South Plains Financial FORWARD-LOOKING STATEMENTS 2 ▪ Chairman of the Board of City Bank and the Company since 1993 ▪ Joined the Board in 2008 ▪ Began career in public accounting in 1994 by serving for seven years with a local firm in Lubbock, Texas ➢ Net income for the first quarter of 2024 was $10.9 million, compared to $10.3 million for the fourth quarter of 2023 ➢ Deposits totaled $3.64 billion as of March 31, 2024, compared to $3.63 billion as of December 31, 2023 4 Source: Company documents Note: See ...

Exhibit 99.1 South Plains Financial, Inc. Reports First Quarter 2024 Financial Results LUBBOCK, Texas, April 25, 2024 (GLOBE NEWSWIRE) – South Plains Financial, Inc. (NASDAQ:SPFI) ("South Plains" or the "Company"), the parent company of City Bank ("City Bank" or the "Bank"), today reported its financial results for the quarter ended March 31, 2024. Net interest income was $35.4 million for the first quarter of 2024, compared to $35.2 million for the fourth quarter of 2023 and $34.3 million for the first qua ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_______________ Commission File Number 001-38895 South Plains Financial, Inc. (Exact name of registrant as specified in its charter) Texas 75-2453 ...

South Plains Financial, Inc. (NASDAQ:SPFI) Q4 2023 Earnings Conference Call January 26, 2024 10:00 AM ET Company Participants Steven Crockett - Chief Financial Officer and Treasurer Curtis Griffith - Chairman and Chief Executive Officer Cory Newsom - President Brent Bates - Chief Credit Officer Conference Call Participants Graham Dick - Piper Sandler Brett Rabatin - Hovde Group Mark Shutley - KBW Joseph Yanchunis - Raymond James Operator Good morning, ladies and gentlemen, and welcome to the South Plains Fi ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (Exact name of registrant as specified in its charter) Texas 75-2453320 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 001-38895 South Plains Financial, Inc. (Sta ...

South Plains Financial, Inc. (NASDAQ:SPFI) Q3 2023 Earnings Conference Call October 24, 2023 5:00 PM ET Company Participants Steve Crockett - Chief Financial Officer and Treasurer Curtis Griffith - Chairman and CEO Cory Newsom - President Brent Bates - Chief Credit Officer Conference Call Participants Graham Dick - Piper Sandler Brett Rabatin - Hovde Group Brady Gailey - KBW Joe Yanchunis - Raymond James Operator Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial Third Quarter 2 ...

Source: Company documents 102.0% 62.0% Noninterest Expense Noninterest Expense Efficiency Ratio o $4.5 million in personnel and transaction expenses as part of the Windmark sale plus related incentive compensation and a $3.4 million loss on the sale of securities both recorded in 2Q'23 Source: Company documents Balance Sheet Growth and Development $3,993 $2,690 $3,461 $342 $4,186 $2,993 $3,642 $372 Total Assets Total Loans HFI Total Deposits Total Stockholders' Equity reconciliation of non-GAAP measures to ...

PART I. FINANCIAL INFORMATION [Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including balance sheets, income, equity, cash flow, and detailed notes on accounting policies and financial instruments [Consolidated Balance Sheets (Unaudited)](index=3&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) Total assets increased to **$4.15 billion** by June 30, 2023, driven by loan growth, while liabilities and stockholders' equity also rose Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$4,150,129** | **$3,944,063** | | Cash and cash equivalents | $295,581 | $234,883 | | Loans held for investment, net | $2,935,926 | $2,708,793 | | Securities available for sale | $628,093 | $701,711 | | **Total Liabilities** | **$3,758,100** | **$3,587,049** | | Total deposits | $3,574,522 | $3,406,430 | | **Total Stockholders' Equity** | **$392,029** | **$357,014** | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) Net income significantly increased in Q2 2023 to **$29.7 million**, primarily due to a **$33.5 million** gain on subsidiary sale, with a higher provision for credit losses Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $34,581 | $37,105 | $68,896 | $67,052 | | Provision for credit losses | $3,700 | $— | $4,710 | $(2,085) | | Total Noninterest Income | $47,112 | $18,835 | $57,803 | $42,532 | | Gain on sale of subsidiary | $33,488 | $— | $33,488 | $— | | **Net Income** | **$29,683** | **$15,883** | **$38,927** | **$30,161** | | **Diluted EPS** | **$1.71** | **$0.88** | **$2.23** | **$1.66** | [Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20(Unaudited)) Stockholders' equity increased to **$392.0 million** by June 30, 2023, driven by net income and comprehensive income, partially offset by dividends and repurchases - Key drivers for the increase in stockholders' equity in the first six months of 2023 were net income of **$38.9 million** and other comprehensive income of **$3.3 million**[16](index=16&type=chunk) - Reductions to equity included cash dividends of **$4.4 million** and common stock repurchases of **$2.5 million**[16](index=16&type=chunk) - The adoption of the CECL standard on January 1, 2023, resulted in a one-time after-tax cumulative effect debit adjustment of **$997 thousand** to retained earnings[16](index=16&type=chunk)[26](index=26&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Net cash provided by operating activities decreased to **$25.7 million**, while investing activities used **$125.8 million**, and financing activities provided **$160.8 million**, resulting in a **$60.7 million** cash increase Net Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,725 | $89,447 | | Net cash used in investing activities | $(125,810) | $(271,901) | | Net cash provided by financing activities | $160,783 | $71,323 | | **Net change in cash and cash equivalents** | **$60,698** | **$(111,131)** | - The company received **$35.5 million** in proceeds from the sale of its subsidiary, Windmark, on April 1, 2023[19](index=19&type=chunk)[21](index=21&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail significant accounting policies, including CECL adoption, the **$35.5 million** Windmark subsidiary sale, and breakdowns of financial instruments and capital adequacy - On April 1, 2023, SPFI sold its subsidiary Windmark Insurance Agency, Inc. for an aggregate purchase price of **$35.5 million**, resulting in a pre-tax gain of **$33.5 million**[21](index=21&type=chunk) - The company adopted the Current Expected Credit Loss (CECL) model effective January 1, 2023, which resulted in a one-time, after-tax cumulative debit adjustment of **$997 thousand** to retained earnings[26](index=26&type=chunk) - As of June 30, 2023, the company and its bank subsidiary, City Bank, met all capital adequacy requirements and were considered "well-capitalized" under regulatory frameworks[115](index=115&type=chunk)[116](index=116&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting the impact of rising interest rates, the Windmark divestiture, and economic conditions, alongside analysis of income, loan portfolio, and capital [Overview and Recent Developments](index=41&type=section&id=Overview%20and%20Recent%20Developments) The company's performance is shaped by rising interest rates and banking uncertainty, maintaining strong liquidity with **$1.82 billion** in borrowing capacity and selling Windmark for a **$33.5 million** gain - The company sold its wholly-owned subsidiary, Windmark, on April 1, 2023, for **$35.5 million**, recognizing a pre-tax gain of **$33.5 million**[146](index=146&type=chunk) - At June 30, 2023, an estimated **16%** of total deposits were uninsured or uncollateralized[144](index=144&type=chunk) - The company had available borrowing capacity of **$1.82 billion** at June 30, 2023, through the FHLB, FRB's Discount Window, and the BTFP program[145](index=145&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net income for Q2 2023 significantly increased to **$29.7 million** due to the Windmark sale, with six-month net income reaching **$38.9 million** driven by noninterest income Performance Summary | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $29.7 | $15.9 | $38.9 | $30.2 | | Diluted EPS | $1.71 | $0.88 | $2.23 | $1.66 | | Return on Average Assets (annualized) | 2.97% | 1.60% | 1.98% | 1.54% | | Return on Average Equity (annualized) | 31.33% | 16.96% | 21.14% | 15.74% | [Financial Condition](index=48&type=section&id=Financial%20Condition) Total assets grew **5.2%** to **$4.15 billion** by June 30, 2023, driven by an **8.4%** increase in gross loans, funded by a **4.9%** rise in deposits - Total assets increased by **$206.1 