HBCP 10-K & 10-Q changes, risk factors and insider trading

Most of our loans are to individuals and businesses located in south Louisiana, west Mississippi and the Houston, Texas region. The oil and gas industry has a significant presence in the market areas in which we operate. Regional economic conditions affect the demand for our products and services as well as the ability of our customers to repay loans. Actions by members of the Organization of Petroleum Exporting Countries (“OPEC”) can impact global crude oil production levels and lead to significant volatility in global oil supplies and market oil prices. In recent years, decreased market oil prices compressed margins for many U.S. based oil producers, particularly those that utilize higher-cost production technologies such as hydraulic fracking and horizontal drilling, as well as oilfield service providers, energy equipment manufacturers and transportation suppliers, among others. While crude oil prices have rebounded since the Spring of 2020, global markets for oil and gas were disrupted by the COVID-19 pandemic. The current wars in Ukraine and Israel also have impacted global oil supplies and caused further volatility in oil prices. Continued fluctuations in crude oil prices could adversely affect our operations and economic conditions in some of our markets during 20252026 and future periods, which could adversely affect our future results of operations. Although the Company attempts to mitigate risk by diversifying its borrower base, approximately $94.6$67.1 million, or 3.5%2.4% of the Company’s loan portfolio, at December 31, 20242025 was comprised of loans to borrowers in the oil and gas industry (which is also referred to as the “energy sector”). We had an additional $21.4$30.8 million in unfunded loan commitments to companies in the energy sector at such date. At December 31, 2024,2025, $965,000none of our loans in the energy sector were on nonaccrual status, and $1.4 million$935,000 of our total allowance for loan losses was attributable to energy sector loans. Historically, the oil and gas industry has been an important factor in the local economy in our Acadiana and Natchez markets as well as the Houston market. If oil prices decline, it could have an adverse effect on our customers resulting in increased levels of nonperforming loans, provisions for loan losses and expense associated with loan collection efforts.

While we are not aware of any specific factors indicating a deficiency in the amount of our allowance for credit losses, in light of the current economic environment, one of the most pressing issues faced by financial institutions is the adequacy of their allowance for credit losses. Federal bank regulators routinely scrutinize the level of the allowance for credit losses maintained by regulated institutions. In the event that we have to increase our allowance for credit losses beyond current levels, it would have an adverse effect on our results in future periods. As of December 31, 2024,2025, our allowance for loan losses amounted to $32.9$33.1 million, or 1.21% of total loans and our total allowance for credit losses amounted to $35.6$34.8 million, or 1.31%1.27% of total loans. See Note 2 to the Consolidated Financial Statements in Item 8 for a detailed discussion of the Company's methodologies for estimating expected credit losses.

Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions with respect to individual securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest rates and continued instability in the capital markets. Any of these factors, among others, could cause credit losses and realized and/or unrealized losses in future periods and declines in accumulated other comprehensive income,income ("AOCI"), which could materially and adversely affect our business, results of operations, financial condition and prospects. The process for determining whether impairment of a security is related to credit usually requires complex, subjective judgments about the future financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability of receiving all contractual principal and interest payments on the security. Significant negative changes to valuations could result in credit losses on our securities portfolio, which could have an adverse effect on our financial condition or results of operations. As of December 31, 2024,2025, we had $30.0$17.8 million of accumulated other comprehensive losses.AOCI.

Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. Significant negative industry or economic trends, reduced estimates of future cash flows or disruptions to our business, could indicate that goodwill might be impaired. Our valuation methodology for assessing impairment requires management to make judgementsjudgments and assumptions based on historical experience and to rely on projections of future operating performance. In the event that we conclude in a future assessment that all or a portion of our goodwill may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital. At December 31, 2024,2025, we had goodwill of $81.5 million, which represents approximately 20.6%18.7% of shareholders’ equity. See Notes 2 and 8 to the Consolidated Financial Statements in Item 8 for additional information concerning our goodwill and the required impairment test.

•The allowance for loan losses ("ALL") totaled $32.9$33.1 million, or 1.21% of total loans, at December 31, 2024.2025. The ACL,allowance for credit losses ("ACL"), which is comprised of the allowance for loan losses plus the allowance for unfunded lending commitments, totaled $35.6$34.8 million, or 1.31%1.27% of total loans, at December 31, 2024.2025.

