SOUTH PLAINS FINANCIAL INC

Previous wording

The following discussion and analysis of our financial condition and results of operations for the periods covered by this Quarterly Report on Form 10-Q (this “Form 10-Q”) and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”), on March 15, 2024. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us” and “the Company” refer to South Plains Financial, Inc., a Texas corporation, our wholly-owned banking subsidiary, City Bank, a Texas banking association and our other consolidated subsidiaries. References in this Form 10-Q to the “Bank” refer to City Bank.

Current wording

The following discussion and analysis of our financial condition and results of operations for the periods covered by this Quarterly Report on Form 10-Q (this “Form 10-Q”) and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”), on March 15, 2024. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us” and “the Company” refer to South Plains Financial, Inc., a Texas corporation, our wholly-owned banking subsidiary, City Bank, a Texas banking association and our other consolidated subsidiaries. References in this Form 10-Q to the “Bank” refer to City Bank.

Previous wording

We had net income of $10.9 million, or $0.64 per diluted common share, for the three months ended March 31, 2024, compared to net income of $9.2 million, or $0.53 per diluted common share for the three months ended March 31, 2023. Return on average equity (annualized) was 10.72% and return on average assets (annualized) was 1.04% for the three months ended March 31, 2024, compared to 10.34% and 0.95%, respectively, for the three months ended March 31, 2023. The increase in net income of $1.6 million was primarily the result of an increase of $1.1 million in net interest income, an increase of $0.7 million in noninterest income, a decrease of $0.2 million in the provision for credit losses, and a decrease of $0.4 million in noninterest expense.

Current wording

We had net income of $11.1 million, or $0.66 per diluted common share, for the three months ended June 30, 2024, compared to net income of $29.7 million, or $1.71 per diluted common share for the three months ended June 30, 2023. Return on average equity (annualized) was 10.83% and return on average assets (annualized) was 1.07% for the three months ended June 30, 2024, compared to 31.33% and 2.97%, respectively, for the three months ended June 30, 2023.

Previous wording

The following table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. For purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis.

Current wording

The following tables present, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. For purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis.

Previous wording

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to volume.

Current wording

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to volume.

Previous wording

Net interest income for the three months ended March 31, 2024 was $35.4 million, compared to $34.3 million for the three months ended March 31, 2023, an increase of $1.1 million, or 3.1%. The increase in net interest income was comprised of an increase of $11.3 million, or 23.8%, in interest income, partially offset by a $10.2 million, or 77.9%, increase in interest expense. The growth in interest income was attributable to increases of $9.3 million in loan interest income and $1.9 million in interest income from securities and other interest-earning assets. The increase in loan interest income was mainly due to growth of $235.7 million in average loans outstanding and the rising interest rate environment, along with approximately $667 thousand in recoveries of interest on loans that had previously been maintained on nonaccrual during the first quarter of 2024. The increase in interest income on securities and other interest-earning assets was primarily due to rising market interest rates and a higher liquidity level in the current year quarter.

Current wording

Net interest income for the three months ended June 30, 2024 was $35.9 million, compared to $34.6 million for the three months ended June 30, 2023, an increase of $1.3 million, or 3.8%, and was comprised of an increase of $8.4 million in interest income, partially offset by an increase of $7.1 million in interest expense. The growth in interest income was attributable to increases of $7.7 million in loan interest income and $680 thousand in interest income from securities and other interest-earning assets. The increase in loan interest income was mainly due to growth of $188.5 million in average loans outstanding and an increase of 66 basis points in the yield on loans. The increase in interest income on securities and other interest-earning assets was primarily due to higher market interest rates. The $7.1 million increase in interest expense was primarily related to an increase of $255.7 million in average interest-bearing deposits and an 88 basis point increase in the rate paid on interest-bearing deposits over the same period in 2023. Additionally, average noninterest-bearing demand deposits decreased $115.4 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024, net interest margin and net interest spread were 3.56% and 2.50%, respectively, compared to 3.75% and 2.95%, respectively, for the same period in 2023, which reflects the changes in interest income and interest expense discussed above.

Current wording

For the three months ended June 30, 2024, net interest margin and net interest spread were 3.63% and 2.54%, respectively, compared to 3.65% and 2.73%, respectively, for the same period in 2023, which reflects the changes in interest income and interest expense discussed above.

