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 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.

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, 2024 (the “2024 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 7, 2025. 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 $11.2 million, or $0.66 per diluted common share, for the three months ended September 30, 2024, compared to net income of $13.5 million, or $0.78 per diluted common share for the three months ended September 30, 2023. Return on average equity (annualized) was 10.36% and return on average assets (annualized) was 1.05% for the three months ended September 30, 2024, compared to 14.01% and 1.27%, respectively, for the three months ended September 30, 2023.

Current wording

We had net income of $12.3 million, or $0.72 per diluted common share, for the three months ended March 31, 2025, compared to net income of $10.9 million, or $0.64 per diluted common share, for the three months ended March 31, 2024. Return on average equity (annualized) was 11.30% and return on average assets (annualized) was 1.16% for the three months ended March 31, 2025, compared to 10.72% and 1.04%, respectively, for the three months ended March 31, 2024. The increase in net income of $1.4 million was primarily the result of an increase of $3.2 million in net interest income, partially offset by a decrease in noninterest income of $0.8 million and an increase of $1.1 million in noninterest expense.

Previous 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.

Current 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.

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 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.

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 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.

Previous wording

Net interest income for the three months ended September 30, 2024 was $37.3 million, compared to $35.7 million for the three months ended September 30, 2023, an increase of $1.6 million, or 4.5%, and was comprised of an increase of $5.1 million in interest income, partially offset by an increase of $3.5 million in interest expense. The growth in interest income was primarily attributable to an increase of $5.3 million in loan interest income from growth of $64.2 million in average loans outstanding and an increase of 58 basis points in the yield on loans. The $3.5 million increase in interest expense was primarily related to an increase of $111.2 million in average interest-bearing deposits and a 40 basis point increase in the rate paid on interest-bearing deposits over the same period in 2023. Additionally, average noninterest-bearing demand deposits decreased $95.1 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Current wording

Net interest income for the three months ended March 31, 2025 was $38.5 million, compared to $35.4 million for the three months ended March 31, 2024, an increase of $3.2 million, or 8.9%. The increase in net interest income was comprised of an increase of $1.2 million, or 2.0%, in interest income and a decrease of $2.0 million, or 8.4%, in interest expense. The growth in interest income was attributable to an increase of $1.6 million in loan interest income, partially offset by a decrease of $829 thousand in interest income from securities. The increase in loan interest income was mainly due to growth of $60.0 million in average loans outstanding and a 14 basis point increase in the yield on loans. The decrease in interest income on securities was primarily due to a decrease of $46.8 million in average securities outstanding and a 23 basis point decline in the yield on securities.

Previous wording

For the three months ended September 30, 2024, net interest margin and net interest spread were 3.65% and 2.55%, respectively, compared to 3.52% and 2.48%, 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 March 31, 2025, net interest margin and net interest spread were 3.81% and 2.87%, respectively, compared to 3.56% and 2.50%, respectively, for the same period in 2024, which reflects the changes in interest income and interest expense discussed above.

Previous wording

While interest income remains the largest single component of total revenues, noninterest income is an important contributing component. The largest portion of our noninterest income is associated with our mortgage banking activities. Other sources of noninterest income include service charges on deposit accounts, bank card services and interchange fees, and income from insurance activities.

Current wording

While interest income remains the largest single component of total revenues, noninterest income is an important contributing component. The largest portion of our noninterest income is associated with our mortgage banking activities. Other sources of noninterest income include service charges on deposit accounts, bank card services and interchange fees.

Previous wording

Noninterest income for the three months ended September 30, 2024 was $10.6 million, compared to $12.3 million for the three months ended September 30, 2023, a decrease of $1.6 million, or 13.4%. Significant changes in the components of noninterest income are detailed below.

Current wording

Noninterest income for the three months ended March 31, 2025 was $10.6 million, compared to $11.4 million for the three months ended March 31, 2024, a decrease of $0.8 million, or 6.9%. Significant changes in the components of noninterest income are detailed below.