•Total deposits increased $110.1$192.1 million, or 4.1%,6.9%, from December 31, 20232024 to $2.8$3.0 billion at December 31, 2024,2025, primarily due to increases in certificate of deposits anddeposits, money market accounts, and demand deposit accounts.

•The net interest margin was 3.71%4.03% for the year ended December 31, 2024,2025, downup 1832 bps compared to 2023,2024, primarily due to ana increasedecline in the average cost of interest-bearing liabilities,liabilities partially offset withand an increase in the average yield earned on interest-earning assets during 2024.2025.

•The average rate paid on total interest-bearing deposits during 20242025 was 2.66%,2.53%, updown 11013 bps compared to 2023.2024.

•Noninterest income decreasedincreased $11,000,$836,000, or 0.1%,5.7%, in 20242025 compared to 2023,2024, primarily due to aan decreaseincrease in bank card fees and gain on sale of loans, service fees and charges, and bank card fees, which were partially offset by ana increasedecrease in othergain nonintereston income.sale of assets.

•Noninterest expense increased $4.4$2.3 million, or 5.4%,2.6%, in 20242025 compared to 20232024, primarily due to an increase in compensation and benefits, foreclosed assets (primarily due to the absence of a $769,000 foreclosed asset recovery of a previous loss on a OREO sale that occurred during the first quarter of 2023), data processingbenefits and communications, and occupancyother expenses, which were partially offset by a decreasereversal in the provision for credit losses on unfunded commitments.

This Selected Financial Data contains financial information prepared other than in accordance with generally accepted accounting principles (“GAAP”).GAAP. The Company uses these non-GAAP financial measures in its analysis of the Company’s performance. Management believes that the non-GAAP information provides useful data in understanding the Company’s operations and in comparing the Company’s results to peers. This non-GAAP information should be considered in addition to the Company’s financial information prepared in accordance with GAAP, and is not a substitute for, or superior to, GAAP results. A reconciliation of GAAP to non-GAAP disclosures is included in the table below.

We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. Our accounting policies are discussed in detail in Note 2 - Summary of Significant Accounting Policies in the accompanying notes to the consolidatedConsolidated financialFinancial statementsStatements included elsewhere in thisItem report.8. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, management believes the policies noted below meet the SEC’s definition of critical accounting policies.

At December 31, 20242025 and 2023,2024, loans identified as individually evaluated for expected losses were $5.0$6.2 million and $4.2$5.0 million, respectively. Due to the adoption of ASC 326, total loans identified as impaired and individually evaluated at December 31, 20242025 included $1.3$1.2 million of acquired loans, of which none were acquired with deteriorated credit quality. For more information on the adoption of ASC 326, refer to Note 2 of the Consolidated Financial Statements.Statements in Item 8.

At December 31, 20242025 and 2023,2024, we had a total of $35.8$61.1 million and $28.2$35.8 million, respectively, in loans classified as substandard. We had no assets classified as doubtful or loss at either date. For additional information, see Note 5 to the Consolidated Financial Statements.Statements in Item 8.

A bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by Federal bank regulators which can order the establishment of additional general or specific loss allowances. The Federal banking agencies have adopted an interagency policy statement on the allowance for loan and lease losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the collectability of the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Due to the adoption of ASC 326 on January 1, 2020, management maintains, based on current and forecasted information, an ACL that reflects a current estimate of expected credit losses for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date. For reporting periods prior to January 1, 2020, management maintained an ALL at a level which reflected losses that were probable and reasonably estimable at the relevant reporting date. For all reporting periods, actual losses are uncertain and dependent upon future events and, as such, further additions to the level of ACL may become necessary.

Total nonperforming assets increased by $5.2$20.5 million, or 50.2%,131.3%, to $36.1 million at December 31, 2025, compared to $15.6 million at December 31, 2024,2024. comparedThe increase in NPAs during 2025 was primarily due to $10.4eight millionloan atrelationships Decembertotaling 31,$21.5 2023.million, which were put on nonaccrual during the year, partially offset by payoffs and paydowns. The ratio of nonperforming assets to total assets was 1.03% at December 31, 2025, compared to 0.45% at December 31, 2024, compared to 0.31% at December 31, 2023.2024.