Previous wording

Credit risk is inherent in the business of making loans. We establish an allowance for credit losses (“ACL”) through charges to earnings, which are shown in the statements of comprehensive income (loss) as the provision for credit losses. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for credit losses and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for credit losses and the amount of allowance for each period are dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

Current wording

Credit risk is inherent in the business of making loans. We establish an allowance for credit losses (“ACL”) through charges to earnings, which are shown in the consolidated statements of comprehensive income (loss) as the provision for credit losses. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our ACL and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for credit losses and the amount of allowance for each period are dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

Previous wording

Noninterest income for the three months ended March 31, 2024 was $11.4 million, compared to $10.7 million for the three months ended March 31, 2023, an increase of $0.7 million, or 6.7%. Significant changes in the components of noninterest income are detailed below.

Current wording

Noninterest income for the three months ended June 30, 2024 was $12.7 million, compared to $47.1 million for the three months ended June 30, 2023, a decrease of $34.4 million, or 73.0%. Significant changes in the components of noninterest income are detailed below.

Previous wording

Income from insurance activities - Due to the sale of the Bank’s wholly-owned insurance subsidiary, Windmark Insurance Agency, Inc. (“Windmark”), which was completed in the second quarter of 2023, there was a decline of $1.4 million in income from insurance activities for three months ended March 31, 2024 as compared to the same period in 2023.

Current wording

Income from insurance activities - Due to the sale of Windmark in the second quarter of 2023, there was a decline of $1.4 million in income from insurance activities for the six months ended June 30, 2024 as compared to the same period in 2023.

Previous wording

Noninterest expense for the three months ended March 31, 2024 was $31.9 million compared to $32.4 million for the three months ended March 31, 2023, a decrease of $0.4 million, or 1.3%. Significant changes in the components of noninterest expense are detailed below.

Current wording

Noninterest expense for the three months ended June 30, 2024 was $32.6 million compared to $40.5 million for the three months ended June 30, 2023, an decrease of $7.9 million, or 19.6%. Significant changes in the components of noninterest expense are detailed below.

Previous wording

Salaries and employee benefits - Salaries and employee benefits decreased $0.3 million, or 1.4%, from $19.3 million for the three months ended March 31, 2023 to $19.0 million for the three months ended March 31, 2024. This decrease was primarily driven by a reduction of $1.5 million in core Windmark personnel costs due to the sale, partially offset by an increase in incentive-based compensation.

Current wording

Salaries and employee benefits - Salaries and employee benefits decreased $4.2 million, or 18.1%, from $23.4 million for the three months ended June 30, 2023 to $19.2 million for the three months ended June 30, 2024. This decrease was primarily driven by $4.3 million of Windmark transaction and related incentive-based compensation expenses incurred in the second quarter of 2023.

Previous wording

Our total assets increased $14.2 million, or 0.3%, to $4.22 billion at March 31, 2024, compared to $4.20 billion at December 31, 2023. Our loans held for investment decreased $2.4 million, or 0.1%, to $3.01 billion at March 31, 2024, compared to $3.01 billion at December 31, 2023. Our securities portfolio decreased $22.9 million, or 3.7%, to $599.9 million at March 31, 2024, compared to $622.8 million at December 31, 2023. Total deposits increased $12.4 million, or 0.3%, to $3.64 billion at March 31, 2024, compared to $3.63 billion at December 31, 2023.

Current wording

Our total assets increased $16.1 million, or 0.4%, to $4.22 billion at June 30, 2024, compared to $4.20 billion at December 31, 2023. Our gross loans held for investment increased $80.1 million, or 2.7%, to $3.09 billion at June 30, 2024, compared to $3.01 billion at December 31, 2023. Our securities portfolio decreased $31.7 million, or 5.1%, to $591.0 million at June 30, 2024, compared to $622.8 million at December 31, 2023. Total deposits decreased $1.6 million, or 0.0%, to $3.62 billion at June 30, 2024, compared to $3.63 billion at December 31, 2023.