million (5.2%)** to **$4.15 billion** at June 30, 2023[183](index=183&type=chunk) - Gross loans held for investment increased by **$231.0 million (8.4%)** to **$2.98 billion**, reflecting strong organic loan demand[183](index=183&type=chunk)[185](index=185&type=chunk) - Total deposits increased by **$168.1 million (4.9%)** to **$3.57 billion**[183](index=183&type=chunk) [Liquidity and Capital Resources](index=58&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$1.01 billion** FHLB and **$611.7 million** FRB borrowing capacity, and remains well-capitalized with a **12.11%** CET1 ratio - Available borrowing capacity includes **$1.01 billion** from the FHLB and **$611.7 million** from the Federal Reserve discount window at June 30, 2023[244](index=244&type=chunk) - Total stockholders' equity increased by **9.8%** to **$392.0 million** at June 30, 2023, from **$357.0 million** at December 31, 2022[247](index=247&type=chunk) Regulatory Capital Ratios (Consolidated) - June 30, 2023 | Ratio | Actual | | :--- | :--- | | CET 1 capital (to risk-weighted assets) | 12.11% | | Tier 1 capital (to risk-weighted assets) | 13.37% | | Total capital (to risk-weighted assets) | 16.75% | | Tier 1 capital (to average assets) | 11.67% | [Interest Rate Sensitivity and Market Risk](index=59&type=section&id=Interest%20Rate%20Sensitivity%20and%20Market%20Risk) The company manages interest rate risk via ALCO, with simulations showing a **1.31%** NII decrease for a **+100 bps** rate change and a **1.41%** NII increase for a **-100 bps** change Simulated Change in Net Interest Income (12-Month Horizon) | Change in Interest Rates (bps) | % Change in NII (June 30, 2023) | | :--- | :--- | | +300 | (4.23)% | | +200 | (2.76)% | | +100 | (1.31)% | | -100 | 1.41% | | -200 | 2.83% | - The company's internal policy limits the decline in estimated net interest income for a **100 basis point** shift to no more than **7.5%**[260](index=260&type=chunk) [Non-GAAP Financial Measures](index=60&type=section&id=Non-GAAP%20Financial%20Measures) Non-GAAP measures, including tangible book value per share of **$21.82** and tangible common equity to tangible assets of **8.96%**, provide insight into the company's financial condition Non-GAAP Reconciliation and Ratios | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total stockholders' equity (in thousands) | $392,029 | $357,014 | | Less: Goodwill and other intangibles (in thousands) | $(22,149) | $(23,857) | | **Tangible common equity (in thousands)** | **$369,880** | **$333,157** | | Total assets (in thousands) | $4,150,129 | $3,944,063 | | Less: Goodwill and other intangibles (in thousands) | $(22,149) | $(23,857) | | **Tangible assets (in thousands)** | **$4,127,980** | **$3,920,206** | | **Tangible book value per share** | **$21.82** | **$19.57** | | **Tangible common equity to tangible assets** | **8.96%** | **8.50%** | [Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, managed by the ALCO Committee using simulation models and shock analysis - The company's main market risk is interest rate volatility, managed by the ALCO Committee[289](index=289&type=chunk) - Management uses simulation models and shock analysis to test the interest rate sensitivity of net interest income and the fair value of equity[289](index=289&type=chunk) [Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with internal control changes implemented to accommodate the CECL accounting standard adoption - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarter[290](index=290&type=chunk) - Changes were made to internal controls to support the adoption of the CECL standard (ASU 2016-13), affecting the estimation of the allowance for credit losses[291](index=291&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position or operations - The company is not presently involved in any litigation that management believes would have a material adverse effect on its financial condition or results[293](index=293&type=chunk) [Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K have occurred - Management believes there have been no material changes in the risk factors disclosed in the 2022 Annual Report on Form 10-K[294](index=294&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The board approved a **$15.0 million** stock repurchase program, with **112,954 shares** repurchased for approximately **$2.5 million** during Q2 2023 - A new stock repurchase program for up to **$15.0 million** was approved on May 5, 2023[295](index=295&type=chunk) Share Repurchase Activity (Q2 2023) | Month | Total Shares Repurchased | Average Price Paid Per Share | Total Dollar Amount (in thousands) | | :--- | :--- | :--- | :--- | | May 2023 | 41,971 | $21.37 | $897 | | June 2023 | 70,983 | $23.26 | $1,651 | | **Total** | **112,954** | - | **$2,548** | [Other Information](index=65&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[300](index=300&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Windmark sale agreement, corporate governance documents, and CEO/CFO certifications - Exhibits filed include the Securities Purchase Agreement for the sale of Windmark, CEO/CFO certifications (Sections 302 and 906), and XBRL data files[302](index=302&type=chunk)

11.68% THE POWER OF RELATIONSHIPS At SPFI, we build lifelong, trusted relationships so you know you always have someone in your corner that understands you, cares about you, and stands ready to help. | --- | --- | |----------------------------------------------------------------|------------------------| | | | | LIVE BETTER | | | We want to help everyone live better. | | | At the end of the day, we do what we do to help enhance lives. | | | | | | We create a great place to work, help people achieve their | ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited consolidated financial statements, management's discussion and analysis, and disclosures on market risk and internal controls for the reporting period [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of South Plains Financial, Inc. and its subsidiaries for the period ended March 31, 2023, including the balance sheets, statements of comprehensive income (loss), changes in stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies and financial instrument specifics [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets%20(Unaudited)) This section presents the unaudited consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of March 31, 2023, and December 31, 2022 Consolidated Balance Sheets (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (Unaudited, in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :--------------------------- | :------------------ | | **ASSETS** | | | | Cash and cash equivalents | $328,002 | $234,883 | | Securities available for sale | $698,579 | $701,711 | | Loans held for investment, net | $2,749,080 | $2,708,793 | | Total assets | $4,058,049 | $3,944,063 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total deposits | $3,508,054 | $3,406,430 | | Total liabilities | $3,690,085 | $3,587,049 | | Total stockholders' equity | $367,964 | $357,014 | | Total liabilities and stockholders' equity | $4,058,049 | $3,944,063 | [Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)%20(Unaudited)) This section presents the unaudited consolidated statements of comprehensive income (loss) for the three months ended March 31, 2023 and 2022, detailing revenue, expenses, and net income Consolidated Statements of Comprehensive Income (Loss) (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $47,448 | $33,080 | | Total interest expense | $13,133 | $3,133 | | Net interest income | $34,315 | $29,947 | | Provision for credit losses | $1,010 | $(2,085) | | Total noninterest income | $10,691 | $23,697 | | Total noninterest expense | $32,361 | $37,924 | | Net income | $9,244 | $14,278 | | Basic earnings per share | $0.54 | $0.81 | | Diluted earnings per share | $0.53 | $0.78 | | Other comprehensive income (loss) | $4,729 | $(30,003) | | Comprehensive income (loss) | $13,973 | $(15,725) | [Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)) This section presents the unaudited consolidated statements of changes in stockholders' equity for the three months ended March 31, 2023 and 2022, showing movements in equity components Consolidated Statements of Changes in Stockholders' Equity (Three Months Ended March 31, 2023 vs. 2022) | Metric | March 31, 2023 (in thousands) | March 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :------------- | | Balance at January 1 | $357,014 | $407,427 | | Net income | $9,244 | $14,278 | | Cash dividends declared | $(2,208) | $(1,950) | | Other comprehensive income (loss) | $4,729 | $(30,003) | | Impact of adoption of ASU 2016-13 - CECL | $(997) | — | | Exercise of employee stock options and vesting of restricted stock units, net | $(343) | $(195) | | Repurchases of common stock | — | $(3,017) | | Stock-based compensation | $525 | $528 | | Balance at March 31 | $367,964 | $387,068 | [Consolidated Statements of Cash Flows (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) This section presents the unaudited consolidated statements of cash flows for the three months ended March 31, 2023 and 2022, detailing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $25,375 | $70,616 | | Net cash used in investing activities | $(31,329) | $(132,598) | | Net cash provided by financing activities | $99,073 | $103,773 | | Net change in cash and cash equivalents | $93,119 | $41,791 | | Ending cash and cash equivalents | $328,002 | $528,612 | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes to the unaudited consolidated financial statements, explaining significant accounting policies, financial instrument specifics, and other relevant disclosures [1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=1.