As of December 31, 2024,2025, total nonperforming loans were up $4.8$20.6 million, or 54.3%,151.3%, from December 31, 2023.2024. Foreclosed assets and Other real estate ("ORE") were updown $435,000,$81,000, or 27.6%,4.0%, from December 31, 2023.2024.

The Company invests in securities pursuant to our Investment Policy, which has been approved by our Board of Directors. The Investment Policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate or credit risk and to provide and maintain liquidity. The Asset-Liability Committee (“ALCO”), comprised of the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Risk OfficerOfficer, Chief Banking Officer, Chief Administrative Officer, Director of Financial Management and Director of Financial Management,Retail, monitors investment activity and ensures that investments are consistent with the Investment Policy. The Board of Directors of the Company reviews investment activity monthly.

As of December 31, 2024,2025, the Company had a net unrealized loss on its available for sale investment securities portfolio of $41.0$23.4 million, compared to a net unrealized loss of $43.4$41.0 million as of December 31, 2023.2024. Management has determined that the declines in the fair value of these securities are due primarily to the rising interest rate environment and were not attributable to credit losses. The Company has the intent and ability to hold the securities until maturity or until anticipated recovery.

On March 12, 2023, the Federal Reserve Board created the Bank Term Funding Program ("BTFP"), which offers loans to banks with a term up to one year with no prepayment penalty. The loans are secured by pledging qualifying securities and are valued at par for collateral purposes. At December 31, 2024 and 2023, the Bank pledged securities with a collateral value of $0 and $103.4 million, respectively. The Bank participated in the BTFP during 2024 and paid off the loan before December 31, 2024. The average balance of other borrowings, which included the BTFP loan in 2024 was $128.7$4.3 million during 2024,2025, updown $123.1$124.4 million from 2023.2024.

The Company had $137.2 millionno short-term FHLB advances as of December 31, 2024,2025, down $12.8$137.2 million, or 8.5%,100.0%, compared to $150.0$137.2 million as of December 31, 2023.2024. Long-term FHLB advances totaled $3.0 million as of December 31, 2025, down $35.3 million, or 92.1%, compared to $38.3 million as of December 31, 2024, down $4.4 million, or 10.3%, compared to $42.7 million as of December 31, 2023.2024.

Average FHLB advances were $57.0$83.7 million during 2024,2025, downup $186.6$26.7 million, or 76.6%,46.9%, from 2023.2024.

Net income in 20242025 was $36.4$46.1 million, downup $3.8$9.6 million, or 9.5%,26.5%, compared to 2023.2024. Diluted earnings per share ("EPS") for 20242025 was $4.55,$5.87, downup $0.44,$1.32, or 8.8%,29.0%, from 2023.2024. For the year ended December 31, 2024,2025, the Company provisioned $2.4$1.1 million to the allowance for loan losses compared to a provision of $2.3$2.4 million for the year ended December 31, 2023.2024.

Net income in 20232024 was $40.2$36.4 million, updown $6.2$3.8 million, or 18.1%,9.5%, compared to 2022.2023. Diluted EPS for 20232024 was $4.99,$4.55, updown $0.83,$0.44, or 20.0%8.8% from 2022.2023. For the year ended December 31, 2023,2024, the Company provisioned $2.3$2.4 million to the allowance for loan losses compared to a provision of $7.5$2.3 million for the year ended December 31, 2022. The provision during 2022 was significantly impacted by the acquisition of Friendswood.2023.

Net interest income totaled $133.3 million in 2025, up $13.0 million, or 10.8%, compared to $120.3 million in 2024, down $430,000, or 0.4%, compared to $120.7 million in 2023.2024. The decreaseincrease was primarily due to thea decline in cost of interest-bearing liabilities and an increase in average interest-bearing liabilities outpacing the yield andearned increase in averageon interest-earning assets. Total interest expense increaseddecreased $21.5$4.0 million, or 50.1%,6.2%, in 20242025 compared to 20232024 primarily related to higherthe depositabsence costsof interest expense associated with the BTFP loan, which paid off in 2024, partially offset by an increase in FHLB borrowing interest during 2024 compared to 2023.2025. The average cost of total interest-bearing deposits increaseddecreased by 11013 basis points to 2.66%2.53% in 2024.2025.