Previous wording

Loans held for investment increased $2.4 million, or 0.1%, to $3.01 billion at March 31, 2024, compared to $3.01 billion at December 31, 2023. There was growth that occurred primarily in multi-family and single-family property loans, offset by decreases in seasonal agricultural-related loans, residential construction loans, and consumer auto loans.

Current wording

Loans held for investment increased $80.1 million, or 2.7%, to $3.09 billion at June 30, 2024, compared to $3.01 billion at December 31, 2023. The growth in loans remained relationship-focused and occurred primarily in direct-energy loans, seasonal agricultural-related loans, and single-family property loans, partially offset by decreases in consumer auto loans.

Previous wording

At March 31, 2024, there was $1.49 billion in adjustable rate loans, with $744.1 million of these loans that mature or reprice in the next twelve months. Of these loans that mature or reprice in the next twelve months, $500.7 million will reprice immediately upon changes in the underlying index rate, with the remaining $243.4 million being subject to rate ceilings, floors above the current index, or a future repricing date. The Wall Street Journal prime rate is the predominate index used by the Bank. Further, there is $136.7 million of fixed rate loans that mature in the next twelve months as of March 31, 2024.

Current wording

At June 30, 2024, there was $1.57 billion in adjustable rate loans, with $876.6 million of these loans that mature or reprice in the next twelve months. Of these loans that mature or reprice in the next twelve months, $591.8 million will reprice immediately upon changes in the underlying index rate, with the remaining $284.8 million being subject to rate floors above the current index or a future repricing date. The Wall Street Journal prime rate is the predominate index used by the Bank. Further, there is $138.0 million of fixed rate loans that mature in the next twelve months as of June 30, 2024.

Previous wording

The Bank is primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout Texas and Eastern New Mexico. We have a collateral concentration, as 73.2% of our loans were secured by real property as of March 31, 2024, compared to 72.7% as of December 31, 2023. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout the areas we serve. Although the Bank has diversified portfolios, its debtors’ ability to honor their contracts is substantially dependent upon the general economic conditions of the markets in which it operates, which consist primarily of agribusiness, wholesale/retail, oil and gas and related businesses, healthcare industries and institutions of higher education. Commercial real estate loans represent 40.5% of loans held for investment as of March 31, 2024 and represented 40.1% of loans held for investment as of December 31, 2023. Further, these loans are geographically diversified, primarily throughout the state of Texas as well as Eastern New Mexico.

Current wording

The Bank is primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout Texas and Eastern New Mexico. We have a collateral concentration, as 72.2% of our loans were secured by real property as of June 30, 2024, compared to 72.7% as of December 31, 2023. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout the areas we serve. Although the Bank has diversified portfolios, its debtors’ ability to honor their contracts is substantially dependent upon the general economic conditions of the markets in which it operates, which consist primarily of agribusiness, wholesale/retail, oil and gas and related businesses, healthcare industries and institutions of higher education. Commercial real estate loans and residential construction loans represent 39.8% of loans held for investment as of June 30, 2024 and represented 40.1% of loans held for investment as of December 31, 2023. Further, these loans are geographically diversified, primarily throughout the state of Texas as well as Eastern New Mexico.

Previous wording

Commercial real estate loans increased $29.2 million, or 2.7%, to $1.11 billion as of March 31, 2024 from $1.08 billion as of December 31, 2023. The increase was primarily driven by increases in multifamily property loans and commercial land development loans, partially offset by a decrease in hospitality loans.

Current wording

Commercial real estate loans increased $44.2 million, or 4.1%, to $1.13 billion as of June 30, 2024 from $1.08 billion as of December 31, 2023. The increase was primarily driven by an increase in multifamily property loans of $64.9 million and an increase in other commercial real estate loans of $18.0 million, partially offset by a decrease in commercial land development and construction loans of $47.2 million due to the completion of several large projects.

Previous wording

Commercial general loans increased $10.2 million, or 2.0%, to $527.6 million as of March 31, 2024 from $517.4 million as of December 31, 2023. The increase in commercial general loans was primarily due to increases in loans to companies in the restaurant and retail industry.

Current wording

Commercial general loans increased $10.4 million, or 2.0%, to $527.8 million as of June 30, 2024 from $517.4 million as of December 31, 2023. The increase in commercial general loans was primarily due to increases in loans to companies in the goods and services and industries.

