expected credit losses on the Company's loans considering available information, from internal and external sources, relevant to assessing the exposure to credit loss over the contractual term of the loan. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance for credit losses is dependent upon a variety of factors beyond our control, including the performance of our loan portfolios, the economy, changes in interest rates and the view of the regulatory authorities toward classification of assets. On January 1, 2023, we recorded an increase of $4.0 million to the allowance for credit losses for the cumulative effect of adopting ASC 326 for our loan portfolio. For additional information on adoption of ASC 326, see “—Critical Accounting Policies—Allowance for Credit Losses” below and “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Nature of Operations and Summary of Significant Accounting Policies” and “—Note 3—Loans and Allowance for Credit Losses.”

Prior to the adoption of ASC 326, we maintained an allowance for credit losses that represented management’s best estimate of the loan losses and risks inherent in our loan portfolio. The amount of the allowance for credit losses was not an indicator that charge-offs in future periods would necessarily occur in those amounts. In determining the allowance for credit losses, we estimated losses on specific loans, or groups of loans, where the probable loss could be identified and reasonably determined. The balance of the allowance for credit losses was based on internally assigned risk classifications of loans, historical loan loss rates, changes in the nature and volume of our loan portfolio, overall portfolio quality, industry or borrower concentrations, delinquency trends, current economic factors and the estimated impact of current economic conditions on certain historical loan loss rates, among other factors.

As of December 31, 2025, the allowance for credit losses on loans totaled $43.9 million, or 1.00% of total loans. As of December 31, 2024, the allowance for credit losses on loans totaled $40.3 million, or 1.02% of total loans. The increase in our allowance for credit losses on loans of $3.6 million, or 9.0%, was primarily due to the $7.2 million provision for credit losses on loans recorded for the year ended December 31, 2025, offset by net charge-offs of $3.6 million for the year ended December 31, 2025.

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The following tables present as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:

The allowance for credit losses by loan category as of the dates indicated was as follows:

Securities

Our investment portfolio consists of state and municipal securities, mortgage-backed securities, agency collateralized mortgage obligations, U.S. treasury bonds, and corporate bonds classified as available for sale. The carrying value of such securities is adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

Management assesses securities in its investment portfolio for impairment on a quarterly basis or when events or circumstances suggest that the carrying amount of an investment may be impaired. In accordance with ASC 326, available-for-sale securities are evaluated as of each reporting date when the fair value is less than amortized cost, and credit losses are to be calculated individually using a discounted cash flow method through which management compares the present value of the expected cash flows with the amortized costs. An allowance for credit losses is established to reflect the credit loss component of the decline in fair value.

Factors management considers in assessing whether a discounted cash flow method evaluation is needed for a security whose fair value is less than amortized costs include: (1) management will assess whether it intends to sell, or if it is more likely than not it will be required to sell, the security before recovery of the amortized cost basis; (2) the length of time (duration) and the extent (severity) to which the market value has been less than costs; (3) the financial condition and near-term prospects of the issuer,

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including any specific events which may influence the operations of the issuer, such as changes in technology that impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; and (4) changes in the rating of the security by a rating agency. Based on management's analysis, an allowance for credit losses for the security portfolio was not deemed to be needed as of December 31, 2025.

The following table summarizes the amortized cost and estimated fair value of our investment securities available-for-sale as of the dates shown:

As of December 31, 2025, the carrying amount of the available-for-sale security portfolio was $383.2 million, compared to $384.0 million as of December 31, 2024, a decrease of $833,000, or 0.2%. The decrease relates primarily to net purchases of $5.15 billion in agencies, municipal securities, mortgage-back securities and corporate bonds offset by maturities, calls and paydowns of $5.17 billion for the year ended December 31, 2025. Investment securities available-for-sale represented 7.2% and 7.8% of total assets as of December 31, 2025 and 2024, respectively.

The mortgage-backed securities held include agency collateralized mortgage obligations, Fannie Mae, Freddie Mac, and Ginnie Mae securities. We do not hold any preferred stock, corporate equity, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, Alt-A or second lien elements in our investment portfolio. As of December 31, 2025 and 2024, our investment portfolio did not contain any securities that are directly backed by subprime or Alt-A mortgages.

The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures. The contractual maturities of the mortgage-backed securities held range from 2026 to 2065 and are not a reliable indicator of the expected life because borrowers have the right to prepay their obligations at any time. Mortgage-backed securities are typically issued with stated principal amounts and are backed by pools of mortgage loans and other loans with varying maturities. The terms of the underlying mortgages and loans may vary significantly due to the ability of a borrower to prepay. Monthly pay downs on mortgage-backed securities tend to cause the average life of the securities to be much different than the stated contractual maturity. During a period of increasing interest rates, fixed rate mortgage-backed securities do not tend to experience heavy prepayments of principal, and, consequently, the average life of the security is typically lengthened. If interest rates begin to fall, prepayments may increase, thereby shortening the estimated life of the security. Therefore, schedules of maturities for mortgage-backed securities have been excluded from this disclosure.

Securitization of Commercial Real Estate Loans

During April and June 2025, the Company completed two securitizations totaling $250 million of revolving commercial real estate loans secured by interests in 1-4 family residential dwellings located throughout the United States. In connection with the transactions, the Company purchased Class A-1 asset backed notes, Series 2025-1, for a total of $78 million on April 1, 2025; and Class A-1 asset backed notes, Series 2025-2 for a total of $127.5 million on June 3, 2025. The Company is not affiliated with the issuer of the notes. Further information regarding the securitization of commercial real estate loans is presented in Note 3—Loans and Allowance for Credit Losses in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.

The Class A-1 Notes are classified as held-to-maturity investments. The following table summarizes the carrying values and approximate fair values of our investment securities held-to-maturity as of the dates shown:

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The amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at December 31, 2025, by contractual maturity, are shown below:

The weighted average life of our investment portfolio was 3.99 years and 4.79 years as of December 31, 2025 and 2024, respectively.

Deposits

Total deposits as of December 31, 2025 were $4.63 billion, an increase of $316.4 million, or 7.3%, compared to $4.31 billion as of December 31, 2024. The increase was primarily due to growth in our national wholesale deposits through our core, fiduciary and institutional deposit programs, continued growth in our primary market areas, and the increase in commercial lending relationships for which we also seek deposit balances.

Noninterest-bearing deposits as of December 31, 2025 were $495.0 million, a decrease of $107.1 million, or 17.8%, compared to $602.1 million as of December 31, 2024. Total interest-bearing account balances as of December 31, 2025 were $4.13 billion, an increase of $423.5 million, or 11.4%, from $3.71 billion as of December 31, 2024.

The components of deposits as of the dates shown below were as follows:

The following table sets forth the Company’s estimated uninsured time deposits by time remaining until maturity as of the dates indicated:

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The estimated amount of uninsured deposits at December 31, 2025 was $1.32 billion.

The following table presents the average balances and average rates paid on deposits for the periods indicated:

The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2025 and 2024 was 10.5% and 11.7%, respectively.

Borrowings

We have the ability to utilize advances from the FHLB and other borrowings to supplement deposits used to fund our lending and investment activities.

Federal Home Loan Bank (FHLB) Advances. The FHLB allows us to borrow on a blanket floating lien status collateralized by FHLB stocks and real estate loans. As of December 31, 2025 and 2024, total borrowing capacity available under this arrangement was $499.5 million and $623.7 million, respectively. The Company had no FHLB advances outstanding at December 31, 2025 and 2024. Our cost of FHLB advances was 4.41% for the year ended December 31, 2025 and 5.25% for the year ended December 31, 2024. In addition, letters of credit with the FHLB in the amount of $592.0 million and $535.8 million were outstanding at December 31, 2025 and 2024, respectively. The letters of credit are used to collateralize public fund deposit accounts in excess of FDIC insurance limits and have expirations ranging from January 2026 through January 2027 as of December 31, 2025.

Line of Credit - Senior Debt. The Company has a $55.0 million revolving line of credit facility which was modified effective March 12, 2024, whereby the facility was increased by $5.0 million and the note rate was decreased to The Wall Street Journal US Prime Rate, as such changes from time to time, less 0.625%, with a floor rate of 5.00% per annum. Interest is payable quarterly on the 10th day of March, June, September and December through maturity date of March 10, 2026. All principal and unpaid interest is due at maturity. The note is secured by 100% of the outstanding stock of the Bank and is senior in rights to the subordinated debt described below. Prior to the modification, the $50.0 million facility was due on September 10, 2024, and bore interest at The Wall Street Journal US Prime Rate, as such changes from time to time, plus 0.50%, with a floor rate of 5.00% per annum. At December 31, 2025 and 2024, the outstanding balance was $37.9 million and $30.9 million, respectively.

Note Payable - Subordinated Debt. On March 31, 2022, the Company issued and sold $82.3 million in aggregate principal amount of its 5.500% Fixed-to-Floating Rate Subordinated Notes due 2032. As of December 31, 2025, the outstanding balance was $81.0 million, net of $1.3 million in unamortized debt issuance costs. For additional information on our Note Payable - Subordinated Debt, see Note 7—FHLB Advances and Other Borrowings in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.

Our cost of notes payable was 6.13% and 6.55% for the years ended December 31, 2025 and 2024, respectively.

Federal Reserve Borrower-in-Custody (BIC) Loan Pledge Arrangement. In June 2023, the Federal Reserve Bank approved the Company to begin pledging, on a blanket floating lien status, its commercial and industrial loans under a Borrower-in-Custody arrangement. The arrangement provides the Company with the ability to secure collateralized contingency funding from the Discount Window of the Federal Reserve Bank of Dallas. As of December 31, 2025 and 2024, total borrowing capacity under this arrangement was $1.5 billion. There were no advances outstanding at December 31, 2025 and 2024.

Federal Funds Lines of Credit. At December 31, 2025 and 2024, the Company had federal funds lines of credit with commercial banks that provide for availability to borrow up to an aggregate of $36.5 million. The Company had no advances outstanding under these lines at December 31, 2025 and 2024.

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Liquidity and Capital Resources

Liquidity

Liquidity involves our ability to raise funds to support asset growth and acquisitions or reduce assets to meet deposit withdrawals and other payment obligations, to maintain reserve requirements and otherwise to operate on an ongoing basis and manage unexpected events.

For the year ended December 31, 2025 and 2024, liquidity needs were primarily met by core deposits, loan maturities, amortizing loan portfolios, brokered deposits, and borrowings.

At December 31, 2025, the Company had borrowing capacity available under FHLB advances of $499.5 million, line of credit - senior debt of $17.1 million, the Federal Reserve Bank of Dallas Discount Window of $1.5 billion, and federal funds lines of credit of $36.5 million. At December 31, 2024, the Company had borrowing capacity available under FHLB advances of $623.7 million, line of credit - senior debt of $24.1 million, the Federal Reserve Bank of Dallas Discount Window of $1.5 billion, and federal funds lines of credit of $36.5 million.

The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the periods indicated. Average assets were $4.98 billion for the year ended December 31, 2025 and $4.54 billion for the year ended December 31, 2024.

Our primary source of funds is deposits, and our primary use of funds is loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.

As of December 31, 2025, we had $1.69 billion in outstanding commitments to extend credit and $97.0 million in commitments associated with outstanding standby and commercial letters of credit. As of December 31, 2024, we had $1.57 billion in outstanding commitments to extend credit and $14.0 million in commitments associated with outstanding standby and commercial letters of credit. Since commitments associated with letters of credit and commitments to extend credit may expire unused, the total outstanding may not necessarily reflect the actual future cash funding requirements.

As of December 31, 2025 and 2024, we had no exposure to future cash requirements associated with known uncertainties or capital expenditure of a material nature. As of December 31, 2025, we had cash and cash equivalents of $181.2 million, compared to $421.2 million as of December 31, 2024.

Capital Resources

Total shareholders’ equity increased to $531.0 million as of December 31, 2025, compared to $460.7 million as of December 31, 2024, an increase of $70.3 million, or 15.3%. This increase was primarily the result of the $66.3 million in net income and $6.4 million, net of tax, in other comprehensive income, offset by the $4.8 million of dividends declared on the Series A Preferred Stock.

Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. We are required to comply with certain risk-based capital adequacy guidelines issued by the Federal Reserve and the FDIC.

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As of December 31, 2025 and 2024, the Bank was in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the FDIC’s prompt corrective action regulations. As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.

The following table presents the regulatory capital ratios for the Company and Bank as of the dates indicated.

Use of Derivatives to Manage Interest Rate and Other Risks

In the ordinary course of business, we enter into derivative transactions to manage various risks and to accommodate the business requirements of our customers.

Cash Flow Hedges

On April 4, 2025, we entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $100 million which was scheduled to mature on April 4, 2030. The facility was discontinued on April 9, 2025, and a gain of $1.1 million was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, as a reduction of interest expense through maturity date of the contract.

On October 31, 2024, we entered into a ten year and four-month receive-fixed interest rate swap agreement with a notional amount of $100 million which was scheduled to mature on April 30, 2035. The facility was discontinued on March 4, 2025, and a gain of $456,000 was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, as a reduction of interest expense through maturity date of the contract.

On September 4, 2024, we entered into a five-year pay-fixed interest rate swap agreement which was scheduled to mature on September 4, 2029. The facility was discontinued on October 4, 2024, and a gain of $755,000 was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, into interest expense through the maturity date of the contract.

During December 2023, we entered into two five-year pay-fixed interest rate swap agreements with notional amounts of $100 million each. The facilities, which were scheduled to mature on December 6, 2028 and December 21, 2028, were discontinued on April 10, 2024, and a combined gain of $5.4 million was recognized by the Company. The gain is being accreted from other comprehensive income, net of deferred taxes, into interest expense through the maturity date of the contracts.

During March 2023, we entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $200 million. The facility, which was scheduled to mature on March 31, 2028, was discontinued on May 26, 2023, and a gain of $5.0 million was recognized by the Company. The gain is being accreted from other comprehensive income (loss), net of deferred taxes, into interest expense through the maturity date of the contract.

For the years ended December 31, 2025 and 2024, approximately $2.5 million and $2.3 million, respectively, was reclassified out of accumulated other comprehensive income and recognized as a reduction of interest expense on discontinued hedges.