In 2023,2024, net interest income totaled $120.7$120.3 million, updown $2.7 million,$430,000, or 2.3%,0.4%, compared to $118.0$120.7 million in 2022.2023. The increasedecrease in net interest income for 20232024 compared to 20222023 was primarily due to the impactcost ofand aincrease fullin yearaverage ofinterest-bearing Friendswood'sliabilities outpacing the yield and increase in average interest-earning assets and loan growth.assets. Total interest expense increased $35.1$21.5 million, or 442.9%,50.1%, in 20232024 compared to 20222023 primarily related to higher FHLBdeposit advancescosts during 20232024 compared to 2022, increased costs in interest-bearing deposits and a full year of interest expense on our subordinated debt issued in 2022.2023. The average cost of total interest-bearing deposits in 20232024 totaled 1.56%,2.66%, up 128110 basis points from 2022.2023.

Net charge-offs were $1.0 million$908,000 for 2024,2025, compared to net charge-offs of $103,000$1.0 million and $694,000$103,000 for 20232024 and 2022,2023, respectively. Net loan charge-offs for 20242025 were primarily attributable to originated commercial and industrial, consumerconsumer, and construction and land loans. Charge-offsNet loan charge-offs during 20232024 were primarily attributable to an originated commercial and industrialindustrial, loanconsumer, and consumerconstruction and land loans.

Noninterest income for 2024 totaled $14.6 million, down $11,000, or 0.1%, compared to 2023. Income from bank card fees for 2024 was down $526,000, or 7.5%, from 20232023, primarily due to to decreased transaction activity by our cardholders.

Occupancy expense for 2024 was up $457,000, or 4.7%, compared to 2023, primarily due to an additional leaseslease in our Houston market.

In 2024, the Company recorded a $341,000 expenseexpenses related to foreclosed assets, compared to a $547,000 reversal in 2023, primarily due to a $769,000 recovery of a previous loss on a foreclosed asset.

Provision for credit losses on unfunded commitments decreased $395,000, or 78.8%, compared to 2023, primarily due to a decrease in unfundedfunding commitments.

The Company's effective tax rate in 2025 increased compared to 2024 due to variances in items that are non-taxable or non-deductible. The Company's effective tax rate in 2024 decreased compared to 2023 due to variances in items that are non-taxable or non-deductible. The Company's effective tax rate in 2023 remained consistent with 2022. See Note 15 to the Consolidated Financial Statements in Item 8 for additional information concerning our income taxes.

In addition to the strategies above, on occasion the Company has entered into certain interest rate swap agreements as part of its interest rate risk management strategy. The Company’s objectives in using interest rate derivatives are to manage its exposure to interest rate movements. During 20242025 and 2023,2024, such derivatives were used to hedge the variable cost associated with existing variable rate liabilities. Refer to Note 14. Derivatives and Hedging Activities of the Consolidated Financial Statements in Item 8 for more information on the effects of the derivative financial instruments on the consolidated financial statements.

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of the Company and the Bank from December 31, 2025 through MarchJune 31,30, 2026 and on its results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the consolidated financial statements and related notes appearing in Item 1.

The Company reported net income for the firstsecond quarter of 2026 of $11.4$11.6 million, or $1.45$1.48 diluted EPS, up $396,000,$285,000, or 3.6%,2.5%, compared to the firstsecond quarter of 2025. Net income for the firstsecond quarter of 2025 totaled $11.0$11.3 million, or $1.37$1.45 diluted EPS. For the six months ended June 30, 2026, the Company reported net income $23.0 million, or $2.93 diluted EPS, up $681,000 from $22.3 million, or $2.82 diluted EPS, reported for the six months ended June 30, 2025.

Key components of the Company’s performance during the three and six months ended MarchJune 31,30, 2026 include:

•Assets increased $62.0$110.6 million, or 1.8%,3.2%, from December 31, 2025 to $3.6 billion at MarchJune 31,30, 2026.

•Total loans were $2.7$2.8 billion at MarchJune 31,30, 2026, downup $15.9$34.9 million, or 0.6%,1.3%, from December 31, 2025.

