SOUTH PLAINS FINANCIAL INC
For the period ended Dec 31, 2024. Filed Mar 7, 2025.
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A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 7, 2025
SPFI$42.45-1.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-15.
0001140361-24-013519
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-07.
0001140361-25-007609
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 174 previous paragraphs and 147 current paragraphs.
100 unchanged; 38 reworded; 9 added; 34 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 34 previous and 34 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
Discussion in this Form 10-K includes results of operations and financial condition for 2024 and 2023 and year-over-year comparisons between 2024 and 2023. For discussion on results of operations and financial condition pertaining to 2023 and 2022 and year-over-year comparisons between 2023 and 2022, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 15, 2024.
Current report
Service charges on deposit accounts - Income from service charges on deposit accounts increased $896 thousand, or 12.6% for the year ended December 31, 2024 compared to the same period in 2023. This was largely a result of an increased focus on commercial treasury revenue and expanding that customer base.
Current report
IT and data services – IT and data services expenses increased $876 thousand or 25.7% in the current year from $3.4 million for the year ended December 31, 2023 to $4.3 million for the year ended December 31, 2024. The increase relates primarily to the Company’s cloud migration project.
Current report
Commercial real estate loans increased $38.0 million, or 3.5%, to $1.12 billion as of December 31, 2024 from $1.08 billion as of December 31, 2023. The increase was primarily driven by an increase of $27.5 million related to the completion of four multi-family properties loans during 2024.
Current report
Commercial general loans increased $40.0 million, or 7.7%, to $557.4 million as of December 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 services industry of $25.9 millionand increases in loans in the restaurant/retail industry of $6.7 million.
Current report
Commercial specialized loans increased $16.6 million, or 4.5%, to $389.0 million as of December 31, 2024 from $372.4 million as of December 31, 2023. This increase was primarily due to growth of $20.9 million in energy sector loans, and a $5.4 million increase in ag production loans, partially offset by a decrease of $13.8 million in ag real estate loans .
Current report
The commercial real estate and construction categories comprise the Company’s nonowner-occupied real estate loans. Total nonowner-occupied real estate loans were $1.22 billion at December 31, 2024 and $1.21 billion at December 31, 2023. Nonowner-occupied commercial real estate loans are made up of income-producing commercial real estate property loans and construction, acquisition, and development property loans. As of December 31, 2024, total income-producing commercial real estate property loans totaled $881.2 million and was comprised of $315.9 million of multi-family property loans, $181.0 million of retail property loans, $141.9 million of office property loans, $61.0 million in hospitality loans, and $181.4 million in other property loans. Other property loans include types such as industrial, warehouse, mini-storage, and convenience stores. As of December 31, 2024, total construction, acquisition, and development property loans totaled $341.7 million and was comprised of $103.8 million in residential construction property loans and $237.9 million of commercial construction and other land development loans. The weighted average loan-to-value of income-producing nonowner-occupied commercial real estate loans was approximately 53% at December 31, 2024. The weighted average loan-to-value of nonowner-occupied office commercial real estate loans was approximately 56% at December 31, 2024.
Current report
Owner-occupied commercial real estate loans totaled $366.8 million at December 31, 2024 and $341.1 million at December 31, 2023.
Current report
Total securities at December 31, 2024 were $577.2 million, representing a decrease of $45.5 million, or 7.3%, compared to $622.8 million at December 31, 2023. The decrease was primarily due to $33.2 million in maturities, prepayments and calls, net of purchases and a $9.7 million decrease in the fair value of available for sale securities at December 31, 2024 as compared to December 31, 2023.
Removed paragraphs (34)
Previous report
Net income for the year ended December 31, 2023 was $62.7 million, or $3.62 per diluted share, compared to $58.2 million, or $3.23 per diluted share, for the year ended December 31, 2022. The increase in net income was primarily the result of an increase of $3.1 million in noninterest income, an increase of $1.3 million in net interest income, and a decrease of $9.1 million in noninterest expense, partially offset by an increase of $7.2 million in provision for credit losses.
Previous report
The $49.6 million increase in interest expense for the year ended December 31, 2023 was primarily related to a 185 basis points increase in the rate paid on interest-bearing liabilities and an increase of $221.7 million in average interest-bearing liabilities over the same period in 2022. The rise in rates was largely attributed to the Federal Open Market Committee (“FOMC”) of the Board of Governors of the Federal Reserve repeatedly raising their target benchmark interest rate, resulting in federal funds rate increases of 525 basis points between March of 2022 and July of 2023.
Previous report
Net interest income for the year ended December 31, 2022 was $138.5 million compared to $121.8 million for the year ended December 31, 2021, an increase of $16.7 million, or 13.7%. The increase in net interest income in 2022 was comprised of a $26.1 million, or 19.4%, increase in interest income, partially offset by a $9.4 million, or 71.0%, increase in interest expense. The increase in interest income was primarily attributable to increases of $17.4 million in loan interest income and $8.7 million in interest income from securities and other interest-earning assets. The increase in loan interest income was primarily due to growth of $192.0 million in average loans outstanding and the rising interest rate environment, partially offset by decreases of $102.9 million in average Paycheck Protection Program (“PPP”) loans and $6.3 million in the PPP-related interest and fees. The increase in interest income on securities and other interest-earning assets was primarily due to securities purchases and rising market interest rates. During the years ended December 31, 2022 and 2021, the Company recognized $2.0 million and $8.3 million, respectively, in PPP-related interest and fees.