Previous wording

Commercial specialized loans decreased $20.8 million, or 5.6%, to $351.5 million as of March 31, 2024 from $372.4 million as of December 31, 2023. This decrease was primarily due to net repayments of $27.7 million in seasonal agricultural-related loans, partially offset by increased loans to finance and investment companies.

Current wording

Commercial specialized loans increased $50.2 million, or 13.5%, to $422.6 million as of June 30, 2024 from $372.4 million as of December 31, 2023. This increase was primarily due to growth of $47.3 million in energy sector loans.

Previous wording

Consumer and other loans decreased $5.0 million, or 0.5%, to $909.2 million as of March 31, 2024 from $914.2 million as of December 31, 2023. The decrease in these loans was primarily a result of a $12.9 million decrease in auto loans, partially offset by an increase of $10.4 million in 1-4 family residential loans. As of March 31, 2024, our consumer loan portfolio was comprised of $545.1 million in 1-4 family residential loans, $292.4 million in auto loans, and $71.7 million in other consumer loans.

Current wording

Consumer and other loans decreased $3.6 million, or 0.4%, to $910.6 million as of June 30, 2024, from $914.2 million as of December 31, 2023. The decrease in these loans was primarily a result of a $32.8 million decrease in consumer auto loans, a decrease of $4.7 million in other consumer loans, partially offset by an increase of $33.9 million in residential mortgage loans. As of June 30, 2024, our consumer loan portfolio was comprised of $568.6 million in 1-4 family residential loans, $272.4 million in auto loans, and $69.5 million in other consumer loans. The consumer auto and other consumer loans portfolios have experienced a decline in new originations due to higher loan rates and economic pressures from inflation on consumers.

Previous wording

Construction loans decreased $16.0 million, or 12.4%, to $113.2 million as of March 31, 2024 from $129.2 million as of December 31, 2023. The decrease resulted from reduced demand for residential construction as interest rate levels remained elevated and projects were completed and sold.

Current wording

Construction loans decreased $21.1 million, or 16.3%, to $108.1 million as of June 30, 2024 from $129.2 million as of December 31, 2023. The decrease resulted from reduced demand for residential construction as interest rate levels remained elevated and projects were completed and sold.

Previous wording

The ACL provides a reserve against which loan losses are charged for current expected credit losses. Management evaluates the appropriate level of the allowance for credit losses on a quarterly basis. The analysis takes into consideration the results of an ongoing loan review process, the purpose of which is to determine the level of credit risk within the portfolio and to ensure proper adherence to underwriting and documentation standards. Additional allowances are provided to those loans which appear to represent a greater than normal exposure to risk. The quality of the loan portfolio and the adequacy of the ACL is assessed by regulatory examinations and the Company’s internal and external loan reviews. The ACL consists of two elements: (1) specific valuation allowances established for expected losses on specifically analyzed loans and (2) collective valuation allowances calculated using comparable and quantifiable information from both internal and external sources about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Expected credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments.

Current wording

The ACL provides a reserve against which loan losses are charged for current expected credit losses. Management evaluates the appropriate level of the ACL on a quarterly basis. The analysis takes into consideration the results of an ongoing loan review process, the purpose of which is to determine the level of credit risk within the portfolio and to ensure proper adherence to underwriting and documentation standards. Additional allowances are provided to those loans which appear to represent a greater than normal exposure to risk. The quality of the loan portfolio and the adequacy of the ACL is assessed by regulatory examinations and the Company’s internal and external loan reviews. The ACL consists of two elements: (1) specific valuation allowances established for expected losses on specifically analyzed loans and (2) collective valuation allowances calculated using comparable and quantifiable information from both internal and external sources about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Expected credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments.

Previous wording

The ACL for loans was $42.2 million at March 31, 2024, compared to $42.4 million at December 31, 2023, a decrease of $0.2 million, or 0.4%. The decrease is primarily the result of $947 thousand in net charge-offs during the first quarter of 2024, partially offset by a $765 thousand provision for credit losses on loans recorded in March 2024. Uncertainty regarding forecasted economic conditions remains, due to the continued elevated interest rate environment and persistent inflation in the United States, and additional provisions for credit losses may be necessary in future periods.