•During the three and six months ended MarchJune 31,30, 2026, the Company provisioned $922,000$762,000 and $1,684,000, respectively, to the allowance for loan losses,ALL, primarily due an increase in individually impairedto loan reserves,growth partiallyand offsetnet by loan reduction.charge-offs. During the three and six months ended MarchJune 31,30, 2025, the Company provisioned $394,000$489,000 and $883,000, respectively, to the allowance for loan losses.ALL.

•The ALL totaled $33.7$34.0 million, or 1.23%1.22% of total loans, at MarchJune 31,30, 2026 compared to $33.1 million, or 1.21% of total loans, at December 31, 2025. The ACL, which is comprised of the allowance for loan lossesALL plus the allowance for unfunded lending commitments, totaled $35.3$35.6 million, or 1.29%1.28% of total loans, at MarchJune 31,30, 2026 compared to $34.8 million, or 1.27% of total loans, at December 31, 2025.

•Nonperforming assets ("NPAs") increased $3.8$3.1 million, or 10.5%,8.6%, from $36.1 million, or 1.03% of total assets, at December 31, 2025 to $39.9$39.2 million, or 1.12%1.09% of total assets, at MarchJune 31,30, 2026. The increase in nonperforming assetsNPAs during the firstsix quartermonths ofended June 30, 2026 was primarily attributable to severalmultiple loan relationships,relationships including(with onethe largest relationship withtotaling an$1.3 outstandingmillion) balancemoving of $1.4 million, which were placed onto nonaccrual status during the2026, quarter,which was partially offset by loan paydowns and payoffs.paydowns.

•Total deposits amounted to $3.0$3.1 billion at MarchJune 31,30, 2026, an increase of $54.0$96.1 million, or 1.8%,3.2%, from December 31, 2025.

•The net interest margin was 4.16%4.24% and 4.20% for the three and six months ended MarchJune 31,30, 2026, respectively, up 2520 bps and 22 bps from the three and six months ended MarchJune 31,30, 2025. The increase was primarily due to a decline in the average cost of interest-bearing liabilities.

•The average rate paid on total interest-bearing deposits was 2.28% and 2.29% for the firstthree quarterand ofsix months ended June 30, 2026, which wasrespectively, down 2224 bps and 23 bps from the firstthree quarterand ofsix months ended June 30, 2025.

•Noninterest income for the firstsecond quarter of 2026 was $3.7$3.9 million, downup $271,000,$203,000, or 6.8%,5.5%, compared to the firstsecond quarter of 2025, primarily due to increases in gain on sale of loans (up $115,000), service fees and charges (up $62,000), and other income (up $50,000), which were partially offset by a decrease in bank card fees (down $32,000). For the six months ended June 30, 2026, noninterest income was down $68,000, or 0.9%, from the comparable period in 2025 primarily due to decreases in other income (down $266,000$216,000) and gain on sale of loans (down $147,000$32,000), which were partially offset by an increase in service fees and charges (up $128,000$190,000).

•Noninterest expense for the firstsecond quarter of 2026 was $22.9$24.6 million, up $1.4$2.1 million, or 6.3%,9.6%, compared to the firstsecond quarter of 2025, primarily due to increasesan increase in compensation and benefits (up $1.1$1.7 million) and otherthe expensesabsence of a reversal to the ACL on unfunded commitments (up $786,000$970,000), which were partially offset by decreases in foreclosedother assetsexpenses (down $173,000$445,000), and franchise and shares tax (down $136,000$143,000). For the six months ended June 30, 2026, noninterest expense was up $3.5 million, or 8.0%, from the comparable period in 2025 primarily due to an increase in compensation and benefits (up $2.8 million) and the absence of a reversal to the ACL on unfunded commitments ($970,000), partially offset by a decrease in franchise and occupancyshares expensetax (down $132,000$279,000).

Total loans at MarchJune 31,30, 2026 were $2.7$2.8 billion, downup $15.9$34.9 million, or 0.6%,1.3%, from December 31, 2025.

At MarchJune 31,30, 2026, the ALL totaled $33.7$34.0 million, or 1.23%1.22% of total loans, up $538,000$852,000 from $33.1 million, or 1.21% of total loans, at December 31, 2025. During the threesix months ended MarchJune 31,30, 2026, the Company provisioned $922,000$1.7 million to the allowance loan lossesALL primarily due to an increase in individually impaired loan reserves,growth partiallyand offsetnet by loan reduction.charge-offs. Net loan charge-offs totaled $384,000$832,000 for the threesix months ended MarchJune 31,30, 2026.

At MarchJune 31,30, 2026 and December 31, 2025, loans identified as credit deteriorated loans and individually evaluated for expected losses were $10.0$4.5 million and $6.2 million, respectively. The following tables provide a summary of loans individually evaluated for credit losses as of the dates indicated.

At MarchJune 31,30, 2026 and December 31, 2025, loans classified as substandard totaled $61.5$68.9 million and $61.1 million, respectively. There were no assets classified as doubtful at either date. For additional information, refer to Note 5 to the Consolidated Financial Statements.

Total nonperforming loans increaseddecreased by $1.6$7.8 million, or 4.8%,22.7%, to $35.8$26.4 million at MarchJune 31,30, 2026, compared to $34.2 million at December 31, 2025. The increasedecrease was primarily attributable to severalthree loan relationships, including one relationshiprelationships with an aggregate outstanding balance of $1.4$12.0 million,million at June 30, 2026 that transferred to foreclosed assets and paydowns, which werewas placedpartially onoffset by multiple loan relationships (with the largest relationship totaling $1.3 million) moving to nonaccrual status during the quarter, partially offset by loan paydowns and payoffs. Based on the underlying collateral position and ongoing monitoring, management does not anticipate any material losses.2026.

The following table sets forth the composition of the Company’s nonperforming assetsNPAs as of the dates indicated.

(1)Nonaccrual acquired loans include PCD loans of $1.1 million and $1.2 million at MarchJune 31,30, 2026 and December 31, 2025, respectively.

The Company’s investment securities portfolio totaled $386.3$409.1 million as of MarchJune 31,30, 2026, aan decreaseincrease of $6.3$16.6 million, or 1.6%,4.2%, from December 31, 2025. During the firstsecond quarters of 2026 and 2025, the Company had no gains or losses related to the sale of available for sale investment securities. At MarchJune 31,30, 2026, the Company had a net unrealized loss on its available for sale investment securities portfolio of $24.0$25.0 million, compared to a net unrealized loss of $23.4 million at December 31, 2025. The Company’s investment securities portfolio had an effective duration of 3.4 years and 3.3 years at MarchJune 31,30, 2026 and December 31, 2025, respectively.

The following table summarizes activity in the Company’s investment securities portfolio during the threesix months ended MarchJune 31,30, 2026.

Deposits totaled $3.0$3.1 billion at MarchJune 31,30, 2026, an increase of $54.0$96.1 million, or 1.8%,3.2%, compared to December 31, 2025. The following table summarizes the changes in the Company’s deposits from December 31, 2025 to MarchJune 31,30, 2026.

The average rate paid on interest-bearing deposits was 2.29%2.28% for the firstsecond quarter of 2026, down 2224 bps compared to the firstsecond quarter of 2025. At MarchJune 31,30, 2026, certificates of deposit maturing within the next 12 months totaled $715.3$714.7 million.

The total amounts of our uninsured deposits (deposits in excess of $250,000, as calculated in accordance with Federal Deposit Insurance Corporation ("FDIC") regulations) were $919.7$959.4 million at MarchJune 31,30, 2026 and $885.4 million at December 31, 2025. Public funds in excess of the FDIC insurance limits are fully collateralized.

On June 30, 2022, the Company issued $55.0 million in aggregate principal amount of its 5.75% Fixed-to-Floating Rate Subordinated Notes due 2032 (the "Notes"). The Notes were issued at a price equal to 100% of the aggregate principal amount. The Notes have a stated maturity date of June 30, 2032 and bear interest at a fixed rate of 5.75% per year from and including the issue date to but excluding June 30, 2027. From June 30, 2027, the Notes will bear interest at a floating rate equal to the then current three-month term secured overnight financing rate (“SOFR”),SOFR, plus 282 basis points.bps. The Notes may be redeemed by the Company, in whole or in part, on or after June 30, 2027. The Notes are intended to qualify as Tier 2 capital for regulatory purposes.

The carrying value of the Notes was $54.7$54.8 million and $54.7 million at MarchJune 31,30, 2026 and December 31, 2025, respectively. The subordinated debt was recorded net of issuance costs and amortized using the straight-line method over five years.

The average balance of total FHLB advances was $1.9$0.0 million for the firstsecond quarter of 2026, down $178.8$114.0 million compared to the firstsecond quarter of 2025.

The Company had no short-term FHLB advances as of MarchJune 31,30, 2026 and December 31, 2025. At MarchJune 31,30, 2026 and December 31, 2025, the Company had $0.0 million and $3.0 million in long-term FHLB advances, respectively, and $1.3 billion and $1.3 billion in additional FHLB advances available, respectively.

Total shareholders’ equity increased $9.3$18.4 million, or 2.1%,4.2%, from $435.1 million at December 31, 2025 to $444.4$453.5 million at MarchJune 31,30, 2026. Shareholders' equity increased primarily due to net income of $11.4$23.0 million, which was partially offset by an increase in the accumulated other comprehensive loss on available for sale investment securities and cash dividends paid on the common stock during the threesix months ended MarchJune 31,30, 2026.

At MarchJune 31,30, 2026, the Company and the Bank had regulatory capital amounts that were well in excess of regulatory requirements. The following table presents actual and required capital ratios for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of MarchJune 31,30, 2026 based on the required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

The Company uses its liquidity to fund existing and future loan commitments, to fund maturing certificates of deposit and demand deposit withdrawals, to invest in other interest-earning assets and to meet operating expenses. At MarchJune 31,30, 2026, certificates of deposit maturing within the next 12 months totaled $715.3$714.7 million. Based upon historical experience, the Company anticipates that a significant portion of the maturing certificates of deposit will be redeposited with us.

In addition to cash flow from loan and securities payments and prepayments as well as from sales of securities available for sale, the Company has significant borrowing capacity available to fund liquidity needs. In recent years, the Company has utilized borrowings as a cost efficient addition to deposits as a source of funds. Borrowings consist of advances from the FHLB of Dallas, of which the Company is a member. Under terms of the collateral agreement with the FHLB, the Company pledges residential mortgage loans and investment securities as well as the Company’s stock in the FHLB as collateral for such advances. For the threesix months ended MarchJune 31,30, 2026, the average balance of outstanding FHLB advances was $1.9 million.$949,000. At MarchJune 31,30, 2026, the Company had $0.0 million in total outstanding FHLB advances.

The objective of asset/liability management is to implement strategies for the funding and deployment of the Company’s financial resources that are expected to maximize soundness and profitability over time at acceptable levels of risk. Interest rate sensitivity is the potential impact of changing rate environments on both net interest income and cash flows. The Company measures its interest rate sensitivity over the near term primarily by running net interest income simulations. Our interest rate sensitivity also is monitored by management through the use of a model which generates estimates of the change in its net interest income over a range of interest rate scenarios. Based on the Company’s interest rate risk model, the table below sets forth the results of immediate and sustained changes in interest rates as of MarchJune 31,30, 2026.

To meet the financing needs of its customers, the Company issues financial instruments which represent conditional obligations that are not recognized, wholly or in part, in the statements of financial condition. These financial instruments include commitments to extend credit and standby letters of credit. Such instruments expose the Company to varying degrees of credit and interest rate risk in much the same way as funded loans. The same credit policies are used in these commitments as for on-balance sheet instruments. At both MarchJune 31,30, 2026 and December 31, 2025, the Company's allowance for credit lossesACL on unfunded commitments totaled $1.6 million and $1.6 million, respectively.million.

Net income for the firstsecond quarter of 2026 was $11.4$11.6 million, up $396,000,$285,000, or 3.6%,2.5%, compared to the firstsecond quarter of 2025. Diluted EPS for the firstsecond quarter of 2026 was $1.45,$1.48, up $0.08$0.03 compared to the firstsecond quarter of 2025.

During the three and six months ended MarchJune 31,30, 2026, the Company provisioned $922,000$762,000 and $1.7 million, respectively, to the allowance for loan losses,ALL, primarily due to an increase in individually impaired loan reserves,growth partiallyand offsetnet by loan reduction.charge-offs. During the three and six months ended MarchJune 31,30, 2025, the Company provisioned $394,000$489,000 and $883,000, respectively, to the allowance for loan losses,ALL, primarily due to loan growth.

Net interest income is the difference between the interest income earned on interest-earning assets, such as loans and investment securities, and the interest expense paid on interest-bearing liabilities, such as deposits and borrowings. The Company’s net interest income is largely determined by our net interest spread, which is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. The Company’s tax-equivalenttaxable equivalent ("TE") net interest spread was 3.40%3.47% and 3.10%3.21% for the quarters ended MarchJune 31,30, 2026 and 2025, respectively, and 3.44% and 3.16% for the six months ended June 30, 2026 and 2025, respectively.

Net interest income totaled $34.5$35.8 million for the firstsecond quarter of 2026, up $2.7$2.5 million, or 8.6%,7.4%, compared to the firstsecond quarter of 2025. For the six months ended June 30, 2026, net interest income totaled $70.3 million, up $5.2 million, or 8.0%, compared to the six months ended June 30, 2025.

The Company’s tax-equivalentTE net interest margin, which is net interest income as a percentage of average interest-earning assets, was 4.16%4.24% and 3.91%4.04% for the quarters ended MarchJune 31,30, 2026 and 2025, respectively. For the same periods, the average loan yield was 6.41%6.46% and 6.43%,6.50%, respectively.

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin. Information is based on average monthly balances during the indicated periods. Taxable equivalentTE yields are calculated using a marginal tax rate of 21%.

Noninterest income for the firstsecond quarter of 2026 totaled $3.7$3.9 million, downup $271,000,$203,000, or 6.8%,5.5%, from $4.0$3.7 million earned for the same period in 2025. Noninterest income decreasedincreased over the comparable period primarily due to decreasesincreases in other income (down $266,000) and gain on sale of loans (downup $147,000$115,000), service fees and charges (up $62,000), and other income (up $50,000), which were partially offset by ana increasedecrease in servicebank card fees and(down charges (up $128,000$32,000).

Noninterest expense for the firstsecond quarter of 2026 totaled $22.9$24.6 million, up $1.4$2.1 million, or 6.3%,9.6%, from the firstsecond quarter of 2025. Noninterest expense increased over the comparable quarter primarily due to increasesan increase in compensation and benefits (up $1.1$1.7 million) and otherthe expensesabsence of a reversal to the ACL on unfunded commitments (up $786,000$970,000), which were partially offset by decreases in foreclosedother assetsexpenses (down $173,000$445,000), and franchise and shares tax (down $136,000), and occupancy expense (down $132,000$143,000).

Income tax expense for the three and six months ended MarchJune 31,30, 2026 totaled $3.0$2.8 million and $5.8 million, respectively, compared to $2.8 million and $5.7 million for the three and six months ended MarchJune 31,30, 2025.2025, Income tax expense increased over the prior comparable quarter primarily due to increased taxable earnings.respectively. The Company's effective tax rates for the firstsecond quarters of 2026 and 2025 were 20.9%19.4% and 20.5%,20.0%, respectively. For the six months ended June 30, 2026 and 2025, the Company's effective tax rates were 20.1% and 20.3%, respectively.

Management considers the policies related to the allowance for credit lossesACL as the most critical to the financial statement presentation. The total allowance for credit lossesACL includes activity related to allowances calculated in accordance with Accounting Standards CodificationASC 326, Credit Losses. The allowance for credit lossesACL is established through a provision for credit losses charged to current earnings. The amount maintained in the allowance reflects management’s continuing evaluation of the credit losses expected to be recognized over the life of the loans in our portfolio. The allowance for credit lossesACL on loans is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. For purposes of determining the allowance for credit losses,ACL, the loan portfolio is segregated by product types in order to recognize differing risk profiles among categories. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Management estimates the allowance balance using relevant available information from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts. Adjustments to historical loss information are made to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments, including, but not limited to, changes in current and expected future economic conditions, changes in industry experience and industry loan concentrations, changes in the volume and severity of nonperforming assets,NPAs, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis.