SOUTH PLAINS FINANCIAL, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the periods covered by this Quarterly Report on Form 10-Q (this “Form 10-Q”) and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report on Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) of the Securities Act of 1933, as amended (the “Securities Act”), on March 7, 2025. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us” and “the Company” refer to South Plains Financial, Inc., a Texas corporation, our wholly-owned banking subsidiary, City Bank, a Texas banking association and our other consolidated subsidiaries. References in this Form 10-Q to the “Bank” refer to City Bank. C autionary Notice Regarding Forward-Looking Statements This Form 10-Q contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following: ● potential recession in the United States and our market areas; ● 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 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 quality; ● 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; ● 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; ● risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area; ● public funds deposits comprising a relatively high percentage of our deposits; ● potential impairment on the goodwill we have recorded or may record in connection with business acquisitions; ● our ability to maintain our reputation; ● our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses; ● our ability to attract, hire and retain qualified management personnel; ● 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, 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; 26 Table of Contents ● 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; ● employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties; ● increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; ● our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels; ● 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, 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; ● 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; and ● 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 Annual Report on Form 10-K. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, you should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law. Available Information 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). 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. The information contained on, or that may be accessed through, the Company’s web site is not incorporated by reference into, and is not a part of, this Form 10-Q. Overview We are a bank holding company headquartered in Lubbock, Texas, and our wholly-owned subsidiary, City Bank, is one of the largest independent banks in West Texas and has additional banking operations in the Dallas, El Paso, Greater Houston, the Permian Basin, and College Station, Texas markets, and the Ruidoso, New Mexico market. Through City Bank, we provide a wide range of commercial and consumer financial services to small and medium-sized businesses and individuals in our market areas. Our principal business activities include commercial and retail banking, along with investment, trust and mortgage services. 27 Table of Contents 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 $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 Net interest income is the principal source of the Company’s net income and represents the difference between interest income (interest and fees earned on assets, primarily loans and investment securities) and interest expense (interest paid on deposits and borrowed funds). We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing 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. 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 table presents, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. For purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis. 28 Table of Contents Three Months Ended March 31, 2025 2024 Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate (Dollars in thousands) Assets: Interest-earning assets: Loans (1) $ 3,074,568 $ 50,577 6.67 % $ 3,014,537 $ 48,940 6.53 % Investment securities – taxable 510,354 4,692 3.73 % 554,081 5,511 4.00 % Investment securities – non-taxable 153,229 1,014 2.68 % 156,254 1,024 2.64 % Other interest-earning assets (2) 386,979 3,859 4.04 % 298,969 3,475 4.67 % Total interest-earning assets 4,125,130 60,142 5.91 % 4,023,841 58,950 5.89 % Noninterest-earning assets 171,683 184,293 Total assets $ 4,296,813 $ 4,208,134 Liabilities and Stockholders’ Equity: Interest-bearing liabilities: NOW, savings and money market deposits $ 2,302,344 $ 15,511 2.73 % $ 2,285,981 $ 17,997 3.17 % Time deposits 441,895 4,316 3.96 % 374,852 3,666 3.93 % Short-term borrowings 3 — — % 3 — — % Notes payable & other longer-term borrowings — — — % — — — % Subordinated debt 63,984 835 5.29 % 63,798 835 5.26 % Junior subordinated deferrable interest debentures 46,393 733 6.41 % 46,393 861 7.46 % Total interest-bearing liabilities $ 2,854,619 $ 21,395 3.04 % $ 2,771,027 $ 23,359 3.39 % Noninterest-bearing liabilities: Noninterest-bearing deposits $ 934,775 $ 958,334 Other liabilities 66,073 70,860 Total noninterest-bearing liabilities 1,000,848 1,029,194 Stockholders’ equity 441,346 407,913 Total liabilities and stockholders’ equity $ 4,296,813 $ 4,208,134 Net interest income $ 38,747 $ 35,591 Net interest spread 2.87 % 2.50 % Net interest margin (3) 3.81 % 3.56 % (1) Average loan balances include nonaccrual loans and loans held for sale. (2) Includes income and average balances for interest-earning deposits at other banks, nonmarketable securities, federal funds sold, and other miscellaneous interest-earning assets. (3) Net interest margin is calculated as the annualized net interest income, on a fully tax-equivalent basis, divided by average interest-earning assets. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to volume. Three Months Ended March 31, 2025 over 2024 Change due to: Total Volume Rate Variance (Dollars in thousands) Interest-earning assets: Loans $ 975 $ 662 $ 1,637 Investment securities – taxable (435 ) (384 ) (819 ) Investment securities – non-taxable (20 ) 10 (10 ) Other interest-earning assets 1,023 (639 ) 384 Total interest-earning assets 1,543 (351 ) 1,192 Interest-bearing liabilities: NOW, Savings, MMDAs 129 (2,615 ) (2,486 ) Time deposits 656 (6 ) 650 Short-term borrowings — — — Notes payable & other borrowings — — — Subordinated debt 2 (2 ) — Junior subordinated deferrable interest debentures — (128 ) (128 ) Total interest-bearing liabilities 787 (2,751 ) (1,964 ) Net change $ 756 $ 2,400 $ 3,156 Net interest income for the three months ended March 31, 2025 was $38.5 million, compared to $35.4 million for the three months ended March 31, 2024, an increase of $3.2 million, or 8.9%. The increase in net interest income was comprised of an increase of $1.2 million, or 2.0%, in interest income and a decrease of $2.0 million, or 8.4%, in interest expense. The growth in interest income was attributable to an increase of $1.6 million in loan interest income, partially offset by a decrease of $829 thousand in interest income from securities. The increase in loan interest income was mainly due to growth of $60.0 million in average loans outstanding and a 14 basis point increase in the yield on loans. The decrease in interest income on securities was primarily due to a decrease of $46.8 million in average securities outstanding and a 23 basis point decline in the yield on securities. 29 Table of Contents 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. Provision for Credit Losses Credit risk is inherent in the business of making loans. We establish an allowance for credit losses (“ACL”) through charges to earnings, which are shown in the consolidated statements of comprehensive income (loss) as the provision for credit losses. Credit losses on loans are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. The provision for credit losses is determined by conducting a quarterly evaluation of the adequacy of our ACL and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for credit losses and the amount of allowance for each period are dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas. 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. For further discussion regarding the provision for credit losses and management’s assessment of the adequacy of the ACL for loans, see “Allowance for Credit Losses for Loans” and “Asset Quality” under “Financial Condition” in this Item 2, below. Noninterest Income While interest income remains the largest single component of total revenues, noninterest income is an important contributing component. The largest portion of our noninterest income is associated with our mortgage banking activities. Other sources of noninterest income include service charges on deposit accounts, bank card services and interchange fees. The following table sets forth the major components of our noninterest income for the periods indicated: Three Months Ended March 31, 2025 2024 Increase (Decrease) (Dollars in thousands) Noninterest income: Service charges on deposit accounts $ 2,141 $ 1,813 $ 328 Bank card services and interchange fees 3,379 3,061 318 Mortgage banking activities 2,113 3,945 (1,832 ) Investment commissions 434 434 — Fiduciary income 738 754 (16 ) Other income and fees (1) 1,820 1,402 418 Total noninterest income $ 10,625 $ 11,409 $ (784 ) (1) 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. 30 Table of Contents Service charges on deposit accounts - Income from service charges on deposit accounts increased $328 thousand, or 18.1%, for the three months ended March 31, 2025 as compared to the same period in 2024. The increase was primarily the result of treasury management initiatives taken to drive growth throughout 2024. 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 2024. The increase was primarily the result of an increase of $246 thousand in income from sweep accounts. Noninterest Expense The following table sets forth the major components of our noninterest expense for the periods indicated: Three Months Ended March 31, 2025 2024 Increase (Decrease) (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 19,441 $ 18,988 $ 453 Occupancy expense, net 4,027 3,920 107 Professional services 1,730 1,483 247 Marketing and development 905 754 151 IT and data services 1,164 990 174 Bankcard expenses 1,454 1,397 57 Appraisal expenses 192 227 (35 ) Other expenses (1) 4,117 4,171 (54 ) Total noninterest expense $ 33,030 $ 31,930 $ 1,100 (1) 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%. Significant 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 $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. Total 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. 31 Table of Contents Loan Portfolio Our loans represent the largest portion of earning assets, greater than our securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition. 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 $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: Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Fifteen Years Due after Fifteen Years Total (Dollars in thousands) Commercial real estate $ 200,456 $ 541,206 $ 316,798 $ 68,340 $ 1,126,800 Commercial - specialized 115,698 134,926 70,767 45,405 366,796 Commercial - general 120,464 212,434 160,800 91,007 584,705 Consumer: 1-4 family residential 33,502 110,497 99,583 326,217 569,799 Auto loans 2,963 178,396 80,270 — 261,629 Other consumer 7,660 39,110 17,320 — 64,090 Construction 81,084 17,750 1,686 1,521 102,041 Total loans $ 561,827 $ 1,234,319 $ 747,224 $ 532,490 $ 3,075,860 The following table shows the distribution between fixed and adjustable interest rate loans for maturities greater than one year as of March 31, 2025: Fixed Rate Adjustable Rate (Dollars in thousands) Commercial real estate $ 362,077 $ 564,267 Commercial - specialized 87,569 163,529 Commercial - general 187,195 277,046 Consumer: 1-4 family residential 327,317 208,980 Auto loans 258,666 — Other consumer 56,425 5 Construction 6,372 14,585 Total loans $ 1,285,621 $ 1,228,412 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. The Bank is primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout Texas and Eastern New Mexico. We have a collateral concentration, as 73.7% of our loans were secured by real property as of March 31, 2025, compared to 73.7% as of December 31, 2024. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout the areas we serve. Although the Bank has diversified portfolios, its debtors’ ability to honor their contracts is substantially dependent upon the general economic conditions of the markets in which it operates, which consist primarily of agribusiness, wholesale/retail, oil and gas and related businesses, healthcare industries and institutions of higher education. Commercial real estate loans and residential construction loans represent 40.0% of loans held for investment as of March 31, 2025 and represented 40.1% as of December 31, 2024. Further, 97% of the total dollar amount of these loans are secured by collateral located in the state of Texas. 32 Table of Contents We have established concentration limits in the loan portfolio for commercial real estate loans and unsecured lending, among other loan types. All loan types are within established limits. We use underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur. Commercial Real Estate . Our commercial real estate portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of commercial real estate investment properties and residential developments. Commercial real estate loans are subject to underwriting standards and processes similar to our commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are diversified by type and geographic location. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry. 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 . Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed, and to ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and typically include personal guarantees. Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties. Commercial loans are grouped into two distinct sub-categories: specialized and general. Commercial related loans that are considered “specialized” include agricultural production and real estate loans, energy loans, and finance, investment, and insurance loans. Commercial related loans that contain a broader diversity of borrowers, sub-industries, or serviced industries are grouped into the “general category.” These include goods, services, restaurant & retail, construction, and other industries. Performance of these loans is subject to operating and cash flow results of the borrower, with risk in the volatility of operating results for particular industries. 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. Consumer . We utilize a computer-based credit scoring analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize our risk. Residential real estate loans are included in consumer loans. We generally require mortgage title insurance and hazard insurance on these residential real estate loans. All consumer loans are generally dependent on the risk 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 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 . Loans for residential construction are for single-family properties to developers, builders, or end-users. These loans are underwritten based on estimates of costs and completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control costs of the projects. 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. 33 Table of Contents The commercial real estate and construction categories comprise the Company’s nonowner-occupied real estate loans. Total nonowner-occupied real estate loans were $1.23 billion at March 31, 2025 and $1.22 billion at December 31, 2024. Nonowner-occupied commercial real estate loans are made up of income-producing commercial real estate property loans and construction, acquisition, and development property loans. As of March 31, 2025, total income-producing commercial real estate property loans totaled $878.0 million and was comprised of $309.6 million of multi-family property loans, $183.8 million of retail property loans, $141.2 million of office property loans, $39.2 million in hospitality loans, and $204.2 million in other property loans. Other property loans include types such as industrial, warehouse, mini-storage, and convenience stores. As of March 31, 2025, total construction, acquisition, and development property loans totaled $350.9 million and was comprised of $102.0 million in residential construction property loans and $248.8 million of commercial construction and other land development loans. The weighted average loan-to-value of income-producing nonowner-occupied commercial real estate loans was approximately 55% at March 31, 2025. The weighted average loan-to-value of nonowner-occupied office commercial real estate loans was approximately 58% at March 31, 2025. 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. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit to our customers is represented by the contractual or notional amount of those instruments. Commitments to extend credit and standby letters of credit are not recorded as an asset or liability by the Company until the instrument is exercised. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. 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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. The amount and nature of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the potential borrower. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private short-term borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral supporting those commitments for which collateral is deemed necessary. The following table summarizes commitments we have made as of the dates presented. March 31, 2025 December 31, 2024 (Dollars in thousands) Commitments to grant loans and unfunded commitments under lines of credit $ 582,641 $ 537,688 Standby letters of credit 17,302 18,696 Total $ 599,943 $ 556,384 Allowance for Credit Losses for Loans The ACL for loans is established for future expected credit losses through a provision for credit losses charged to earnings. Management evaluates the appropriate level of the ACL on a quarterly basis. The analysis takes into consideration the results of an ongoing loan review process, the purpose of which is to determine the level of credit risk within the portfolio and to ensure proper adherence to underwriting and documentation standards. Additional allowances are provided to those loans which appear to represent a greater than normal exposure to risk. The quality of the loan portfolio and the adequacy of the ACL is assessed by regulatory examinations and the Company’s internal and external loan reviews. The ACL consists of two elements: (1) specific valuation allowances established for expected losses on specifically analyzed loans and (2) collective valuation allowances calculated using comparable and quantifiable information from both internal and external sources about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Expected credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments. 34 Table of Contents To determine the adequacy of the ACL on loans, the Company applied a dual credit risk rating (“DCRR”) methodology that estimates each loan’s probability of default and loss given default to calculate the expected credit loss to non-analyzed loans. The DCRR process quantifies the expected credit loss at the loan level for the entire loan portfolio. Loan grades are assigned by a customized scorecard that risk rates each loan based on multiple probability of default and loss given default elements to measure the risk of the loan portfolio. The ACL estimate incorporates the Company’s DCRR loan level risk rating methodology and the expected default rate frequency term structure to derive loan level life of loan estimates of credit losses for every loan in the portfolio. The estimated credit loss for each loan is adjusted based on one-year through the cycle estimate of expected credit loss to a life of loan measurement that reflects current conditions and forecasts. The life of loan expected loss is determined using the contractual weighted average life of the loan adjusted for prepayments. Prepayment speeds are determined by grouping the loans into pools based on segments and risk rating. After the life of loan expected losses are determined, they are adjusted to reflect the Company’s reasonable and supportable economic forecast over a selected range of a one to two years. The Company has developed regression models to project net charge-off rates based on macroeconomic variables (“MEVs”), typically a one-year period is used. MEV’s considered in the analysis consist of data gathered from the St. Louis Federal Reserve Research Database (“FRED”), such as, federal funds rate, 10-year treasury rates, 30-year mortgage rates, crude oil prices, consumer price index, housing price index, unemployment rates, housing starts, gross domestic product, and disposable personal income. These regression models are applied to the Company’s economic forecast to determine the corresponding net charge-off rates. The projected net charge-off rates for the given economic scenario are used to adjust the through the cycle expected losses. Qualitative adjustments are also made to ACL results for additional risk factors that are relevant in assessing the expected credit losses within our loan segments. These qualitative factor (“Q-Factor”) adjustments may increase or decrease management’s estimate of the ACL by a calculated percentage based upon the estimated level of perceived risk within a particular segment. Q-Factor risk decisions consider concentrations of the loan portfolio, expected changes to the economic forecasts, large relationships, and other factors related to credit administration, such as borrower’s risk rating and the potential effect of delayed credit score migrations. Management quantifiably identifies segment percentage Q-Factor adjustments using a scorecard risk rating system scaled to historical loss experience within a segment and management’s perceived 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. 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 $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 March 31, 2025 2024 (Dollars in thousands) Average loans outstanding during the period Commercial real estate $ 1,128,386 $ 1,089,341 Commercial – specialized 379,824 360,360 Commercial – general 561,992 519,889 Consumer: 1-4 family residential 565,967 538,260 Auto loans 258,942 298,551 Other consumer 64,319 73,071 Construction 102,321 121,925 Loans held for sale 12,817 13,140 Total average loans outstanding during the period $ 3,074,568 $ 3,014,537 Net charge-offs (recoveries) during the period Commercial real estate $ — $ 86 Commercial – specialized (34 ) (33 ) Commercial – general 54 342 Consumer: 1-4 family residential (7 ) 170 Auto loans 256 159 Other consumer 255 223 Construction (5 ) — Total net charge-offs (recoveries) during the period $ 519 $ 947 Ratio of net charge-offs (recoveries) to average loans during the period Commercial real estate — % 0.01 % Commercial – specialized (0.01 )% (0.01 )% Commercial – general 0.01 % 0.07 % Consumer: 1-4 family residential — % 0.03 % Auto loans 0.10 % 0.05 % Other consumer 0.40 % 0.31 % Construction — % — % Total ratio of net charge-offs (recoveries) to average loans during the period 0.02 % 0.03 % 35 Table of Contents The following table provides other loan data as of the dates indicated. March 31, December 31, 2025 2024 (Dollars in thousands) Total loans held for investment outstanding $ 3,075,860 $ 3,055,054 Nonaccrual loans $ 1,853 $ 22,102 Allowance for credit losses $ 42,968 $ 43,237 Ratio of allowance to total loans held for investment 1.40 % 1.42 % Ratio of allowance to nonaccrual loans 2,318.83 % 195.62 % Ratio of nonaccrual loans to total loans held for investment 0.06 % 0.72 % 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 in 2024. 