Previous report
The provision for credit losses for the year ended December 31, 2022 was ($2.6) million compared to ($1.9) million for the year ended December 31, 2021. The decrease in the provision for credit losses for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to improved credit metrics in the loan portfolio, specifically in the hotel segment, direct energy segment, and other Permian Basin-related credits, and a decline in the amount of loans that were actively under a pandemic-related modification, partially offset by growth of $310.5 million in loans held for investment. Net charge-offs decreased $1.3 million during 2022 as compared to 2021. The allowance for credit losses as a percentage of loans held for investment was 1.43% at December 31, 2022 and 1.73% at December 31, 2021. Further discussion of the allowance for credit losses is noted below.
Previous report
Noninterest income for the year ended December 31, 2023 was $79.2 million compared to $76.1 million for the year ended December 31, 2022, an increase of $3.1 million, or 4.0%. Significant changes in the components of noninterest income are detailed below.
Previous report
Other income and fees - Other noninterest income and fees decreased $4.4 million for the year ended December 31, 2023 compared to the same period in 2022 largely as a result of earnings on SBIC investments of $310 thousand during 2023 as compared to $2.3 million during 2022, and $2.1 million of income related to legal settlements recorded in the third quarter of 2022.
Previous report
Mortgage banking activities - Income from mortgage banking activities decreased $28.4 million, or 47.5%, to $31.4 million for the year ended December 31, 2022 from $59.7 million for the year ended December 31, 2021. The decrease was primarily the result of a reduction of $838.6 million, or 58.4%, in mortgage loan originations for the year ended December 31, 2022, compared to the year ended December 31, 2021, driven by rising mortgage interest rates during 2022 and the departure of several mortgage loan originators during the first quarter of 2022 and a decline in gain on sale margins. This decrease was partially offset by increases of $3.2 million in the fair value adjustment and $1.0 million in servicing income for the Company’s mortgage servicing rights portfolio.
Previous report
Income from insurance activities - Income from insurance activities grew $2.5 million during 2022 compared to 2021. This was a result of both an increase in base premiums and profit-sharing bonuses.
Previous report
Professional services - Professional services decreased $3.3 million for the year ended December 31, 2023, as compared to the same period in 2022, primarily from a reduction of $2.7 million in legal fees incurred largely as a result of a vendor dispute, which was resolved and accounted for by the end of 2022.
Previous report
Other expenses – Other noninterest expenses declined $1.4 million in the current year primarily from reduced expenses from mortgage operations, as mortgage originations declined, and Windmark expenses, due to the sale. Additionally, the FDIC assessment increased approximately $636 thousand as the assessment rates charged by the FDIC were increased as well as growth in the assessment base for the year ended December 31, 2023 as compared to the same period in 2022.
Previous report
Noninterest expense for the year ended December 31, 2022 was $144.1 million compared to $148.0 million for the year ended December 31, 2021, a decrease of $3.9 million, or 2.7%.
Previous report
Salaries and employee benefits - Salaries and employee benefits decreased $7.0 million, or 7.5%, from $93.4 million for the December 31, 2021 to $86.3 million for the year ended December 31, 2022. This decrease in salaries and employee benefits expense was primarily driven by lower mortgage commissions of $10.3 million and reduced related supporting personnel expenses due to the contraction in mortgage loan originations, partially offset by an increase of $1.0 million in variable insurance commission expense and additional expense for commercial lenders hired as part of a planned initiative.
Previous report
Occupancy expense, net - There was a rise of $1.4 million in occupancy expense primarily related to property repair and maintenance on banking house properties for the year ended December 31, 2022, compared to the same period in 2021.
Previous report
Professional services - Professional services increased $3.0 million for the year ended December 31, 2022, compared to the same period in 2021. The increase was largely attributable to additional legal fees of $2.6 million as a result of vendor dispute legal proceedings and other legal matters.
Previous report
Appraisal expenses – Appraisal expenses declined $1.5 million for the year ended December 31, 2022, compared to the same period in 2021 primarily as a result of the overall decline in new mortgage loan originations.
Previous report
Commercial real estate loans increased $161.7 million, or 17.6%, to $1.08 billion as of December 31, 2023 from $919.4 million as of December 31, 2022. The increase was primarily driven by an increase of $52.0 million in commercial and residential land development loans, an increase of $57.7 million in multi-family property loans, and an increase of $66.8 million in office, commercial and retail tenant loans.
Previous report
Commercial general loans increased $32.6 million, or 6.7%, to $517.4 million as of December 31, 2023 from $484.8 million as of December 31, 2022. The increase in commercial general loans was primarily due to organic loan growth in other industry loans of $49.7 million, partially offset by a decrease of $18.6 million in construction company loans.
