What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-06 · 290 added, 477 removed, 686 unchanged (53% of the section changed)

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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 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.

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,

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potential recession in the United States and our market areas;

the impacts related to or resulting from bank failures and any uncertainty in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes

or other mitigation efforts taken by government agencies in response thereto;

the impacts related to or resulting from uncertainty in the banking industry as a whole;

increased competition for deposits and related changes in deposit customer behavior;

the resurgence of elevated levels of inflation or inflationary pressures, in the United States and our market areas, and its impact on market interest rates, the economy and credit quality;

the adequacy of the allowance for credit losses;

the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas, and its impact on market interest rates, the economy and credit

our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions;

business and economic conditions, particularly those affecting our market areas, as well as the concentration of our business in such market areas;

adverse changes in customer spending and savings habits;

the impact of pandemics, epidemics, or any other health-related crisis;

high concentrations of loans secured by real estate located in our market areas;

risks associated with our commercial loan portfolio, including the risk of declines in commercial real estate prices or deterioration in value of the general business assets that secure such loans;

potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;

increases in unemployment rates in the United States and our market areas;

risks associated with our commercial loan portfolio, including the risk for deterioration in value of the general business assets that secure such loans;

potential changes in the prices, values and sales volumes of commercial and residential real estate securing our real estate loans;

risks associated with our agricultural loan portfolio, including the heightened sensitivity to weather conditions, commodity prices, and other factors generally outside the borrowers and our control;

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our dependence on our management team, including our ability to retain executive officers and key employees and their customer and community relationships;

interest rate fluctuations, whether due to the current elevated interest rate environment or future reductions in interest rates, which could negatively impact the pricing of our loans and deposits and

decrease our net interest income or net interest margin;

interest rate fluctuations, which could have an adverse effect on our profitability;

competition from banks, credit unions and other financial services providers;

our ability to keep pace with technological change or difficulties we may experience when implementing new technologies;

cybersecurity risk, including cyber incidents or other failures, disruptions or security breaches of our operational or security systems or infrastructure, or those of our third-party vendors or other

service providers, including as a result of cyber-attacks;

cybersecurity risk, including cyber incidents or other failures, disruptions or breaches of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers,

including as a result of a cyber-attack, could impact the Company’s reputation, increase regulatory oversight, and impact the financial results of the Company;

our ability to maintain effective internal control over financial reporting;

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costs and effects of litigation, investigations or similar matters to which we may be subject, including any effect on our reputation;

natural disasters, severe weather, acts of god, acts of war or terrorism, geopolitical instability, outbreaks of hostilities, public health outbreaks (such as the COVID-19 pandemic or any future pandemic),

other international or domestic calamities, and other external events or matters beyond our control;

the impact of changes in U.S.

natural disasters, severe weather, acts of god, acts of war or terrorism, geopolitical instability, public health outbreaks (such as coronavirus), other international or domestic calamities, and other events

beyond our control, including as a result of changes in U.S.

presidential administrations or Congress;

uncertainty regarding United States fiscal debt, deficit, and budget matters;

tariffs and trade barriers;

compliance with governmental and regulatory requirements, including the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the Economic Growth, Regulatory Relief, and Consumer Protection Act

(“EGRRCPA”), and others relating to banking, consumer protection, securities and tax matters;

changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, current and future governmental monetary and fiscal policies, including the

uncertain impacts of ongoing quantitative tightening and current and future policies of the Board of Governors of the Federal Reserve System (“Federal Reserve”) and as a result of initiatives of the Biden administration.

a deterioration of the credit rating for United States long-term sovereign debt or uncertainty regarding United States fiscal debt, deficit and budget matters;

the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts and the resulting impact on the Company and its customers;

compliance with governmental and regulatory requirements, including the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), Economic Growth, Regulatory Relief, and Consumer

Protection Act of 2018 (“EGRRCPA”), and others relating to banking, consumer protection, securities and tax matters;

changes in the laws, rules, regulations, interpretations or policies that apply to the Company’s business and operations, and any additional regulations, or repeals that may be forthcoming as a result

thereof, which could cause the Company to incur additional costs and adversely affect the Company’s business environment, operations and financial results;

our ability to navigate the uncertain impacts of current and future governmental monetary and fiscal policies, including the current and future policies of the Board of Governors of the Federal Reserve System

(“Federal Reserve”) and as a result of initiatives of the Trump administration.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-Q and the risk factors set forth in our 2024

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The Company maintains an Internet web site at www.spfi.bank .