Current wording

The ACL for loans was $43.2 million at June 30, 2024, compared to $42.4 million at December 31, 2023, an increase of $0.8 million, or 1.9%. The increase is primarily a result of a provision for credit losses on loans of $2.5 million being recorded during the six months ended June 30, 2024 largely attributable to growth of $80.1 million in loans held for investment, partially offset by net charge-offs of $1.7 million during the period and an increase in nonperforming loans. Uncertainty regarding forecasted economic conditions remains, due to the continued elevated interest rate environment and persistent inflation in the United States, and additional provisions for credit losses may be necessary in future periods.

Previous wording

Net charge-offs totaled $947 thousand and were 0.13% (annualized) of average loans outstanding for the three months ended March 31, 2024, compared to $630 thousand and 0.09% (annualized) for the three months ended March 31, 2023. The increase in net charge-offs in the first quarter of 2024 was primarily the result of an increase of $125 thousand in commercial construction company net charge-offs in the first quarter of 2024 compared to the same period in 2023. The ACL for loans as a percentage of loans held for investment was 1.40% at March 31, 2024 and 1.41% at December 31, 2023.

Current wording

Net charge-offs (recoveries) totaled $776 thousand and were 0.10% (annualized) of average loans outstanding for the three months ended June 30, 2024, compared to $383 thousand and 0.05% (annualized) for the three months ended June 30, 2023. There was an increase of $220 thousand in net charge-offs on commercial-general loans in the second quarter of 2024 due to the charge-off of three loans under $135 thousand each. Net charge-offs totaled $1.7 million and were 0.11% (annualized) of average loans outstanding for the six months ended June 30, 2024, compared to $1.0 million and 0.07% (annualized) for the six months ended June 30, 2023. There was an increase of $424 thousand in net charge-offs on commercial-general loans during the first two quarters of 2024 due to the charge-off of several loans under $150 thousand each. The allowance for credit losses on loans as a percentage of loans held for investment was 1.40% at June 30, 2024 and 1.41% at December 31, 2023.

Previous wording

While the entire ACL for loans is available to absorb losses from any part of our loan portfolio, the following table sets forth the allocation of the allowance for credit losses for the periods presented and the percentage of allowance in each classification to total allowance:

Current wording

While the entire ACL for loans is available to absorb losses from any part of our loan portfolio, the following table sets forth the allocation of the ACL for loans for the periods presented and the percentage of allowance in each classification to total allowance:

Previous wording

At March 31, 2024, our total nonaccrual loans were $2.0 million, or 0.07% of total loans held for investment, as compared to $3.2 million, or 0.11% of total loans held for investment, at December 31, 2023. These loans within this amount that exceeded $250 thousand were specifically analyzed and specific valuation allowances were established as necessary and included in the ACL for loans as of March 31, 2024 to cover any probable loss. Two relationships totaling approximately $972,000 that were on nonaccrual at December 31, 2023 were fully repaid in the first quarter of 2024.

Current wording

At June 30, 2024, our total nonaccrual loans were $21.8 million, or 0.71% of total loans held for investment, as compared to $3.2 million, or 0.11% of total loans held for investment, at December 31, 2023. These loans within this amount that exceeded $250 thousand were specifically analyzed and specific valuation allowances were established as necessary and included in the ACL for loans as of June 30, 2024 to cover any probable loss. One relationship totaling $20.5 million was placed on nonaccrual after the maturity date was accelerated during the second quarter of 2024. Two relationships totaling approximately $972 thousand that were on nonaccrual at December 31, 2023 were fully repaid in the first quarter of 2024.

Previous wording

Nonperforming loans were $3.4 million at March 31, 2024 and $5.2 million at December 31, 2023. This decrease of $1.8 million is mainly due to the improvement in the nonaccrual loans noted above.

Current wording

Nonperforming loans were $23.5 million at June 30, 2024 and $5.2 million at December 31, 2023. This increase of $18.3 million is mainly due to the changes in nonaccrual loans noted above.

