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What changed in SOUTH PLAINS FINANCIAL, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SOUTH PLAINS FINANCIAL, INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+181 added−495 removedSource: 10-K (2025-03-07) vs 10-K (2024-03-15)

Top changes in SOUTH PLAINS FINANCIAL, INC.'s 2024 10-K

181 paragraphs added · 495 removed · 145 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

72 edited+19 added−16 removed242 unchanged
Biggest changeThe 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).
Biggest changeThe 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.
We also operate 8 loan production offices both in our banking markets and in certain key areas in Texas that focus on mortgage loan origination. We build long-lasting relationships with our customers by delivering high quality products and services and have sought to capitalize on the opportunities presented by continued consolidation in the banking industry.
We also operate 7 loan production offices both in our banking markets and in certain key areas in Texas that focus on mortgage loan origination. We build long-lasting relationships with our customers by delivering high-quality products and services and have sought to capitalize on the opportunities presented by continued consolidation in the banking industry.
The Bank’s legal lending limit to any one borrower was approximately $112.7 million as of December 31, 2023. Safety and Soundness Standards / Risk Management . The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
The Bank’s legal lending limit to any one borrower was approximately $112.7 million as of December 31, 2024. Safety and Soundness Standards / Risk Management . The federal banking agencies have adopted guidelines establishing operational and managerial standards to promote the safety and soundness of federally insured depository institutions.
Significant recent CFPB developments include: • continued focus on fair lending, including promoting racial and economic equity for underserved, vulnerable and marginalized communities; • focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, deposit, overdraft, non-sufficient funds, representment fees and other services fees, mortgage origination and servicing, and remittances, among others; and • rulemaking plans concerning, among others, consumers’ access to their financial information and requirements for financial institutions to collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses.
Significant recent CFPB developments include: • continued focus on fair lending, including promoting racial and economic equity for underserved, vulnerable and marginalized communities; 20 Table of Contents • focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, deposit, overdraft, non-sufficient funds, representment fees and other services fees, mortgage origination and servicing, and remittances, among others; and • rulemaking plans concerning, among others, consumers’ access to their financial information and requirements for financial institutions to collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses.
Permissible Activities . The BHCA and the implementing regulations of the Federal Reserve generally prohibit the Company from controlling or engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions.
The BHCA and the implementing regulations of the Federal Reserve generally prohibit the Company from controlling or engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions.
Our Board requires new loans over $5 million to relationships in excess of $20 million to be reported to the Board Credit Risk Committee. As of December 31, 2023, the Bank had a legal lending limit of approximately $112.7 million.
Our Board requires new loans over $5 million to relationships in excess of $20 million to be reported to the Board Credit Risk Committee. As of December 31, 2024, the Bank had a legal lending limit of approximately $112.7 million.
A key focus of the CFPB is whether an act or practice hinders a consumer’s decision-making. Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
A key focus of the CFPB is whether an act or practice hinders a consumer’s decision-making. 21 Table of Contents Incentive Compensation Guidance The federal bank regulatory agencies have issued comprehensive guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of those organizations by encouraging excessive risk-taking.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Impact of Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. 22 Table of Contents Impact of Monetary Policy The monetary policy of the Federal Reserve has a significant effect on the operating results of financial or bank holding companies and their subsidiaries.
As of December 31, 2023, the Bank was eligible to accept brokered deposits without a waiver from the FDIC as the Bank was a well-capitalized institution. Deposit Insurance . As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
As of December 31, 2024, the Bank was eligible to accept brokered deposits without a waiver from the FDIC as the Bank was a well-capitalized institution. Deposit Insurance . As an FDIC-insured institution, the Bank is required to pay deposit insurance premiums to the FDIC.
An institution may borrow from the Federal Reserve “discount window” as a secondary source of funds if the institution meets the Federal Reserve’s credit standards. Liquidity Requirements . Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures.
An institution may borrow from the Federal Reserve “discount window” as a secondary source of funds if the institution meets the Federal Reserve’s credit standards. 15 Table of Contents Liquidity Requirements . Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures.
On October 18, 2022, the FDIC adopted a final rule applicable to all insured depository institutions increasing initial base deposit insurance assessment rate schedules by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC also issued a notice maintaining a DIF reserve ratio of 2.0% for 2023.
On October 18, 2022, the FDIC adopted a final rule applicable to all insured depository institutions increasing initial base deposit insurance assessment rate schedules by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC also issued notices maintaining a DIF reserve ratio of 2.0% for 2023 and 2024 .
Market Area We operate in the following markets (deposit information is as of December 31, 2023): Lubbock/South Plains - We operate 10 branches holding $2.3 billion of deposits in the Lubbock metropolitan statistical area (“MSA”) and the surrounding South Plains region of Texas.
Market Area We operate in the following markets (deposit information is as of December 31, 2024): Lubbock/South Plains - We operate 10 branches holding $2.2 billion of deposits in the Lubbock metropolitan statistical area (“MSA”) and the surrounding South Plains region of Texas.
Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require. 11 Table of Contents Acquisitions, Activities and Change in Control .
Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of its operations and such additional information as the Federal Reserve may require. Acquisitions, Activities and Change in Control .
These asset review procedures provide management with additional information for assessing our asset quality and lending strategies. Investments We manage our securities portfolio primarily for liquidity purposes, including depositor and borrower funding requirements and availability as collateral for public fund deposits, with a secondary focus on interest income.
These asset review procedures provide management with additional information for assessing our asset quality and lending strategies. 7 Table of Contents Investments We manage our securities portfolio primarily for liquidity purposes, including depositor and borrower funding requirements and availability as collateral for public fund deposits, with a secondary focus on interest income.
A rebuttable presumption of control arises under the CIBC Act where a person (or persons acting in concert) controls 10% or more (but less than 25%) of a class of the voting securities of a bank or bank holding (i) which has registered securities under the Exchange Act, such as the Company, or (ii) no other person owns, controls, or holds the power to vote a greater percentage of any class of voting securities immediately after the transaction.
A rebuttable presumption of control arises under the CIBC Act where a person (or persons acting in concert) controls 10% or more (but less than 25%) of a class of the voting securities of a bank or bank holding (i) which has registered securities under the Exchange Act, such as the Company, or (ii) no other person owns, controls, or holds the power to vote a greater percentage of any class of voting securities immediately after the transaction. 12 Table of Contents Permissible Activities .
At December 31, 2023, 28% of our current staff had been with us for ten years or more. Our employees embody our commitment to excellence, innovation, and customer satisfaction, driving sustainable growth and delivering exceptional results in every aspect of our operations.
At December 31, 2024, approximately 31% of our current staff had been with us for ten years or more. Our employees embody our commitment to excellence, innovation, and customer satisfaction, driving sustainable growth and delivering exceptional results in every aspect of our operations.
We are unable to predict these future changes or the effects, if any, that these changes could have on our business or our revenues. 8 Table of Contents General We are extensively regulated under U.S. federal and state law.
We are unable to predict these future changes or the effects, if any, that these changes could have on our business or our revenues. General We are extensively regulated under U.S. federal and state law.
In addition, the GLBA imposed new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates. As of December 31, 2023, the Bank did not have any financial subsidiaries. Loans to Directors, Executive Officers and Principal Shareholders .
In addition, the GLBA imposed new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates. As of December 31, 2024, the Bank did not have any financial subsidiaries. 16 Table of Contents Loans to Directors, Executive Officers and Principal Shareholders .
The Bank does not receive this reporting relief based on the number of dwelling secured mortgage loans reported annually. 20 Table of Contents UDAP and UDAAP .
The Bank does not receive this reporting relief based on the number of dwelling secured mortgage loans reported annually. UDAP and UDAAP .
Consequently, any restrictions on the ability of the Bank to pay dividends to the Company may, in turn, restrict the ability of the Company to pay dividends to shareholders. As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2023. 15 Table of Contents Transactions with Affiliates .
Consequently, any restrictions on the ability of the Bank to pay dividends to the Company may, in turn, restrict the ability of the Company to pay dividends to shareholders. As described above, the Bank exceeded its minimum capital requirements under applicable regulatory guidelines as of December 31, 2024. Transactions with Affiliates .
The fee is based on the amount of the bank’s assets at rates established by the Finance Commission of Texas. During the year ended December 31, 2023, the Bank paid examination assessments to the TDB totaling $255,000. Capital Requirements . Banks are generally required to maintain minimum capital ratios.
The fee is based on the amount of the bank’s assets at rates established by the Finance Commission of Texas. During the year ended December 31, 2024, the Bank paid examination assessments to the TDB totaling $ 333 thousand. Capital Requirements . Banks are generally required to maintain minimum capital ratios.
Our trust department had $437 million of assets under management at December 31, 2023, and contributed $2.4 million of fee income for the year ended December 31, 2023. Investment Services The Investment Center at City Bank provides a variety of investments offered through Raymond James Financial Services, Inc.
Our trust department had $423 million of assets under management at December 31, 2024, and contributed $2.7 million of fee income for the year ended December 31, 2024. Investment Services The Investment Center at City Bank provides a variety of investments offered through Raymond James Financial Services, Inc.
Additional aspects of the Basel III Capital Rules’ risk-weighting requirements that are relevant to the Company and the Bank include: ● assigning exposures secured by single-family residential properties to either a 50% risk weight for first-lien mortgages that meet prudent underwriting standards or a 100% risk weight category for all other mortgages; ● providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (increased from 0% under the previous risk-based capital rules); ● assigning a 150% risk weight to all exposures that are nonaccrual or 90 days or more past due (increased from 100% under the previous risk-based capital rules), except for those secured by single-family residential properties, which will be assigned a 100% risk weight, consistent with the previous risk-based capital rules; ● applying a 150% risk weight instead of a 100% risk weight for certain high-volatility commercial real estate, or HVCRE, loans, or acquisition, development, and construction, or ADC, loans; and ● applying a 250% risk weight to the portion of mortgage servicing rights and deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks that are not deducted from CET1 capital (increased from 100% under the previous risk-based capital rules).
Additional aspects of the Basel III Capital Rules’ risk-weighting requirements that are relevant to the Company and the Bank include: ● assigning exposures secured by single-family residential properties to either a 50% risk weight for first-lien mortgages that meet prudent underwriting standards or a 100% risk weight category for all other mortgages; ● providing for a 20% credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (increased from 0% under the previous risk-based capital rules); ● assigning a 150% risk weight to all exposures that are nonaccrual or 90 days or more past due (increased from 100% under the previous risk-based capital rules), except for those secured by single-family residential properties, which will be assigned a 100% risk weight, consistent with the previous risk-based capital rules; ● applying a 150% risk weight instead of a 100% risk weight for certain high-volatility commercial real estate, or HVCRE, loans, or acquisition, development, and construction, or ADC, loans; and ● applying a 250% risk weight to the portion of mortgage servicing rights and deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks that are not deducted from CET1 capital (increased from 100% under the previous risk-based capital rules). 10 Table of Contents As of December 31, 2024, the Company’s and the Bank’s capital ratios exceeded the minimum capital adequacy guideline percentage requirements under the Basel III Capital Rules on a fully phased-in basis.
The increase in assessment rate schedules is intended to increase the likelihood that the DIF reserve ratio reaches the statutory minimum of 1.35% by September 30, 2028, the statutory deadline set by the Dodd-Frank Act.
The increase in assessment rate schedules is intended to increase the likelihood that the DIF reserve ratio be restored to at least the statutory minimum of 1.35% by September 30, 2028, the statutory deadline set by the Dodd-Frank Act.