Previous report
Commercial specialized loans increased $44.9 million, or 13.7%, to $372.4 million as of December 31, 2023 from $327.5 million as of December 31, 2022. This increase was primarily due to growth of $38.3 million in seasonal agricultural production loans and farmland loans and an increase of $25.5 million in direct energy loans, partially offset by a reduction of $19.3 million in finance, investment, and insurance loans.
Previous report
Non-owner occupied office real estate loans are included in commercial real estate loans and totaled $131.9 million at December 31, 2023. Owner occupied office real estate loans are included in commercial loans and totaled $56.9 million at December 31, 2023.
Previous report
Total securities at December 31, 2023 were $622.8 million, representing a decrease of $78.9 million, or 11.3%, compared to $701.7 million at December 31, 2022. The decrease was primarily due to a $20.7 million decline in the unrealized loss on available for sale securities and the sale of $56.2 million securities during 2023.
Previous report
In addition, we have access to the Federal Reserve’s Bank Term Funding Program (“BTFP”). As of December 31, 2023, the Company has not pledged any securities for the BTFP but has approximately $134 million of available securities that can be used as collateral for additional borrowings through the program.
Previous report
The Jumpstart Our Business Startups Act (the “JOBS Act”) permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the consolidated financial statements included in this Report, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.
Previous report
Securities. Investment securities may be classified into trading, held-to-maturity, or available-for-sale portfolios. Securities that are held principally for resale in the near term are classified as trading. Securities that management has the ability and positive intent to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Securities not classified as trading or held-to-maturity are available-for-sale and are reported at fair value with unrealized gains and losses excluded from earnings, but included in the determination of other comprehensive income (loss). Management uses these assets as part of its asset/liability management strategy; they may be sold in response to changes in liquidity needs, interest rates, resultant prepayment risk changes, and other factors. Management determines the appropriate classification of securities at the time of purchase. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. The cost of securities sold is based on the specific identification method.
Previous report
Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.
Previous report
Loans are placed on non-accrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Previous report
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Previous report
Loans that exhibit characteristics different from their pool characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective ACL for loans evaluation. Certain of these loans are considered to be collateral dependent with the borrower experiencing financial difficulty. For these loans, the fair value of collateral practical expedient is elected whereby the allowance is calculated as the amount by which the amortized cost exceeds the fair value of collateral, less costs to sell. All non-accrual loans $250 thousand or greater are analyzed for a specific ACL.
Previous report
Prior to the adoption of the CECL model, the ACL for loans was established through a provision for loan losses charged to expense, which represented management’s best estimate of inherent losses that had been incurred within the existing portfolio of loans. In addition, a loan was considered impaired when, based on current information and events, it was probable that the Company would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250 thousand were specifically reviewed to determine if they were impaired. Loans that were determined to be impaired were then evaluated to determine estimated impairment, if any. Impairment was measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan was collateral dependent. Loans that were not individually determined to be impaired or were not subject to the specific review of impaired status were subject to the general valuation allowance portion of the ACL.
Previous report
The Company estimates expected credit losses on off-balance sheet credit exposures over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL for off-balance sheet credit exposures is adjusted through provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Utilization rates are determined based on a two-year rolling average of historical usage. Expected loss rates for all pass rated loans are used to determine the ACL for off-balance sheet credit exposures.
Previous report
For AFS securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized costs basis is written down to fair value through income. For AFS securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss). Changes in the ACL are recorded as provision for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest is excluded from the estimate of credit losses on securities.
Previous report
Prior to the adoption of ASU 2016-13, declines in the fair value of available-for-sale securities below their cost that were deemed to be other than temporary were reflected in earnings as realized losses. In estimating other-than-temporary impairment losses prior to January 1, 2023, management considered, among other things, (i) the length of time and the extent to which the fair value had been less than cost, (ii) the financial condition and near-term prospects of the issuer and (iii) the intent and our ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Previous report
Loans Held for Sale. Loans held for sale are comprised of residential mortgage loans. Loans that are originated for best efforts delivery are carried at the lower of aggregate cost or fair value as determined by aggregate outstanding commitments from investors or current investor yield requirements. All other loans held for sale are carried at fair value. Loans sold are typically subject to certain indemnification provisions with the investor; management does not believe these provisions will have any significant consequences.
Previous report
Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports change in fair value of servicing assets in earnings in the period in which the changes occur, and are included with other noninterest income in the consolidated financial statements. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and default rates and losses.
Previous report
Goodwill and Other Intangible Assets. Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events and circumstances exist that indicate that an impairment test should be performed. Intangible assets with definite lives are amortized over their estimated useful lives.
Reworded paragraphs (38)
Previous wording
Net income for the year ended December 31, 2022 was $58.2 million, or $3.23 per diluted share, compared to $58.6 million, or $3.17 per diluted share, for the year ended December 31, 2021. The decrease in net income was primarily the result of a decrease of $21.3 million in noninterest income, offset by an increase of $16.7 million in net interest income and a decrease of $3.9 million in noninterest expense.
Current wording
Net income for the year ended December 31, 2024 was $49.7 million, or $2.92 per diluted share, compared to $62.7 million, or $3.62 per diluted share, for the year ended December 31, 2023. The decrease in net income was primarily the result of a decrease of $31.2 million in noninterest income, partially offset by an increase of $7.4 million in net interest income, and a decrease of $7.4 million in noninterest expenses. Details of the changes in the various components are further discussed below.
Previous wording
Return on average assets was 1.54% and return on average equity was 16.58% for the year ended December 31, 2023, compared to 1.47% and 15.79%, respectively, for the year ended December 31, 2022. The increase in return on average assets was primarily due to the increase in net income of 7.7%, relative to a smaller increase of 2.9% in total average assets.
Current wording
Return on average assets was 1.17% and return on average equity was 11.75% for the year ended December 31, 2024, compared to 1.54% and 16.58%, respectively, for the year ended December 31, 2023. The decrease in return on average assets was primarily due to the decrease in net income of 20.8%, relative to an increase of 3.8% in total average assets.
Previous wording
Net interest income for the year ended December 31, 2023 was $139.7 million compared to $138.5 million for the year ended December 31, 2022, an increase of $1.3 million, or 0.9%. The increase in net interest income in 2023 was comprised of a $50.9 million, or 31.6%, increase in interest income, partially offset by a $49.6 million, or 218.6%, increase in interest expense. The growth in interest income was primarily attributable to increases of $38.6 million in loan interest income and $12.2 million in interest income from securities and other interest-earning assets. The increase in loan interest income was primarily due to growth of $312.3 million in average loans outstanding and the rising interest rate environment. The increase in interest income on securities and other interest-earning assets was primarily due to rising market interest rates.
Current wording
Net interest income for the year ended December 31, 2024 was $147.1 million compared to $139.7 million for the year ended December 31, 2023, an increase of $7.4 million, or 5.3%. The increase in net interest income in 2024 was comprised of a $28.9 million, or 13.6%, increase in interest income, partially offset by a $21.5 million, or 29.8%, increase in interest expense. The growth in interest income was primarily attributable to increases of $25.7 million in loan interest income and $4.3 million in interest income from other interest-earning assets. The increase in loan interest income was primarily due to growth of $129.7 million in average loans outstanding and an increase of 58 basis points in the yield on loans. The increase in interest income on other interest-earning assets was primarily due to growth of $89.8 million in average other interest-earning assets.
Previous wording
The $9.4 million increase in interest expense for the year ended December 31, 2022 was primarily related to a 40 basis points increase in the rate paid on interest-bearing liabilities and an increase of $18.5 million in average interest-bearing liabilities over the same period in 2021. The rise in rates was largely attributed to the FOMC repeatedly raising their target benchmark interest rate, resulting in federal funds rate increases of 425 basis points between March and December of 2022.
Current wording
The $21.5 million increase in interest expense for the year ended December 31, 2024 was primarily related to an increase of $211.1 million in average interest-bearing liabilities and a 56 basis points increase in the rate paid on interest-bearing liabilities over the same period in 2023. Average interest-bearing deposits grew $222.8 million and the rate paid on those deposits increased 60 basis points during the compared period. The larger growth in deposits began during the second and third quarters of 2023 in response to loan demand and increased emphasis on liquidity. Interest rates paid on deposits continued to rise until the fourth quarter of 2024, given the easing of shorter-term interest rates.
Previous wording
For the year ended December 31, 2023, net interest margin and net interest spread were 3.61% and 2.64%, respectively, compared to 3.73% and 3.37% for the same period in 2022, respectively, which reflects the changes in interest income and interest expense discussed above.
Current wording
For the year ended December 31, 2024, net interest margin and net interest spread were 3.65% and 2.58%, respectively, compared to 3.61% and 2.64% for the same period in 2023, respectively, which reflects the changes in interest income and interest expense discussed above.
Previous wording
The provision for credit losses for the year ended December 31, 2023 was $4.6 million compared to ($2.6) million for the year ended December 31, 2022. The provision during the year ended December 31, 2023 was largely attributable to organic growth of $266.1 million in loans held for investment and net charge-offs of $2.0 million. Net charge-offs increased $1.8 million during 2023 as compared to 2022. The allowance for credit losses as a percentage of loans held for investment was 1.41% at December 31, 2023 and 1.43% at December 31, 2022. Further discussion of the allowance for credit losses is noted below.
Current wording
The provision for credit losses for the year ended December 31, 2024 was $4.3 million compared to $4.6 million for the year ended December 31, 2023. The provision during the year ended December 31, 2024 was largely attributable to net charge-offs of $3.5 million and loan growth during 2024. Net charge-offs increased $1.5 million during 2024 as compared to 2023. The allowance for credit losses as a percentage of loans held for investment was 1.42% at December 31, 2024 and 1.41% at December 31, 2023. Further discussion of the allowance for credit losses is noted below.
Previous wording
Noninterest income for the year ended December 31, 2022 was $76.1 million compared to $97.5 million for the year ended December 31, 2021, a decrease of $21.3 million, or 21.9%. Significant changes in the components of noninterest income are detailed below.
Current wording
Noninterest income for the year ended December 31, 2024 was $48.1 million compared to $79.2 million for the year ended December 31, 2023, a decrease of $31.2 million, or 39.3%. Significant changes in the components of noninterest income are detailed below.
Previous wording
Mortgage banking activities - Income from mortgage banking activities decreased $17.6 million, or 56.0%, to $13.8 million for the year ended December 31, 2023 from $31.4 million for the year ended December 31, 2022. This decrease was primarily a result of a decrease of $276.4 million, or 46.2%, in mortgage loan originations in the current year as compared to the prior year as mortgage interest rates were at higher levels during 2023. There was also a $2.4 million decrease in the fair value of the Company’s mortgage servicing rights portfolio for the year ended December 31, 2023 as compared to a $4.7 million increase for the same period in 2022, given the changes in market interest rates during the periods.
Current wording
Mortgage banking activities - Income from mortgage banking activities increased $369 thousand, or 2.7%, to $14.2 million for the year ended December 31, 2024 from $13.8 million for the year ended December 31, 2023. The increase was primarily the result of a $1.2 million decrease in the valuation adjustment for the fair value of the Company’s mortgage servicing rights portfolio for the year ended December 31, 2024 as compared to a $2.4 million decrease for the same period in 2023. This increase was partially offset with a decrease in gain on loan sales as a result of a decrease of $29.5 million, or 9.2%, in mortgage loan originations in the current year as compared to the prior year.
Previous wording
Income from insurance activities - Due to the sale of Windmark in the second quarter of 2023, there was a decline of $9.3 million in income from insurance activities for year ended December 31, 2023 as compared to the same period in 2022.
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 year ended December 31, 2024 as compared to the same period in 2023.
Previous wording
Other income and fees - Other noninterest income and fees increased $4.6 million for the year ended December 31, 2022 compared to the same period in 2021, largely as a result of increased earnings from SBIC investments of $2.3 million and $2.1 million in legal settlements during 2022.
Current wording
Other income and fees - Other noninterest income and fees increased $2.1 million for the year ended December 31, 2024 compared to the same period in 2023. Theincreasewas largely as a result of an increase of $715 thousand in income from sweep accounts, year over year, and from $700 thousand received in 2024 in insurance proceeds for property damage.
Previous wording
Noninterest expense for the year ended December 31, 2023 was $134.9 million compared to $144.1 million for the year ended December 31, 2022, a decrease of $9.1 million, or 6.3%. Significant changes in the components of noninterest expense are detailed below.
Current wording
Noninterest expense for the year ended December 31, 2024 was $127.6 million compared to $134.9 million for the year ended December 31, 2023, a decrease of $7.4 million, or 5.5%. Significant changes in the components of noninterest expense are detailed below.
Previous wording
Salaries and employee benefits - Salaries and employee benefits decreased $6.9 million, or 8.0%, from $86.3 million for the year ended December 31, 2022 to $79.4 million for the year ended December 31, 2023. This was primarily driven by approximately $6.7 million in lower mortgage personnel costs, due to the reduction in mortgage loan originations and operations. Also, there was lower core Windmark personnel costs of $4.5 million due to the sale, partially offset by Windmark transaction and related incentive-based compensation expenses incurred in the first and second quarters of 2023.
Current wording
Salaries and employee benefits - Salaries and employee benefits decreased $5.0 million, or 6.3%, from $79.4 million for the year ended December 31, 2023 to $74.3 million for the year ended December 31, 2024. This was primarily driven by approximately $2.7 million of compensation related to operation of Windmark in the first quarter of 2023 and the related sale in the second quarter of 2023. There was also a decrease of $1.5 million in mortgage personnel costs, due to the reduction in mortgage loan originations and operations during 2024 as compared to 2023.
Previous wording
Loss on sale of securities - The Company sold approximately $56.2 million of available for sale securities in the second quarter of 2023. This resulted in a loss on sale of $3.4 million.
Current wording
Loss on sale of securities - The Company sold approximately $56.2 million of available for sale securities in the second quarter of 2023 which resulted in a loss on sale of $3.4 million. There were no sales of securities during 2024.
Previous wording
Our total assets increased $260.7 million, or 6.6%, to $4.20 billion at December 31, 2023 as compared to $3.94 billion at December 31, 2022. Our loans held for investment increased $266.1 million, or 9.7%, to $3.01 billion at December 31, 2023, compared to $2.75 billion at December 31, 2022. Total deposits increased $219.7 million, or 6.5% to $3.63 billion at December 31, 2023, compared to $3.41 billion at December 31, 2022. The increase in loans was primarily the continued result of organic growth of the Company from strong loan demand. The growth in deposits came both organically and from brokered deposits.
Current wording
Our total assets increased $27.4 million, or 0.7%, to $4.23 billion at December 31, 2024 as compared to $4.20 billion at December 31, 2023. Our loans held for investment increased $40.9 million, or 1.4%, to $3.06 billion at December 31, 2024, compared to $3.01 billion at December 31, 2023. Total deposits increased $5.3 million, or 0.1% to $3.62 billion at December 31, 2024, compared to $3.63 billion at December 31, 2023.
Previous wording
Loans held for investments increased $266.1 million, or 9.7%, to $3.01 billion at December 31, 2023 as compared to $2.75 billion at December 31, 2022. This increase in our loans was primarily the result of organic net loan growth based on strong loan demand. The organic loan growth remained relationship-focused and occurred primarily in commercial real estate loans, residential mortgage loans, and commercial loans, partially offset by decreases in consumer auto loans and residential construction loans.
Current wording
Loans held for investments increased $40.9 million, or 1.4%, to $3.06 billion at December 31, 2024 as compared to $3.01 billion at December 31, 2023. The organic loan growth remained relationship-focused and occurred primarily in commercial real estate loans, residential mortgage loans, and energy loans, partially offset by decreases in consumer auto loans and residential construction loans.
Previous wording
At December 31, 2023, there was $1.48 billion in adjustable rate loans, with $727.3 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, $484.7 million will reprice immediately upon changes in the underlying index rate, with the remaining $242.6 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.
Current wording
At December 31, 2024, there was $1.55 billion in adjustable rate loans, with $865.9 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, $516.5 million will reprice immediately upon changes in the underlying index rate, with the remaining $349.4 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.
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 72.7% of our loans were secured by real property as of December 31, 2023, compared to 69.8% as of December 31, 2022. 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 40.1% of loans held for investment as of December 31, 2023 and represented 38.7% of loans held for investment as of December 31, 2022. 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 73.7% of our loans were secured by real property as of December 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 and residential construction loans represent 40.1% of loans held for investment as of December 31, 2024 and represented 40.1% of loans held for investment as of December 31, 2023. Further, 97% of the total dollar amount of these loans are secured by collateral located in the state of Texas.
Previous wording
Consumer and other loans increased $51.3 million, or 5.9%, to $914.2 million as of December 31, 2023, from $862.9 million as of December 31, 2022. The increase in these loans was primarily a result of a $74.6 million increase in residential mortgage loans, partially offset by a reduction of $16.2 million in consumer auto loans. As of December 31, 2023, our consumer loan portfolio was comprised of $534.7 million in 1-4 family residential loans, $305.3 million in auto loans, and $74.2 million in other consumer loans.
Current wording
Consumer loans decreased $28.4 million, or 3.1%, to $885.8 million as of December 31, 2024, from $914.2 million as of December 31, 2023. The decrease in these loans was primarily a result of a $50.8 million decrease in consumer auto loans, partially offset with an increase of $31.7 million in residential mortgage loans. The reduction in consumer auto loans was planned given competitiveness for the best credit indirect auto loans. As of December 31, 2024, our consumer loan portfolio was comprised of $566.4 million in 1-4 family residential loans, $254.5 million in auto loans, and $64.9 million in other consumer loans.
Previous wording
Construction loans decreased $24.3 million, or 15.8%, to $129.2 million as of December 31, 2023 from $153.5 million as of December 31, 2022. 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 $25.3 million, or 19.6%, to $103.9 million as of December 31, 2024 from $129.2 million as of December 31, 2023. The decrease resulted from the continued reduced demand for residential construction as interest rate levels remained elevated and projects were completed and sold.
Previous wording
The allowance for credit losses was $42.4 million at December 31, 2023 compared to $39.3 million at December 31, 2022, an increase of $3.1 million, or 7.8%. The increase was primarily a result of a provision for credit losses of $5.0 million being recorded during 2023 based on growth in the loan portfolio and net charge-offs of $2.0 million during 2023.
Current wording
The allowance for credit losses was $43.2 million at December 31, 2024 compared to $42.4 million at December 31, 2023, an increase of $0.9 million, or 2.1%. The increase was primarily a result of a provision for credit losses on loans of $4.3 million being recorded during 2024 based on growth in the loan portfolio and net charge-offs of $3.5 million during 2024.
Previous wording
Net charge-offs totaled $2.0 million and were 0.07% of average loans outstanding for the year ended December 31, 2023, compared to $0.2 million and 0.01% for the year ended December 31, 2022. Gross charge-offs increased $320 thousand and recoveries decreased $1.5 million for the year ended December 31, 2023 compared to the same period in 2022. The increase in charge-offs was primarily attributable to an increase of $380 thousand in consumer auto loan charge-offs in 2023, while the decrease in recoveries was mainly due to a $822 thousand recovery on an energy relationship and a $400 thousand recovery on a commercial real estate loan during 2022. The allowance for credit losses as a percentage of loans held for investment was 1.41% at December 31, 2023 and 1.43% at December 31, 2022.
Current wording
Net charge-offs totaled $3.5 million and were 0.11% of average loans outstanding for the year ended December 31, 2024, compared to $2.0 million and 0.07% for the year ended December 31, 2023. Gross charge-offs increased $1.3 million and recoveries decreased $191 thousand for the year ended December 31, 2024 compared to the same period in 2023. The increase in charge-offs was primarily attributable to an increase of $613 thousand in general commercial loan charge-offs and an increase of $298 thousand in charge-offs on consumer auto loans in 2024. The allowance for credit losses as a percentage of loans held for investment was 1.42% at December 31, 2024 and 1.41% at December 31, 2023.
Previous wording
At December 31, 2023, our total nonaccrual loans were $3.2 million, or 0.11% of total loans held for investment, as compared to $5.8 million, or 0.21% of total loans held for investment, at December 31, 2022. 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 December 31, 2023 to cover any probable loss. The decrease in the year ended December 31, 2023 was primarily due to one $2.6 million loan that was removed from nonaccrual status during the second quarter of 2023. This was a result of principal paydowns and continued sustained payment performance.
Current wording
At December 31, 2024, our total nonaccrual loans were $22.1 million, or 0.72% 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 December 31, 2024 to cover any probable loss. The increase in the year ended December 31, 2024 was primarily due to one $19.5 million loan that was placed on nonaccrual status during the second quarter of 2024 after the maturity date was accelerated.
Previous wording
Nonperforming loans were $5.2 million at December 31, 2023 and $7.8 million at December 31, 2022. This decrease of $2.6 million is due to the improvement in one nonaccrual loan noted above.
Current wording
Nonperforming loans were $24.0 million at December 31, 2024 and $5.2 million at December 31, 2023. This increase is mainly due to the new nonaccrual loan noted above.
Previous wording
Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. During the year ended December 31, 2023, the fair value adjustment to the Company’s available for sale securities increased $20.7 million after declining by $114.4 million during 2022 as a result of the significant increase in market interest rates. At December 31, 2023, 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 or realized in the consolidated financial statements for securities in the portfolio.
Current wording
Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. During the year ended December 31, 2024, the fair value adjustment to the Company’s available for sale securities decreased $9.7 million after increasing by $20.7 million during 2023. The change resulted from increased longer-term interest rates during 2024. At December 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 or realized in the consolidated financial statements for securities in the portfolio.
Previous wording
Total deposits at December 31, 2023 were $3.63 billion, representing an increase of $219.7 million, or 6.5%, compared to $3.41 billion at December 31, 2022. The increase in total deposits since December 31, 2022 came both organically and from brokered deposits with growth of $68.3 million and $151.4 million, respectively. As of December 31, 2023, 26.9% of total deposits were comprised of noninterest-bearing demand accounts, 63.0% of interest-bearing non-maturity accounts and 10.1% of time deposits. Interest-bearing non-maturity accounts included $206.9 million in brokered deposits, which represented 5.7% of total deposits at December 31, 2023.
Current wording
Total deposits at December 31, 2024 were $3.62 billion, representinga decrease of $5.3 million, or 0.1%, compared to $3.63 billion at December 31, 2023. Deposits were essentially unchanged, year-over-year, with an increase in interest-bearing deposits offset by a decline in noninterest-bearing deposits. As of December 31, 2024, 25.8% of total deposits were comprised of noninterest-bearing demand accounts, 61.9% of interest-bearing non-maturity accounts and 12.3% of time deposits. Interest-bearing non-maturity accounts included $207.8 million in brokered deposits, which represented 5.7% of total deposits at December 31, 2024.
Previous wording
The estimated amount of uninsured deposits as of December 31, 2023 was $918 million. This represented approximately 16% of total deposits and excludes $325 million of collateralized public fund deposits.
Current wording
The estimated amount of uninsured deposits as of December 31, 2024 was $1.2 billion. This represented approximately 33% of total deposits and excludes $274 million of 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 December 31, 2023 and 2022, we had total remaining borrowing capacity from the FHLB of $1.10 billion and $920.2 million, respectively. We had no FHLB borrowings during the years ended December 31, 2023 or 2022.
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 December 31, 2024 and 2023, we had total remaining borrowing capacity from the FHLB of $1.11 billion and $1.10 billion, respectively. We had no FHLB borrowings during the years ended December 31, 2024 or 2023.
Previous wording
The Company has used FHLB letters of credit to pledge to certain public deposits. There were no FHLB letters of credit outstanding at December 31, 2023 and 2022.
Current wording
The Company may use FHLB letters of credit to pledge to certain public deposits. The outstanding balance of FHLB letters of credit was $75.0 million and $0 at December 31, 2024 and December 31, 2023, respectively.
Previous wording
Federal Reserve Bank of Dallas. The Bank has a line of credit with the FRB. The amount of the line is determined on a monthly basis by the Federal Reserve Bank. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $595.4 million and $648.3 million at December 31, 2023 and 2022, respectively. There were no amounts outstanding on the FRB line of credit at December 31, 2023 and 2022. We had no long-term FRB borrowings during the years ended December 31, 2023 or 2022.
Current wording
Federal Reserve Bank of Dallas. The Bank has a line of credit with the FRB. The amount of the line is determined on a monthly basis by the Federal Reserve Bank. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $654.0 million and $595.4 million at December 31, 2024 and 2023, respectively. There were no amounts outstanding on the FRB line of credit at December 31, 2024 and 2023. We had no long-term FRB borrowings during the years ended December 31, 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 $160.0 million as of December 31, 2023 and 2022. The lines were not used, other than testing during the years ended December 31, 2023 and 2022.
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 December 31, 2024 and 2023. The lines were not used, other than testing during the years ended December 31, 2024 and 2023.
Previous wording
As of December 31, 2023, the total amount of subordinated debt outstanding was $64.1 million, less approximately $325 thousand of remaining debt issuance costs for a total balance of $63.8 million.
Current wording
As of December 31, 2024, the total amount of subordinated debt outstanding was $64.1 million, less approximately $139 thousand of remaining debt issuance costs for a total balance of $64.0 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 FRB discount window. We had available borrowing capacity of up to approximately $1.83 billion through the FHLB, the FRB’s discount window, and access to the BTFP at December 31, 2023, which includes the unused line with the FHLB of $1.10 billion and the unused line with the FRB of $595.4 million. We have not pledged any securities for the BTFP but have approximately $134 million of available securities that can be used as collateral. Additionally, we have uncollateralized lines with multiple banks totaling $140 million at December 31, 2023. These lines are not guaranteed and we are not placing reliance on them.
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 FRB discount window. We had available borrowing capacity of up to approximately $1.77 billion through the FHLB, the FRB’s discount window at December 31, 2024, which includes the unused line with the FHLB of $1.11 billion and the unused line with the FRB of $654.0 million. Additionally, we have uncollateralized lines with multiple banks totaling $140 million at December 31,2024. These lines are not guaranteed and we are not placing reliance on them.
Previous wording
Total stockholders’ equity increased to $407.1 million as of December 31, 2023, compared to $357.0 million as of December 31, 2022. The increase from December 31, 2022 was primarily the result of $62.7 million in net earnings and a decrease in the accumulated other comprehensive loss of $13.4 million, partially offset by repurchases of common stock of $17.8 million, and by $8.7 million in dividends paid for the year ended December 31, 2023.
Current wording
Total stockholders’ equity increased to $438.9 million as of December 31, 2024, compared to $407.1 million as of December 31, 2023. The increase from December 31, 2023 was primarily the result of $49.7 million in net income, partially offset by an increase in other comprehensive loss of $8.9 million, $9.2 million in dividends paid, and repurchases of common stock of $1.3 million for the year ended December 31, 2024.
Previous wording
The Company repurchased stock in accordance with its stock repurchase programs during 2023 and 2022. In 2023, we repurchased 685,638 shares of common stock for a total of $17.8 million. In 2022, we repurchased 859,802 shares of common stock for a total of $22.7 million See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities”, of this Report for further information.
Current wording
The Company repurchased stock in accordance with its stock repurchase programs during 2024 and 2023. In 2024, we repurchased 53,799 shares of common stock for a total of $1.3 million. In 2023, we repurchased 685,638 shares of common stock for a total of $17.8 million. See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities,” of this Report for further information.
Previous wording
Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare consolidated financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the consolidated financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our consolidated financial statements.
Current wording
Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare consolidated financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the consolidated financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our consolidated financial statements. We evaluate our estimates on an ongoing basis.
Previous wording
Allowance for Credit Losses. The ACL for loans is established for future expected credit losses through a provision for credit losses charged to earnings. Expected losses are calculated using comparable and quantifiable information both internal and external 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 when appropriate. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company’s ACL for loans consists of specific valuation allowances established for probable losses on specifically analyzed loans and collective valuation allowances calculated using comparable and quantifiable information both internal and external about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.
Current wording
Allowance for Credit Losses. The allowance for credit losses includes credit losses on loans as well as the off-balance-sheet credit exposure, which is reported as a component of other liabilities on our consolidated balance sheets. The ACL for loans is established for future expected credit losses through a provision for credit losses charged to earnings. Expected losses are calculated using comparable and quantifiable information both internal and external 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 when appropriate. The ACL for loans is affected by charge-offs, recoveries and the provision for credit losses on loans.
Previous wording
The ACL for loans is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the ACL for loans is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank’s loans are generally secured by specific items of collateral including real property, crops, livestock, consumer assets, and other business assets.
Current wording
The ACL for loans is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the ACL for loans is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Previous wording
Mortgage Servicing Rights Asset. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the consolidated statement of comprehensive income (loss) effect recorded in net gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates present value of estimated future servicing income.
Current wording
Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the consolidated statement of comprehensive income (loss) effect recorded in net gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model administered by a third-party that calculates present value of estimated future servicing income. The fair values of servicing rights are subject to significant fluctuations in valuation model assumptions as a result of changes in estimated and actual prepayment speeds and default rates and losses. Estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Return on average assets was 1.47% and return on average equity was 15.79% for the year ended December 31, 2022, compared to 1.56% and 15.08%, respectively, for the year ended December 31, 2021. The decrease in return on average assets was primarily due to the decrease in net income of 0.6%, relative to a larger increase of 5.2% in total average assets.
Previous report — wording carried elsewhere
For the year ended December 31, 2022, net interest margin and net interest spread were 3.73% and 3.37%, respectively, compared to 3.51% and 3.31% for the same period in 2021, respectively, which reflects the changes in interest income and interest expense discussed above.