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: March 31, 2025 December 31, 2024 Amount % of Total Amount % of Total (Dollars in thousands) Commercial real estate $ 15,787 36.7 % $ 15,973 36.9 % Commercial – specialized 4,523 10.5 % 4,640 10.7 % Commercial – general 6,403 14.9 % 6,874 15.9 % Consumer: 1-4 family residential 10,079 23.5 % 9,677 22.4 % Auto loans 3,096 7.2 % 3,015 7.0 % Other consumer 1,107 2.6 % 1,115 2.6 % Construction 1,973 4.6 % 1,943 4.5 % Total allowance for credit losses $ 42,968 100.0 % $ 43,237 100.0 % Asset Quality Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable. 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 evaluation. Income from loans on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we analyze loans for specific allowance based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The specific allowance amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve. 36 Table of Contents Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. OREO and repossessed assets are reported as foreclosed assets. Nonperforming loans include nonaccrual loans and loans past due 90 days or more. Nonperforming assets consist of nonperforming loans plus foreclosed assets. At March 31, 2025, our total nonaccrual loans were $1.9 million, or 0.06% of total loans held for investment, as compared to $22.1 million, or 0.72% of total loans held for investment, at December 31, 2024. These loans within this amount that exceeded $250 thousand were specifically analyzed and specific valuation allowances were established as necessary and included in the ACL for loans as of March 31, 2025 to cover any probable loss. 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 reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL for loans. Typically, one type of concession, such as term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. In some cases, the Company provides multiple types of concessions on one loan. The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Upon the Company’s determination that a modified loan has subsequently been deemed to not be fully collectible, the uncollectible amount is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL for loans is adjusted by the same amount. If a borrower on a restructured accruing loan has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under the restructured terms, the loan will remain on accrual status. Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of payments. Securities Portfolio The securities portfolio is the second largest component of the Company’s interest-earning assets, and the structure and composition of this portfolio is important to an analysis of the financial condition of the Company. The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning asset when loan demand is weak or when deposits grow more rapidly than loans. The securities portfolio consists of securities classified as either held-to-maturity or available-for-sale. Securities consist primarily of state and municipal securities, mortgage-backed securities and U.S. government sponsored agency securities. We determine the appropriate classification at the time of purchase. All held-to-maturity securities are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. All available-for-sale securities are reported at fair value. 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 March 31, 2025, the fair value of the Company’s available for sale securities was $86.1 million lower than the amortized cost. At March 31, 2025, the Company evaluated whether the decline in fair value has resulted from credit losses or other factors. Within this evaluation, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agency, and adverse conditions specifically related to the security, among other factors. Based on management’s evaluation no unrealized losses on securities were determined to be due to credit loss. Additionally, we anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity, thus no ACL or losses have been recognized or realized in the consolidated financial statements for securities in the portfolio. 37 Table of Contents The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay an obligation with or without call or prepayment penalties. As of March 31, 2025 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Ten Years Due after Ten Years Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield (Dollars in thousands) Available-for-sale State and municipal $ 2,311 1.79 % $ 4,997 2.44 % $ 9,176 2.50 % $ 181,687 2.30 % Residential mortgage-backed securities 28 1.94 % 1,707 2.02 % 653 2.96 % 311,763 2.19 % Commercial mortgage-backed securities — — % — — % 46,265 2.22 % — 0.00 % Collateralized mortgage obligations — — % — — % 66,569 5.00 % 4,861 5.19 % Asset-backed and other amortizing securities — — % — — % 2,626 3.16 % 13,018 2.75 % Other securities — — % — — % 12,000 4.47 % — 0.00 % Total available-for-sale $ 2,339 1.79 % $ 6,704 2.33 % $ 137,289 3.81 % $ 511,329 2.27 % As of December 31, 2024 Due in One Year or Less Due after One Year Through Five Years Due after Five Years Through Ten Years Due after Ten Years Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield Amortized Cost Weighted Average Yield (Dollars in thousands) Available-for-sale State and municipal $ 2,919 1.75 % $ 4,508 2.30 % $ 3,388 2.18 % $ 188,773 2.29 % Residential mortgage-backed securities — — % 1,976 2.04 % 693 2.82 % 318,352 2.19 % Commercial mortgage-backed securities — — % — — % 46,601 2.22 % — — % Collateralized mortgage obligations — — % — — % 68,780 5.26 % 4,917 5.23 % Asset-backed and other amortizing securities — — % — — % 2,864 3.16 % 13,243 2.75 % Other securities — — % — — % 12,000 4.47 % — — % Total available-for-sale $ 2,919 1.75 % $ 6,484 2.22 % $ 134,326 4.00 % $ 525,285 2.27 % Deposits Deposits represent the Company’s primary and most vital source of funds. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. 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 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. 38 Table of Contents The following table shows the deposit mix as of the dates presented: March 31, 2025 December 31, 2024 Amount % of Total Amount % of Total (Dollars in thousands) Noninterest-bearing deposits $ 966,464 25.5 % $ 935,510 25.8 % NOW and other transaction accounts 1,302,642 34.3 % 498,718 13.8 % Money market and other savings 1,082,596 28.6 % 1,741,988 48.1 % Time deposits 440,817 11.6 % 444,660 12.3 % Total deposits $ 3,792,519 100.0 % $ 3,620,876 100.0 % 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 Three Months Ended March 31, 2025 March 31, 2024 Average Balance Weighted Average Rate Average Balance Weighted Average Rate (Dollars in thousands) Noninterest-bearing deposits $ 934,775 — % $ 958,334 — % Interest-bearing deposits: NOW and interest-bearing demand accounts 922,631 2.97 % 498,800 3.71 % Savings accounts 134,284 0.81 % 136,359 0.92 % Money market accounts 1,245,429 2.76 % 1,650,822 3.19 % Time deposits 441,895 3.96 % 374,852 3.93 % Total interest-bearing deposits 2,744,239 2.93 % 2,660,833 3.27 % Total deposits $ 3,679,014 2.19 % $ 3,619,167 2.41 % 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) Three Months Three to Six Months Six to 12 Months After 12 Months Total $ 38,803 $ 41,395 $ 28,308 $ 6,340 $ 114,846 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 utilize advances from the FHLB and other borrowings as a supplementary funding source to finance our operations. FHLB Advances . The FHLB allows us to borrow, both short and long-term, on a blanket floating lien status collateralized by first mortgage loans and commercial real estate loans as well as FHLB stock. At March 31, 2025 and December 31, 2024, we had total remaining borrowing capacity from the FHLB of $1.13 billion and $1.11 billion, respectively, with no outstanding balance. We had no FHLB borrowings during the three months ended March 31, 2025 or 2024. 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 . The Bank has a line of credit with the Federal Reserve Bank of Dallas (the “FRB”). The amount of the line is determined on a monthly basis by the FRB. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $655.9 million and $654.0 million at March 31, 2025 and December 31, 2024, respectively, with no outstanding balance. We had no long-term FRB borrowings during the three months ended March 31, 2025 or 2024. 39 Table of Contents Lines of Credit . The Bank has uncollateralized lines of credit with multiple banks as a source of funding for liquidity management. The total amount of the lines was $140.0 million as of March 31, 2025 and December 31, 2024. The lines were not used, other than testing during the three months ended March 31, 2025 or the three months ended March 31, 2024. Subordinated Debt . In December 2018, the Company issued $14.1 million of subordinated notes that have a maturity date of December 2030 and an average fixed rate of 6.41% for the first seven years. After the fixed rate periods, these notes will float at the Wall Street Journal prime rate, with a floor of 4.0% and a ceiling of 7.5%. These notes pay interest quarterly, 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. On September 29, 2020, the Company issued $50.0 million in subordinated notes. Proceeds were reduced by approximately $926 thousand in debt issuance costs. These notes have a maturity date of September 2030 with a fixed rate of 4.50% for the first five years. After the expiration of the fixed rate period, these notes will reset quarterly at a variable rate equal to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 438 basis points. These notes pay interest semi-annually, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these notes are intended to qualify for Tier 2 capital treatment, subject to regulatory limitations. 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 . Between March 2004 and June 2007, the Company formed three wholly-owned statutory business trusts solely for the purpose of issuing trust preferred securities, the proceeds of which were invested in junior subordinated deferrable interest debentures. The trusts are not consolidated and the debentures issued by the Company to the trusts are reflected in the Company’s consolidated balance sheets. The Company records interest expense on the debentures in its consolidated financial statements. The amount of debentures outstanding was $46.4 million at March 31, 2025 and December 31, 2024. The Company has the right, as has been exercised in the past, to defer payments of interest on the securities for up to twenty consecutive quarters. During such time, corporate dividends may not be paid. 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 the interest rates on the junior subordinated deferrable interest debentures. Name of Trust Issue Date Amount of Trust Preferred Securities Amount of Debentures Stated Maturity Date of Trust Preferred Securities and Debentures (1) Interest Rate of Trust Preferred Securities and Debentures (2)(3) (Dollars in thousands) South Plains Financial Capital Trust III 2004 $ 10,000 $ 10,310 2034 3-mo. CME Term SOFR + 291 bps; 7.20% South Plains Financial Capital Trust IV 2005 20,000 20,619 2035 3-mo. CME Term SOFR + 165 bps; 5.95% South Plains Financial Capital Trust V 2007 15,000 15,464 2037 3-mo. CME Term SOFR + 176 bps; 6.06% Total $ 45,000 $ 46,393 (1) May be redeemed at the Company’s option. (2) Interest payable quarterly with principal due at maturity. (3) Rate as of last reset date, prior to March 31, 2025. 40 Table of Contents Liquidity and Capital Resources Liquidity Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders. Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the Federal Reserve discount window. At March 31, 2025, the Bank had the capacity to borrow funds from the FHLB and the Federal Reserve discount window of up to approximately $1.13 billion and $655.9 million, respectively. 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 increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis. Management believes that the Company has adequate liquidity to meet its obligations. However, if general economic conditions, 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, increased competition for deposits and related changes in deposit customer behavior, changes in market interest rates, the resurgence of elevated levels of inflation or inflationary pressures in the United States and our market areas, or other events, cause these sources of external funding to become restricted or are eliminated, the Company may not be able to raise adequate funds or may incur substantially higher funding costs or operating restrictions in order to raise the necessary funds to support the Company’s operations and growth. Capital 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. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for “prompt corrective action” (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and ratio of common equity tier 1 (“CET1”) capital, tier 1 capital and total capital to risk-weighted assets and of tier 1 capital to average consolidated assets, referred to as the “leverage ratio.” The risk-based capital ratios measure the adequacy of a bank’s capital against the riskiness of its assets and off-balance sheet activities. Failure to maintain adequate capital is a basis for “prompt corrective action” or other regulatory enforcement action. In assessing a bank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level of earnings; concentrations of credit, quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and management’s overall ability to monitor and control risks. As of March 31, 2025 and December 31, 2024, both we and the Bank met all the capital adequacy requirements to which we and the Bank were subject. At March 31, 2025, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since March 31, 2025 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status. 41 Table of Contents 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. March 31, 2025 December 31, 2024 Amount Ratio Amount Ratio (Dollars in thousands) Consolidated. : Total capital (to risk-weighted assets) $ 634,025 17.93 % $ 631,713 17.86 % Tier 1 capital (to risk-weighted assets) 525,802 14.87 % 523,535 14.80 % CET 1 capital (to risk-weighted assets) 480,802 13.59 % 478,535 13.53 % Tier 1 capital (to average assets) 525,802 12.04 % 523,535 12.04 % City Bank: Total capital (to risk-weighted assets) $ 521,334 14.74 % $ 520,788 14.73 % Tier 1 capital (to risk-weighted assets) 477,127 13.49 % 476,574 13.48 % CET 1 capital (to risk-weighted assets) 477,127 13.49 % 476,574 13.48 % Tier 1 capital (to average assets) 477,127 10.93 % 476,574 10.96 % Community Bank Leverage Ratio On September 17, 2019, the federal banking agencies jointly finalized a rule to be effective January 1, 2020 and intended to simplify the regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio (“CBLR”) framework, as required by Section 201 of the EGRRCPA. The final rule became effective on January 1, 2020, and the CBLR framework became available for banks to use beginning with their March 31, 2020 Call Reports. Under the final rule, if a qualifying community banking organization opts into the CBLR framework and meets all requirements under the framework, it will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations described above and will not be required to report or calculate risk-based capital. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. Although the Company and the Bank are qualifying community banking organizations, the Company and the Bank have elected not to opt in to the CBLR framework at this time and will continue to follow the Basel III capital requirements as described above. Treasury Stock The Company repurchased stock in accordance with its previously-announced stock repurchase program during the three months ended March 31, 2025, repurchasing 250,000 shares of common stock for a total of $8.3 million. These shares were retired immediately upon repurchase by the Company and not included in treasury stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Form 10-Q for further information. Interest Rate Sensitivity and Market Risk As a financial institution, our primary component of market risk is interest rate volatility. Our interest rate risk policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines. Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on the Company’s net interest income. Interest rate-sensitive assets and liabilities are those with yields or rates that are subject to change within a future time period due to maturity or changes in market rates. The model is used to project future net interest income under a set of possible interest rate movements. The Company’s Investment/Asset Liability Committee (“ALCO Committee”) reviews this information to determine compliance with the limits set by the Bank’s board of directors. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets. Our exposure to interest rate risk is managed by the ALCO Committee, in accordance with policies approved by the Bank’s board of directors. The ALCO Committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO Committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO Committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO Committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model. 42 Table of Contents We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model. The average lives of non-maturity deposit accounts are based on decay assumptions and are incorporated into the model. All of the assumptions used in our analyses are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies. On a quarterly basis, we run a simulation model for a static balance sheet and other scenarios. These models test the impact on net interest income from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for gradual parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 7.5% for a 100 basis point shift, 15% for a 200 basis point shift, and 22.5% for a 300 basis point shift. The following table summarizes the simulated change in net interest income over a 12-month horizon as of the dates indicated: March 31, 2025 December 31, 2024 Change in Interest Rates (Basis Points) Percent Change in Net Interest Income Percent Change in Net Interest Income +300 (3.53 ) (4.63 ) +200 (2.25 ) (3.02 ) +100 (1.13 ) (1.54 ) -100 0.05 0.01 -200 0.55 1.69 Impact of Inflation 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. Management believes the impact of inflation on financial results depends upon the Company’s ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. However, other operating expenses do reflect general levels of inflation. Management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation. Various information shown elsewhere in this Report will assist in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends. In particular, additional information related to the Company’s interest rate-sensitive assets and liabilities is contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report under the heading “Interest Rate Sensitivity and Market Risk.” Non-GAAP Financial Measures Our accounting and reporting policies conform to GAAP and the prevailing practices in the banking industry. However, we also evaluate our performance based on certain additional financial measures discussed in this Report as being non-GAAP financial measures. We classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the U.S. in our consolidated statements of comprehensive income (loss), balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both. 43 Table of Contents The non-GAAP financial measures that we discuss in this Report should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this Report may differ from that of other companies reporting measures with similar names. It is important to understand how other banking organizations calculate their financial measures with names similar to the non-GAAP financial measures we have discussed in this Report when comparing such non-GAAP financial measures. Tangible Book Value Per Common Share . Tangible book value per share is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. The most directly comparable GAAP financial measure for tangible book value per common share is book value per common share. We believe that the tangible book value per common share measure is important to many investors in the marketplace who are interested in changes from period to period in book value per common share exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing our tangible book value. Tangible Common Equity to Tangible Assets . Tangible common equity to tangible assets is a non-GAAP measure generally used by investors, financial analysts and investment bankers to evaluate financial institutions. We calculate tangible common equity, as described above, and tangible assets as total assets less goodwill, core deposit intangibles and other intangible assets, net of accumulated amortization. The most directly comparable GAAP financial measure for tangible common equity to tangible assets is total common stockholders’ equity to total assets. We believe that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period of tangible common equity to tangible assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both total stockholders’ equity and assets while not increasing our tangible common equity or tangible assets. The following table reconciles, as of the dates set forth below, total stockholders’ equity to tangible common equity and total assets to tangible assets and then presents book value per common share, tangible book value per common share, total stockholders’ equity to total assets, and tangible common equity to tangible assets: March 31, 2025 December 31, 2024 (Dollars in thousands) Total stockholders’ equity $ 443,743 $ 438,949 Less: Goodwill and other intangibles (20,884 ) (21,035 ) Tangible common equity $ 422,859 $ 417,914 Total assets $ 4,405,209 $ 4,232,239 Less: Goodwill and other intangibles (20,884 ) (21,035 ) Tangible assets $ 4,384,325 $ 4,211,204 Shares outstanding 16,235,647 16,455,826 Total stockholders’ equity to total assets 10.07 % 10.37 % Tangible common equity to tangible assets 9.64 % 9.92 % Book value per share $ 27.33 $ 26.67 Tangible book value per share $ 26.05 $ 25.40 Critical Accounting Policies and Estimates Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare consolidated financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the consolidated financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our consolidated financial statements. We evaluate our estimates on an ongoing basis. 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. Additional 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. The ACL for loans is affected by charge-offs, recoveries and the provision for credit losses on loans. 44 Table of Contents The ACL for loans is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the ACL for loans is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Mortgage Servicing Rights. When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value with the consolidated statement of comprehensive income (loss) effect recorded in net gain on sale of loans. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model administered by a third-party that calculates present value of estimated future servicing income. The fair values of servicing rights are subject to significant fluctuations in valuation model assumptions as a result of changes in estimated and actual prepayment speeds and default rates and losses. Estimating prepayment speed and/or discount rates within ranges that market participants would use in determining the fair value of the MSR requires significant management judgment. Recently Issued Accounting Pronouncements See Note 1, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements included elsewhere in this Form 10-Q regarding the impact of new accounting pronouncements.