Previous wording

Service charges on deposit accounts - Income from service charges on deposit accounts increased $183 thousand, or 9.9%, for the three months ended September 30, 2024 as compared to the same period in 2023. The increase was primarily the result of treasury management initiatives taken to drive growth.

Current wording

Service charges on deposit accounts - Income from service charges on deposit accounts increased $328 thousand, or 18.1%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily the result of treasury management initiatives taken to drive growth throughout 2024.

Previous wording

Mortgage banking activities - Income from mortgage banking activities decreased $2.7 million, or 58.9%, to $1.9 million for the three months ended September 30, 2024 from $4.6 million for the three months ended September 30, 2023. This decrease was mainly the result of a decline of $2.7 million in the fair value adjustment of the mortgage servicing rights assets as interest rates that affect the value declined in the third quarter of 2024.

Current wording

Mortgage banking activities - Income from mortgage banking activities decreased $1.8 million, or 46.4%, to $2.1 million for the three months ended March 31, 2025 from $3.9 million for the three months ended March 31, 2024. This decrease was primarily due to a $1.6 million negative fair value adjustment to our mortgage servicing rights portfolio in the first quarter of 2025 compared to a positive fair value adjustment of $55 thousand in the first quarter of 2024. The fair value of the mortgage servicing rights portfolio is affected by movements in market interest rates, which declined during the first quarter of 2025 as compared to increasing during the first quarter of 2024.

Previous wording

Noninterest expense for the three months ended September 30, 2024 was $33.1 million compared to $31.5 million for the three months ended September 30, 2023, an increase of $1.6 million, or 5.2%. Significant changes in the components of noninterest expense are detailed below.

Current wording

Noninterest expense for the three months ended March 31, 2025 was $33.0 million compared to $31.9 million for the three months ended March 31, 2024, an increase of $1.1 million, or 3.4%. Significant changes in the components of noninterest expense are detailed below.

Previous wording

Loans held for investment increased $23.2 million, or 0.8%, to $3.04 billion at September 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 and residential construction loans.

Current wording

Loans held for investment increased $20.8 million, or 0.7%, to $3.08 billion at March 31, 2025, compared to $3.06 billion at December 31, 2024. The organic loan growth remained relationship focused and occurred primarily in residential and commercial land development loans, other commercial real estate loans, restaurant and retail loans, energy loans, and consumer auto loans, offset by decreases in seasonal agricultural-related loans and hospitality loans.

Previous wording

At September 30, 2024, there was $1.56 billion in adjustable rate loans, with $900.9 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, $587.6 million will reprice immediately upon changes in the underlying index rate, with the remaining $313.3 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 $169.9 million of fixed rate loans that mature in the next twelve months as of September 30, 2024.

Current wording

At March 31, 2025, there was $1.6 billion in adjustable rate loans, with $895.3 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, $581.1 million will reprice immediately upon changes in the underlying index rate, with the remaining $314.2 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 72.8% of our loans were secured by real property as of September 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 40.2% of loans held for investment as of September 30, 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.

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 March 31, 2025, compared to 73.7% as of December 31, 2024. 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 40.0% of loans held for investment as of March 31, 2025 and represented 40.1% as of December 31, 2024. Further, 97% of the total dollar amount of these loans are secured by collateral located in the state of Texas.

Previous wording

Commercial general loans increased $9.1 million, or 1.8%, to $526.4 million as of September 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 services industry of $16.0 million, partially offset by a decrease of $4.5 million in restaurant and retail loans.

Current wording

Commercial general loans increased $27.3 million, or 4.9%, to $584.7 million as of March 31, 2025 from $557.4 million as of December 31, 2024. The increase was primarily due to increases in loans to companies in the restaurant and retail industry, loans for goods and services, and construction and other commercial loans.

Previous wording

Consumer and other loans decreased $32.5 million, or 3.6%, to $881.7 million as of September 30, 2024, from $914.2 million as of December 31, 2023. The decrease in these loans was a result of declines of $51.8 million in consumer auto loans and $8.4 million in other consumer loans, partially offset by an increase of $27.7 million in residential mortgage loans. As of September 30, 2024, our consumer loan portfolio was comprised of $562.4 million in 1-4 family residential loans, $253.5 million in auto loans, and $65.8 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.

Current wording

Consumer and other loans increased $9.7 million, or 1.1%, to $895.5 million as of March 31, 2025 from $885.8 million as of December 31, 2024. The increase in these loans was primarily a result of a $7.2 million increase in auto loans. As of March 31, 2025, our consumer loan portfolio was comprised of $569.8 million in 1-4 family residential loans, $261.6 million in auto loans, and $64.1 million in other consumer loans.

Previous wording

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 September 30, 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 September 30, 2024, total income-producing commercial real estate property loans totaled $865.9 million and was comprised of $286.6 million of multi-family property loans, $175.1 million of retail property loans, $138.6 million of office property loans, $63.5 million in hospitality loans, and $202.1 million in other property loans. Other property loans include types such as industrial, warehouse, mini-storage, and convenience stores. As of September 30, 2024, total construction, acquisition, and development property loans totaled $357.0 million and was comprised of $102.5 million in residential construction property loans and $254.5 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 September 30, 2024. The weighted average loan-to-value of nonowner-occupied office commercial real estate loans was approximately 59% at September 30, 2024.

Current wording

The commercial real estate and construction categories comprise the Company’s nonowner-occupied real estate loans. Total nonowner-occupied real estate loans were $1.23 billion at March 31, 2025 and $1.22 billion at December 31, 2024. 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 March 31, 2025, total income-producing commercial real estate property loans totaled $878.0 million and was comprised of $309.6 million of multi-family property loans, $183.8 million of retail property loans, $141.2 million of office property loans, $39.2 million in hospitality loans, and $204.2 million in other property loans. Other property loans include types such as industrial, warehouse, mini-storage, and convenience stores. As of March 31, 2025, total construction, acquisition, and development property loans totaled $350.9 million and was comprised of $102.0 million in residential construction property loans and $248.8 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 55% at March 31, 2025. The weighted average loan-to-value of nonowner-occupied office commercial real estate loans was approximately 58% at March 31, 2025.

Previous wording

Owner-occupied commercial real estate loans totaled $335.4 million at September 30, 2024 and $341.1 million at December 31, 2023.

Current wording

Owner occupied commercial real estate loans totaled $380.4 million at March 31, 2025 and $366.8 million at December 31, 2024.

Previous wording

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Company’s Consolidated Balance Sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit to our customers is represented by the contractual or notional amount of those instruments. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Current wording

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit to our customers is represented by the contractual or notional amount of those instruments. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

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 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.

Current wording

The ACL for loans is established for future expected credit losses through a provision for credit losses charged to earnings. 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

To determine the adequacy of the ACL on loans, the Company applied a dual credit risk rating (“DCRR”) methodology that estimates each loan’s probability of default and loss given default to calculate the expected credit loss to non-analyzed loans. The DCRR process quantifies the expected credit loss at the loan level for the entire loan portfolio. Loan grades are assigned by a customized scorecard that risk rates each loan based on multiple probability of default and loss given default elements to measure the risk of the loan portfolio. The ACL estimate incorporates the Company’s DCRR loan level risk rating methodology and the expected default rate frequency term structure to derive loan level life of loan estimates of credit losses for every loan in the portfolio. The estimated credit loss for each loan is adjusted based on one-year through the cycle estimate of expected credit loss to a life of loan measurement that reflects current conditions and forecasts. The life of loan expected loss is determined using the contractual weighted average life of the loan adjusted for prepayments. Prepayment speeds are determined by grouping the loans into pools based on segments and risk rating. After the life of loan expected losses are determined, they are adjusted to reflect the Company’s reasonable and supportable economic forecast over a selected range of a one to two years. The Company has developed regression models to project net charge-off rates based on macroeconomic variables (“MEVs”), typically a one-year period is used. MEV’s considered in the analysis consist of data gathered from the St. Louis Federal Reserve Research Database (“FRED”), such as, federal funds rate, 10-year treasury rates, 30-year mortgage rates, crude oil prices, consumer price index, housing price index, unemployment rates, housing starts, gross domestic product, and disposable personal income. These regression models are applied to the Company’s economic forecast to determine the corresponding net charge-off rates. The projected net charge-off rates for the given economic scenario are used to adjust the through the cycle expected losses. Qualitative adjustments are also made to ACL results for additional risk factors that are relevant in assessing the expected credit losses within our loan segments. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of the ACL by a calculated percentage based upon the estimated level of risk within a particular segment. Q-Factor risk decisions consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, and other factors related to credit administration, such as borrower’s risk rating and the potential effect of delayed credit score migrations. Management quantifiably identifies segment percentage Q-Factor adjustments using a scorecard risk rating system scaled to historical loss experience within a segment and management’s perceived risk for tha…

Excerpt shortened here; the source contains the full paragraph.

Current wording

To determine the adequacy of the ACL on loans, the Company applied a dual credit risk rating (“DCRR”) methodology that estimates each loan’s probability of default and loss given default to calculate the expected credit loss to non-analyzed loans. The DCRR process quantifies the expected credit loss at the loan level for the entire loan portfolio. Loan grades are assigned by a customized scorecard that risk rates each loan based on multiple probability of default and loss given default elements to measure the risk of the loan portfolio. The ACL estimate incorporates the Company’s DCRR loan level risk rating methodology and the expected default rate frequency term structure to derive loan level life of loan estimates of credit losses for every loan in the portfolio. The estimated credit loss for each loan is adjusted based on one-year through the cycle estimate of expected credit loss to a life of loan measurement that reflects current conditions and forecasts. The life of loan expected loss is determined using the contractual weighted average life of the loan adjusted for prepayments. Prepayment speeds are determined by grouping the loans into pools based on segments and risk rating. After the life of loan expected losses are determined, they are adjusted to reflect the Company’s reasonable and supportable economic forecast over a selected range of a one to two years. The Company has developed regression models to project net charge-off rates based on macroeconomic variables (“MEVs”), typically a one-year period is used. MEV’s considered in the analysis consist of data gathered from the St. Louis Federal Reserve Research Database (“FRED”), such as, federal funds rate, 10-year treasury rates, 30-year mortgage rates, crude oil prices, consumer price index, housing price index, unemployment rates, housing starts, gross domestic product, and disposable personal income. These regression models are applied to the Company’s economic forecast to determine the corresponding net charge-off rates. The projected net charge-off rates for the given economic scenario are used to adjust the through the cycle expected losses. Qualitative adjustments are also made to ACL results for additional risk factors that are relevant in assessing the expected credit losses within our loan segments. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of the ACL by a calculated percentage based upon the estimated level of perceived risk within a particular segment. Q-Factor risk decisions consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, and other factors related to credit administration, such as borrower’s risk rating and the potential effect of delayed credit score migrations. Management quantifiably identifies segment percentage Q-Factor adjustments using a scorecard risk rating system scaled to historical loss experience within a segment and management’s perceived ri…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

At September 30, 2024, our total nonaccrual loans were $22.6 million, or 0.74% 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 September 30, 2024 to cover any probable loss. The previously disclosed $20.0 million multi-family property credit that was placed on nonaccrual status in the second quarter of 2024 after the maturity date was accelerated, was subsequently modified during the third quarter. The modification included more stringent credit metrics. Although the loan remains in nonaccrual status, the loan continues to pay as agreed and is showing improving credit trends. Additionally, two relationships totaling approximately $972 thousand that were on nonaccrual at December 31, 2023 were fully repaid in the first quarter of 2024.

Current wording

At March 31, 2025, our total nonaccrual loans were $1.9 million, or 0.06% of total loans held for investment, as compared to $22.1 million, or 0.72% of total loans held for investment, at December 31, 2024. 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, 2025 to cover any probable loss.

Previous wording

Our securities portfolio decreased $15.9 million, or 2.5%, to $606.9 million at September 30, 2024, compared to $622.8 million at December 31, 2023. The decrease was primarily due to $28.9 million in maturities, prepayments and calls, net of purchases, partially offset by a $15.0 million increase in the fair value of available for sale securities at September 30, 2024 as compared to December 31, 2023.

Current wording

Total securities at March 31, 2025 were $571.5 million, representing a decrease of $5.7 million, or 1.0%, compared to $577.2 million at December 31, 2024. The decrease was primarily due to $10.6 million in maturities, prepayments and calls, partially offset by a $5.6 million increase in the unrealized gain/loss at March 31, 2025 as compared to December 31, 2024.

Previous wording

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2024, the unrealized loss on the Company’s available for sale securities was $67.1 million, down from $82.1 million at December 31, 2023. At September 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.

Current wording

Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At March 31, 2025, the fair value of the Company’s available for sale securities was $86.1 million lower than the amortized cost. At March 31, 2025, 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 September 30, 2024 were $3.72 billion, representing an increase of $93.2 million, or 2.6%, compared to $3.63 billion at December 31, 2023. The increase since December 31, 2023 consisted of increases of $69.0 million in interest-bearing deposits and $24.2 million in non-interest-bearing deposits. As of September 30, 2024, 26.8% of total deposits were comprised of noninterest-bearing demand accounts, 61.3% of interest-bearing non-maturity accounts and 11.9% of time deposits.

Current wording

Total deposits at March 31, 2025 were $3.79 billion, representing an increase of $171.6 million, or 4.7%, compared to $3.62 billion at December 31, 2024. The increase in deposits was mainly due to a seasonal increase of $70.2 million in public fund deposits and organic growth in retail and commercial deposits. As of March 31, 2025, 25.5% of total deposits were comprised of noninterest-bearing demand accounts, 62.9% of interest-bearing non-maturity accounts and 11.6% of time deposits.

Previous wording

Time deposits in amounts of more than $250 thousand represent the type of deposit most likely to affect the Company’s future earnings because of interest rate sensitivity. The effective cost of these funds is generally higher than other time deposits because the funds are usually obtained at premium rates of interest.

Current wording

Time deposits issued in amounts of more than $250 thousand represent the type of deposit most likely to affect the Company’s future earnings because of interest rate sensitivity. The effective cost of these funds is generally higher than other time deposits because the funds are usually obtained at premium rates of interest.

Previous wording

The estimated amount of uninsured deposits as of September 30, 2024 was $1.22 billion. This represented approximately 33% of total deposits and excludes collateralized public fund deposits.

Current wording

The estimated amount of uninsured deposits as of March 31, 2025 was $1.3 billion. This represented approximately 35% of total deposits and excludes collateralized public fund deposits.

Previous wording

In addition to deposits, we may utilize advances from the FHLB and other borrowings as a supplementary funding source to finance our operations.

Current wording

In addition to deposits, we utilize advances from the FHLB and other borrowings as a supplementary funding source to finance our operations.

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 September 30, 2024 and December 31, 2023, we had total remaining borrowing capacity from the FHLB of $1.11 billion and $1.10 billion, respectively, with no outstanding balance. We had no long-term FHLB borrowings during the three and nine months ended September 30, 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 March 31, 2025 and December 31, 2024, we had total remaining borrowing capacity from the FHLB of $1.13 billion and $1.11 billion, respectively, with no outstanding balance. We had no FHLB borrowings during the three months ended March 31, 2025 or 2024.

Previous wording

FHLB Letters of Credit - 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 September 30, 2024 and December 31, 2023, respectively.

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 at March 31, 2025 and December 31, 2024.

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 $664.2 million and $595.4 million at September 30, 2024 and December 31, 2023, respectively, with no outstanding balance. We had no long-term FRB borrowings during the nine months ended September 30, 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 $655.9 million and $654.0 million at March 31, 2025 and December 31, 2024, respectively, with no outstanding balance. We had no long-term FRB borrowings during the three months ended March 31, 2025 or 2024.

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 September 30, 2024 and December 31, 2023, respectively. The lines were not used, other than testing during the three and nine months September 30, 2024 or the three and nine months September 30, 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 as of March 31, 2025 and December 31, 2024. The lines were not used, other than testing during the three months ended March 31, 2025 or the three months ended March 31, 2024.

Previous wording

On September 29, 2020, the Company issued $50.0 million in subordinated notes. Proceeds were reduced by approximately $926 thousand in debt issuance costs. These notes have a maturity date of September 2030 with a fixed rate of 4.50% for the first five years. After the expiration of the fixed rate period, the notes will reset quarterly at a variable rate equal to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 438 basis points. These notes pay interest semi-annually, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these notes are intended to qualify for Tier 2 capital treatment, subject to regulatory limitations.

Current wording

On September 29, 2020, the Company issued $50.0 million in subordinated notes. Proceeds were reduced by approximately $926 thousand in debt issuance costs. These notes have a maturity date of September 2030 with a fixed rate of 4.50% for the first five years. After the expiration of the fixed rate period, these notes will reset quarterly at a variable rate equal to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 438 basis points. These notes pay interest semi-annually, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these notes are intended to qualify for Tier 2 capital treatment, subject to regulatory limitations.

Previous wording

As of September 30, 2024, the total amount of subordinated debt securities outstanding was $64.1 million less approximately $186 thousand of remaining debt issuance costs for a total balance of $63.9 million.

Current wording

As of March 31, 2025, the total amount of subordinated debt outstanding was $64.1 million less approximately $93 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 Federal Reserve discount window. At September 30, 2024, the Bank had the capacity to borrow additional funds from the FHLB and Federal Reserve discount window of up to approximately $1.1 billion and $664.2 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 March 31, 2025, the Bank had the capacity to borrow funds from the FHLB and the Federal Reserve discount window of up to approximately $1.13 billion and $655.9 million, respectively.

Previous wording

Total stockholders’ equity increased to $443.1 million as of September 30, 2024, compared to $407.1 million as of December 31, 2023, an increase of $36.0 million, or 8.8%. The increase from December 31, 2023 was primarily the result of $33.2 million in net earnings for the nine months ended September 30, 2024 and an increase in accumulated other comprehensive income (“AOCI”) of $9.3 million, net of tax, partially offset by $6.7 million of dividends paid. The increase in AOCI was attributable to the increase in fair value of our available for sale securities and fair value hedges, net of tax, as a result of the decline in market interest rates experienced during the period.

Current wording

Total stockholders’ equity increased to $443.7 million as of March 31, 2025, compared to $438.9 million as of December 31, 2024, an increase of $4.8 million, or 1.1%. The increase from December 31, 2024 was primarily the result of $12.3 million in net earnings and an increase in accumulated other comprehensive income of $2.7 million, related to fair value changes in available for sale securities and related fair value hedges, partially offset by $2.5 million of dividends paid and $8.3 million in repurchases of common stock for the three months ended March 31, 2025.

Previous wording

At September 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 September 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 September 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.

Current wording

As of March 31, 2025 and December 31, 2024, both we and the Bank met all the capital adequacy requirements to which we and the Bank were subject. At March 31, 2025, 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, 2025 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 and nine months ended September 30, 2024. For the three months ended September 30, 2024, we repurchased 40,000 shares of common stock for a total of $1.0 million. For the nine months ended September 30, 2024, we repurchased 53,799 share of common stock for a total of $1.3 million. 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 months ended March 31, 2025, repurchasing 250,000 shares of common stock for a total of $8.3 million. 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 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.

Current 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.

Previous wording

The Company’s asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Company are monetary in nature. Management believes the impact of inflation on financial results depends upon the Company’s ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. However, other operating expenses do reflect general levels of inflation. Management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation.

Current wording

The Company’s asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Company are monetary in nature. Management believes the impact of inflation on financial results depends upon the Company’s ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. However, other operating expenses do reflect general levels of inflation. Management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation. Various information shown elsewhere in this Report will assist in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends. In particular, additional information related to the Company’s interest rate-sensitive assets and liabilities is contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report under the heading “Interest Rate Sensitivity and Market Risk.”