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the Company's core business activities, basis of financial statement presentation, use of estimates, and recent accounting changes, particularly the adoption of the CECL model. It details policies for securities, loans, allowance for credit losses, goodwill, and earnings per share, and notes the divestiture of the insurance segment - South Plains Financial, Inc. (SPFI) is a Texas-based bank holding company primarily engaged in commercial and retail banking, investment, trust, and mortgage services through its subsidiaries across Texas and Eastern New Mexico[19](index=19&type=chunk) - The Company adopted the Current Expected Credit Loss (CECL) model on January 1, 2023, recognizing a one-time, after-tax cumulative effect debit adjustment of **$997 thousand** to retained earnings, increasing the ACL for loans by approximately **$100 thousand** and for off-balance sheet credit exposures by approximately **$1.2 million**[23](index=23&type=chunk) Impact of CECL Model Adoption on ACL (January 1, 2023) | (Dollars in thousands) | Pre-Adoption | Impact of Adoption | Post-Adoption | | :----------------------------------- | :------------- | :----------------- | :------------ | | Total allowance for credit losses on loans | $39,288 | $102 | $39,390 | | Allowance for credit losses for off-balance sheet exposures | $580 | $1,160 | $1,740 | - Effective January 1, 2023, the Company removed segment reporting disclosures as the insurance segment was no longer significant to operating results and was subsequently sold on **April 1, 2023**[43](index=43&type=chunk) [2. SECURITIES](index=14&type=section&id=2.%20SECURITIES) This note provides details on the Company's securities available for sale portfolio, including amortized cost, unrealized gains and losses, and fair values. It highlights that unrealized losses are primarily due to increases in market rates and are not considered credit-related, with no allowance for credit losses recognized Securities Available for Sale (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :---------------- | | Amortized Cost | $792,713 | $804,469 | | Gross Unrealized Gains | $972 | $27 | | Gross Unrealized Losses | $(95,106) | $(102,785) | | Fair Value | $698,579 | $701,711 | - At March 31, 2023, there were **161 securities** with unrealized losses, primarily due to increases in market rates. Management believes these losses are non-credit related and expects recovery as securities approach maturity or if market yields decline, with no intent to sell before recovery[49](index=49&type=chunk) - Securities with a carrying value of approximately **$496.2 million** at March 31, 2023, were pledged to collateralize public deposits and for other purposes[47](index=47&type=chunk) [3. LOANS HELD FOR INVESTMENT](index=16&type=section&id=3.%20LOANS%20HELD%20FOR%20INVESTMENT) This section details the Company's loan portfolio, categorized by commercial real estate, specialized commercial, general commercial, consumer, and construction loans. it provides an overview of underwriting standards, changes in the Allowance for Credit Losses (ACL), impaired loan information, and credit quality indicators, including the impact of the CECL model adoption Loans Held for Investment (March 31, 2023 vs. December 31, 2022) | Loan Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :---------------- | | Commercial real estate | $926,018 | $919,358 | | Commercial - specialized | $315,473 | $327,513 | | Commercial - general | $510,917 | $484,783 | | Consumer: 1-4 family residential | $485,396 | $460,124 | | Auto loans | $321,309 | $321,476 | | Other consumer | $81,413 | $81,308 | | Construction | $148,114 | $153,519 | | Total loans held for investment | $2,788,640 | $2,748,081 | | Allowance for credit losses on loans | $(39,560) | $(39,288) | | Loans, net | $2,749,080 | $2,708,793 | - The Allowance for Credit Losses (ACL) for loans increased to **$39.6 million** at March 31, 2023, from **$39.3 million** at December 31, 2022. The ACL to loans held for investment ratio was **1.42%** at March 31, 2023, slightly down from **1.43%** at December 31, 2022[55](index=55&type=chunk) Activity in ACL for Loans (Three Months Ended March 31, 2023) | Loan Category | Beginning Balance (Jan 1, 2023, in thousands) | CECL Adoption Impact (in thousands) | Provision for Credit Losses (in thousands) | Charge-offs (in thousands) | Recoveries (in thousands) | Ending Balance (Mar 31, 2023, in thousands) | | :----------------------------------- | :------------------------------ | :------------------- | :-------------------------- | :---------- | :--------- | :---------------------------- | | Commercial real estate | $13,029 | $827 | $(475) | $0 | $0 | $13,381 | | Commercial - specialized | $3,425 | $33 | $(11) | $0 | $63 | $3,510 | | Commercial - general | $9,215 | $(2,574) | $(237) | $(199) | $62 | $6,267 | | Consumer: 1-4 family residential | $6,194 | $1,700 | $635 | $0 | $2 | $8,531 | | Auto loans | $3,926 | $(332) | $298 | $(254) | $76 | $3,714 | | Other consumer | $1,376 | $(235) | $68 | $(214) | $106 | $1,101 | | Construction | $2,123 | $683 | $522 | $(272) | $0 | $3,056 | | **Total ACL for loans** | **$39,288** | **$102** | **$800** | **$(939)** | **$309** | **$39,560** | - The Company grades loans on a thirteen-point scale (pass, special mention, substandard, doubtful, loss) to assess default risk, with nonaccrual loans over **$250,000** and substandard accruing loans over **$1 million** subject to individual evaluation[61](index=61&type=chunk)[66](index=66&type=chunk) Loans Modified to Borrowers in Financial Distress (Three Months Ended March 31, 2023) | Loan Class | Term Extension (in thousands) | Term Extension and Interest Rate Reduction (in thousands) | Total Class of Financing Receivable (%) | | :----------------------------------- | :------------- | :--------------------------------------- | :-------------------------------------- | | Commercial - general | $2,999 | $42 | 0.60% | | Consumer: 1-4 family | $199 | — | 0.04% | | Auto loans | $40 | — | 0.01% | | **Total** | **$3,238** | **$42** | **0.12%** | [4. GOODWILL AND INTANGIBLES](index=24&type=section&id=4.%20GOODWILL%20AND%20INTANGIBLES) This note reports the Company's goodwill and other intangible assets, primarily core deposit intangibles (CDI). Goodwill remained stable, and an interim impairment analysis due to economic uncertainty found no impairment. CDI is amortized over its estimated useful life - Goodwill remained at **$19.5 million** at March 31, 2023, and December 31, 2022. An interim goodwill impairment quantitative analysis was performed due to economic uncertainty and a decrease in stock price, but no impairment charge was recorded[40](index=40&type=chunk)[76](index=76&type=chunk) Other Intangible Assets, Net (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :---------------- | | Core deposit intangible, net | $3,046 | $3,259 | | Other intangibles, net | $942 | $1,090 | | Total other intangible assets, net | $3,988 | $4,349 | [5. MORTGAGE SERVICING RIGHTS](index=25&type=section&id=5.