Previous wording

Total securities at March 31, 2024 were $599.9 million, representing a decrease of $22.9 million, or 3.7%, compared to $622.8 million at December 31, 2023. The decrease was primarily due to $11.5 million in maturities, prepayments and calls, net of short-term purchases and maturities and by a $10.8 million decrease in the unrealized gain/loss at March 31, 2024 as compared to December 31, 2023.

Current wording

Our securities portfolio decreased $31.7 million, or 5.1%, to $591.0 million at June 30, 2024, compared to $622.8 million at December 31, 2023. The decrease was primarily due to $20.2 million in maturities, prepayments and calls, net of short-term purchases and maturities and by a $10.3 million decrease in the fair value of available for sale securities at June 30, 2024 as compared to December 31, 2023.

Previous wording

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. During the first quarter of 2024, the fair value of the Company’s available for sale securities decreased by $10.8 million. The decline was a result of the increase in market interest rates during the first quarter 2024. At March 31, 2024, the Company evaluated whether the decline in fair value has resulted from credit losses or other factors. Within this evaluation, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agency, and adverse conditions specifically related to the security, among other factors. Based on management’s evaluation no unrealized losses on securities were determined to be due to credit loss. Additionally, we anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity, thus no ACL or losses have been recognized in the Company’s consolidated financial statements.

Current wording

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. During the six months ended June 30, 2024, the fair value of the Company’s available for sale securities declined by $10.3 million. At June 30, 2024, the Company evaluated whether the decline in fair value has resulted from credit losses or other factors. Within this evaluation, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agency, and adverse conditions specifically related to the security, among other factors. Based on management’s evaluation no unrealized losses on securities were determined to be due to credit loss. Additionally, we anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity, thus no ACL or losses have been recognized in the Company’s consolidated financial statements.

Previous wording

Total deposits at March 31, 2024 were $3.64 billion, representing an increase of $12.4 million, or 0.3%, compared to $3.63 billion at December 31, 2023. The increase in deposits was organic growth. As of March 31, 2024, 26.8% of total deposits were comprised of noninterest-bearing demand accounts, 62.7% of interest-bearing non-maturity accounts and 10.5% of time deposits.

Current wording

Total deposits at June 30, 2024 were $3.62 billion, representing an decrease of $1.6 million, or 0.0%, compared to $3.63 billion at December 31, 2023. Although overall total deposits only changed minimally since December 31, 2023, there was a decrease of $22.6 million in noninterest-bearing deposits, partially offset by an increase of $21.0 million in interest-bearing deposits. As of June 30, 2024, 26.3% of total deposits were comprised of noninterest-bearing demand accounts, 62.0% of interest-bearing non-maturity accounts and 11.7% of time deposits.

Previous wording

The estimated amount of uninsured deposits as of March 31, 2024 was $998.1 million. This represented approximately 18% of total deposits and excludes collateralized public fund deposits.

Current wording

The estimated amount of uninsured deposits as of June 30, 2024 was $1.17 billion. This represented approximately 31% of total deposits and excludes collateralized public fund deposits.

Previous wording

FHLB Advances. The FHLB allows us to borrow, both short and long-term, on a blanket floating lien status collateralized by first mortgage loans and commercial real estate loans as well as FHLB stock. At March 31, 2024 and December 31, 2023, we had total remaining borrowing capacity from the FHLB of $1.13 billion and $1.10 billion, respectively, with no outstanding balance. We had no long-term FHLB borrowings during the three months ended March 31, 2024 or 2023.

Current wording

FHLB Advances. The FHLB allows us to borrow, both short and long-term, on a blanket floating lien status collateralized by first mortgage loans and commercial real estate loans as well as FHLB stock. At June 30, 2024 and December 31, 2023, we had total remaining borrowing capacity from the FHLB of $1.09 billion and $1.10 billion, respectively, with no outstanding balance. We had no long-term FHLB borrowings during the three and six months ended June 30, 2024 or 2023.

Previous wording

Federal Reserve Bank of Dallas. The Bank has a line of credit with the Federal Reserve Bank of Dallas (the “FRB”). The amount of the line is determined on a monthly basis by the FRB. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $619.8 million and $595.4 million at March 31, 2024 and December 31, 2023, respectively, with no outstanding balance. We had no long-term FRB borrowings during the three months ended March 31, 2024 or 2023.