As of December 31, 2023, the Bank’s total amount of lines of credit for loans to insiders and loans outstanding to insiders was $10.7 million. Limits on Loans to One Borrower . As a Texas banking association, the Bank is subject to limits on the amount of loans it can make to one borrower.
As of December 31, 2024, the Bank’s total amount of lines of credit for loans to insiders and loans outstanding to insiders was $65.2 million. Limits on Loans to One Borrower . As a Texas banking association, the Bank is subject to limits on the amount of loans it can make to one borrower.
Gross revenue derived from our investment services for the year ended December 31, 2023 was $1.7 million with $598.6 million in assets under management at December 31, 2023. SUPERVISION AND REGULATION The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us.
Gross revenue derived from our investment services for the year ended December 31, 2024 was $1.7 million with $605.7 million in assets under management at December 31, 2024. 8 Table of Contents SUPERVISION AND REGULATION The following is a general summary of the material aspects of certain statutes and regulations that are applicable to us.
While our mortgage operation represents a sizable component of our total noninterest income, comprising 17%, or $13.8 million, for the year ended December 31, 2023, we view the mortgage business as an ancillary part of our operations. Within our mortgage origination portfolio, refinances of existing mortgages represented 19% of total mortgage originations in the year ended December 31, 2023.
While our mortgage operation represents a sizable component of our total noninterest income, comprising 30%, or $14.2 million, for the year ended December 31, 2024, we view the mortgage business as an ancillary part of our operations. Within our mortgage origination portfolio, refinances of existing mortgages represented 19% of total mortgage originations in the year ended December 31, 2024.
Dallas - We operate three branches with $424.9 million of deposits and five loan production offices, which we refer to as mortgage offices, in the Dallas-Fort Worth-Arlington MSA, which we refer to as the Dallas-Fort Worth metroplex. El Paso - We operate two bank branches with $211.9 million of deposits and one mortgage office in the El Paso MSA.
Dallas - We operate three branches with $470.0 million of deposits and five loan production offices, which we refer to as mortgage offices, in the Dallas-Fort Worth-Arlington MSA, which we refer to as the Dallas-Fort Worth metroplex. El Paso - We operate two bank branches with $250.4 million of deposits and one mortgage office in the El Paso MSA.
Human Capital Resources As of December 31, 2023, we had approximately 618 total employees, which included 547 full-time employees and 71 part-time employees. None of our employees are covered under a collective bargaining agreement and management considers its employee relations to be satisfactory.
Human Capital Resources As of December 31, 2024, we had approximately 600 total employees, which included 528 full-time employees and 72 part-time employees. None of our employees are covered under a collective bargaining agreement and management considers its employee relations to be satisfactory.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be in violation of these obligations. 17 Table of Contents Among other requirements, federal laws, including the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act and as further amended by the National Defense Authorization Act for Fiscal Year 2021 (the “National Defense Authorization Act”), and implementing regulations, require banks to establish and maintain AML programs that include, at a minimum: ● internal policies, procedures and controls designed to implement and maintain the bank’s compliance with all of the requirements of the BSA, the USA PATRIOT Act, the National Defense Authorization Act and related laws and regulations; ● systems and procedures for monitoring and reporting suspicious transactions and activities; ● a designated compliance officer; ● employee training; ● an independent audit function to test the AML program; ● procedures to verify the identity of each customer upon the opening of accounts; and ● heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.
Among other requirements, federal laws, including the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act and as further amended by the National Defense Authorization Act for Fiscal Year 2021 (the “National Defense Authorization Act”), and implementing regulations, require banks to establish and maintain AML programs that include, at a minimum: ● internal policies, procedures and controls designed to implement and maintain the bank’s compliance with all of the requirements of the BSA, the USA PATRIOT Act, the National Defense Authorization Act and related laws and regulations; ● systems and procedures for monitoring and reporting suspicious transactions and activities; ● a designated compliance officer; ● employee training; 18 Table of Contents ● an independent audit function to test the AML program; ● procedures to verify the identity of each customer upon the opening of accounts; and ● heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.
We retain mortgage servicing rights from time to time when we sell mortgages to third parties. As of December 31, 2023, we serviced $2.0 billion of mortgages that we originated and sold to third parties.
We retain mortgage servicing rights from time to time when we sell mortgages to third parties. As of December 31, 2024, we serviced $1.9 billion of mortgages that we originated and sold to third parties.
The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately capitalized.” The bank regulators have greater power in situations where an institution becomes “significantly” or “critically” undercapitalized or fails to submit a capital restoration plan.
Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy. 13 Table of Contents The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately capitalized.” The bank regulators have greater power in situations where an institution becomes “significantly” or “critically” undercapitalized or fails to submit a capital restoration plan.
The new assessment rate schedules will remain in effect unless and until the DIF reserve ratio meets or exceeds 2.0% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2.0% designated reserve ratio for the DIF.
The assessment rate schedules will remain in effect unless and until the DIF reserve ratio meets or exceeds 2.0% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2.0% designated reserve ratio for the DIF. FDIC staff may in the future recommend additional assessment rate adjustments if deemed necessary.
Other Banking Services Mortgage Banking Our mortgage originations totaled $322.1 million for the year ended December 31, 2023 and we sold the servicing on approximately 58% of those mortgages.
Other Banking Services Mortgage Banking Our mortgage originations totaled $292.6 million for the year ended December 31, 2024 and we sold the servicing on approximately 69% of those mortgages.
In addition, the federal banking agencies have required many banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed “well-capitalized” and have subjected such institutions to restrictions on various activities, including a bank’s ability to accept or renew brokered deposits.
In addition, the federal banking agencies have required many banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed “well-capitalized” and have subjected such institutions to restrictions on various activities, including a bank’s ability to accept or renew brokered deposits. 9 Table of Contents In 2013, the federal bank regulatory agencies issued final rules, or the Basel III Capital Rules, establishing a new comprehensive capital framework for banking organizations.
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.
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.
We refer to the Bryan-College Station MSA as Bryan/College Station. 5 Table of Contents The Permian Basin - We operate six branches with $367.5 million of deposits in the Permian Basin region of Texas. Ruidoso, New Mexico - We operate two branches with $176.3 million of deposits in the village of Ruidoso, New Mexico.
We refer to the Bryan-College Station MSA as Bryan/College Station. The Permian Basin - We operate six branches with $363.1 million of deposits in the Permian Basin region of Texas. Ruidoso, New Mexico - We operate two branches with $194.9 million of deposits in the village of Ruidoso, New Mexico.
It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.
It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby. AVAILABLE INFORMATION The Company maintains an Internet web site at www.spfi.bank.
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. On April 1, 2023, SPFI entered into a Securities Purchase Agreement (“Agreement”) with Alliant Insurance Services, Inc.
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.
As the consolidated assets of the Company are less than $10 billion and the Company does not currently exceed the 5% threshold, this aspect of the Volcker Rule does not have any impact on the Company’s consolidated financial statements at this time. 12 Table of Contents Additionally, bank holding companies that qualify and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.
Additionally, bank holding companies that qualify and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of non-banking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.
We had total assets of $4.20 billion, gross loans held for investment of $3.01 billion, total deposits of $3.63 billion, and total shareholders’ equity of $407.1 million as of December 31, 2023. Our history dates back over 80 years.
We had total assets of $4.23 billion, gross loans held for investment of $3.06 billion, total deposits of $3.62 billion, and total shareholders’ equity of $438.9 million as of December 31, 2024. Our history dates back over 80 years.
Our loan approval policies establish concentrations limits with respect to industry and loan product type to enhance portfolio diversification. Commercial real estate concentrations are monitored by the Board of Directors (“Board”) of the Bank, at least quarterly and the limits are reviewed bi-monthly as part of our credit analytics Board Credit Risk Committee program.
Commercial real estate concentrations are monitored by the Board of Directors (“Board”) of the Bank, at least quarterly and the limits are reviewed bi-monthly as part of our credit analytics Board Credit Risk Committee program.
As of that date, our 20 largest borrowing relationships ranged from approximately $25.0 million to $54.4 million (including unfunded commitments) and totaled approximately $676.0 million in total commitments (representing, in the aggregate, 18.7% of our total outstanding commitments).
As of that date, our 20 largest borrowing relationships ranged from approximately $26.3 million to $53.9 million (including unfunded commitments) and totaled approximately $695.9 million in total commitments (representing, in the aggregate, 19.4% of our total outstanding commitments).
The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.
The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount.
Houston - We operate one branch with $53.1 million of deposits in the Houston-The Woodlands-Sugarland MSA, which we refer to as Greater Houston. This branch is located in the city of Houston. Bryan/College Station - We operate one branch and one mortgage office in the city of College Station, Texas, which has $57.0 million in deposits.
Houston - We operate one branch with $50.6 million of deposits in the Houston-The Woodlands-Sugarland MSA, which we refer to as Greater Houston. This branch is located in the city of Houston. 5 Table of Contents Bryan/College Station - We operate one branch in the city of College Station, Texas, which has $54.7 million in deposits.
Enforcement Powers of Federal and State Banking Agencies The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
As of December 31, 2024, the Bank met the requirements for being deemed “well-capitalized” for purposes of the prompt corrective action regulations. 11 Table of Contents Enforcement Powers of Federal and State Banking Agencies The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
The FDIC is the Bank’s primary federal regulatory agency and periodically examines the Bank’s operations and financial condition and compliance with federal law. In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement powers over the Bank. Depositor Preference .
In addition, the Bank’s deposit accounts are insured by the DIF to the maximum extent provided under federal law and FDIC regulations, and the FDIC has certain enforcement powers over the Bank. 14 Table of Contents Depositor Preference .
The rule will not apply to the Company while it is an emerging growth company and, accordingly, management anticipates that the rule will first apply to disclosures in the Company’s proxy statement for the 2025 annual meeting of shareholders.
Beginning on December 31, 2024, the Company is no longer an emerging growth company and, accordingly, the rule will first apply to disclosures in the Company’s proxy statement for the 2025 annual meeting of shareholders.
On December 18, 2015, the federal banking agencies jointly issued a “statement on prudent risk management for commercial real estate lending”. As of December 31, 2023, the Company did not exceed the levels to be considered to have a concentration in commercial real estate lending and believes its credit administration to be consistent with the published policy statement.
On December 18, 2015, the federal banking agencies jointly issued a “statement on prudent risk management for commercial real estate lending .” As of December 31, 2024, the Company did not exceed the levels to be considered to have a concentration in commercial real estate lending and believes its credit administration to be consistent with the published policy statement. 19 Table of Contents The Basel III Capital Rules also require loans categorized as “high-volatility commercial real estate,” or HVCRE, to be assigned a 150% risk weighting and require additional capital support.
Dividends may be declared and paid in a corporation’s own authorized but unissued shares out of the surplus of the corporation upon the satisfaction of certain conditions. 13 Table of Contents It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
It is the Federal Reserve’s policy that bank holding companies should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition.
In 2013, the federal bank regulatory agencies issued final rules, or the Basel III Capital Rules, establishing a new comprehensive capital framework for banking organizations. The Basel III Capital Rules implement the Basel Committee’s December 2010 framework for strengthening international capital standards and certain provisions of the Dodd-Frank Act. The Basel III Capital Rules became effective on January 1, 2015.
The Basel III Capital Rules implement the Basel Committee’s December 2010 framework for strengthening international capital standards and certain provisions of the Dodd-Frank Act. The Basel III Capital Rules became effective on January 1, 2015.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”), together with the Dodd-Frank Act, relaxed prior branching restrictions under federal law by permitting, subject to regulatory approval, banks to establish branches in states where the laws permit banks chartered in such states to establish branches.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Interstate Act”), together with the Dodd-Frank Act, relaxed prior branching restrictions under federal law by permitting, subject to regulatory approval, banks to establish branches in states where the laws permit banks chartered in such states to establish branches. 17 Table of Contents Section 109 of the Interstate Act prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production.
If a bank’s statewide loan-to-deposit ratio is at least one-half of the published host state loan-to-deposit ratio, the bank has complied with Section 109. A second step is conducted if a bank’s estimated statewide loan-to-deposit ratio is less than one-half of the published ratio for that state.
To determine compliance with Section 109, the appropriate federal banking agency first compares a bank’s estimated statewide loan-to-deposit ratio to the estimated host state loan-to-deposit ratio for a particular state. If a bank’s statewide loan-to-deposit ratio is at least one-half of the published host state loan-to-deposit ratio, the bank has complied with Section 109.
While the statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate the prohibition on UDAAP, certain aspects of these standards are untested, and thus it is currently not possible to predict how the CFPB will exercise this authority. 19 Table of Contents The consumer protection provisions of the Dodd-Frank Act and the examination, supervision and enforcement of those laws and implementing regulations by the CFPB have created a more intense and complex environment for consumer finance regulation.
While the statutory language of the Dodd-Frank Act sets forth the standards for acts and practices that violate the prohibition on UDAAP, certain aspects of these standards are untested, and thus it is currently not possible to predict how the CFPB will exercise this authority.
As of December 31, 2023, we had $442.5 million in ADC loans and $666 million in HVCRE loans. Consumer Financial Services We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
Consumer Financial Services We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers.
FDIC staff may in the future recommend additional assessment rate adjustments if deemed necessary. 14 Table of Contents At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates following notice and comment on proposed rulemaking. As a result, the Bank’s FDIC deposit insurance premiums could increase.
At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, may increase or decrease the assessment rates following notice and comment on proposed rulemaking. As a result, the Bank’s FDIC deposit insurance premiums could increase. During the year ended December 31, 2024, the Bank paid $ 2.0 million in FDIC deposit insurance premiums.
Those sanctions may include requiring the bank’s interstate branches in the non-compliant state be closed or not permitting the bank to open new branches in the non-compliant state. For purposes of Section 109, the Bank’s home state is Texas and the Bank operates branches in one host state: New Mexico.
A bank that fails both steps is in violation of Section 109 and subject to sanctions by the appropriate agency. Those sanctions may include requiring the bank’s interstate branches in the non-compliant state be closed or not permitting the bank to open new branches in the non-compliant state.
The Company also makes, free of charge, through its web site (under www.spfi.bank/corporate-governance/documents-charters) links to the Company’s Code of Business Conduct and Ethics and the charters for its Board committees. In addition, the SEC maintains an Internet web 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 also makes, free of charge, through its web site (under www.spfi.bank/corporate-governance/documents-charters) links to the Company’s Code of Business Conduct and Ethics and the charters for its Board committees.
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 Report.
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 Report.
The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. 9 Table of Contents The Basel III Capital Rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements.
Institutions that have not exercised the AOCI opt-out have AOCI incorporated into CET1 capital (including unrealized gains and losses on available-for-sale-securities). The calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. The Basel III Capital Rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum risk-based capital requirements.
In order to qualify for the CBLR framework, a QCBO 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. 10 Table of Contents Although the Company and the Bank are QCBOs, the Company and the Bank have currently not elected to opt in to the CBLR framework at this time and will continue to follow the capital requirements under the Basel III Capital Rules as described above.
In order to qualify for the CBLR framework, a QCBO 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.
In accordance with Rule 10D-1 promulgated by the SEC under the Exchange Act and Nasdaq Listing Rule 5608, the Board of Directors adopted and implemented an Incentive Award Recoupment Policy, effective as of October 2, 2023. 21 Table of Contents Financial Privacy Under Section 501 of the Gramm-Leach-Bliley Act, and its implementing regulations, the federal bank regulatory agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
Financial Privacy Under Section 501 of the Gramm-Leach-Bliley Act, and its implementing regulations, the federal bank regulatory agencies have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties.
The most recently published host state loan-to-deposit ratio using data as of June 30, 2022 reflects a statewide loan-to-deposit ratio in New Mexico of 53%. As of December 31, 2023, the Bank’s statewide loan-to-deposit ratio in New Mexico was 36%.
For purposes of Section 109, the Bank’s home state is Texas and the Bank operates branches in one host state: New Mexico. The most recently published host state loan-to-deposit ratio using data as of June 30, 2023 reflects a statewide loan-to-deposit ratio in New Mexico of 60%.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments. 16 Table of Contents During the past decade, the bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal bank regulatory agencies, including cease and desist orders and civil money penalty assessments.
We also seek to maintain a broadly diversified loan portfolio across customer, product and industry types. These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our customers, employees, shareholders and communities.
These components, together with active credit management, are the foundation of our credit culture, which we believe is critical to enhancing the long-term value of our organization to our customers, employees, shareholders and communities. 6 Table of Contents We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture.
The few loans secured by properties outside of our primary market areas were made to borrowers who are otherwise well-known to us. 6 Table of Contents Credit Concentrations . In connection with the management of our credit portfolio, we actively manage the composition of our loan portfolio, including credit concentrations.
Substantially all of our loans are made to borrowers located or operating in our primary market areas with whom we have ongoing relationships across various product lines. The few loans secured by properties outside of our primary market areas were made to borrowers who are otherwise well-known to us. Credit Concentrations .
Our investment policy is reviewed annually by the Bank’s Board. Overall investment goals are established by the Bank’s Board and the Bank’s Investment/Asset Liability Committee.
Our investment policy is reviewed annually by the Bank’s Board. Overall investment goals are established by the Bank’s Board and the Bank’s Investment/Asset Liability Committee. The Bank’s Board has delegated the responsibility of monitoring our investment activities to the Investment/Asset Liability Committee. Sources of Funds Deposits Deposits represent the Company’s primary and most vital source of funds.
Accordingly, management believes that the Bank is in compliance with Section 109 in New Mexico after application of the first step of the two-step test. Community Reinvestment Act . The CRA and the regulations issued thereunder are intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
The CRA and the regulations issued thereunder are intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities.
The second step requires the appropriate agency to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches. A bank that fails both steps is in violation of Section 109 and subject to sanctions by the appropriate agency.
A second step is conducted if a bank’s estimated statewide loan-to-deposit ratio is less than one-half of the published ratio for that state. The second step requires the appropriate agency to determine whether the bank is reasonably helping to meet the credit needs of the communities served by the bank’s interstate branches.
Many of the amendments, including those with respect to beneficial ownership, require the Department of Treasury and FinCEN to promulgate rules. 18 Table of Contents Failure of a financial institution to maintain and implement adequate AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution.
Failure of a financial institution to maintain and implement adequate AML and OFAC programs, or to comply with all of the relevant laws or regulations, could have serious legal and reputational consequences for the institution. Concentrations in Commercial Real Estate . The federal banking agencies have promulgated guidance governing financial institutions with concentrations in commercial real estate lending.
Although we will be exempt from these requirements while we are an emerging growth company, other provisions of the Dodd-Frank Act may impact our corporate governance. For instance, the SEC adopted rules prohibiting the listing of any equity security of a company that does not have a compensation committee consisting solely of independent directors, subject to certain exceptions.
In addition , the SEC adopted rules prohibiting the listing of any equity security of a company that does not have a compensation committee consisting solely of independent directors, subject to certain exceptions. In August 2022, the SEC adopted the final “pay versus performance” rule mandated by the Dodd-Frank Act.
The Basel III Capital Rules also require loans categorized as “high-volatility commercial real estate,” or HVCRE, to be assigned a 150% risk weighting and require additional capital support. However, the EGRRCPA prohibits federal banking regulators from imposing higher capital standards on HVCRE exposures unless they are for ADC and clarifying ADC status.
However, the EGRRCPA prohibits federal banking regulators from imposing higher capital standards on HVCRE exposures unless they are for ADC and clarifying ADC status. As of December 31, 2024, we had $341.7 million in ADC loans and $ 5.3 million in HVCRE loans.
Removed
(“Alliant”), providing for the sale of Windmark Insurance Agency, Inc. (“Windmark”) through a sale of all of the outstanding shares of capital stock of Windmark to Alliant. The transaction was consummated on April 1, 2023.
Added
We also seek to maintain a broadly diversified loan portfolio across customer, product and industry types.
Removed
Pursuant to the terms and subject to the conditions of the Agreement, SPFI received an aggregate purchase price of $36.1 million in exchange for Windmark’s common shares, representing a pre-tax gain of $33.8 million. This transaction did not meet the criteria for discontinued operations reporting.
Added
In connection with the management of our credit portfolio, we actively manage the composition of our loan portfolio, including credit concentrations. Our loan approval policies establish concentrations limits with respect to industry and loan product type to enhance portfolio diversification.
Removed
We have a service-driven, relationship-based, business-focused credit culture, rather than a price-driven, transaction-based culture. Substantially all of our loans are made to borrowers located or operating in our primary market areas with whom we have ongoing relationships across various product lines.
Added
Although the Company and the Bank are QCBOs, the Company and the Bank have currently not elected to opt in to the CBLR framework at this time and will continue to follow the capital requirements under the Basel III Capital Rules as described above.
Removed
The Bank’s Board has delegated the responsibility of monitoring our investment activities to the Investment/Asset Liability Committee. 7 Table of Contents Sources of Funds 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.
Added
As the consolidated assets of the Company are less than $10 billion and the Company does not currently exceed the 5% threshold, this aspect of the Volcker Rule does not have any impact on the Company’s consolidated financial statements at this time.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeInflation has been reported at high levels and could result in higher interest rates for a prolonged period of time, which may expose the Company to interest rate risk. In addition, higher interest rates could slow economic growth and lead to a recessionary environment, which could negatively impact the Company’s growth, credit quality, net interest margin and its financial results.
Biggest changeIn addition, higher interest rates could slow economic growth and lead to a recessionary environment, which could negatively impact the Company’s growth, credit quality, net interest margin and its financial results. The risks to our business from inflation depends on the durability of the current inflationary pressures in our markets.
In such cases, any repossessed collateral for a defaulted agricultural operating loan my not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value. 26 Table of Contents Sustained volatility in oil prices and the energy industry, including in Texas, could lead to increased credit losses in our energy portfolio, weaker demand for energy lending, and adversely affect our business, results of operations and financial condition.
In such cases, any repossessed collateral for a defaulted agricultural operating loan my not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the assessed value of the collateral exceeds the eventual realization value. 27 Table of Contents Sustained volatility in oil prices and the energy industry, including in Texas, could lead to increased credit losses in our energy portfolio, weaker demand for energy lending, and adversely affect our business, results of operations and financial condition.
Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. 23 Table of Contents Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally.
Although our asset-liability management strategy is designed to control and mitigate exposure to the risks related to changes in market interest rates, those rates are affected by many factors outside of our control, including governmental monetary policies, inflation, deflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. 24 Table of Contents Our business has been and may continue to be adversely affected by current conditions in the financial markets and economic conditions generally.
The failure to successfully evaluate and execute mergers, acquisitions or investments or otherwise adequately address these risks could materially harm our business, financial condition and results of operations. 24 Table of Contents We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
The failure to successfully evaluate and execute mergers, acquisitions or investments or otherwise adequately address these risks could materially harm our business, financial condition and results of operations. 25 Table of Contents We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties, as well as real estate construction and development loans. As of December 31, 2023, our non-owner-occupied commercial real estate loans totaled approximately 40.1% of our total loan portfolio.
Our loan portfolio includes non-owner-occupied commercial real estate loans for individuals and businesses for various purposes, which are secured by commercial properties, as well as real estate construction and development loans. As of December 31, 2024, our non-owner-occupied commercial real estate loans totaled approximately 40.1% of our total loan portfolio.
There can be no assurance that we will not experience future increases in nonperforming assets. 27 Table of Contents The properties that we own and certain foreclosed real estate assets could subject us to environmental risks and associated costs.
There can be no assurance that we will not experience future increases in nonperforming assets. 28 Table of Contents The properties that we own and certain foreclosed real estate assets could subject us to environmental risks and associated costs.
If real estate values decline, it is also more likely that we would be required to increase our allowance for credit losses, which could adversely affect our business, financial condition and results of operations. 25 Table of Contents Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to other mortgage loans.
If real estate values decline, it is also more likely that we would be required to increase our allowance for credit losses, which could adversely affect our business, financial condition and results of operations. Our commercial real estate loan portfolio exposes us to risks that may be greater than the risks related to other mortgage loans.
Any borrowing by the Company in order to make the required capital injection may be more difficult and expensive and may adversely impact the Company’s financial condition, results of operations and/or future prospects. As a regulated entity, we and the Bank must maintain certain required levels of regulatory capital that may limit our and the Bank’s operations and potential growth.
Any borrowing by the Company in order to make the required capital injection may be more difficult and expensive and may adversely impact the Company’s financial condition, results of operations and/or future prospects. 35 Table of Contents As a regulated entity, we and the Bank must maintain certain required levels of regulatory capital that may limit our and the Bank’s operations and potential growth.
If market interest rates continue to rise, the market value of the fixed income bond portfolio will decrease, resulting in further unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant over the short-term.
If market interest rates rise, the market value of the fixed income bond portfolio will decrease, resulting in further unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant over the short-term.
We may not be able to retain our current personnel or attract additional qualified key persons as needed. 31 Table of Contents Our ability to develop, retain and recruit additional successful bankers is critical to the success of our business strategy, and any failure to do so could adversely affect our business, financial condition, results of operations and future prospects.
We may not be able to retain our current personnel or attract additional qualified key persons as needed. Our ability to develop, retain and recruit additional successful bankers is critical to the success of our business strategy, and any failure to do so could adversely affect our business, financial condition, results of operations and future prospects.
In addition, during the course of the evaluation, documentation and testing of our internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) for compliance with the requirement of FDICIA.
In addition, during the course of the evaluation, documentation and testing of our internal control over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”) for compliance with the requirement of FDICIA or the Sarbanes-Oxley Act.
There is no guarantee the Company’s counteractions will be successful or that the Company will have the resources or technical expertise to anticipate, detect or prevent rapidly evolving types of cyber-attacks. 30 Table of Contents Third party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events.
There is no guarantee the Company’s counteractions will be successful or that the Company will have the resources or technical expertise to anticipate, detect or prevent rapidly evolving types of cyber-attacks. Third party or internal systems and networks may fail to operate properly or become disabled due to deliberate attacks or unintentional events.
Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business, which could adversely affect our results of operation and financial condition. Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.
Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business, which could adversely affect our results of operation and financial condition. 37 Table of Contents Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.
Even if we are able to replace third-party service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations. We are subject to certain operating risks related to employee error and customer, employee and third party misconduct, which could harm our reputation and business.
Even if we are able to replace third-party service providers, it may be at a higher cost to us, which could adversely affect our business, financial condition and results of operations. 32 Table of Contents We are subject to certain operating risks related to employee error and customer, employee and third-party misconduct, which could harm our reputation and business.
We seek to mitigate this risk by increasingly performing back-testing to analyze the accuracy of these techniques and approaches. There are investment performance, fiduciary and asset servicing risks associated with our trust operations. Our investment management, fiduciary and asset servicing businesses are significant to the business of the Company.
We seek to mitigate this risk by increasingly performing back-testing to analyze the accuracy of these techniques and approaches. 31 Table of Contents There are investment performance, fiduciary and asset servicing risks associated with our trust operations. Our investment management, fiduciary and asset servicing businesses are significant to the business of the Company.
There could also be a negative reaction in the financial markets due to a loss of investor confidence in the reliability of our financial statements. The obligations associated with being a public company require significant resources and management attention.
There could also be a negative reaction in the financial markets due to a loss of investor confidence in the reliability of our financial statements. 33 Table of Contents The obligations associated with being a public company require significant resources and management attention.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. 36 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities.
We expect to incur significant incremental costs related to operating as a public company, particularly when we no longer qualify as an emerging growth company.
We expect to incur significant incremental costs related to operating as a public company, particularly because we no longer qualify as an emerging growth company.
Agricultural lending and volatility in commodity prices may adversely affect our financial condition and results of operations. At December 31, 2023, agricultural loans were approximately 3.0% of our total loan portfolio. Agricultural lending involves a greater degree of risk and typically involves higher principal amounts than many other types of loans.
Agricultural lending and volatility in commodity prices may adversely affect our financial condition and results of operations. At December 31, 2024, agricultural loans were approximately 3.1% of our total loan portfolio. Agricultural lending involves a greater degree of risk and typically involves higher principal amounts than many other types of loans.
We completed the initial public offering, and the Company’s common stock began trading on the NASDAQ Global Select Market, in May 2019. An active trading market for shares of our common stock may not be sustained.
Risks Related to Our Common Stock An active public trading market may not be sustained. We completed the initial public offering, and the Company’s common stock began trading on the NASDAQ Global Select Market, in May 2019. An active trading market for shares of our common stock may not be sustained.
At December 31, 2023, approximately 9.5% of our total loan portfolio, consisted of indirect dealer loans, originated through automobile dealers for the purchase of new or used automobiles, as well as recreational vehicles, boats, and personal watercraft. We serve customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles.
At December 31, 2024, approximately 7.7% of our total loan portfolio, consisted of indirect dealer loans, originated through automobile dealers for the purchase of new or used automobiles, as well as recreational vehicles, boats, and personal watercraft. We serve customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles.
As of December 31, 2023, approximately 72.7% of our loan portfolio was comprised of loans with real estate as a primary component of collateral. Adverse developments affecting real estate values, particularly in our markets, could increase the credit risk associated with our real estate loan portfolio.
As of December 31, 2024, approximately 73.7% of our loan portfolio was comprised of loans with real estate as a primary component of collateral. Adverse developments affecting real estate values, particularly in our markets, could increase the credit risk associated with our real estate loan portfolio.
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.
Liquidity is essential to the business of the Bank. We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.
We had $26.6 million of mortgage servicing rights as of December 31, 2023. Our risk management framework may not be effective in mitigating risks or losses to us.
We had $26.3 million of mortgage servicing rights as of December 31, 2024. Our risk management framework may not be effective in mitigating risks or losses to us.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources. At December 31, 2023, our 20 largest deposit relationships accounted for approximately 25.1% of our total deposits.
Our largest deposit relationships currently make up a material percentage of our deposits and the withdrawal of deposits by our largest depositors could force us to fund our business through more expensive and less stable sources. At December 31, 2024, our 20 largest deposit relationships accounted for approximately 21.7% of our total deposits.
In addition, we may further experience increased delinquencies, credit losses, and corresponding charges to capital, which could require us to increase our provision for credit losses associated with impacts related to the coronavirus outbreak due to inflationary pressures, market downturns, increased unemployment rates, and changes in consumer behavior related to pandemic fears.
In addition, we may further experience increased delinquencies, credit losses, and corresponding charges to capital, which could require us to increase our provision for credit losses associated with impacts due to inflationary pressures, market downturns, increased unemployment rates, and changes in consumer behavior.
Currently, we are not, and the Company is not, a party to any pending legal proceeding under any environmental statute, nor are we aware of any instances that may give rise to such liability.
Currently, we are not a party to any pending legal proceeding under any environmental statute, nor are we aware of any instances that may give rise to such liability.
Mortgage revenues, which are primarily recognized from the sale of mortgage loans in the secondary market, are a source of noninterest income for the Bank and a contributor to the Bank’s net income. Mortgage revenues for the year ended December 31, 2023 were $13.8 million.
Mortgage revenues, which are primarily recognized from the sale of mortgage loans in the secondary market, are a source of noninterest income for the Bank and a contributor to the Bank’s net income. Mortgage revenues for the year ended December 31, 2024 were $14.2 million.
Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. As of December 31, 2023, loans to commercial borrowers represent approximately 69.7% of total loans. Loans to commercial borrowers are often larger and involve greater risks than other types of lending.
Many of our loans are to commercial borrowers, which have a higher degree of risk than other types of loans. As of December 31, 2024, loans to commercial borrowers represent approximately 71.0% of total loans. Loans to commercial borrowers are often larger and involve greater risks than other types of lending.
Alternatively, if a court were to find the exclusive forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects. 36 Table of Contents Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions.
Alternatively, if a court were to find the exclusive forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects. All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable. In addition, the inflationary outlook in the United States remains uncertain.
Changes in any of these policies are beyond our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on our business, financial condition, results of operations and prospects. All of these factors are detrimental to our business, and the interplay between these factors can be complex and unpredictable.
We have traditionally funded asset growth principally through deposits and borrowings. As a general matter, deposits are typically a lower cost source of funds than external wholesale funding (brokered deposits and borrowed funds), because interest rates paid for deposits are typically less than interest rates charged for wholesale funding.
As a general matter, deposits are typically a lower cost source of funds than external wholesale funding (brokered deposits and borrowed funds), because interest rates paid for deposits are typically less than interest rates charged for wholesale funding.
Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations. 34 Table of Contents If we fail to maintain sufficient capital under regulatory requirements, whether due to losses, an inability to raise additional capital or otherwise, that failure could adversely affect our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance.
If we fail to maintain sufficient capital under regulatory requirements, whether due to losses, an inability to raise additional capital or otherwise, that failure could adversely affect our financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance. We must meet regulatory capital requirements and maintain sufficient liquidity.
An investment in our common stock is not an insured deposit and is subject to risk of loss. An investment in our common stock is not a bank deposit and is not insured against loss or guaranteed by the FDIC, any deposit insurance fund or by any other public or private entity.
An investment in our common stock is not a bank deposit and is not insured against loss or guaranteed by the FDIC, any deposit insurance fund or by any other public or private entity. As a result, you could lose some or all of your investment.
As a result, despite the education, compliance training, supervision and oversight we exercise in these areas, failure to comply with applicable laws and regulations, even if noncompliance is inadvertent or unintentional, could result in the Bank being strictly liable for restitution or damages to individual borrowers and could expose the Bank to other regulatory enforcement activity. 35 Table of Contents Risks Related to Our Common Stock An active public trading market may not be sustained.
As a result, despite the education, compliance training, supervision and oversight we exercise in these areas, failure to comply with applicable laws and regulations, even if noncompliance is inadvertent or unintentional, could result in the Bank being strictly liable for restitution or damages to individual borrowers and could expose the Bank to other regulatory enforcement activity.
Furthermore, if the Company is unable to raise adequate funds through external sources, the Company may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital of the Company and have an adverse effect on our business, financial condition and results of operations. 28 Table of Contents Recent bank failures and the related negative impact on customer confidence in the safety and soundness of the banking industry may adversely affect our business, earnings and financial condition.
Furthermore, if the Company is unable to raise adequate funds through external sources, the Company may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital of the Company and have an adverse effect on our business, financial condition and results of operations.
Second, issuances of our common stock and other equity-based awards are expensed by us over their vesting period at the fair market value of the shares on the date they are awarded.
Second, issuances of our common stock and other equity-based awards are expensed by us over their vesting period at the fair market value of the shares on the date they are awarded. Accordingly, grants made under the equity compensation plan will increase our costs, which will reduce our net income.
Risks Related to Our Regulatory Environment We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or failure to comply with them, could adversely affect us.
These problems, losses or defaults could have an adverse effect on our business, financial condition and results of operations. 34 Table of Contents Risks Related to Our Regulatory Environment We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate governance, executive compensation and accounting principles, or changes in them, or failure to comply with them, could adversely affect us.
Holders of our common stock are entitled to receive only such cash dividends as our Board may declare out of funds legally available for such payments.
Our dividend policy may change without notice, and our future ability to pay dividends is subject to restrictions. Holders of our common stock are entitled to receive only such cash dividends as our Board may declare out of funds legally available for such payments.
As of December 31, 2023, our 20 largest borrowing relationships ranged from approximately $25.0 million to $54.4 million (including unfunded commitments), totaling approximately 18.7% of our outstanding commitments.
As of December 31, 2024, our 20 largest borrowing relationships ranged from approximately $26.3 million to $53.9 million (including unfunded commitments), totaling approximately 19.4% of our outstanding commitments.
Because the ability of the end borrower to repay its loan from our customer could affect the ability of our customer to repay its loan from us, our inability to exercise control over the relationship with the end borrower and the collateral, except under limited circumstances, could expose us to credit losses that adversely affect our business, financial condition and results of operations.
Because the ability of the end borrower to repay its loan from our customer could affect the ability of our customer to repay its loan from us, our inability to exercise control over the relationship with the end borrower and the collateral, except under limited circumstances, could expose us to credit losses that adversely affect our business, financial condition and results of operations. 26 Table of Contents Because a portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Further increases in market interest rates may have an adverse effect on our business, financial condition and results of operations as it could reduce the demand for loans and affect the ability of our borrowers to repay their indebtedness subjecting us to potential credit losses. Changes in any of these policies are beyond our control.
While the target benchmark rate and the prime rate were decreased by 75 basis points in 2024, sustained levels or future increases in market interest rates may have an adverse effect on our business, financial condition and results of operations as it could reduce the demand for loans and affect the ability of our borrowers to repay their indebtedness subjecting us to potential credit losses.
This guidance suggests that institutions whose commercial real estate loans exceed these guidelines should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending. 33 Table of Contents Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
This guidance suggests that institutions whose commercial real estate loans exceed these guidelines should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending.
Accordingly, grants made under the equity compensation plan will increase our costs, which will reduce our net income. 32 Table of Contents Negative public opinion could damage our reputation and adversely impact our earnings. Reputation risk, or the risk to our business, earnings and capital from negative public opinion is inherent in our business.
Negative public opinion could damage our reputation and adversely impact our earnings. Reputation risk, or the risk to our business, earnings and capital from negative public opinion is inherent in our business.
As market interest rates have increased from the prior low rate environment, there may be fewer opportunities for financial institutions to originate loans to refinance existing mortgages.
As market interest rates have increased from the prior low rate environment, there may be fewer opportunities for financial institutions to originate loans to refinance existing mortgages. If mortgage originations continue to decrease, projected mortgage revenues and noninterest income will decrease. Market conditions could have a material impact on our ability to sell originated mortgages in the secondary market.
However, more persistent inflation could lead to tighter-than-expected monetary policy which could, in turn, increase the borrowings costs of our customers, making it more difficult for them to repay their loans or other obligations. High interest rates may be needed to tame persistent inflationary price pressures, which could also push down asset prices and weaken economic activity.
Transitory increases in inflation are unlikely to have a material impact on our business or earnings. However, more persistent inflation could lead to tighter-than-expected monetary policy which could, in turn, increase the borrowings costs of our customers, making it more difficult for them to repay their loans or other obligations.
Additionally, such circumstances could require us to raise deposit rates in an attempt to attract new deposits, which could adversely affect our results of operations. Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC.
Additionally, such circumstances could require us to raise deposit rates in an attempt to attract new deposits, which could adversely affect our results of operations.
Furthermore, the Bank is not obligated to pay dividends to us, and any dividends paid to us would depend on the earnings or financial condition of the Bank and various business and regulatory considerations. We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
Furthermore, the Bank is not obligated to pay dividends to us, and any dividends paid to us would depend on the earnings or financial condition of the Bank and various business and regulatory considerations. 38 Table of Contents An investment in our common stock is not an insured deposit and is subject to risk of loss.
We may not be able to effectively or timely implement new technology-driven products and services or be successful in marketing these products and services to our customers and clients. Failure to keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition, and results of operations.
We may not be able to effectively or timely implement new technology-driven products and services or be successful in marketing these products and services to our customers and clients.
Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition. Liquidity is essential to the business of the Bank.
Under applicable regulations, if the Bank were no longer “well capitalized,” the Bank would not be able to accept brokered deposits without the approval of the FDIC. 29 Table of Contents Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition.
We may be adversely impacted by an economic downturn or a natural disaster affecting one or more of our market areas.
Failure to keep pace with technological change affecting the financial services industry could have a material adverse impact on our business, financial condition, and results of operations. 30 Table of Contents We may be adversely impacted by an economic downturn or a natural disaster affecting one or more of our market areas.
As discussed above, the FOMC repeatedly raised their target benchmark interest rate in 2022 and 2023, resulting in subsequent prime rate increases of 525 basis points between March of 2022 and July of 2023, and further resulting in a significant increase in market interest rates during the year ended December 31, 2023.
As discussed above, the FOMC repeatedly raised their target benchmark interest rate in 2022 and 2023. During the same period, the 10-year U.S. Treasury interest rate increased approximately 225 basis points, which had a negative impact to the fair value of the Company’s investment securities.
These problems, losses or defaults could have an adverse effect on our business, financial condition and results of operations. Until May 31, 2018, our Company was an S Corporation, and claims of taxing authorities related to our prior status as an S Corporation could harm us. Until May 31, 2018, our Company was an S Corporation.
Any regulatory action against us could have an adverse effect on our business, financial condition and results of operations.
New proposals for legislation continue to be introduced in the U.S.
Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations. New proposals for legislation continue to be introduced in the U.S.
Removed
The risks to our business from inflation depends on the durability of the current inflationary pressures in our markets. Transitory increases in inflation are unlikely to have a material impact on our business or earnings.
Added
In addition, the inflationary outlook in the United States remains uncertain. Inflationary pressures remain at relatively elevated and a persistent inflationary environment could result in sustained higher interest rates for a prolonged period of time, which may expose the Company to interest rate risk.
Removed
Because a portion of our loan portfolio is comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.
Added
Higher interest rates may be needed to tame persistent inflationary price pressures, which could also push down asset prices and weaken economic activity.
Removed
Climate change and related legislative and regulatory initiatives may materially affect the Company’s business and results of operations. The effects of climate change continue to create an alarming level of concern for the state of the global environment. As a result, the global business community has increased its political and social awareness surrounding the issue. Further, the U.S.
Added
Climate change and government action and societal responses may materially affect the Company’s business and results of operations.
Removed
Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change.
Added
Climate change can increase the likelihood of the occurrence and severity of natural disasters and can also result in longer-term shifts in climate patterns such as extreme heat, sea level rise, more frequent and prolonged drought, stronger and more frequent storms and other instances of extreme weather.
Removed
Similar and even more expansive initiatives are expected under the current administration, including potentially increasing supervisory expectations with respect to banks’ risk management practices, accounting for the effects of climate change in stress testing scenarios and systemic risk assessments, revising expectations for credit portfolio concentrations based on climate-related factors and encouraging investment by banks in climate-related initiatives and lending to communities disproportionately impacted by the effects of climate change.
Added
Such significant climate change effects may negatively impact the Company’s geographic markets, disrupting the operations of the Company, our customers or third parties on which we rely.
Removed
The lack of empirical data surrounding the credit and other financial risks posed by climate change render it impossible to predict how specifically climate change may impact our financial condition and results of operations; however, the physical effects of climate change may also directly impact us.
Added
Damages to real estate underlying mortgage loans or real estate collateral, declines in economic conditions in geographic markets in which the Company’s customers operate and increased premiums for and reduced availability of insurance may impact our customers’ ability to repay loans or maintain deposits due to climate change effects, which could increase our delinquency rates and average credit loss.
Removed
Specifically, unpredictable and more frequent weather disasters may adversely impact the value of real property securing the loans in our portfolios.
Added
Moreover, as the effects of climate change continue to create a level of concern for the state of the global environment, companies are facing increasing scrutiny from customers, regulators, investors and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure.
Removed
Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted by climate change, which could impact our financial condition and results of operations.
Added
New government regulations could result in more stringent forms of ESG oversight and reporting and diligence and disclosure requirements. Increased ESG related compliance costs, in turn, could result in increases to our overall operational costs.
Removed
Further, the effects of climate change may negatively impact regional and local economic activity, which could lead to an adverse effect on our customers and impact the communities in which we operate. Overall, climate change, its effects and the resulting, unknown impact could have a material adverse effect on our financial condition and results of operations.
Added
Conversely, there has been increasing anti-ESG sentiment in the U.S., which has led and is likely to continue to lead to new anti-ESG policies and legislative and regulatory requirements discouraging or preventing ESG-related initiatives. As a result, we may face heightened and potentially conflicting regulatory and legal requirements, as well as reputational scrutiny.
Removed
The Company is exposed to a number of risks when other financial institutions experience financial difficulties, which could result in an adverse impact on the regional banking industry, generally, and the business environment in which the Company operates.
Added
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, including with respect to the Company’s involvement in certain industries or projects associated with causing or exacerbating climate change, may negatively affect the Company’s reputation and commercial relationships, which could adversely affect our business.
Removed
Recent bank failures during 2023 have resulted in significant market volatility among publicly traded bank holding companies and has caused uncertainty in the investor community and bank customers, generally.
Added
Deposit outflows may increase reliance on borrowings and brokered deposits as sources of funds. We have traditionally funded asset growth principally through deposits and borrowings.
Removed
While the Company does not believe that the circumstances of the bank failures in 2023 are indicators of broader issues within the banking industry, bank failures may negatively impact customer confidence in the safety and soundness of regional banks and, as a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations.
Removed
Management continues to monitor the ongoing events concerning the 2023 bank failures as well as any volatility within the financial services industry generally, together with any responsive measures taken by the banking regulators to mitigate or manage potential turmoil in the financial services industry. Deposit outflows may increase reliance on borrowings and brokered deposits as sources of funds.
Removed
If mortgage originations continue to decrease, projected mortgage revenues and noninterest income will decrease. 29 Table of Contents Market conditions could have a material impact on our ability to sell originated mortgages in the secondary market.
Removed
Effective May 31, 2018, the Company revoked its S Corporation election and the Company became taxed as a C Corporation under the provisions of Sections 301 to 385 of the Internal Revenue Code of 1986, as amended (the “Code”) (which treat the corporation as an entity that is subject to an entity level U.S. federal income tax).

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Information Security Committee, consisting of senior management and analysts from Information Security and Information Technology, monitors and assesses cyber threat intelligence, responds to cyber incidents at a technical level, and determines whether new controls are needed to address emerging risks or active cyber exploits.
Biggest changeBoth the current Chief Information Security Officer and Chief Technology Officer have over 20 years of experience in Information Technology and Information Security. 40 Table of Contents The Information Security Committee, consisting of senior management and analysts from Information Security and Information Technology, monitors and assesses cyber threat intelligence, responds to cyber incidents at a technical level, and determines whether new controls are needed to address emerging risks or active cyber exploits.
Key elements of this program include: ● a comprehensive risk management process, integrated with the Enterprise Risk Management system, that continuously assesses, identifies, and manages current and emerging cybersecurity threats and risks, evaluates the effectiveness of information security controls, and reports the overall risk posture to Executive Management and the Board of Directors. ● assessment of daily cyber threat intelligence from multiple sources; ● the use of third party information security services for continuous monitoring and alerting of information systems, network. and user activity; ● a Vulnerability Management Program that scans networks, devices, and information systems for known cyber vulnerabilities, and initiates processes to mitigate them; ● a third party risk management program that evaluates and ensures our key partners adhere to the same level of information security posture as we do internally; 37 Table of Contents ● Business Continuity and Incident Response plans that are designed and tested for anticipated operational failures, natural disasters, cyberattacks, and other disruptive events; and ● an Information Security Awareness program to ensure employees and customers maintain an awareness of information security threats and best practices to prevent them.
Key elements of this program include: ● a comprehensive risk management process, integrated with the Enterprise Risk Management system, that continuously assesses, identifies, and manages current and emerging cybersecurity threats and risks, evaluates the effectiveness of information security controls, and reports the overall risk posture to Executive Management and the Board of Directors. ● assessment of daily cyber threat intelligence from multiple sources; ● the use of third-party information security services for continuous monitoring and alerting of information systems, network. and user activity; ● a Vulnerability Management Program that scans networks, devices, and information systems for known cyber vulnerabilities, and initiates processes to mitigate them; ● a third-party risk management program that evaluates and ensures our key partners adhere to the same level of information security posture as we do internally; ● Business Continuity and Incident Response plans that are designed and tested for anticipated operational failures, natural disasters, cyberattacks, and other disruptive events; and ● an Information Security Awareness program to ensure employees and customers maintain an awareness of information security threats and best practices to prevent them.
Key Risk Indicators for Information Security and Information Technology are reported to the Operations and Information Technology Steering Committees. Key risks and other relevant information is further summarized for the Board Risk and Audit Committees. The Board also receives a full report on the Information Security Program and its effectiveness annually.
Key Risk Indicators for Information Security and Information Technology are reported to the Operations and Information Technology Steering Committees. Key risks and other relevant information are further summarized for the Board Risk and Audit Committees. The Board also receives a full report on the Information Security Program and its effectiveness annually.
Removed
Both the current Chief Information Security Officer and Chief Technology Officer have well over 20 years of experience in Information Technology and Information Security.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWorth LPO Lubbock University Branch Grand Prairie LPO Morton Branch Southlake LPO Idalou Branch Levelland Branch El Paso Houston Location Branch or LPO Location Branch or LPO El Paso East Branch Houston Branch El Paso West Branch El Paso Mesa Hills LPO Bryan/College Station Ruidoso, New Mexico Location Branch or LPO Location Branch or LPO College Station Branch Ruidoso Gateway Branch College Station LPO Ruidoso River Crossing Branch The Permian Basin Other Markets Location Branch or LPO Location Branch or LPO Odessa University Branch Abilene, Texas LPO Odessa Grandview Branch Midland Branch Kermit Branch Fort Stockton Branch Monahans Branch 38 Table of Contents We lease certain of our banking facilities and believe that the leases to which we are subject are generally on terms consistent with prevailing market terms, and none of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing.
Biggest changeWorth LPO Lubbock University Branch Grand Prairie LPO Morton Branch Southlake LPO Idalou Branch Levelland Branch El Paso Houston Location Branch or LPO Location Branch or LPO El Paso East Branch Houston Branch El Paso West Branch El Paso Mesa Hills LPO Bryan/College Station Ruidoso, New Mexico Location Branch or LPO Location Branch or LPO College Station Branch Ruidoso Gateway Branch Ruidoso River Crossing Branch The Permian Basin Other Markets Location Branch or LPO Location Branch or LPO Odessa University Branch Abilene, Texas LPO Odessa Grandview Branch Midland Branch Kermit Branch Fort Stockton Branch Monahans Branch We lease certain of our banking facilities and believe that the leases to which we are subject are generally on terms consistent with prevailing market terms, and none of the leases are with our directors, officers, beneficial owners of more than 5% of our voting securities or any affiliates of the foregoing.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not presently involved in any litigation, nor to our knowledge is any litigation threatened against us, that in management’s opinion would result in any material adverse effect on our financial position or results of operations or that is not expected to be covered by insurance. Item 4. Mine Safety Disclosures Not applicable. Part II
Biggest changeWe are not presently involved in any litigation, nor to our knowledge is any litigation threatened against us, that in management’s opinion would result in any material adverse effect on our financial position or results of operations or that is not expected to be covered by insurance. 41 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

13 edited+3 added−1 removed3 unchanged
Biggest changeGriffith, the Chairman and Chief Executive Officer of the Company, on November 7, 2023, at a price of $26.30 per share, in a privately negotiated transaction outside of the Program On February 21, 2024, the Company’s board of directors approved a new stock repurchase program pursuant to which the Company may, from time to time, purchase up to $10.0 million of its outstanding shares of common stock (the “New Program”).
Biggest changeTotal Shares Repurchased Average Price Paid Per Share Total Dollar Amount Purchased Pursuant to Publicly-Announced Plans Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plans October 2024 — $ — $ — $ 8,659,477 November 2024 — — — — December 2024 — — — — Total — 42 Table of Contents On February 21 , 2025, the Company’s board of directors approved a new stock repurchase program pursuant to which the Company may, from time to time, purchase up to $ 15 .0 million of its outstanding shares of common stock (the “New Program”).
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information at December 31, 2023 with respect to compensation plans under which shares of our common stock may be issued.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth information at December 31, 2024 with respect to compensation plans under which shares of our common stock may be issued.
The Company was not obligated to purchase any shares of its common stock under the Program and the timing and exact amount of any repurchases would depend on various factors including, the performance of the Company’s stock price, general market and other conditions, applicable legal requirements and other factors.
The Company was not obligated to purchase any shares of its common stock under the Program and the timing and exact amount of any repurchases depends on various factors including, the performance of the Company’s stock price, general market and other conditions, applicable legal requirements and other factors.
The performance graph assumes $100 is invested on May 9, 2019, in the Company’s common stock, including reinvestment of any dividends, and each of the indices. Historical stock price performance is not necessarily indicative of future stock price performance.
The performance graph assumes $100 is invested on December 31, 2019, in the Company’s common stock, including reinvestment of any dividends, and each of the indices. Historical stock price performance is not necessarily indicative of future stock price performance.
The shares could be repurchased from time to time in privately negotiated transactions or the open market, including pursuant to Rule 10b5-1 trading plans, and in accordance with applicable regulations of the SEC.
The shares can be repurchased from time to time through various means, including privately negotiated transactions or the open market, including pursuant to Rule 10b5-1 trading plans, and in accordance with applicable regulations of the SEC.
Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Awards Weighted-Average Exercise Price of Outstanding Awards Number of Shares Available for Future Grants Equity compensation plans approved by shareholders (1) 1,406,775 $ 15.40 2,036,512 Equity compensation plans not approved by shareholders — — — Total 1,406,775 $ 15.40 2,036,512 (1) The number of shares available for future issuance includes 2,036,512 shares available under the Company’s 2019 Equity Incentive Plan (which allows for the issuance of options, as well as various other stock-based awards).
Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Awards Weighted-Average Exercise Price of Outstanding Awards Number of Shares Available for Future Grants Equity compensation plans approved by shareholders (1) 1,363,682 $ 15.38 2,411,104 Equity compensation plans not approved by shareholders — — — Total 1,363,682 $ 15.38 2,411,104 (1) The number of shares available for future issuance includes 2,411,104 shares available under the Company’s 2019 Equity Incentive Plan (which allows for the issuance of options, as well as various other stock-based awards).
Issuer Purchases of Securities On May 5, 2023, the Company’s board of directors approved a stock repurchase program pursuant to which the Company may, from time to time, purchase up to $15.0 million of its outstanding shares of common stock (the “Program”).
Issuer Purchases of Securities On February 21, 2024, the Company’s board of directors approved a stock repurchase program pursuant to which the Company may, from time to time, purchase up to $10.0 million of its outstanding shares of common stock (the “Program”).
Business – Supervision and Regulation – Dividend Payments, Stock Redemptions and Repurchases” and “Item 7. Management’s Discussion and Analysis of the Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Requirements” of this Report for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and state banking laws.
Management’s Discussion and Analysis of the Financial Condition and Results of Operations – Liquidity and Capital Resources – Capital Requirements” of this Report for restrictions on our present or future ability to pay dividends, particularly those restrictions arising under federal and state banking laws.
The Company is not obligated to purchase any shares of its common stock under the New Program and the timing and exact amount of any repurchases depends on various factors including, the performance of the Company’s stock price, general market and other conditions, applicable legal requirements and other factors.
The Company is not obligated to purchase any shares of its common stock under the New Program and the extent to which the Company repurchases its shares, and the manner, timing and exact amount of any repurchases , will depend on various factors , including the performance of the Company’s stock price, general market and other conditions, regulatory requirements , availability of funds and other relevant considerations, as determined by the Company.
Stock Performance Graph The following performance graph compares total stockholders’ return on the Company’s common stock for the period beginning at the close of trading on May 9, 2019 and for the last trading date of each year from 2019 to 2023, with the cumulative total return of the S&P 500 and the S&P United States BMI Banks Index for the same periods.
Stock Performance Graph The following performance graph compares total stockholders’ return on the Company’s common stock with the cumulative total return of the S&P 500 and the S&P United States BMI Banks Index measured at the last trading date of each year shown below.
The Program terminated in December 2023 after all allocated funds had been spent. 39 Table of Contents The following table summarizes the share repurchase activity for the three months ended December 31, 2023.
The following table summarizes the share repurchase activity for the three months ended December 31, 2024.
Holders of Record As of March 13, 2024, there were approximately 170 holders of record of the Company’s common stock. Dividends The Company paid a dividend of $0.13 per common share in each of the four quarters of 2023. Additionally, the Company paid a dividend of $0.13 per common share in the first quarter of 2024. Also, see “Item 1.
Additionally, the Company paid a dividend of $0.15 per common share in the first quarter of 2025 . Also, see “Item 1. Business – Supervision and Regulation – Dividend Payments, Stock Redemptions and Repurchases” and “Item 7.
This performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act of 1934, or incorporated by reference into any future SEC filing, except as shall be expressly set forth by specific reference in such filing. 40 Table of Contents Dollars 5/9/19 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 South Plains Financial, Inc. $ 100.0 $ 118.25 $ 108.42 $ 161.21 $ 162.27 $ 174.28 S&P United States BMI Banks Index 100.0 117.22 102.26 139.04 115.32 179.71 S&P 500 100.0 114.03 135.01 173.77 142.30 125.80 Source: S&P Global Market Intelligence © 2024 Item 6. [Reserved]
This performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act of 1934, or incorporated by reference into any future SEC filing, except as shall be expressly set forth by specific reference in such filing.
Removed
Total Shares Repurchased (1) Average Price Paid Per Share Total Dollar Amount Purchased Pursuant to Publicly-Announced Plans Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plans October 2023 107,803 $ 26.47 $ 2,853,822 $ 277,330 November 2023 10,360 26.77 277,330 — December 2023 — — — — Total 130,189 (1) Includes 100,000 shares that the Company repurchased from Curtis C.
Added
Holders of Record As of March 5, 2025, there were approximately 181 holders of record of the Company’s common stock.
Added
Dividends The Company paid a dividend of $0.13 per common share in the first and second quarters of 2024, a dividend of $0.14 per common share in the third quarter of 2024, and a dividend of $0.15 per common share in the fourth quarter of 2024.
Added
Dollars 2019 2020 2021 2022 2023 2024 South Plains Financial, Inc. $ 100.0 $ 91.68 $ 136.32 $ 137.23 $ 147.38 $ 180.15 S&P United States BMI Banks Index 100.0 87.24 118.61 98.38 107.32 143.68 S&P 500 100.0 118.40 152.39 124.79 157.59 197.02 Source: S&P Global Market Intelligence © 2025

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Removed
Item 7. 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 should be read in conjunction with our consolidated financial statements and the accompanying notes included in Item 8. Financial Statements and Supplementary Data.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64 Item 8. Financial Statements and Supplementary Data 65 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 107 Item 9A. Controls and Procedures 107 Item 9B. Other Information 108 Item 9C.
Removed
This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate.
Added
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 108 PART III Item 10. Directors, Executive Officers and Corporate Governance 109 Item 11. Executive Compensation 109 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 109 Item 13. Certain Relationships and Related Transactions, and Director Independence 109 Item 14.
Removed
Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk Factors” and elsewhere in this Report, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis.
Added
Principal Accounting Fees and Services 109 PART IV Item 15. Exhibits, Financial Statement Schedules 110
Removed
Except as required by law, we assume no obligation to update any of these forward-looking statements.
Removed
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.
Removed
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. On April 1, 2023, SPFI entered into a Securities Purchase Agreement (“Agreement”) with Alliant Insurance Services, Inc.
Removed
(“Alliant”), providing for the sale of Windmark Insurance Agency, Inc. (“Windmark”) through a sale of all of the outstanding shares of capital stock of Windmark to Alliant. The transaction was consummated on April 1, 2023.
Removed
Pursuant to the terms and subject to the conditions of the Agreement, SPFI received an aggregate purchase price of $36.1 million in exchange for Windmark’s common shares, representing a pre-tax gain of $33.8 million. This transaction did not meet the criteria for discontinued operations reporting.
Removed
Selected Financial Data The following table sets forth certain of our selected financial data for, and as of the end of, each of the periods indicated (dollars in thousands, except per share data).
Removed
As of or for the Year Ended December 31, 2023 2022 2021 Selected Income Statement Data: Net interest income $ 139,747 $ 138,476 $ 121,764 Provision for credit losses 4,610 (2,619 ) (1,918 ) Noninterest income 79,226 76,145 97,469 Noninterest expense 134,946 144,089 148,030 Income tax expense 16,672 14,911 14,507 Net income 62,745 58,240 58,614 Share and Per Share Data: Earnings per share (basic) $ 3.73 $ 3.35 $ 3.26 Earnings per share (diluted) 3.62 3.23 3.17 Dividends per share 0.52 0.46 0.30 Tangible book value per share (1) 23.47 19.57 21.51 Selected Period End Balance Sheet Data: Cash and cash equivalents $ 330,158 $ 234,883 $ 486,821 Investment securities 622,762 701,711 724,504 Gross loans held for investment 3,014,153 2,748,081 2,437,577 Allowance for credit losses on loans 42,356 39,288 42,098 Total assets 4,204,793 3,944,063 3,901,855 Total deposits 3,626,153 3,406,430 3,341,222 Borrowings 110,168 122,354 122,168 Total stockholders’ equity 407,114 357,014 407,427 Performance Ratios: Return on average assets 1.54 % 1.47 % 1.56 % Return on average stockholders’ equity 16.58 % 15.79 % 15.08 % Net interest margin (2) 3.61 % 3.73 % 3.51 % Efficiency ratio (3) 61.33 % 66.76 % 67.14 % Credit Quality Ratios: Nonperforming assets to total assets (4) 0.14 % 0.20 % 0.30 % Nonperforming loans to total loans held for investment (5) 0.17 % 0.28 % 0.43 % Allowance for credit losses on loans to nonperforming loans (5) 818.00 % 504.34 % 397.23 % Allowance for credit losses on loans to total loans held for investment 1.41 % 1.43 % 1.73 % Net loan charge-offs to average loans 0.07 % 0.01 % 0.06 % Capital Ratios: Total stockholders’ equity to total assets 9.68 % 9.05 % 10.44 % Tangible common equity to tangible assets (1) 9.21 % 8.50 % 9.85 % Common equity tier 1 capital ratio 12.41 % 11.81 % 12.91 % Tier 1 leverage ratio 11.33 % 11.03 % 10.77 % Tier 1 risk-based capital ratio 13.69 % 13.15 % 14.49 % Total risk-based capital ratio 16.74 % 16.58 % 18.40 % (1) Represents a non-GAAP financial measure.
Removed
See our reconciliation of non-GAAP financial measures to their most directly comparable GAAP financial measures under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures.” (2) Net interest margin is calculated as the annual net interest income, on a fully tax-equivalent basis, divided by average interest-earning assets.
Removed
(3) The efficiency ratio is calculated by dividing noninterest expense by the sum of net interest income on a tax-equivalent basis and noninterest income. (4) Nonperforming assets consist of nonperforming loans plus foreclosed assets.
Removed
(5) Nonperforming loans include nonaccrual loans and loans past due 90 days or more. 41 Table of Contents Results of Operations Net income for the year ended December 31, 2023 was $62.7 million, or $3.62 per diluted share, compared to $58.2 million, or $3.23 per diluted share, for the year ended December 31, 2022.
Removed
The increase in net income was primarily the result of an increase of $3.1 million in noninterest income, an increase of $1.3 million in net interest income, and a decrease of $9.1 million in noninterest expense, partially offset by an increase of $7.2 million in provision for credit losses.
Removed
Return on average assets was 1.54% and return on average equity was 16.58% for the year ended December 31, 2023, compared to 1.47% and 15.79%, respectively, for the year ended December 31, 2022.
Removed
The increase in return on average assets was primarily due to the increase in net income of 7.7%, relative to a smaller increase of 2.9% in total average assets.
Removed
Net income for the year ended December 31, 2022 was $58.2 million, or $3.23 per diluted share, compared to $58.6 million, or $3.17 per diluted share, for the year ended December 31, 2021.
Removed
The decrease in net income was primarily the result of a decrease of $21.3 million in noninterest income, offset by an increase of $16.7 million in net interest income and a decrease of $3.9 million in noninterest expense.
Removed
Return on average assets was 1.47% and return on average equity was 15.79% for the year ended December 31, 2022, compared to 1.56% and 15.08%, respectively, for the year ended December 31, 2021.
Removed
The decrease in return on average assets was primarily due to the decrease in net income of 0.6%, relative to a larger increase of 5.2% in total average assets.
Removed
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.
Removed
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.
Removed
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.
Removed
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. 42 Table of Contents 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.
Removed
For purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis.
Removed
Year Ended December 31, 2023 2022 2021 Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate (Dollars in thousands) Assets: Interest-earning assets: Loans (1) $ 2,924,473 $ 176,627 6.04 % $ 2,612,161 $ 137,957 5.28 % $ 2,420,201 $ 120,545 4.98 % Investment securities – taxable 570,655 21,590 3.78 % 594,405 15,010 2.53 % 532,272 9,292 1.75 % Investment securities – non-taxable 185,205 4,901 2.65 % 216,216 5,733 2.65 % 219,385 5,872 2.68 % Other interest-earning assets (2) 223,152 9,973 4.47 % 318,862 3,675 1.15 % 336,081 565 0.17 % Total interest-earning assets 3,903,485 213,091 5.46 % 3,741,644 162,375 4.34 % 3,507,939 136,274 3.88 % Noninterest-earning assets 176,495 222,544 261,140 Total assets $ 4,079,980 $ 3,964,188 $ 3,769,079 Liabilities and Stockholders’ Equity: Interest-bearing liabilities: NOW, savings and money market deposits 2,117,985 55,423 2.62 % 1,889,888 13,013 0.69 % 1,841,678 4,163 0.23 % Time deposits 321,205 9,564 2.98 % 327,289 3,989 1.22 % 329,509 4,130 1.25 % Short-term borrowings 84 5 5.95 % 4 — 0.00 % 8,045 5 0.06 % Notes payable & other longer-term borrowings — — 0.00 % — — 0.00 % 19,641 38 0.19 % Subordinated debt 75,458 4,018 5.32 % 75,874 4,050 5.34 % 75,699 4,056 5.36 % Junior subordinated deferrable interest debentures 46,393 3,276 7.06 % 46,393 1,640 3.54 % 46,393 880 1.90 % Total interest-bearing liabilities 2,561,125 72,286 2.82 % 2,339,448 22,692 0.97 % 2,320,965 13,272 0.57 % Noninterest-bearing liabilities: Noninterest-bearing deposits 1,069,280 1,189,730 1,016,835 Other liabilities 71,102 66,182 42,654 Total noninterest-bearing liabilities 1,140,382 1,255,912 1,059,489 Stockholders’ equity 378,473 368,828 388,625 Total liabilities and stockholders’ equity $ 4,079,980 $ 3,964,188 $ 3,769,079 Net interest income $ 140,805 $ 139,683 $ 123,002 Net interest spread 2.64 % 3.37 % 3.31 % Net interest margin (3) 3.61 % 3.73 % 3.51 % (1) Average loan balances include nonaccrual loans and loans held for sale.
Removed
(2) Includes income and average balances for interest-earning deposits at other banks, nonmarketable securities, federal funds sold and other miscellaneous interest-earning assets.
Removed
(3) Net interest margin is calculated as the annualized net interest income, on a fully tax-equivalent basis, divided by average interest-earning assets. 43 Table of Contents 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.
Removed
The following tables set forth the effects of changing rates and volumes on our net interest income during the period shown.
Removed
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.
Removed
Year Ended December 31, 2023 over 2022 Year Ended December 31, 2022 over 2021 Change due to: Change due to: Volume Rate Total Variance Volume Rate Total Variance (Dollars in thousands) Interest-earning assets: Loans $ 16,494 $ 22,176 $ 38,670 $ 7,134 $ 10,278 $ 17,412 Investment securities – taxable (600 ) 7,180 6,580 1,085 4,633 5,718 Investment securities – non-taxable (822 ) (10 ) (832 ) (85 ) (54 ) (139 ) Other interest-earning assets (1,103 ) 7,401 6,298 (29 ) 3,139 3,110 Total increase (decrease) in interest income 13,969 36,747 50,716 8,105 17,996 26,101 Interest-bearing liabilities: NOW, Savings, MMDAs 1,571 40,839 42,410 109 8,741 8,850 Time deposits (74 ) 5,649 5,575 (28 ) (113 ) (141 ) Short-term borrowings — 5 5 (5 ) — (5 ) Notes payable & other borrowings — — — (38 ) — (38 ) Subordinated debt (22 ) (10 ) (32 ) 9 (15 ) (6 ) Junior subordinated deferrable interest debentures — 1,636 1,636 — 760 760 Total increase (decrease) interest expense: 1,475 48,119 49,594 47 9,373 9,420 Increase (decrease) in net interest income $ 12,494 $ (11,372 ) $ 1,122 $ 8,058 $ 8,623 $ 16,681 Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Net interest income for the year ended December 31, 2023 was $139.7 million compared to $138.5 million for the year ended December 31, 2022, an increase of $1.3 million, or 0.9%.
Removed
The increase in net interest income in 2023 was comprised of a $50.9 million, or 31.6%, increase in interest income, partially offset by a $49.6 million, or 218.6%, increase in interest expense.
Removed
The growth in interest income was primarily attributable to increases of $38.6 million in loan interest income and $12.2 million in interest income from securities and other interest-earning assets. The increase in loan interest income was primarily due to growth of $312.3 million in average loans outstanding and the rising interest rate environment.
Removed
The increase in interest income on securities and other interest-earning assets was primarily due to rising market interest rates.
Removed
The $49.6 million increase in interest expense for the year ended December 31, 2023 was primarily related to a 185 basis points increase in the rate paid on interest-bearing liabilities and an increase of $221.7 million in average interest-bearing liabilities over the same period in 2022.
Removed
The rise in rates was largely attributed to the Federal Open Market Committee (“FOMC”) of the Board of Governors of the Federal Reserve repeatedly raising their target benchmark interest rate, resulting in federal funds rate increases of 525 basis points between March of 2022 and July of 2023. 44 Table of Contents For the year ended December 31, 2023, net interest margin and net interest spread were 3.61% and 2.64%, respectively, compared to 3.73% and 3.37% for the same period in 2022, respectively, which reflects the changes in interest income and interest expense discussed above.
Removed
Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Net interest income for the year ended December 31, 2022 was $138.5 million compared to $121.8 million for the year ended December 31, 2021, an increase of $16.7 million, or 13.7%.
Removed
The increase in net interest income in 2022 was comprised of a $26.1 million, or 19.4%, increase in interest income, partially offset by a $9.4 million, or 71.0%, increase in interest expense.
Removed
The increase in interest income was primarily attributable to increases of $17.4 million in loan interest income and $8.7 million in interest income from securities and other interest-earning assets.
Removed
The increase in loan interest income was primarily due to growth of $192.0 million in average loans outstanding and the rising interest rate environment, partially offset by decreases of $102.9 million in average Paycheck Protection Program (“PPP”) loans and $6.3 million in the PPP-related interest and fees.
Removed
The increase in interest income on securities and other interest-earning assets was primarily due to securities purchases and rising market interest rates. During the years ended December 31, 2022 and 2021, the Company recognized $2.0 million and $8.3 million, respectively, in PPP-related interest and fees.
Removed
The $9.4 million increase in interest expense for the year ended December 31, 2022 was primarily related to a 40 basis points increase in the rate paid on interest-bearing liabilities and an increase of $18.5 million in average interest-bearing liabilities over the same period in 2021.
Removed
The rise in rates was largely attributed to the FOMC repeatedly raising their target benchmark interest rate, resulting in federal funds rate increases of 425 basis points between March and December of 2022.
Removed
For the year ended December 31, 2022, net interest margin and net interest spread were 3.73% and 3.37%, respectively, compared to 3.51% and 3.31% for the same period in 2021, respectively, which reflects the changes in interest income and interest expense discussed above. Provision for Credit losses Credit risk is inherent in the business of making loans.
Removed
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.
Removed
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.
Removed
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.
Removed
See “Financial Statements and Supplementary Data – Note 1. Summary of Significant Accounting Policies” in the notes to our consolidated financial statements included elsewhere in this Report for more detailed discussion.
Removed
Year Ended December 31, 2023 compared to Year Ended December 31, 2022 The provision for credit losses for the year ended December 31, 2023 was $4.6 million compared to ($2.6) million for the year ended December 31, 2022.
Removed
The provision during the year ended December 31, 2023 was largely attributable to organic growth of $266.1 million in loans held for investment and net charge-offs of $2.0 million. Net charge-offs increased $1.8 million during 2023 as compared to 2022.
Removed
The allowance for credit losses as a percentage of loans held for investment was 1.41% at December 31, 2023 and 1.43% at December 31, 2022. Further discussion of the allowance for credit losses is noted below.
Removed
Year Ended December 31, 2022 compared to Year Ended December 31, 2021 The provision for credit losses for the year ended December 31, 2022 was ($2.6) million compared to ($1.9) million for the year ended December 31, 2021.
Removed
The decrease in the provision for credit losses for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to improved credit metrics in the loan portfolio, specifically in the hotel segment, direct energy segment, and other Permian Basin-related credits, and a decline in the amount of loans that were actively under a pandemic-related modification, partially offset by growth of $310.5 million in loans held for investment.
Removed
Net charge-offs decreased $1.3 million during 2022 as compared to 2021. The allowance for credit losses as a percentage of loans held for investment was 1.43% at December 31, 2022 and 1.73% at December 31, 2021.
Removed
Further discussion of the allowance for credit losses is noted below. 45 Table of Contents 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.
Removed
Other sources of noninterest income include service charges on deposit accounts, bank card services and interchange fees. Prior to the sale of Windmark in 2023, income from insurance activities also comprised a large portion of noninterest income.
Removed
The following table sets forth the major components of our noninterest income for the periods indicated: Year Ended December 31, 2023 over 2022 Year Ended December 31, 2022 over 2021 2023 2022 Increase (decrease) 2022 2021 Increase (decrease) (Dollars in thousands) Noninterest income: Service charges on deposit accounts $ 7,130 $ 6,829 $ 301 $ 6,829 $ 6,963 $ (134 ) Income from insurance activities 1,515 10,826 (9,311 ) 10,826 8,314 2,512 Bank card services and interchange fees 13,323 12,946 377 12,946 12,239 707 Mortgage banking activities 13,817 31,370 (17,553 ) 31,370 59,726 (28,356 ) Investment commissions 1,698 1,825 (127 ) 1,825 1,934 (109 ) Fiduciary income 2,433 2,390 43 2,390 2,917 (527 ) Gain on sale of subsidiary 33,778 — 33,778 — — — Other income and fees (1) 5,532 9,959 (4,427 ) 9,959 5,376 4,583 Total noninterest income $ 79,226 $ 76,145 $ 3,081 $ 76,145 $ 97,469 $ (21,324 ) (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, and other miscellaneous services.
Removed
Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Noninterest income for the year ended December 31, 2023 was $79.2 million compared to $76.1 million for the year ended December 31, 2022, an increase of $3.1 million, or 4.0%. Significant changes in the components of noninterest income are detailed below.
Removed
Mortgage banking activities - Income from mortgage banking activities decreased $17.6 million, or 56.0%, to $13.8 million for the year ended December 31, 2023 from $31.4 million for the year ended December 31, 2022.
Removed
This decrease was primarily a result of a decrease of $ 276.4 million, or 46.2 %, in mortgage loan originations in the current year as compared to the prior year as mortgage interest rates were at higher levels during 2023.
Removed
There was also a $2.4 million decrease in the fair value of the Company’s mortgage servicing rights portfolio for the year ended December 31, 2023 as compared to a $4.7 million increase for the same period in 2022, given the changes in market interest rates during the periods.
Removed
Income from insurance activities - Due to the sale of Windmark in the second quarter of 2023, there was a decline of $9.3 million in income from insurance activities for year ended December 31, 2023 as compared to the same period in 2022.
Removed
Other income and fees - Other noninterest income and fees decreased $4.4 million for the year ended December 31, 2023 compared to the same period in 2022 largely as a result of earnings on SBIC investments of $310 thousand during 2023 as compared to $2.3 million during 2022, and $2.1 million of income related to legal settlements recorded in the third quarter of 2022.
Removed
Gain on sale of subsidiary - A $33.8 million gain from the sale of Windmark was recorded in 2023.
Removed
Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Noninterest income for the year ended December 31, 2022 was $76.1 million compared to $97.5 million for the year ended December 31, 2021, a decrease of $21.3 million, or 21.9%. Significant changes in the components of noninterest income are detailed below.
Removed
Mortgage banking activities - Income from mortgage banking activities decreased $28.4 million, or 47.5%, to $31.4 million for the year ended December 31, 2022 from $59.7 million for the year ended December 31, 2021.
Removed
The decrease was primarily the result of a reduction of $838.6 million, or 58.4%, in mortgage loan originations for the year ended December 31, 2022, compared to the year ended December 31, 2021, driven by rising mortgage interest rates during 2022 and the departure of several mortgage loan originators during the first quarter of 2022 and a decline in gain on sale margins.
Removed
This decrease was partially offset by increases of $3.2 million in the fair value adjustment and $1.0 million in servicing income for the Company’s mortgage servicing rights portfolio. Income from insurance activities - Income from insurance activities grew $2.5 million during 2022 compared to 2021.
Removed
This was a result of both an increase in base premiums and profit-sharing bonuses. 46 Table of Contents Other income and fees - Other noninterest income and fees increased $4.6 million for the year ended December 31, 2022 compared to the same period in 2021, largely as a result of increased earnings from SBIC investments of $2.3 million and $2.1 million in legal settlements during 2022.
Removed
Noninterest Expense The following table sets forth the major components of our noninterest expense for the periods indicated: Year Ended December 31, 2023 over 2022 Year Ended December 31, 2022 over 2021 2023 2022 Increase (decrease) 2022 2021 Increase (decrease) (Dollars in thousands) Noninterest expense: Salaries and employee benefits $ 79,377 $ 86,323 $ (6,946 ) $ 86,323 $ 93,360 $ (7,037 ) Occupancy expense, net 16,102 15,987 115 15,987 14,560 1,427 Professional services 6,433 9,740 (3,307 ) 9,740 6,752 2,988 Marketing and development 3,453 3,614 (161 ) 3,614 3,225 389 IT and data services 3,410 3,780 (370 ) 3,780 4,007 (227 ) Bankcard expenses 5,557 5,376 181 5,376 4,995 381 Appraisal expenses 1,087 1,747 (660 ) 1,747 3,248 (1,501 ) Realized loss on sale of securities 3,409 — 3,409 — — — Other expenses (1) 16,118 17,522 (1,404 ) 17,522 17,883 (361 ) Total noninterest expense $ 134,946 $ 144,089 $ (9,143 ) $ 144,089 $ 148,030 $ (3,941 ) (1) Other expenses include items such as banking regulatory assessments, telephone expenses, postage, courier fees, directors’ fees, and insurance.
Removed
Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Noninterest expense for the year ended December 31, 2023 was $134.9 million compared to $144.1 million for the year ended December 31, 2022, a decrease of $9.1 million, or 6.3%. Significant changes in the components of noninterest expense are detailed below.
Removed
Salaries and employee benefits - Salaries and employee benefits decreased $6.9 million, or 8.0%, from $86.3 million for the year ended December 31, 2022 to $79.4 million for the year ended December 31, 2023. This was primarily driven by approximately $6.7 million in lower mortgage personnel costs, due to the reduction in mortgage loan originations and operations.
Removed
Also, there was lower core Windmark personnel costs of $4.5 million due to the sale, partially offset by Windmark transaction and related incentive-based compensation expenses incurred in the first and second quarters of 2023.
Removed
Professional services - Professional services decreased $3.3 million for the year ended December 31, 2023, as compared to the same period in 2022, primarily from a reduction of $2.7 million in legal fees incurred largely as a result of a vendor dispute, which was resolved and accounted for by the end of 2022.
Removed
Loss on sale of securities - The Company sold approximately $56.2 million of available for sale securities in the second quarter of 2023. This resulted in a loss on sale of $3.4 million.
Removed
Other expenses – Other noninterest expenses declined $1.4 million in the current year primarily from reduced expenses from mortgage operations, as mortgage originations declined, and Windmark expenses, due to the sale.
Removed
Additionally, the FDIC assessment increased approximately $636 thousand as the assessment rates charged by the FDIC were increased as well as growth in the assessment base for the year ended December 31, 2023 as compared to the same period in 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensitivity and Market Risk” of this Report for discussion on how the Company manages market risk. 63 Table of Contents
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Sensitivity and Market Risk” of this Report for discussion on how the Company manages market risk. 64 Table of Contents

Other SPFI 10-K year-over-year comparisons