%20MORTGAGE%20SERVICING%20RIGHTS) This note details the changes in the fair value of the Company's mortgage servicing rights (MSR) asset and key valuation assumptions. The MSR balance decreased due to a negative valuation adjustment, reflecting market volatility Mortgage Servicing Rights Activity (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $27,474 | $19,700 | | Additions | $271 | $1,250 | | Valuation adjustment | $(1,950) | $4,475 | | Ending balance | $25,795 | $25,425 | - Mortgage loans serviced for others decreased slightly to **$2.037 billion** at March 31, 2023, from **$2.046 billion** at December 31, 2022. The MSR asset as a percentage of serviced mortgage loans was **1.27%** at March 32, 2023[77](index=77&type=chunk) Key Assumptions for Mortgage Servicing Rights Valuation (March 31, 2023 vs. December 31, 2022) | Assumption | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Weighted average constant prepayment rate | 7.44% | 7.47% | | Weighted average discount rate | 9.65% | 9.15% | | Weighted average life in years | 7.93 | 7.91 | [6. BORROWING ARRANGEMENTS](index=25&type=section&id=6.%20BORROWING%20ARRANGEMENTS) This section details the Company's subordinated debt and other borrowing arrangements. It outlines the terms of two subordinated debt issuances and confirms no outstanding advances from the Federal Home Loan Bank (FHLB) - The Company has **$76.0 million** in total subordinated debt outstanding as of March 31, 2023, comprising two issuances from December 2018 (**$26.5 million**) and September 2020 (**$50.0 million**). These notes are unsecured, pay interest quarterly/semi-annually, and qualify for Tier 2 capital treatment[78](index=78&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - City Bank had no outstanding advances from the Federal Home Loan Bank of Dallas (FHLB) at March 31, 2023, or December 31, 2022[81](index=81&type=chunk) [7. STOCK-BASED COMPENSATION](index=25&type=section&id=7.%20STOCK-BASED%20COMPENSATION) This note describes the Company's 2019 Equity Incentive Plan, covering stock options and restricted stock awards. It provides details on activity, valuation assumptions, and unrecognized compensation costs for these awards - The 2019 Equity Incentive Plan authorizes the issuance of up to **2,300,000 shares** of common stock, with potential annual increases of up to **3%** of outstanding shares, for various stock-based awards[82](index=82&type=chunk) Stock Option Activity (Three Months Ended March 31, 2023) | Metric | Number of Shares | Weighted-Average Exercise Price | | :----------------------------------- | :--------------- | :------------------------------ | | Outstanding at beginning of year | 1,354,189 | $16.11 | | Granted | 47,816 | $27.46 | | Exercised | (25,521) | $12.75 | | Forfeited | (1,125) | $20.19 | | Balance, March 31, 2023 | 1,375,359 | $16.57 | - Total unrecognized compensation cost for outstanding awards under the Plan was **$4.6 million** at March 31, 2023, to be recognized over a weighted average remaining period of **1.83 years**[87](index=87&type=chunk) [8. OFF-BALANCE-SHEET ACTIVITIES, COMMITMENTS AND CONTINGENCIES](index=29&type=section&id=8.%20OFF-BALANCE-SHEET%20ACTIVITIES,%20COMMITMENTS%20AND%20CONTINGENCIES) This note details the Company's off-balance-sheet financial instruments, including commitments to extend credit and standby letters of credit. These instruments expose the Company to credit and interest rate risk, with total commitments increasing slightly from December 31, 2022 Off-Balance-Sheet Credit Risk Outstanding (March 31, 2023 vs. December 31, 2022) | Instrument | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :---------------- | | Commitments to grant loans and unfunded commitments under lines of credit | $720,851 | $682,296 | | Standby letters of credit | $12,821 | $13,864 | - The total commitment amounts do not necessarily represent future cash requirements as many commitments for lines of credit may expire without being drawn upon[90](index=90&type=chunk) [9. LEASES](index=29&type=section&id=9.%20LEASES) This note provides information on the Company's operating lease arrangements as both a lessee and a lessor. It details the balance sheet components, operating lease costs, cash flow information, and future undiscounted lease payments Balance Sheet Components of Leases (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :------------- | :---------------- | | Operating lease right of use assets | $7,871 | $7,938 | | Operating lease liabilities | $8,829 | $8,897 | - Operating lease costs for the three months ended March 31, 2023, were **$705 thousand**, up from **$597 thousand** in the prior year period. Cash paid for operating leases was **$503 thousand** for the same period[94](index=94&type=chunk)[95](index=95&type=chunk) Future Undiscounted Operating Lease Payments (March 31, 2023) | Year | Amount (thousands) | | :----------------------------------- | :----------------- | | 2023 | $1,443 | | 2024 | $1,501 | | 2025 | $1,102 | | 2026 | $1,101 | | 2027 | $1,063 | | Thereafter | $5,050 | | Total minimum lease payments | $11,260 | [10. CAPITAL AND REGULATORY MATTERS](index=31&type=section&id=10.%20CAPITAL%20AND%20REGULATORY%20MATTERS) This note confirms that the Company and its bank subsidiary meet all regulatory capital requirements and are categorized as 'well-capitalized' under applicable Basel III and FDIC regulations. It provides detailed capital ratios for both the consolidated entity and City Bank - As of March 31, 2023, and December 31, 2022, the Company and its bank subsidiary met all capital adequacy requirements and were categorized as **'well-capitalized'** under applicable regulations[101](index=101&type=chunk)[102](index=102&type=chunk) Regulatory Capital Ratios (March 31, 2023) | Ratio | Consolidated (Actual) | City Bank (Actual) | Minimum Required (Basel III) | Well Capitalized (Prompt Corrective Action) | | :----------------------------------- | :-------------------- | :----------------- | :--------------------------- | :------------------------------------------ | | Total Capital to Risk Weighted Assets | 16.70% | 13.59% | 10.50% | 10.00% | | Tier I Capital to Risk Weighted Assets | 13.24% | 12.37% | 8.50% | 8.00% | | Common Equity Tier 1 to Risk Weighted Assets | 11.92% | 12.37% | 7.00% | 6.50% | | Tier I Capital to Average Assets | 11.22% | 10.48% | 4.00% | 5.00% | [11. DERIVATIVES](index=32&type=section&id=11.%20DERIVATIVES) This note describes the Company's use of interest rate swap agreements for fair value hedging and mortgage banking derivatives for risk management. It details the changes in fair value and the balance sheet impact of these instruments - The Company uses interest rate swap agreements as fair value hedges to manage interest rate risk, with changes in fair value of these swaps and hedged investment securities largely offsetting each other[106](index=106&type=chunk)[107](index=107&type=chunk) Fair Value Hedges (Three Months Ended March 31, 2023) | Interest Rate Contracts | Location | 2023 Change in Fair Value (in thousands) | | :----------------------------------- | :----------------------- | :------------------------ | | Interest rate swaps hedging investment securities | Other noninterest expense | $(2,654) | | Hedged investment securities | Other noninterest expense | $2,638 | | Interest rate swaps hedging fixed rate loans | Interest income - Loans | $0 | | Hedged fixed rate loans | Interest income - Loans | $0 | - Mortgage banking derivatives, not designated as hedging instruments, resulted in a net loss of **$(281) thousand** for the three months ended March 31, 2023, compared to **$(1,093) thousand** in the prior year[110](index=110&type=chunk) [12. EARNINGS PER SHARE](index=34&type=section&id=12.%20EARNINGS%20PER%20SHARE) This note provides the computation of basic and diluted earnings per share for the Company, showing a decrease in both metrics compared to the prior year period Earnings Per Share (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in thousands, except per share data) | Three Months Ended March 31, 2022 (in thousands, except per share data) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $9,244 | $14,278 | | Weighted average common shares outstanding - basic | 17,046,713 | 17,716,136 | | Weighted average common shares outstanding - diluted | 17,560,756 | 18,392,397 | | Basic earnings per share | $0.54 | $0.81 | | Diluted earnings per share | $0.53 | $0.78 | [13. FAIR VALUE DISCLOSURES](index=36&type=section&id=13.%20FAIR%20VALUE%20DISCLOSURES) This note provides detailed fair value measurements for the Company's financial instruments, categorized by Level 1, Level 2, and Level 3 inputs. It explains the valuation techniques used for securities, mortgage servicing rights, derivatives, and loans held for investment, highlighting the recurring and non-recurring fair value measurements - The fair value hierarchy prioritizes quoted prices in active markets (Level 1) over observable inputs (Level 2) and unobservable inputs (Level 3)[114](index=114&type=chunk)[116](index=116&type=chunk) Assets (Liabilities) Measured at Fair Value on a Recurring Basis (March 31, 2023) | Asset/Liability | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :----------------------------------- | :------ | :------ | :------ | :------ | | Securities available for sale | $0 | $698,579 | $0 | $698,579 | | Loans held for sale (mandatory) | $0 | $11,576 | $0 | $11,576 | | Mortgage servicing rights | $0 | $0 | $25,795 | $25,795 | | Asset derivatives | $0 | $18,931 | $0 | $18,931 | | Liability derivatives | $0 | $(409) | $0 | $(409) | - Mortgage servicing rights are the only Level 3 asset measured at fair value on a recurring basis, valued using discounted cash flows with conditional prepayment rate (**7.44%**) and discount rate (**9.65%**) as key unobservable inputs[119](index=119&type=chunk)[124](index=124&type=chunk) Estimated Fair Values of Financial Instruments Not Previously Disclosed (March 31, 2023) | Instrument | Carrying Amount (in thousands) | Fair Value (Total, in thousands) | | :----------------------------------- | :-------------- | :----------------- | | Cash and cash equivalents | $328,002 | $328,002 | | Loans held for investment, net | $2,749,080 | $2,697,002 | | Deposits | $3,508,054 | $3,507,917 | | Junior subordinated deferrable interest debentures | $46,393 | $32,395 | | Subordinated debt securities | $76,007 | $64,498 | [14. SUBSEQUENT EVENTS](index=39&type=section&id=14.%20SUBSEQUENT%20EVENTS) This note discloses significant events occurring after March 31, 2023, including a dividend declaration, the sale of the Windmark insurance subsidiary, and the approval of a new stock repurchase program - On **April 20, 2023**, the Company declared a cash dividend of **$0.13 per share** of common stock[127](index=127&type=chunk) - The Company completed the sale of its wholly-owned insurance subsidiary, Windmark, to Alliant Insurance Services, Inc. on **April 1, 2023**, for an aggregate purchase price of **$35.5 million**. The sale includes post-closing obligations and restrictive covenants[128](index=128&type=chunk) - On **May 5, 2023**, the Board approved a new stock repurchase program for up to **$15.0 million** of common stock, effective until **May 5, 2024**[129](index=129&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2023. It covers key financial performance indicators, recent economic developments, detailed analysis of net interest income, noninterest income and expense, loan portfolio, asset quality, securities, deposits, liquidity, and capital resources, along with critical accounting policies and non-GAAP financial measures [Overview](index=43&type=section&id=Overview) This section provides a high-level overview of South Plains Financial, Inc.'s business activities, focusing on its commercial and retail banking, investment, trust, and mortgage services - South Plains Financial, Inc. is a Texas-based bank holding company primarily engaged in commercial and retail banking, investment, trust, and mortgage services through its subsidiaries across Texas and Eastern New Mexico[139](index=139&type=chunk) [Recent Developments](index=43&type=section&id=Recent%20Developments) This section discusses recent market interest rate increases, deposit composition, available borrowing capacity, and the sale of the insurance subsidiary, highlighting their impact on the Company's financial condition - The Company's financial condition has been impacted by significant market interest rate increases due to Federal Reserve actions in response to inflation, leading to increased focus on investment securities, interest rate risk, liquidity, and capital[140](index=140&type=chunk) Deposit Composition (March 31, 2023) | Deposit Type | Percentage of Total Deposits | | :----------------------------------- | :--------------------------- | | Noninterest-bearing deposits | 32% | | Time deposits | 8% | | Interest-bearing nonmaturity deposits | 60% | | Retail customers | 45% | | Commercial customers | 43% | | Public funds | 12% | | Uninsured or uncollateralized deposits | 17% | - The Company had approximately **$1.75 billion** in available borrowing capacity at March 31, 2023, through the FHLB (**$988 million** unused), FRB's Discount Window (**$586 million** unused), and access to the BTFP (**$179 million** available securities for collateral)[142](index=142&type=chunk) - The Company completed the sale of its insurance subsidiary, Windmark, on **April 1, 2023**, and approved a new **$15.0 million** stock repurchase program on **May 5, 2023**[143](index=143&type=chunk)[144](index=144&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance for the three months ended March 31, 2023, detailing changes in net income, earnings per share, and key profitability ratios Key Financial Results (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in millions, except per share data) | Three Months Ended March 31, 2022 (in millions, except per share data) | Change (YoY, in millions, except per share data) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Net income | $9.2 | $14.3 | $(5.1) | | Diluted common share | $0.53 | $0.78 | $(0.25) | | Return on average equity (annualized) | 10.34% | 14.58% | (4.24)% | | Return on average assets (annualized) | 0.95% | 1.47% | (0.52)% | - The **$5.0 million** decrease in net income was primarily due to a **$13.0 million** decrease in noninterest income and a **$3.1 million** increase in the provision for credit losses, partially offset by a **$4.4 million** increase in net interest income and a **$5.6 million** decrease in noninterest expense[145](index=145&type=chunk) [Net Interest Income](index=44&type=section&id=Net%20Interest%20Income) Net interest income increased by $4.4 million, or 14.6%, driven by a significant rise in interest income from loans and securities due to higher interest rates and loan growth, partially offset by a substantial increase in interest expense on deposits Net Interest Income (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $47,750 | $33,385 | | Total interest expense | $13,133 | $3,133 | | Net interest income | $34,617 | $30,252 | | Net interest spread | 2.95% | 3.14% | | Net interest margin | 3.75% | 3.33% | - Interest income on loans grew by **$10.2 million**, primarily due to a **$296.3 million** increase in average loan balances and a **98 basis point** increase in interest rates. Interest income on securities and other interest-earning assets increased by **$4.1 million**[153](index=153&type=chunk) - Interest expense increased by **$10.0 million**, or **319.2%**, mainly due to a **169 basis point** increase in the rate paid on interest-bearing liabilities, reflecting rising short-term interest rates[153](index=153&type=chunk)[154](index=154&type=chunk) [Provision for Credit Losses](index=46&type=section&id=Provision%20for%20Credit%20Losses) The provision for credit losses shifted from a negative provision in the prior year to a positive $1.0 million in Q1 2023, primarily due to organic loan growth and provisions for off-balance sheet credit exposures. The ACL as a percentage of loans held for investment remained stable Provision for Credit Losses (Three Months Ended March 31, 2023 vs. 2022) | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Provision for credit losses | $1.0 | $(2.1) | | Provision for credit losses for loans | $0.8 | — | | Provision for credit losses on off-balance sheet credit exposures | $0.2 | — | | Allowance for credit losses as % of loans held for investment | 1.42% | 1.43% | - The negative provision in Q1 2022 was due to improved credit metrics, particularly in the hotel and energy segments. Current provisions reflect organic loan growth and ongoing economic uncertainty[157](index=157&type=chunk) [Noninterest Income](index=48&type=section&id=Noninterest%20Income) Noninterest income significantly decreased by $13.0 million, or 54.9%, primarily driven by an $11.4 million decline in mortgage banking activities due to lower loan originations and a negative fair value adjustment to mortgage servicing rights Noninterest Income Components (Three Months Ended March 31, 2023 vs. 2022) | Component | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY, in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Service charges on deposit accounts | $1,701 | $1,773 | $(72) | | Income from insurance activities | $1,411 | $1,570 | $(159) | | Bank card services and interchange fees | $2,956 | $3,222 | $(266) | | Mortgage banking activities | $2,286 | $13,637 | $(11,351) | | Investment commissions | $389 | $546 | $(157) | | Fiduciary