Current wording

Federal Reserve Bank of Dallas. The Bank has a line of credit with the Federal Reserve Bank of Dallas (the “FRB”). The amount of the line is determined on a monthly basis by the FRB. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $679.3 million and $595.4 million at June 30, 2024 and December 31, 2023, respectively, with no outstanding balance. We had no long-term FRB borrowings during the six months ended June 30, 2024 or 2023.

Previous wording

Lines of Credit. The Bank has uncollateralized lines of credit with multiple banks as a source of funding for liquidity management. The total amount of the lines was $140.0 million and $140.0 million as of March 31, 2024 and December 31, 2023, respectively. The lines were not used, other than testing during the three months ended March 31, 2024 or the three months ended March 31, 2023.

Current wording

Lines of Credit. The Bank has uncollateralized lines of credit with multiple banks as a source of funding for liquidity management. The total amount of the lines was $140.0 million and $140.0 million as of June 30, 2024 and December 31, 2023, respectively. The lines were not used, other than testing during the three and six months June 30, 2024 or the three and six months June 30, 2023.

Previous wording

As of March 31, 2024, the total amount of subordinated debt securities outstanding was $64.1 million less approximately $279 thousand of remaining debt issuance costs for a total balance of $63.8 million.

Current wording

As of June 30, 2024, the total amount of subordinated debt securities outstanding was $64.1 million less approximately $232 thousand of remaining debt issuance costs for a total balance of $63.9 million.

Previous wording

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window. At March 31, 2024, the Bank had the capacity to borrow funds from the FHLB and the Federal Reserve discount window of up to approximately $1.1 billion and $620 million, respectively.

Current wording

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window. At June 30, 2024, the Bank had the capacity to borrow additional funds from the FHLB and Federal Reserve discount window of up to approximately $1.09 billion and $679 million, respectively.

Previous wording

Total stockholders’ equity increased to $408.7 million as of March 31, 2024, compared to $407.1 million as of December 31, 2023, an increase of $1.6 million, or 0.4%. The increase from December 31, 2023 was primarily the result of $10.9 million in net earnings for the three months ended March 31, 2024, partially offset by a decrease in accumulated other comprehensive income of $7.5 million related to fair value changes in available for sale securities and related fair value hedges, net of tax, partially offset by $2.1 million of dividends paid.

Current wording

Total stockholders’ equity increased to $418.0 million as of June 30, 2024, compared to $407.1 million as of December 31, 2023, an increase of $10.9 million, or 2.7%. The increase from December 31, 2023 was primarily the result of $22.0 million in net earnings for the six months ended June 30, 2024, partially offset by a decrease in accumulated other comprehensive income (“AOCI”) of $7.4 million, net of tax, and $4.4 million of dividends paid. The decrease in AOCI was attributed to the decrease in fair value of our available for sale securities and fair value hedges, net of tax, as a result of the continued elevated interest rate environment experienced during the period.

Previous wording

As of March 31, 2024 and December 31, 2023, both we and the Bank met all the capital adequacy requirements to which we and the Bank were subject. At March 31, 2024, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since March 31, 2024 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.

Current wording

At June 30, 2024 and December 31, 2023, both we and the Bank met all the capital adequacy requirements to which we and the Bank were subject. At June 30, 2024, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since June 30, 2024 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.

Previous wording

The Company repurchased stock in accordance with its previously-announced stock repurchase program during the three months ended March 31, 2024, repurchasing 1,406 shares of common stock for a total of $35 thousand. These shares were retired immediately upon repurchase by the Company and not included in treasury stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Form 10-Q for further information.

Current wording

The Company repurchased stock in accordance with its previously-announced stock repurchase program during the three and six months ended June 30, 2024. For the three months ended June 30, 2024, we repurchased 12,393 shares of common stock for a total of $305 thousand. For the six months ended June 30, 2024, we repurchased 13,799 share of common stock for a total of $340 thousand. These shares were retired immediately upon repurchase by the Company and not included in treasury stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Form 10-Q for further information.

Previous wording

Our consolidated financial statements and related notes included elsewhere in this Form 10-Q have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Current wording

Our consolidated financial statements and related notes included elsewhere in this Form 10-Q have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.