Fair Value Hedges

We also offer certain interest rate swap products directly to our qualified commercial banking customers. These financial instruments are not designated as hedging instruments. The interest rate swap derivative positions relate to transactions in which we enter into an interest rate swap with a customer, while at the same time entering into an offsetting interest rate swap with another financial institution. An interest rate swap transaction allows customers to effectively convert a variable rate loan to a fixed rate. In connection with each swap, we agree to pay interest on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.

Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and would not significantly impact our operating results except in certain situations where there is a significant

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deterioration in the customer’s credit worthiness or that of the counterparties. At December 31, 2025, no such deterioration was determined by management.

We also offer one-way interest rate swap products to our customers. Under this type of arrangement, we extend a conventional fixed-rate loan to the borrower and then subsequently hedge the interest rate risk of that loan by entering into a swap for our own balance sheet to convert the fixed-rate loan to a synthetic floating rate asset. These types of swaps lock in our spread over our cost of funds for the life of the loan.

For some of our loan participation facilities, we enter into Risk Participation Agreements with other banks in order to hedge or share a portion of the risk of borrower default related to the interest rate swap on a participated loan.

All derivatives are carried at fair value in either other assets or other liabilities in the accompanying consolidated balance sheets. At December 31, 2025, the Company's derivative assets and liabilities totaled $2.5 million and $3.1 million, respectively.

For additional information regarding derivatives, see Note 17—Derivative Financial Instruments in the accompanying notes to the consolidated financial statements included elsewhere in this Form 10-K.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a decrease in current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the Bank's ALCO, in accordance with policies approved by the Bank’s board of directors. The committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. The average life of our non-maturity deposit accounts are updated annually and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

On a monthly basis, we run simulation models including a static balance sheet. The models test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rate changes over a 12-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. In addition to the monthly reports, we also run various scenarios based on market trends and management analysis needs. These special reports include stress test reports, reports to test the deposit decay rates and growth reports based on budget. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one-year period should not decline by more than 25.0% for a 200 basis point shift and 35.0% for a 300 basis point shift.

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The following tables summarize the simulated change in net interest income and fair value of equity over a 12-month horizon as of the dates indicated:

The results are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, interest rates on these deposits change more slowly than changes in the discount and federal funds rates. This assumption is incorporated into the simulation model and is generally not fully reflected in a gap analysis.

Critical Accounting Policies

Our financial reporting and accounting policies conform to GAAP. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in Note 1—Nature of Operations and Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included elsewhere in this Form 10-K. We believe that of our accounting policies, the following may involve a higher degree of judgment and complexity:

Allowance for Credit Losses. The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The provision for credit losses related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated current expected credit losses in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations.

Transfers of Financial Assets. Management accounts for the transfers of financial assets as sales when control over the assets has been surrendered. Control is surrendered when the assets have been isolated, a transferee obtains the right to pledge or exchange the transferred assets and there is no agreement to repurchase the assets before their maturity. Management believes the loan participations sold subject to this guidance met the condition to be treated as a sale.

Goodwill and Core Deposit Intangibles. Goodwill represents the excess of cost over fair value of net assets acquired in a business combination. Goodwill is not amortized and is evaluated for impairment at least annually and on an interim basis if an event triggering impairment may have occurred.

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Core deposit intangibles are acquired customer relationships arising from bank acquisitions and are amortized on a straight-line basis over their estimated useful life. Core deposit intangibles are tested for impairment whenever events or changes in circumstances indicate the carrying amount of assets may not be recoverable from future undiscounted cash flows.

Emerging Growth Company

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act. As an emerging growth company, the Company has taken advantage of reduced reporting and other requirements that are otherwise generally applicable to public companies. Emerging growth companies are:

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exempt from the requirement to obtain an attestation and report from the Company’s auditors on management’s assessment of internal control over financial reporting under the Sarbanes-Oxley Act of 2002;

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permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the Financial Accounting Standards Board or by the SEC;

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permitted to provide less extensive disclosure about the Company’s executive compensation arrangements; and

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not required to give shareholders nonbinding advisory votes on executive compensation or golden parachute arrangements.

The Company will lose its emerging growth company status upon the earliest of : (i) the last day of the fiscal year in which the Company has $1.235 billion or more in annual revenues; (ii) the date on which the Company becomes a “large accelerated filer” (the fiscal year end on which the total market value of the Company's common equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which the Company issues more than $1.0 billion of non-convertible debt over a three-year period; or (iv) December 31, 2026, which is the end of the fiscal year in which the fifth anniversary of the Company's initial public offering occurs.

Recently Issued Accounting Pronouncements

See “Part II—Item 8. Financial Statements and Supplementary Data—Note 1—Nature of Operations and Summary of Significant Accounting Policies.”