income | $600 | $612 | $(12) | | Other income and fees | $1,348 | $2,337 | $(989) | | **Total noninterest income** | **$10,691** | **$23,697** | **$(13,006)** | - Mortgage banking income decreased by **$11.4 million** (**83.2%**) due to a **63.1%** decrease in mortgage loan originations and a negative fair value adjustment of **$2.0 million** to mortgage servicing rights in Q1 2023 (compared to a positive **$4.5 million** in Q1 2022)[160](index=160&type=chunk) [Noninterest Expense](index=49&type=section&id=Noninterest%20Expense) Noninterest expense decreased by $5.6 million, or 14.7%, primarily due to a $3.4 million reduction in salaries and employee benefits, driven by lower mortgage salaries and incentive-based compensation, and a $1.0 million decrease in professional services Noninterest Expense Components (Three Months Ended March 31, 2023 vs. 2022) | Component | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change (YoY, in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Salaries and employee benefits | $19,254 | $22,703 | $(3,449) | | Occupancy expense, net | $3,832 | $3,737 | $95 | | Professional services | $1,648 | $2,625 | $(977) | | Marketing and development | $936 | $720 | $216 | | IT and data services | $864 | $1,053 | $(189) | | Bankcard expenses | $1,352 | $1,323 | $29 | | Appraisal expenses | $278 | $565 | $(287) | | Other expenses | $4,197 | $5,198 | $(1,001) | | **Total noninterest expense** | **$32,361** | **$37,924** | **$(5,563)** | - The decrease in salaries and employee benefits was mainly due to a **$2.7 million** reduction in mortgage salaries and commissions, reflecting lower mortgage loan originations and incentive-based compensation[163](index=163&type=chunk) - Professional services expenses decreased by **$1.0 million**, primarily due to an **$0.8 million** decrease in legal fees related to a vendor dispute resolved in 2022[163](index=163&type=chunk) [Financial Condition](index=49&type=section&id=Financial%20Condition) This section analyzes the Company's financial position, including changes in total assets, loans, securities, and deposits, providing insights into the balance sheet structure and key trends - Total assets increased by **$114.0 million** (**2.9%**) to **$4.06 billion** at March 31, 2023, from **$3.94 billion** at December 31, 2022[163](index=163&type=chunk) - Loans held for investment increased by **$40.6 million** (**1.5%**) to **$2.79 billion**, while the securities portfolio decreased by **$3.1 million** (**0.4%**) to **$698.6 million**[163](index=163&type=chunk) - Total deposits increased by **$101.6 million** (**3.0%**) to **$3.51 billion** at March 31, 2023[163](index=163&type=chunk) [Loan Portfolio](index=49&type=section&id=Loan%20Portfolio) The loan portfolio, the largest component of earning assets, grew by $40.6 million, primarily in commercial real estate and residential mortgage loans, offset by a decrease in residential construction loans. The portfolio remains diversified by type and geography, with 68.8% secured by real property - Loans held for investment increased by **$40.6 million** (**1.5%**) to **$2.79 billion** at March 31, 2023, driven by organic growth in commercial real estate loans and residential mortgage loans, partially offset by a decrease in residential construction loans[165](index=165&type=chunk) Contractual Maturities of Loans Held for Investment (March 31, 2023) | Loan Category | Due in One Year or Less (in thousands) | Due after One Year Through Five Years (in thousands) | Due after Five Years Through Fifteen Years (in thousands) | Due after Fifteen Years (in thousands) | Total (in thousands) | | :----------------------------------- | :---------------------- | :------------------------------------ | :----------------------------------------- | :---------------------- | :------ | | Commercial real estate | $84,584 | $499,958 | $255,615 | $85,861 | $926,018 | | Commercial - specialized | $74,929 | $124,114 | $62,990 | $53,440 | $315,473 | | Commercial - general | $83,091 | $165,161 | $132,813 | $129,852 | $510,917 | | Consumer: 1-4 family residential | $33,913 | $83,364 | $74,474 | $293,645 | $485,396 | | Auto loans | $2,932 | $168,656 | $149,721 | $0 | $321,309 | | Other consumer | $7,176 | $49,049 | $25,188 | $0 | $81,413 | | Construction | $123,731 | $16,350 | $0 | $8,033 | $148,114 | | **Total loans** | **$410,356** | **$1,106,652** | **$700,801** | **$570,831** | **$2,788,640** | - **68.8%** of the loan portfolio was secured by real property at March 31, 2023, diversified by type and geographic location across Texas and Eastern New Mexico[169](index=169&type=chunk) Fixed vs. Adjustable Interest Rate Loans (Maturities > 1 Year, March 31, 2023) | Loan Category | Fixed Rate (in thousands) | Adjustable Rate (in thousands) | | :----------------------------------- | :--------- | :-------------- | | Commercial real estate | $391,565 | $449,869 | | Commercial - specialized | $67,546 | $172,998 | | Commercial - general | $168,265 | $259,561 | | Consumer: 1-4 family residential | $270,985 | $180,498 | | Auto loans | $318,377 | $0 | | Other consumer | $73,783 | $454 | | Construction | $1,243 | $23,140 | | **Total loans** | **$1,291,764** | **$1,086,520** | - Commitments to grant loans and unfunded commitments under lines of credit totaled **$720.9 million** at March 31, 2023, up from **$682.3 million** at December 31, 2022[185](index=185&type=chunk) [Allowance for Credit Losses for Loans](index=54&type=section&id=Allowance%20for%20Credit%20Losses%20for%20Loans) The Allowance for Credit Losses (ACL) for loans increased slightly to $39.6 million at March 31, 2023, primarily due to organic loan growth. The Company adopted the CECL model on January 1, 2023, which requires recording life-of-loan projected losses based on future economic events - The ACL for loans was **$39.6 million** at March 31, 2023, an increase of **$0.3 million** (**0.7%**) from **$39.3 million** at December 31, 2022, primarily due to an **$0.8 million** provision for credit losses on loans in March 2023[189](index=189&type=chunk) - Net charge-offs totaled **$630 thousand** (**0.09% annualized**) for the three months ended March 31, 2023, up from **$364 thousand** (**0.06% annualized**) in the prior year, mainly due to an increase of **$272 thousand** in residential construction net charge-offs[193](index=193&type=chunk) Allocation of Allowance for Credit Losses (March 31, 2023 vs. December 31, 2022) | Loan Category | March 31, 2023 Amount (in thousands) | March 31, 2023 % of Total | December 31, 2022 Amount (in thousands) | December 31, 2022 % of Total | | :----------------------------------- | :-------------------- | :------------------------ | :----------------------- | :------------------------- | | Commercial real estate | $13,381 | 33.8% | $13,029 | 33.1% | | Commercial – specialized | $3,510 | 8.9% | $3,425 | 8.7% | | Commercial – general | $6,267 | 15.8% | $9,215 | 23.5% | | Consumer: 1-4 family residential | $8,531 | 21.6% | $6,194 | 15.8% | | Auto loans | $3,714 | 9.4% | $3,926 | 10.0% | | Other consumer | $1,101 | 2.8% | $1,376 | 3.5% | | Construction | $3,056 | 7.7% | $2,123 | 5.4% | | **Total allowance for credit losses** | **$39,560** | **100.0%** | **$39,288** | **100.0%** | [Asset Quality](index=57&type=section&id=Asset%20Quality) The Company's asset quality remained stable, with a slight decrease in nonaccrual loans and nonperforming loans. Loans are placed on nonaccrual status when collectability is doubtful, and specific allowances are established for individually analyzed impaired loans - Total nonaccrual loans decreased to **$5.1 million** (**0.18%** of total loans held for investment) at March 31, 2023, from **$5.8 million** (**0.21%**) at December 31, 2022[199](index=199&type=chunk) - Nonperforming loans were **$7.6 million** at March 31, 2023, down from **$7.8 million** at December 31, 2022[200](index=200&type=chunk) - Loans are placed on nonaccrual status when principal or interest payments are past due **90 days** or when collectability is doubtful. Individually analyzed impaired loans (nonaccrual loans **$250k** or greater) have specific valuation allowances[196](index=196&type=chunk)[197](index=197&type=chunk)[199](index=199&type=chunk) [Securities Portfolio](index=57&type=section&id=Securities%20Portfolio) The securities portfolio, the second-largest earning asset, slightly decreased. While it experienced an increase in unrealized gains in Q1 2023 after a significant decline in 2022, management does not consider the unrealized losses to be credit-related and expects full recovery by maturity - Total securities decreased by **$3.1 million** (**0.4%**) to **$698.6 million** at March 31, 2023, primarily due to **$10.8 million** in maturities, prepayments, and calls, partially offset by an **$8.6 million** increase in the unrealized gain/loss[206](index=206&type=chunk) - The fair value of available-for-sale securities increased by **$8.6 million** in Q1 2023, recovering from a **$114.4 million** decline in 2022. Management believes unrealized losses are non-credit related and expects full recovery, with no intent to sell before maturity[207](index=207&type=chunk) - The securities portfolio serves multiple purposes: collateral for deposits/borrowings, liquidity, interest rate risk management, and an alternative earning asset[203](index=203&type=chunk) [Deposits](index=61&type=section&id=Deposits) Deposits, the Company's primary funding source, increased by $101.6 million. The deposit mix shows a significant portion in interest-bearing non-maturity accounts, with a slight decrease in noninterest-bearing demand accounts - Total deposits increased by **$101.6 million** (**3.0%**) to **$3.51 billion** at March 31, 2023, from **$3.41 billion** at December 31, 2022[212](index=212&type=chunk) Deposit Mix (March 31, 2023 vs. December 31, 2022) | Deposit Type | March 31, 2023 Amount (in thousands) | March 31, 2023 % of Total | December 31, 2022 Amount (in thousands) | December 31, 2022 % of Total | | :----------------------------------- | :-------------------- | :------------------------ | :----------------------- | :------------------------- | | Noninterest-bearing deposits | $1,110,939 | 31.7% | $1,150,488 | 33.8% | | NOW and other transaction accounts | $321,644 | 9.2% | $350,910 | 10.3% | | Money market and other savings | $1,787,621 | 50.9% | $1,618,833 | 47.5% | | Time deposits | $287,850 | 8.2% | $286,199 | 8.4% | | **Total deposits** | **$3,508,054** | **100.0%** | **$3,406,430** | **100.0%** | - The estimated amount of uninsured deposits was **$600.2 million** (approximately **17%** of total deposits) at March 31, 2023, excluding collateralized public fund deposits[214](index=214&type=chunk) [Borrowed Funds](index=62&type=section&id=Borrowed%20Funds) The Company utilizes FHLB advances, Federal Reserve Bank lines of credit, and subordinated debt as supplementary funding sources. It maintains significant unused borrowing capacity and has no long-term FHLB or FRB borrowings - The Company had total remaining borrowing capacity of **$987.8 million** from the FHLB and **$585.6 million** from the Federal Reserve Bank of Dallas at March 31, 2023[217](index=217&type=chunk)[218](index=218&type=chunk) - No long-term FHLB or FRB borrowings were outstanding during the three months ended March 31, 2023 or 2022[218](index=218&type=chunk)[219](index=219&type=chunk) - The Company has **$76.0 million** in subordinated debt securities and **$46.4 million** in junior subordinated deferrable interest debentures outstanding as of March 31, 2023[223](index=223&type=chunk)[224](index=224&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the Company's liquidity position and capital adequacy, highlighting its ability to meet financial obligations and maintain regulatory compliance - Management believes the Company has adequate liquidity, supported by liquid assets (cash, interest-bearing deposits, federal funds sold, unpledged investment securities) and access to alternative funding sources (wholesale deposits, FHLB, Federal Reserve discount window)[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Total stockholders' equity increased by **$10.9 million** (**3.1%**) to **$368.0 million** at March 31, 2023, primarily due to net earnings and an increase in accumulated other comprehensive income related to fair value changes in available-for-sale securities[232](index=232&type=chunk) - The Company and City Bank continue to meet all regulatory capital requirements and are categorized as **'well-capitalized'** under Basel III and FDIC frameworks[236](index=236&type=chunk) [Liquidity](index=63&type=section&id=Liquidity) The Company maintains strong liquidity through a combination of liquid assets and access to various borrowing facilities, enabling it to meet short-term and long-term cash requirements. Management continuously monitors its liquidity position to ensure financial stability - Liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities[229](index=229&type=chunk) - Additional liquidity sources include wholesale deposits, and borrowings from correspondent banks, FHLB, and the Federal Reserve discount window, with significant unused capacity[229](index=229&type=chunk) [Capital](index=63&type=section&id=Capital) The Company's total stockholders' equity increased, driven by net earnings and fair value changes in securities. Both the Company and its bank subsidiary remain well-capitalized, exceeding all regulatory capital ratios under Basel III guidelines - Total stockholders' equity increased to **$368.0 million** at March 31, 2023, from **$357.0 million** at December 31, 2022, an increase of **$10.9 million** (**3.1%**)[232](index=232&type=chunk) - The increase in equity was primarily due to **$9.2 million** in net earnings and a **$4.7 million** increase in accumulated other comprehensive income related to fair value changes in available-for-sale securities, net of tax[232](index=232&type=chunk) Regulatory Capital Ratios (March 31, 2023) | Ratio | South Plains Financial, Inc. | City Bank | | :----------------------------------- | :--------------------------- | :-------- | | Total capital (to risk-weighted assets) | 16.70% | 13.59% | | Tier 1 capital (to risk-weighted assets) | 13.24% | 12.37% | | CET 1 capital (to risk-weighted assets) | 11.92% | 12.37% | | Tier 1 capital (to average assets) | 11.22% | 10.48% | [Community Bank Leverage Ratio](index=65&type=section&id=Community%20Bank%20Leverage%20Ratio) The Company and City Bank have elected not to opt into the Community Bank Leverage Ratio (CBLR) framework, despite qualifying, and continue to follow the Basel III capital requirements - The CBLR framework simplifies capital requirements for qualifying community banks with a Tier 1 leverage ratio greater than **9%** and less than **$10 billion** in assets[239](index=239&type=chunk) - The Company and City Bank, though qualifying, have chosen not to adopt the CBLR framework and continue to adhere to Basel III capital requirements[239](index=239&type=chunk) [Treasury Stock](index=65&type=section&id=Treasury%20Stock) The Company did not repurchase any common stock during the three months ended March 31, 2023, in contrast to the prior year period - No common stock was repurchased by the Company during the three months ended March 31, 2023[283](index=283&type=chunk) - In the three months ended March 31, 2022, the Company repurchased **106,498 shares** for **$3.0 million**[240](index=240&type=chunk) [Interest Rate Sensitivity and Market Risk](index=65&type=section&id=Interest%20Rate%20Sensitivity%20and%20Market%20Risk) The Company actively manages interest rate risk through its ALCO Committee, using simulation models and shock analyses to assess the impact of interest rate fluctuations on net interest income and fair value of equity. The Company's policy limits potential declines in net interest income under various interest rate shifts - The Company's primary market risk is interest rate volatility, managed by the ALCO Committee through guidelines and a measurement system for net interest rate sensitivity[241](index=241&type=chunk)[245](index=245&type=chunk) - Simulation models and shock analyses are used to project future net interest income under various interest rate movements, with a policy limit of not more than a **7.5%** decline for a **100 basis point** shift over a one-year period[246](index=246&type=chunk)[247](index=247&type=chunk) Simulated Change in Net Interest Income (12-Month Horizon) | Change in Interest Rates (Basis Points) | March 31, 2023 (% Change) | December 31, 2022 (% Change) | | :----------------------------------- | :------------------------ | :--------------------------- | | +300 | (1.78) | (1.50) | | +200 | (1.17) | (0.96) | | +100 | (0.58) | (0.61) | | -100 | 0.21 | (1.50) | | -200 | 0.46 | (2.81) | [Impact of Inflation](index=66&type=section&id=Impact%20of%20Inflation) The Company's financial statements are prepared using historical dollars, and management addresses inflation's impact by actively managing the relationship between interest rate-sensitive assets and liabilities to mitigate fluctuations in net interest income - The Company's assets and liabilities are primarily monetary, and management aims to reduce inflation's impact by managing interest rate-sensitive assets and liabilities to protect against wide net interest income fluctuations[249](index=249&type=chunk)[250](index=250&type=chunk) [Non-GAAP Financial Measures](index=68&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, specifically tangible book value per common share and tangible common equity to tangible assets, which are used by investors to evaluate financial institutions by excluding the impact of goodwill and other intangible assets - Non-GAAP measures like tangible book value per common share and tangible common equity to tangible assets are used to evaluate financial institutions, excluding goodwill and other intangible assets[254](index=254&type=chunk)[255](index=255&type=chunk) Non-GAAP Financial Measures Reconciliation (March 31, 2023 vs. December 31, 2022) | Metric | March 31, 2023 (in thousands, except per share data) | December 31, 2022 (in thousands, except per share data) | | :----------------------------------- | :------------- | :---------------- | | Total stockholders' equity | $367,964 | $357,014 | | Less: Goodwill and other intangibles | $(23,496) | $(23,857) | | Tangible common equity | $344,468 | $333,157 | | Total assets | $4,058,049 | $3,944,063 | | Less: Goodwill and other intangibles | $(23,496) | $(23,857) | | Tangible assets | $4,034,553 | $3,920,206 | | Shares outstanding | 17,062,572 | 17,027,197 | | Total stockholders' equity to total assets | 9.07% | 9.05% | | Tangible common equity to tangible assets | 8.54% | 8.50% | | Book value per share | $21.57 | $20.97 | | Tangible book value per share | $20.19 | $19.57 | [Critical Accounting Policies and Estimates](index=68&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the Company's critical accounting policies and estimates, which require significant management judgment and assumptions. Key policies include those for securities, loans, allowance for credit losses (ACL), loans held for sale, mortgage servicing rights, and goodwill and other intangible assets, with particular emphasis on the CECL model's impact on ACL - The preparation of financial statements requires management to make estimates, assumptions, and judgments, particularly for the allowance for credit losses, which is susceptible to significant changes in the economic environment[257](index=257&type=chunk)[265](index=265&type=chunk) - The Company has elected the extended transition period for complying with new or revised accounting standards under the JOBS Act[259](index=259&type=chunk) - The ACL for loans is established for future expected credit losses using internal and external information, historical experience, current conditions, and reasonable forecasts, estimated over the contractual term of loans and adjusted for prepayments[264](index=264&type=chunk) - For securities in an unrealized loss position, the Company assesses intent and likelihood of sale before recovery of amortized cost. If a credit loss exists, an ACL is recorded, limited by the fair value less amortized cost[270](index=270&type=chunk) [Recently Issued Accounting Pronouncements](index=72&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section outlines the Company's adoption of new accounting standards, specifically ASU No. 2016-13 (CECL model), and its impact on credit loss estimation policies and processes - The Company adopted ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, effective **January 1, 2023**, leading to changes in policies, processes, and controls over ACL estimation[278](index=278&type=chunk) [Item 3. Quantitative and Qualitative Disclosure about Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20about%20Market%20Risk) The Company manages market risk, primarily interest rate volatility, through its ALCO Committee, which uses simulation models and shock analyses to assess the impact of interest rate changes on net interest income and fair value of equity. The Company is not subject to foreign exchange or commodity price risk - Market risk, primarily interest rate volatility, is managed by the ALCO Committee in accordance with board-approved policies[276](index=276&type=chunk) - Interest rate risk simulation models and shock analyses are used to test the sensitivity of net interest income and fair value of equity to changes in interest rates[276](index=276&type=chunk) - The Company is not exposed to foreign exchange or commodity price risk and does not own any trading assets[244](index=244&type=chunk) [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023. Changes were implemented in internal control over financial reporting due to the adoption of the CECL model, focusing on assumptions, qualitative adjustments, and loan scorecard processes - The Company's disclosure controls and procedures were evaluated and deemed **effective** as of March 31, 2023[277](index=277&type=chunk) - Changes to internal control over financial reporting were implemented due to the adoption of the CECL model, including new controls over economic forecast assumptions, qualitative adjustment risks, and the loan scorecard process[278](index=278&type=chunk) [PART II. OTHER INFORMATION](index=73&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides disclosures on legal proceedings, risk factors, equity security sales, defaults, mine safety, and other relevant information not covered in the financial statements [Item 1. Legal Proceedings](index=73&type=section&id=Item%201.%20Legal%20Proceedings) The Company and its subsidiaries are subject to various legal actions, as previously disclosed in the Annual Report on Form 10-K. No new material litigation is reported that would adversely affect financial position or results of operations - The Company is subject to various legal actions, as detailed in its 2022 Annual Report on Form 10-K[280](index=280&type=chunk) - No new material litigation is currently threatened or involved that would significantly impact the Company's financial position or results of operations[280](index=280&type=chunk) [Item 1A. Risk Factors](index=73&type=section&id=Item%201A.%20Risk%20Factors) This section highlights that recent bank failures and the resulting decline in customer confidence pose a new material risk factor for the Company, potentially impacting liquidity, funding costs, loan capacity, net interest margin, capital, and results of operations - Recent bank failures (Silicon Valley Bank, Signature Bank, First Republic Bank) and the associated market volatility and uncertainty in the banking industry are identified as a **new material risk factor**[282](index=282&type=chunk) - This risk could negatively impact customer confidence, leading to deposit shifts to larger institutions or higher-yielding securities, thereby adversely affecting the Company's liquidity, cost of funding, loan funding capacity, net interest margin, capital, and results of operations[282](index=282&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=73&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company did not make any purchases of its common stock during the three months ended March 31, 2023 - There were no purchases of common stock by the Company during the three months ended March 31, 2023[283](index=283&type=chunk) [Item 3. Defaults Upon Senior Securities](index=73&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the Company for the reporting period [Item 4. Mine Safety Disclosures](index=73&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company for the reporting period [Item 5. Other Information](index=73&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item for the reporting period [Item 6. Exhibits](index=74&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL formatted financial statements - Exhibits include the Amended and Restated Certificate of Formation, Second Amended and Restated Bylaws, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL formatted financial statements[287](index=287&type=chunk) [SIGNATURES](index=75&type=section&id=SIGNATURES) This section contains the official signatures of the Company's executive officers, certifying the accuracy and completeness of the report [Signatures](index=75&type=section&id=Signatures) The report is duly signed on behalf of South Plains Financial, Inc. by its Chairman and Chief Executive Officer, Curtis C. Griffith, and Chief Financial Officer and Treasurer, Steven B. Crockett, on May 8, 2023 - The report was signed by Curtis C. Griffith, Chairman and Chief Executive Officer, and Steven B. Crockett, Chief Financial Officer and Treasurer, on **May 8, 2023**[289](index=289&type=chunk)