The Company makes available, free of charge, on its web site (under www.spfi.bank/financials-filings/sec-filings ) the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished

pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC.

The Company also makes available, free of charge, through its web site

(under www.spfi.bank/corporate-governance/documents-charters ) links to the Company’s Code of Conduct and the charters for its board committees.

In addition, the SEC maintains an Internet site (at

www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company routinely posts important information for investors on its web site (under www.spfi.bank and, more specifically, under the News &

Events tab at www.spfi.bank/news-events/press-releases ).

The Company intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure

obligations under SEC Regulation FD (Fair Disclosure).

The Company makes available, free of charge, on its web site (under www.spfi.bank/financials-filings/sec-filings

) the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably

practicable after the Company files such material with, or furnishes it to, the SEC.

The Company also makes available, free of charge, through its web site (under www.spfi.bank/corporate-governance/documents-charters

) links to the Company’s Code of Conduct and the charters for its board committees.

In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information

statements, and other information regarding issuers that file electronically with the SEC.

The Company routinely posts important information for investors on its web site (under www.spfi.bank and, more specifically, under the News & Events tab at www.spfi.bank/news-events/press-releases ).

The Company intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC

Regulation FD (Fair Disclosure).

Accordingly, investors should monitor the Company’s web site, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

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Our principal business activities include commercial and retail banking, along with investment, trust and mortgage services.

Recent Developments

New Stock Repurchase Program

As previously announced, on February 21, 2025, SPFI’s board of directors (the “Board”) approved a new stock repurchase program for up to $15.0 million of the outstanding shares of the Company’s

common stock (the “Stock Repurchase Program”).

The Stock Repurchase Program began when announced and has an expiration date of February 21, 2026, subject to earlier termination or extension of the Stock Repurchase Program by the Board or the

$15.0 million designated for the Stock Repurchase Program are depleted.

Results of Operations

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.

We had net income of $33.2 million, or $1.96 per diluted common share for the nine months ended September 30, 2024, compared to net income of $52.4 million, or $3.01 per diluted common share for the

nine months ended September 30, 2023.

Return on average equity (annualized) was 10.63% and return on average assets (annualized) was 1.05% for the nine months ended September 30, 2024, compared to 18.70% and 1.73%, respectively, for the nine

months ended September 30, 2023.

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.

Net Interest Income

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liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances and subordinated notes.

To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs

of our deposits and other funding sources, (iii) our net interest spread and (iv) our net interest margin.

Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.

interest margin is calculated as the annualized net interest income on a fully tax-equivalent basis divided by average interest-earning assets.

To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the

costs of our deposits and other funding sources, (iii) our net interest spread and (iv) our net interest margin.

Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing

Net interest margin is calculated as the annualized net interest income on a fully tax-equivalent basis divided by average interest-earning assets.

Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets,

interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

The following tables present, for the periods indicated, information about:

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

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purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis.

Three Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands)

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Notes payable & other longer-term borrowings

Subordinated debt securities

Subordinated debt

Junior subordinated deferrable interest debentures

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Net interest margin (3)

Nine Months Ended September 30,

(Dollars in thousands)

Interest-earning assets:

Investment securities – taxable

Investment securities – non-taxable

Other interest-earning assets (2)

Total interest-earning assets

Noninterest-earning assets

Liabilities and Shareholders’ Equity:

Interest-bearing liabilities:

NOW, savings and money market deposits

Time deposits

Short-term borrowings

Notes payable & other longer-term borrowings

Subordinated debt securities

Junior subordinated deferrable interest debentures

Total interest-bearing liabilities

Noninterest-bearing liabilities:

Noninterest-bearing deposits

Other liabilities

Total noninterest-bearing liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest income

Net interest spread

Net interest margin (3)

Average loan balances include nonaccrual loans and loans held for sale.

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average interest rates.

The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown.

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

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Change applicable to both volume and rate have been allocated to volume.

Three Months Ended September 30,

2024 over 2023

Change due to:

(Dollars in thousands)

Interest-earning assets:

Investment securities – taxable

Investment securities – non-taxable

Other interest-earning assets

Total increase (decrease) in interest income

Interest-bearing liabilities:

NOW, Savings, MMDAs

Time deposits

Short-term borrowings

Notes payable & other borrowings

Subordinated debt securities

Junior subordinated deferrable interest debentures

Total increase (decrease) interest expense:

Increase (decrease) in net interest income

Nine Months Ended September 30,

Three Months Ended March 31,

2025 over 2024

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Other interest-earning assets

Total increase (decrease) in interest income

Total interest-earning assets

Interest-bearing liabilities:

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Notes payable & other borrowings

Subordinated debt securities

Subordinated debt

Junior subordinated deferrable interest debentures

Total increase (decrease) interest expense:

Increase (decrease) in net interest income

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.

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.

Net interest income for the nine months ended September 30, 2024 was $108.6 million, compared to $104.6 million for the nine months ended September 30, 2023, an increase of $4.0 million, or 3.8%,

and was comprised of an increase of $24.8 million in interest income, partially offset by an increase of $20.8 million in interest expense.

The growth in interest income was attributable to increases of $22.3 million in loan interest income and

$2.4 million in interest income from securities and other interest-earning assets.

The increase in loan interest income was mainly due to growth of $162.8 million in average loans outstanding and an increase of 65 basis points in the yield on

The increase in interest income on securities and other interest-earning assets was primarily due to higher market interest rates.

The $20.8 million increase in interest expense was primarily related to an increase of $251.7 million in

average interest-bearing deposits and an 82 basis point increase in the rate paid on interest-bearing deposits over the same period in 2023.

Additionally, average noninterest-bearing demand deposits decreased $120.5 million for the nine months

ended September 30, 2024 as compared to the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, net interest margin and net interest spread were 3.61% and 2.53%, respectively, compared to 3.64% and 2.71%, respectively, for the same period in 2023,

Total interest-bearing liabilities

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%.

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.

The $2.0 million decrease in interest expense for the three months ended March 31, 2025 was primarily related to a 35 basis point decrease in the rate paid on interest-bearing liabilities over the

same period in 2024.

This decrease in rate was primarily a result of lower short-term interest rates paid on deposits, which decreased by 34 basis points compared to the prior year period.

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.

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quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

The Company recorded a provision for credit losses of $495 thousand for the three months ended September 30, 2024, compared to a negative provision of $700 thousand for the three months ended

September 30, 2023.

The increase in provision of $1.2 million was largely attributable to a decrease of $1.3 million in specific reserves during the three months ended September 30, 2023.

The Company recorded a provision for credit losses for the nine months ended September 30, 2024 of $3.1 million, compared to $4.0 million for the nine months ended September 30, 2023.

The decline in

provision of $900 thousand was largely attributable to a decrease in loan growth, partially offset by an increase in net charge-offs for the nine months ended September 30, 2024, compared to the same period in 2023.

The provision for credit losses for the three months ended March 31, 2025 was $420 thousand, compared to $830 thousand for the three months ended March 31, 2024.

During the first quarter of 2025,

the provision for credit losses for loans was $250 thousand and the provision for credit losses on off-balance sheet credit exposures was $170 thousand.

The provision for credit losses on loans was predominantly the result of $519 thousand in net

charge-offs during the first quarter of 2025 and loan growth during the quarter, partially offset by improved credit quality.

The ACL as a percentage of loans held for investment was 1.40% at March 31, 2025 and 1.42% at December 31, 2024.

The provision for credit losses is a significant factor in the Company’s operating results.

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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.

Other sources of noninterest income include service charges on deposit accounts, bank card services and interchange fees.

The following table sets forth the major components of our noninterest income for the periods indicated:

Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Service charges on deposit accounts

Income from insurance activities

Bank card services and interchange fees

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Fiduciary income

Gain on sale of subsidiary

Other income and fees (1)

Total noninterest income

Other income and fees includes income and fees associated with the increase in the cash surrender value of life insurance, safe deposit box rental, check printing, collections, legal settlements, wire

transfer, Small Business Investment Company (“SBIC”) investments, and other miscellaneous services.

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.

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.

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.

Gain on sale of subsidiary - A $33.5 million gain from the sale of Windmark Insurance Agency, Inc.

(“Windmark”) was recorded in the second quarter of 2023 and

an additional $290 thousand was recorded in the third quarter of 2023.

Other income and fees - The Company recognized $700 thousand in property insurance proceeds in the third quarter of 2024.

Noninterest income for the nine months ended September 30, 2024 was $34.8 million, compared to $70.1 million for the nine months ended September 30, 2023, a decrease of $35.3 million, or 50.4%.

Significant changes in the components of noninterest income are detailed below.

Service charges on deposit accounts - Income from service charges on deposit accounts increased $499 thousand, or 9.4%, for the nine months ended September

Other income and fees includes income and fees associated with the increase in the cash surrender value of life insurance, safe deposit box rental, check printing, collections, legal settlements,

wire transfer, Small Business Investment Company (“SBIC”) investments, income from sweep accounts, and other miscellaneous services.

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.

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.

Mortgage banking activities - Income from mortgage banking activities decreased $2.9 million, or 24.0%, to $9.2 million for the

nine months ended September 30, 2024 from $12.1 million for the nine months ended September 30, 2023.

This decrease was mainly the result of a decline of $1.8 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.

Additionally, mortgage loan originations declined $37.0 million, or 14.1%, in the current year

period as compared to the prior year period.

Gain on sale of subsidiary - A $33.8 million gain from the sale of Windmark was recorded in the second and third quarters of 2023.

Income from insurance activities - Due to the sale of Windmark in the second quarter of 2023, there was a decline of $1.4 million in income from insurance

activities for the nine months ended September 30, 2024 as compared to the same period in 2023.

Other income and fees - The Company recognized $700 thousand in property insurance proceeds in the third quarter of 2024.

The increase was primarily the result of treasury management initiatives taken to drive growth throughout 2024.

Bank card services and interchange fees - Income from bank card services and interchange fees increased $318 thousand, or 10.4%, for the three months ended

March 31, 2025 as compared to the same period in 2024.

The increase was primarily the result of $315 thousand of incentives and rebates, typically recorded in second quarter each year, but earned earlier in 2025.

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.

Other income and fees - Other income and fees increased $418 thousand, or 29.8%, for the three months ended March 31, 2025 as compared to the same period in

The increase was primarily the result of an increase of $246 thousand in income from sweep accounts.

Noninterest Expense

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Three Months Ended

September 30,

Nine Months Ended

September 30,

(Dollars in thousands)

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Appraisal expenses

Loss on sale of securities

Other expenses (1)

Total noninterest expense

Other expenses include items such as banking regulatory assessments, telephone expenses, postage, courier fees, directors’ fees, supplies, and insurance.

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.

IT and data services - IT and data services increased $274 thousand, or 33.5%, from $818 thousand for the three months ended September 30, 2023 to $1.1

million for the three months ended September 30, 2024.

The increase relates primarily to the Company’s cloud migration project.

Other expenses - Other expenses increased $742 thousand, or 20.0%, from $3.7 million for the three months ended September 30, 2023 to $4.4 million for the

three months ended September 30, 2024.

The largest increase in the compared periods was an increase of $388 thousand in the ineffective portion of fair value hedges.

Additionally, there was also a $50 thousand loss on the disposal of fixed assets

in the third quarter of 2024.

Noninterest expense for the nine months ended September 30, 2024 was $97.6 million, compared to $104.3 million for the nine months ended September 30, 2023, a decrease of $6.7 million, or 6.4%.

Significant changes in the components of noninterest expense are detailed below.

Salaries and employee benefits - Salaries and employee benefits decreased $4.4 million, or 7.2%, from $61.4 million for the nine months ended September 30,

2023 to $57.0 million for the nine months ended September 30, 2024.

This decrease was primarily driven by $4.3 million of Windmark transaction and related incentive-based compensation expenses incurred in the second quarter of 2023.

IT and data services - IT and data services increased $598 thousand, or 23.3%, from $2.6 million for the nine months ended September 30, 2023 to $3.2 million

for the nine months ended September 30, 2023.

The increase relates primarily to the Company’s cloud migration project.

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.

Other expenses include items such as banking regulatory assessments, telephone expenses, postage, courier fees, directors’ fees, and insurance.

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%.

changes in the components of noninterest expense are detailed below.

Salaries and employee benefits - Salaries and employee benefits increased $453 thousand, or 2.4%, from $19.0 million for the three months ended March 31, 2024

to $19.4 million for the three months ended March 31, 2025.

This increase was primarily driven by annual salary adjustments, which became effective in January of 2025.

Professional services - Professional services increased $247 thousand, or 16.7% from $1.5 million for the three months ended March 31, 2024 to $1.7 million

for the three months ended March 31, 2025.

This increase was primarily driven by consulting services related to the Company's lending platform during first quarter of 2025.

Financial Condition

Our total assets increased $132.9 million, or 3.2%, to $4.34 billion at September 30, 2024, compared to $4.20 billion at December 31, 2023.

Our gross 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.

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

Total deposits increased $93.2 million, or 2.6%, to $3.72 billion at September 30, 2024, compared to $3.63 billion at December 31, 2023.

Our total assets increased $173.0 million, or 4.1%, to $4.41 billion at March 31, 2025, compared to $4.23 billion at December 31, 2024.

Our 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.

Our securities portfolio decreased $5.7 million, or 1.0%, to $571.5 million at March 31, 2025, compared to $577.2 million at December 31, 2024.

deposits increased $171.6 million, or 4.7%, to $3.79 billion at March 31, 2025, compared to $3.62 billion at December 31, 2024.

Loan Portfolio

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We originate substantially all of the loans in our portfolio, except certain loan participations that are independently underwritten by the Company prior to purchase.

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.

The following table shows the contractual maturities of our loans held for investment portfolio at September 30, 2024:

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.

The following table shows the contractual maturities of our loans held for investment portfolio at March 31, 2025:

One Year or Less

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Through Five Years

Due after Five

Due after Five Years

Fifteen Years

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Other consumer

The following table shows the distribution between fixed and adjustable interest rate loans for maturities greater than one year as of September 30, 2024:

The following table shows the distribution between fixed and adjustable interest rate loans for maturities greater than one year as of March 31, 2025:

(Dollars in thousands)

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Other consumer

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.

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.

Further, there is $169.9 million of fixed rate loans that mature in the next twelve months as of September 30, 2024.

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.

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

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Commercial real estate loans and residential construction loans represent 40.0% of loans held for

investment as of September 30, 2024 and represented 40.1% of loans held for investment as of December 31, 2023.

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.

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This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.

Commercial real estate loans increased $39.4 million, or 3.6%, to $1.12 billion as of September 30, 2024 from $1.08 billion as of December 31, 2023.

The increase was primarily driven by an increase

in multifamily property loans of $67.1 million and an increase in other commercial real estate loans of $24.0 million, partially offset by a decrease in commercial land development and construction loans of $51.9 million due to the completion of

several large projects.

Commercial real estate loans increased $7.7 million, or 0.7%, to $1.13 billion as of March 31, 2025 from $1.12 billion as of December 31, 2024.

The increase was primarily driven by increases in

residential and commercial land development loans and other commercial loans, partially offset by decreases in hospitality loans and multi-family loans.

Commercial – General and Specialized .

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and cash flow results of the borrower, with risk in the volatility of operating results for particular industries.

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.

Commercial specialized loans increased $33.9 million, or 9.1%, to $406.3 million as of September 30, 2024 from $372.4 million as of December 31, 2023.

This increase was primarily due to growth of

$28.5 million in energy sector loans and $5.6 million in agricultural loans.

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.

Commercial specialized loans decreased $22.2 million, or 5.7%, to $366.8 million as of March 31, 2025 from $389.0 million as of December 31, 2024.

This decrease was primarily due to net repayments

of $23.8 million in seasonal agricultural-related loans.

We utilize a computer-based credit scoring analysis to supplement our policies and procedures in underwriting consumer loans.

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characteristics of the borrower’s ability to repay the loan, a consideration of the debt to income ratio, employment and income stability, the loan-to-value ratio, and the age, condition and marketability of the collateral.

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.

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.

Construction .

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Performance of these loans is affected by economic conditions as well as the ability to control costs of the

Construction loans decreased $26.7 million, or 20.6%, to $102.5 million as of September 30, 2024 from $129.2 million as of December 31, 2023.

The decrease resulted from reduced demand for

residential construction as interest rate levels remained elevated and projects were completed and sold.

Construction loans decreased $1.8 million, or 1.7%, to $102.0 million as of March 31, 2025 from $103.9 million as of December 31, 2024.

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.

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 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.

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 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.

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

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.

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

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.

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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.

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.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

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The following table summarizes commitments we have made as of the dates presented.

September 30,

(Dollars in thousands)

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Allowance for Credit Losses for Loans

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

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

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

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.

(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.

credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments.

To determine the adequacy of the ACL on loans, the Company applied a dual credit risk rating (“DCRR”) methodology that estimates each loan’s

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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.

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.

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 that

particular segment.

In addition to the loan level evaluations, nonaccrual loans with a balance of $250 thousand or more are individually analyzed based on facts and circumstances of the loan to determine if a specific allowance amount may be

Specific allowances may also be established for loans whose outstanding balances are below the above threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts

established for its loan category.

The ACL for loans was $42.9 million at September 30, 2024, compared to $42.4 million at December 31, 2023, an increase of $500 thousand, or 1.3%.

The increase is primarily a result of a provision

for credit losses on loans of $3.1 million being recorded during the nine months ended September 30, 2024 largely attributable to growth of $23.2 million in loans held for investment, partially offset by net charge-offs of $2.6 million during the

Uncertainty regarding forecasted economic conditions remains, due to the continued elevated interest rate environment and persistent inflation in the United States, and additional provisions for credit losses may be necessary in future

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

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 that particular segment.

In addition to the loan level evaluations, nonaccrual loans with a balance of $250 thousand or more are individually analyzed based on facts and circumstances of the loan to determine if a specific

allowance amount may be necessary.

factor amounts established for its loan category.

The ACL for loans was $43.0 million at March 31, 2025, compared to $43.2 million at December 31, 2024, a decrease of $269 thousand, or 0.6%.

The decrease is the result of $519 thousand in net

charge-offs during the first quarter of 2025, partially offset by a $250 thousand provision for credit losses on loans recorded in March 2025.

The Company continues to closely monitor credit quality in light of the ongoing economic uncertainty

caused by, among other factors, the uncertain impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts, the prolonged elevated interest rate environment and the lingering inflationary

pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas.

Accordingly, additional provisions for credit losses may be necessary in future periods.

The following table provides an analysis of the ACL for loans and other data during the periods indicated.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

(Dollars in thousands)

Average loans outstanding during the periods

Average loans outstanding during the period

Commercial real estate

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Loans held for sale

Total average loans outstanding during the periods

Net charge-offs (recoveries) during the periods

Total average loans outstanding during the period

Net charge-offs (recoveries) during the period

Commercial real estate

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Other consumer

Total net charge-offs (recoveries) during the periods

Ratio of net charge-offs (recoveries) to average loans during the periods

Total net charge-offs (recoveries) during the period

Ratio of net charge-offs (recoveries) to average loans during the period

Commercial real estate

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Other consumer

Total ratio of net charge-offs (recoveries) to average loans during the periods

Total ratio of net charge-offs (recoveries) to average loans during the period

The following table provides other loan data as of the dates indicated.

September 30,

(Dollars in thousands)

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Nonaccrual loans

Allowance for credit losses on loans

Allowance for credit losses

Ratio of allowance to total loans held for investment

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Ratio of nonaccrual loans to total loans held for investment

Net charge-offs totaled $887 thousand and were 0.11% (annualized) of average loans outstanding for the three months ended September 30, 2024, compared to $362 thousand and 0.05% (annualized) for the three months

ended September 30, 2023.

There was an increase of $315 thousand in net charge-offs on residential construction loans in the third quarter of 2024 due to the charge-off of one loan and an increase in net charge-offs on consumer auto loans of $146

Net charge-offs totaled $2.6 million and were 0.11% (annualized) of average loans outstanding for the nine months ended September 30, 2024, compared to $1.4 million and 0.06% (annualized) for the nine months ended September 30, 2023.

There was an increase of $479 thousand in net charge-offs on commercial-general loans during the first three quarters of 2024 due to the charge-off of several loans under $150 thousand each.

There was also an increase of $596 thousand in net

charge-offs on consumer loans during the first three quarters of 2024.

The allowance for credit losses on loans as a percentage of loans held for investment was 1.41% at September 30, 2024 and 1.41% at December 31, 2023.

Net charge-offs totaled $519 thousand and were 0.07% (annualized) of average loans outstanding for the three months ended March 31, 2025, compared to $947 thousand and 0.13% (annualized) for the

three months ended March 31, 2024.

The decrease in net charge-offs in the first quarter of 2025 was primarily the result of a decrease of $288 thousand in general commercial net charge-offs in the first quarter of 2025 compared to the same period

The ACL for loans as a percentage of loans held for investment was 1.40% at March 31, 2025 and 1.42% at December 31, 2024.

While the entire ACL for loans is available to absorb losses from any part of our loan portfolio, the following table sets forth the allocation of the ACL for loans for the periods presented and the

percentage of allowance in each classification to total allowance:

September 30, 2024

March 31, 2025

December 31, 2024

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Nonperforming assets consist of nonperforming loans plus foreclosed assets.

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.

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.

Nonperforming loans were $24.7 million at September 30, 2024 and $5.2 million at December 31, 2023.

This increase of $19.5 million is mainly due to the changes in nonaccrual loans noted above.

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

Nonperforming loans were $6.5 million at March 31, 2025 and $24.0 million at December 31, 2024.

This decrease of $17.5 million is predominantly due to a $19.0 million credit that was placed back on

accrual status at the end of the first quarter of 2025, based on sustained payment performance and improved credit structure.

This credit was repaid in full subsequent to March 31, 2025.

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extensions, an other than insignificant payment delay, or interest rate

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All available-for-sale securities are reported at fair value.

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.

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.

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.

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.

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.

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.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the date presented.

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differ from contractual maturities if borrowers have the right to call or prepay an obligation with or without call or prepayment penalties.

As of September 30, 2024

As of March 31, 2025

Due after One Year

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Commercial mortgage-backed securities

Commercial collateralized mortgage obligations

Collateralized mortgage obligations

Asset-backed and other amortizing securities

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Commercial mortgage-backed securities

Commercial collateralized mortgage obligations

Collateralized mortgage obligations

Asset-backed and other amortizing securities

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We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production, customer referrals, marketing staffs, mobile and online banking and various involvements with community networks.

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.

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.

The following table shows the deposit mix as of the dates presented:

September 30, 2024

March 31, 2025

December 31, 2024

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The following table summarizes our average deposit balances and weighted average rates paid on deposits, on an annualized basis, for the periods indicated.

Three Months Ended September 30,

(Dollars in thousands)

Noninterest-bearing deposits

Interest-bearing deposits:

NOW and interest-bearing demand accounts

Savings accounts

Money market accounts

Time deposits

Total interest-bearing deposits

Total deposits

Nine Months Ended September 30,

Three Months Ended

March 31, 2025

March 31, 2024

(Dollars in thousands)

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Total deposits

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.

The scheduled maturities of time deposits of more than $250 thousand as of September 30, 2024 follows:

In February 2025, the Company ended its deposit sweep program, whereby certain transaction accounts were being restructured into two legally separate accounts:

a checking (transaction) account and a

money market (non-transaction) account.

After ending the program, the balance for these accounts is all reported in NOW and interest-bearing demand accounts.

Previously, the balance was allocated between NOW and interest-bearing demand accounts

and money market accounts.

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.

The scheduled maturities of time deposits of more than $250 thousand as of March 31, 2025 follows:

(Dollars in thousands)

The estimated amount of uninsured deposits as of September 30, 2024 was $1.22 billion.

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.

Borrowed Funds

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

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

FHLB Advances .

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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.

long-term FHLB borrowings during the three and nine months ended September 30, 2024 or 2023.

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.

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.

Federal Reserve Bank of Dallas .

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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.

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.

Lines of Credit .

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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,

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.

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.

Subordinated Debt .

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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

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.

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.

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.

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.

Junior Subordinated Deferrable Interest Debentures and Trust Preferred Securities .

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The Company records interest expense on the debentures in its consolidated financial statements.

The amount of debentures outstanding was $46.4 million at September

The amount of debentures outstanding was $46.4 million at March 31,

2025 and December 31, 2024.

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During such time, corporate dividends may not be paid.

Company is current in its interest payments on the debentures.

The chart below indicates certain information, as of September 30, 2024, about each of the statutory trusts and the junior subordinated deferrable interest debentures, including the date the junior

The Company is

current in its interest payments on the debentures.

The chart below indicates certain information, as of March 31, 2025, about each of the statutory trusts and the junior subordinated deferrable interest debentures, including the date the junior

subordinated deferrable interest debentures were issued, outstanding amounts of trust preferred securities and junior subordinated deferrable interest debentures, the maturity date of the junior subordinated deferrable interest debentures, and

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Interest payable quarterly with principal due at maturity.

Rate as of last reset date, prior to September 30, 2024.

Rate as of last reset date, prior to March 31, 2025.

Liquidity and Capital Resources

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Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window.

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.

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.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and

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restrictions in order to raise the necessary funds to support the Company’s operations and growth.

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%.

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.

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.

We are subject to various regulatory capital requirements administered by the federal and state banking regulators.

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and management’s overall ability to monitor and control risks.

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

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 September 30, 2024 that would materially adversely change such capital classifications.

time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.

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.

The table below summarizes the capital requirements applicable to us and the Bank in order to be considered “well capitalized” from a regulatory perspective, as well as our and the Bank’s capital

ratios as of the dates indicated.

September 30, 2024

March 31, 2025

December 31, 2024

(Dollars in thousands)

South Plains Financial, Inc.

Consolidated.

Total capital (to risk-weighted assets)

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Treasury Stock

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.

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

Interest Rate Sensitivity and Market Risk

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The following table summarizes the simulated change in net interest income over a 12-month horizon as of the dates indicated:

September 30,

Change in Interest Rates (Basis Points)

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Impact of Inflation

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”).

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.

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.

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.

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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.”

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.”

Non-GAAP Financial Measures

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share, tangible book value per common share, total stockholders’ equity to total assets, and tangible common equity to tangible assets:

September 30,

(Dollars in thousands)

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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

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 Form 10-Q, 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.

We evaluate our estimates on an ongoing basis.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments.

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

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.

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.

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

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.

returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

information about these policies can be found in Note 1 of the Company’s consolidated financial statements as of December 31, 2024.

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.

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.

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.

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.

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

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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.

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.

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

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.

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.

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.

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.

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.

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.

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

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

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.

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.

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.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis