10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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, 2021

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	75-2453320
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5219 City Bank Parkway Lubbock, Texas	79407
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (806) 792-7101

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value per share	SPFI	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No  ☒

As of November 3, 2021, the registrant had 17,789,192 shares of common stock, par value $1.00 per share, outstanding.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION	3
Item 1.	Consolidated Financial Statements	3
	Consolidated Balance Sheets (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II.	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
Signatures		51

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Cash and due from banks	$	62,638		$	76,146
Interest-bearing deposits in banks		264,962			224,161
Cash and cash equivalents		327,600			300,307
Securities available for sale		752,562			803,087
Loans held for sale		90,880			111,477
Loans held for investment		2,429,041			2,221,583
Allowance for loan losses		(42,768	)		(45,553	)
Accrued interest receivable		11,778			15,233
Premises and equipment, net		59,056			60,331
Bank-owned life insurance		71,676			70,731
Goodwill		19,508			19,508
Intangible assets, net		6,296			7,562
Mortgage servicing rights		18,122			9,049
Deferred tax asset, net		2,598			2,461
Other assets		27,826			23,384
Total assets	$	3,774,175		$	3,599,160
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	1,054,264		$	917,322
Interest-bearing		2,157,981			2,057,029
Total deposits		3,212,245			2,974,351
Short-term borrowings		—			26,550
Accrued expenses and other liabilities		41,533			31,229
Notes payable & other borrowings		—			75,000
Subordinated debt securities		75,728			75,589
Junior subordinated deferrable interest debentures		46,393			46,393
Total liabilities		3,375,899			3,229,112
Stockholders’ equity:
Common stock, $1.00 par value per share, 30,000,000 shares authorized; 17,824,094 and 18,076,364 issued and outstanding at September 30, 2021 and December 31, 2020, respectively		17,824			18,076
Additional paid-in capital		136,401			141,112
Retained earnings		229,737			189,521
Accumulated other comprehensive income		14,314			21,339
Total stockholders’ equity		398,276			370,048
Total liabilities and stockholders’ equity	$	3,774,175		$	3,599,160

The accompanying notes are an integral part of these consolidated financial statements.

3

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021			2020
Interest income:
Loans, including fees	$	30,818	$	30,724	$	89,458		$	91,600
Securities:
Taxable		2,346		2,678		7,219			9,628
Non taxable		1,160		1,061		3,487			2,399
Federal funds sold and interest-bearing deposits in banks		114		40		272			620
Total interest income		34,438		34,503		100,436			104,247
Interest expense:
Deposits		2,030		2,517		6,373			9,560
Notes payable & other borrowings		—		68		43			620
Subordinated debt securities		1,013		403		3,044			1,210
Junior subordinated deferrable interest debentures		217		242		661			937
Total interest expense		3,260		3,230		10,121			12,327
Net interest income		31,178		31,273		90,315			91,920
Provision for loan losses		—		6,062		(1,918	)		25,429
Net interest income, after provision for loan losses		31,178		25,211		92,233			66,491
Noninterest income:
Service charges on deposit accounts		1,851		1,749		5,023			5,171
Income from insurance activities		3,794		3,303		6,146			5,484
Net gain on sales of loans		12,848		20,942		41,108			47,279
Bank card services and interchange fees		3,045		2,608		8,760			7,190
Realized gain on sale of securities		—		—		—			2,318
Investment commissions		430		441		1,390			1,261
Fiduciary fees		556		781		2,234			2,386
Other		3,267		1,836		9,880			4,342
Total noninterest income		25,791		31,660		74,541			75,431
Noninterest expense:
Salaries and employee benefits		24,116		23,672		71,811			66,103
Occupancy and equipment, net		3,896		3,710		10,960			10,896
Professional services		1,388		1,177		4,483			4,710
Marketing and development		777		615		2,157			2,189
IT and data services		1,068		843		3,029			2,769
Bank card expenses		1,339		1,095		3,640			3,164
Appraisal expenses		790		744		2,350			1,837
Other		4,689		4,137		13,468			13,543
Total noninterest expense		38,063		35,993		111,898			105,211
Income before income taxes		18,906		20,878		54,876			36,711
Income tax expense		3,716		4,147		10,876			7,282
Net income	$	15,190	$	16,731	$	44,000		$	29,429

The accompanying notes are an integral part of these consolidated financial statements.

4

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

(Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Earnings per share:
Basic	$	0.85		$	0.93		$	2.44		$	1.63
Diluted	$	0.82		$	0.92		$	2.38		$	1.61
Net income	$	15,190		$	16,731		$	44,000		$	29,429
Other comprehensive income (loss):
Change in net unrealized gain (loss) on securities available for sale		(5,964	)		(1,418	)		(13,835	)		26,584
Change in net gain (loss) on cash flow hedges		760			430			4,943			(1,728	)
Reclassification adjustment for (gain) loss included in net income		—			—			—			(2,318	)
Tax effect		1,093			207			1,867			(4,733	)
Other comprehensive income (loss)		(4,111	)		(781	)		(7,025	)		17,805
Comprehensive income	$	11,079		$	15,950		$	36,975		$	47,234

The accompanying notes are an integral part of these consolidated financial statements.

5

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except per share data)

	Common Stock						Additional Paid-in			Retained			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Income (Loss)			Total
Nine Months Ended September 30,
Balance at December 31, 2019		18,036,115		$	18,036		$	140,492		$	146,696		$	958		$	306,182
Net income		—			—			—			29,429			—			29,429
Cash dividends declared  - $0.09 per share		—			—			—			(1,624	)		—			(1,624	)
Other comprehensive (loss), net of tax		—			—			—			—			17,805			17,805
Exercise of employee stock options and vesting of restricted stock units, net of 17,178 shares for cashless exercise and net of 7,608 shares for taxes		27,759			28			(157	)		—			—			(129	)
Repurchases of common stock		(4,700	)		(5	)		(56	)		—			—			(61	)
Stock based compensation		—			—			966			—			—			966
Balance at September 30, 2020		18,059,174		$	18,059		$	141,245		$	174,501		$	18,763		$	352,568
Balance at December 31, 2020		18,076,364		$	18,076		$	141,112		$	189,521		$	21,339		$	370,048
Net income		—			—			—			44,000			—			44,000
Cash dividends declared  - $0.21 per share		—			—			—			(3,784	)		—			(3,784	)
Other comprehensive income, net of tax		—			—			—			—			(7,025	)		(7,025	)
Exercise of employee stock options and vesting of restricted stock units, net of 2,906 shares for cashless exercise and net of 5,013 shares for taxes		20,552			21			(127	)		—			—			(106	)
Repurchases of common stock		(272,822	)		(273	)		(5,809	)		—			—			(6,082	)
Stock based compensation		—			—			1,225			—			—			1,225
Balance at September 30, 2021		17,824,094		$	17,824		$	136,401		$	229,737		$	14,314		$	398,276
Three Months Ended September 30,
Balance at June 30, 2020		18,059,174		$	18,059		$	140,620		$	158,311		$	19,544		$	336,534
Net income		—			—			—			16,731			—			16,731
Cash dividends declared  - $0.03 per share		—			—			—			(541	)		—			(541	)
Other comprehensive income, net of tax		—			—			—			—			(781	)		(781	)
Repurchases of common stock		—			—			—			—			—			—
Stock based compensation		—			—			625			—			—			625
Balance at September 30, 2020		18,059,174		$	18,059		$	141,245		$	174,501		$	18,763		$	352,568
Balance at June 30, 2021		18,014,398		$	18,014		$	140,212		$	216,164		$	18,425		$	392,815
Net income		—			—			—			15,190			—			15,190
Cash dividends declared  - $0.09 per share		—			—			—			(1,617	)		—			(1,617	)
Other comprehensive income, net of tax		—			—			—			—			(4,111	)		(4,111	)
Repurchases of common stock		(190,304	)		(190	)		(4,214	)		—			—			(4,404	)
Stock based compensation		—			—			403			—			—			403
Balance at September 30, 2021		17,824,094		$	17,824		$	136,401		$	229,737		$	14,314		$	398,276

The accompanying notes are an integral part of these consolidated financial statements.

6

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	For the Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net income	$	44,000		$	29,429
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses		(1,918	)		25,429
Depreciation and amortization		4,837			4,935
Accretion and amortization		3,399			2,064
Other gains, net		(139	)		(2,529	)
Net gain on sales of loans		(41,108	)		(47,279	)
Proceeds from sales of loans held for sale		1,243,380			998,367
Loans originated for sale		(1,189,693	)		(985,149	)
Earnings on bank-owned life insurance		(945	)		(1,004	)
Stock based compensation		1,225			966
Change in valuation of mortgage servicing rights		(1,055	)		2,081
Net change in:
Accrued interest receivable and other assets		1,509			(4,134	)
Accrued expenses and other liabilities		14,209			10,669
Net cash from operating activities		77,701			33,845
Cash flows from investing activities:
Activity in securities available for sale:
Purchases		(61,548	)		(158,291	)
Sales		—			94,514
Maturities, prepayments, and calls		94,978			69,618
Loan originations and principal collections, net		(209,047	)		(150,579	)
Cash paid for acquisition		—			(687	)
Goodwill adjustment related to litigation settlement		—			460
Purchases of premises and equipment, net		(2,319	)		(3,159	)
Proceeds from sales of premises and equipment		108			192
Proceeds from sales of foreclosed assets		1,048			2,068
Net cash from investing activities		(176,780	)		(145,864	)
Cash flows from financing activities:
Net change in deposits		237,894			246,945
Net change in short-term borrowings		(26,550	)		(29,400	)
Proceeds from subordinated debt issuance, net		—			49,074
Proceeds from notes payable & other borrowings		—			75,000
Payments to tax authorities for stock-based compensation		(106	)		(129	)
Payments made on notes payable and other borrowings		(75,000	)		(95,000	)
Cash dividends on common stock		(3,784	)		(1,624	)
Payments to repurchase common stock		(6,082	)		(61	)
Net cash from financing activities		126,372			244,805
Net change in cash and cash equivalents	$	27,293		$	132,786
Beginning cash and cash equivalents		300,307			158,099
Ending cash and cash equivalents	$	327,600		$	290,885
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowed funds	$	10,774		$	12,956
Income taxes paid		8,842			8,719
Supplemental schedule of noncash activities:
Loans transferred to foreclosed assets	$	722		$	1,468
Additions to mortgage servicing rights		8,018			6,589

The accompanying notes are an integral part of these consolidated financial statements.

7

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars in thousands except per share data)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – South Plains Financial, Inc. (“SPFI”) is a Texas corporation and registered bank holding company that conducts its principal activities through its subsidiaries from offices located throughout Texas and Eastern New Mexico. Principal activities include commercial and retail banking, along with insurance, investment, trust, and mortgage services. The following are subsidiaries of SPFI:

Wholly Owned, Consolidated Subsidiaries:
City Bank	Bank subsidiary
Windmark Insurance Agency, Inc. (“Windmark”)	Non-bank subsidiary
Ruidoso Retail, Inc.	Non-bank subsidiary
CB Provence, LLC	Non-bank subsidiary
CBT Brushy Creek, LLC	Non-bank subsidiary
CBT Properties, LLC	Non-bank subsidiary
Wholly Owned, Equity Method Subsidiaries:
South Plains Financial Capital Trusts (SPFCT) III-V	Non-bank subsidiaries

Basis of Presentation and Consolidation – The consolidated financial statements in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this “Form 10-Q”) include the accounts of SPFI and its wholly owned consolidated subsidiaries (collectively referred to as the “Company”) identified above. All significant intercompany balances and transactions have been eliminated in consolidation.

The interim consolidated financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Determination of the adequacy of the allowance for loan losses is a material estimate that is particularly susceptible to significant change in the near term; the assumptions used in stock-based compensation, the valuation of foreclosed assets, and fair values of financial instruments can also involve significant management estimates.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.

Loans are placed on nonaccrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses – The allowance for loan losses is established by management as an estimate to cover probable credit losses through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and general valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, judgmentally adjusted for general economic conditions and other qualitative risk factors internal and external to the Company.

8

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in the Company’s loan portfolio in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. Loans originated by the bank subsidiary are generally secured by specific items of collateral including real property, crops, livestock, consumer assets, and other business assets.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the bank subsidiary to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250 thousand are specifically reviewed to determine if they are impaired. Factors considered by management in determining whether a loan is impaired include payment status and the sources, amounts, and probabilities of estimated cash flow available to service debt in relation to amounts due according to contractual terms. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans that are determined to be impaired are then evaluated to determine estimated impairment, if any. GAAP allows impairment to be measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Loans that are not individually determined to be impaired or are not subject to the specific review of impaired status are subject to the general valuation allowance portion of the allowance for loan loss.

The Company may modify its loan agreement with a borrower. The modification will be considered a troubled debt restructuring (“TDR”) if the following criteria are met: (1) the borrower is experiencing a financial difficulty and (2) the Company makes a concession that it would not otherwise make. Concessions may include debt forgiveness, interest rate change, or maturity extension. Each of these loans is impaired and is evaluated for impairment, with a specific reserve recorded as necessary based on probable losses related to collateral and cash flow. A loan will no longer be required to be reported as restructured in calendar years following the restructure if the interest rate at the time of restructure is greater than or equal to the rate the Company was willing to accept for a new extension of credit with similar risk and the loan is in compliance with its modified terms.

Acquired Loans – Loans that the Company acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, the Company then establishes an allowance.

9

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Goodwill and Other Intangible Assets – Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for impairment on October 31 of each year or more frequently if events and circumstances exist that indicate that an impairment test should be performed. There was no impairment recorded for the nine-month period ended September 30, 2021 and the year ended December 31, 2020, respectively.

Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposit relationships acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. Significantly all CDI is amortized using the sum of the years’ digits method.

The remaining other intangible assets consist of customer relationship and employment agreement intangible assets and are amortized over their estimated useful lives of 5 years using the straight-line method.

Stock-Based Compensation – The Company sponsors an equity incentive plan under which options to acquire shares of the Company’s common stock may be granted periodically to all full-time employees and directors of the Company or its affiliates at a specific exercise price. Shares are issued out of authorized and unissued common shares that have been reserved for issuance under such plan. Compensation cost is measured based on the estimated fair value of the award at the grant date and is recognized in earnings on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the date of grant using a closed form option valuation (“Black-Scholes”) option pricing model. This model requires assumptions as to the expected stock volatility, dividends, terms and risk-free rates. The expected volatility is based on the combination of the Company’s historical volatility and the volatility of comparable peer banks. The expected term represents the period of time that options are expected to be outstanding from the grant date. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the appropriate life of each stock option.

Recent Accounting Pronouncements – FASB ASC constitutes GAAP for nongovernmental entities. Updates to ASC are prescribed in Accounting Standards Updates (“ASU”), which are not authoritative until incorporated into ASC.

ASU 2021-01, Reference Rate Reform (Topic 848). In January 2021, the FASB issued ASU No. 2021-01 to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. This update additionally clarified that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. This update was effective upon issuance and generally can be applied through December 31, 2022. See the discussion regarding the adoption of ASU 2020-04 below.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU No. 2020-04 and it provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This update applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact the Company’s consolidated financial statements.

ASU 2019-12, Income Taxes, Simplifying the Accounting for Income Taxes (Topic 740). In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material effect on the Company’s financial statements.

10

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU simplifies the accounting for goodwill impairment for all entities by eliminating Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company elected to early adopt ASU 2017-04 on January 1, 2020, and it did not have a material impact on its financial statements.

ASU 2016-13 Financial Instruments - Credit Losses (Topic 326). The FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity securities, and debt securities. ASU 2016-13 is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact adoption of ASU 2016-13 and the CECL methodology for estimating the allowance for credit losses will have on its consolidated operating results and financial condition.

ASU 2016-02 Leases (Topic 842). The FASB amended existing guidance that requires that lessees recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company is in the process of determining the effect of the standard on its consolidated operating results and financial condition. These amendments are effective for the Company for annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

Subsequent Events – The Company has evaluated subsequent events and transactions from September 30, 2021 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP. In October 2021, the Company’s board of directors approved a new stock repurchase program in which the Company may purchase up to $10.0 million of its outstanding shares of common stock. Any remaining shares under the Company's existing program, which expires on November 5, 2021, will not be rolled into the new program.

2.  SECURITIES

The amortized cost and fair value of securities are shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
Available for sale:
U.S. government and agencies	$	—	$	—	$	—		$	—
State and municipal		266,306		9,273		(550	)		275,029
Mortgage-backed securities		326,022		6,342		(3,506	)		328,858
Collateralized mortgage obligations		106,864		—		(425	)		106,439
Asset-backed and other amortizing securities		28,117		1,329		—			29,446
Other securities		12,000		790		—			12,790
	$	739,309	$	17,734	$	(4,481	)	$	752,562

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2020
Available for sale:
U.S. government and agencies	$	4,750	$	3	$	—		$	4,753
State and municipal		261,023		11,704		(120	)		272,607
Mortgage-backed securities		359,542		14,014		(194	)		373,362
Collateralized mortgage obligations		107,175		—		(460	)		106,715
Asset-backed and other amortizing securities		31,509		2,063		—			33,572
Other securities		12,000		91		(13	)		12,078
	$	775,999	$	27,875	$	(787	)	$	803,087

11

The amortized cost and fair value of securities at September 30, 2021 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities are shown separately since they are not due at a single maturity date.

	Available for Sale
	Amortized Cost		Fair Value
Within 1 year	$	1,615	$	1,640
After 1 year through 5 years		6,864		7,256
After 5 years through 10 years		23,918		25,227
After 10 years		245,909		253,697
Other		461,003		464,742
	$	739,309	$	752,562

At both September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Securities with a carrying value of approximately $486.0 million and $292.2 million at September 30, 2021 and December 31, 2020, respectively, were pledged to collateralize public deposits and for other purposes as required or permitted by law.

The following table segregates securities with unrealized losses at the periods indicated, by the duration they have been in a loss position:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		52,939		550		—		—		52,939		550
Mortgage-backed securities		66,197		1,285		54,630		2,221		120,827		3,506
Collateralized mortgage obligations		106,439		425		—		—		106,439		425
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		—		—		—		—		—		—
	$	225,575	$	2,260	$	54,630	$	2,221	$	280,205	$	4,481
December 31, 2020
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		—		120		—		—		—		120
Mortgage-backed securities		93,482		194		—		—		93,482		194
Collateralized mortgage obligations		106,715		460		—		—		106,715		460
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		3,486		13		—		—		3,486		13
	$	203,683	$	787	$	—	$	—	$	203,683	$	787

There were 29 securities with an unrealized loss at September 30, 2021. Management does not believe that these losses are other than temporary as there is no intent to sell any of these securities before recovery and it is not probable that we will be required to sell any of these securities before recovery, and credit loss, if any, is not material. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2021, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated financial statements.

3.  LOANS HELD FOR INVESTMENT

Loans held for investment are summarized by category as of the periods presented below:

	September 30, 2021			December 31, 2020
Commercial real estate	$	746,775		$	663,344
Commercial - specialized		390,394			311,686
Commercial - general		452,776			518,309
Consumer:
1-4 family residential		387,167			360,315
Auto loans		239,397			205,840
Other consumer		69,079			67,595
Construction		143,453			94,494
		2,429,041			2,221,583
Allowance for loan losses		(42,768	)		(45,553	)
Loans, net	$	2,386,273		$	2,176,030

12

The Company has certain lending policies, underwriting standards, and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies, underwriting standards, and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing, and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.

Commercial – General and Specialized – Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations, as agreed and ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and include personal guarantees. Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties. Commercial loans are grouped into two distinct sub-categories: specialized and general. Commercial related segments that are considered “specialized” include agricultural production and real estate loans, energy loans, and finance, investment, and insurance loans. Commercial related segments that contain a broader diversity of borrowers, sub-industries, or serviced industries are grouped into the “general category.” These include goods, services, restaurant & retail, construction, and other industries.

Commercial Real Estate – Commercial real estate loans are also subject to underwriting standards and processes similar to commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are diversified by type and geographic location. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.

Construction – Loans for residential construction are for single-family properties to developers, builders, or end-users. These loans are underwritten based on estimates of costs and completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control costs of the projects.

Consumer – Loans to consumers include 1-4 family residential loans, auto loans, and other loans for recreational vehicles or other purposes. The Company utilizes a computer-based credit scoring analysis to supplement its policies and procedures in underwriting consumer loans. The Company’s loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes the Company’s risk. The Company generally requires mortgage title insurance and hazard insurance on 1-4 family residential loans.

The allowance for loan losses was $42.8 million at September 30, 2021, compared to $45.6 million at December 31, 2020. The ratio of allowance for loan losses to loans held for investment was 1.76% at September 30, 2021 and 2.05% at December 31, 2020. The decrease in the allowance for loan losses at September 30, 2021 compared to December 31, 2020 was the result of the Company recording a negative provision for loan losses in the second quarter of 2021 of $2.0 million. The negative provision was primarily due to the general improvement in the economy, a decline in the amount of loans actively under a modification, and a decrease in nonperforming loans. The Company did not record a provision for loan losses in the third quarter of 2021.

13

The following table details the activity in the allowance for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the three months ended September 30, 2021
Commercial real estate	$	17,288	$	960		$	—		$	—	$	18,248
Commercial - specialized		4,823		(596	)		(16	)		20		4,231
Commercial - general		8,948		(838	)		(2	)		63		8,171
Consumer:
1-4 family residential		5,064		135			—			2		5,201
Auto loans		3,815		79			(111	)		20		3,803
Other consumer		1,434		139			(213	)		42		1,402
Construction		1,591		121			—			—		1,712
Total	$	42,963	$	—		$	(342	)	$	147	$	42,768
For the three months ended September 30, 2020
Commercial real estate	$	15,156	$	3,085		$	—		$	23	$	18,264
Commercial - specialized		6,614		(220	)		(109	)		19		6,304
Commercial - general		9,293		977			(372	)		91		9,989
Consumer:
1-4 family residential		2,926		1,688			(56	)		126		4,684
Auto loans		3,939		474			(212	)		32		4,233
Other consumer		1,640		250			(262	)		99		1,727
Construction		1,067		(192	)		—			—		875
Total	$	40,635	$	6,062		$	(1,011	)	$	390	$	46,076

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the nine months ended September 30, 2021
Commercial real estate	$	18,962	$	(714	)	$	—		$	—	$	18,248
Commercial - specialized		5,760		(1,627	)		(21	)		119		4,231
Commercial - general		9,227		(870	)		(379	)		193		8,171
Consumer:
1-4 family residential		4,646		602			(52	)		5		5,201
Auto loans		4,226		(88	)		(438	)		103		3,803
Other consumer		1,671		132			(590	)		189		1,402
Construction		1,061		647			—			4		1,712
Total	$	45,553	$	(1,918	)	$	(1,480	)	$	613	$	42,768
For the nine months ended September 30, 2020
Commercial real estate	$	5,049	$	12,977		$	—		$	238	$	18,264
Commercial - specialized		2,287		4,870			(959	)		106		6,304
Commercial - general		9,609		1,952			(1,752	)		180		9,989
Consumer:
1-4 family residential		2,093		2,520			(56	)		127		4,684
Auto loans		3,385		1,624			(916	)		140		4,233
Other consumer		1,341		1,045			(1,011	)		352		1,727
Construction		433		441			—			1		875
Total	$	24,197	$	25,429		$	(4,694	)	$	1,144	$	46,076

The following table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

	Recorded Investment				Allowance for Loan Losses
	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
September 30, 2021
Commercial real estate	$	1,741	$	745,033	$	—	$	18,248
Commercial - specialized		—		390,395		—		4,231
Commercial - general		5,115		447,661		763		7,408
Consumer:
1-4 family residential		1,235		385,932		43		5,158
Auto loans		—		239,397		—		3,803
Other consumer		—		69,079		—		1,402
Construction		—		143,453		—		1,712
Total	$	8,091	$	2,420,950	$	806	$	41,962
December 31, 2020
Commercial real estate	$	6,273	$	657,071	$	580	$	18,382
Commercial - specialized		—		311,686		—		5,760
Commercial - general		4,626		513,683		515		8,712
Consumer:
1-4 family residential		2,122		358,193		—		4,646
Auto loans		—		205,840		—		4,226
Other consumer		—		67,595		—		1,671
Construction		—		94,494		—		1,061
Total	$	13,021	$	2,208,562	$	1,095	$	44,458

14

Impaired loan information follows:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
September 30, 2021
Commercial real estate	$	1,741	$	1,741	$	—	$	1,741	$	—	$	4,007
Commercial - specialized		—		—		—		—		—		—
Commercial - general		5,115		398		4,717		5,115		763		4,871
Consumer:
1-4 family residential		1,235		936		299		1,235		43		1,679
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	8,091	$	3,075	$	5,016	$	8,091	$	806	$	10,557
December 31, 2020
Commercial real estate	$	6,273	$	3,673	$	2,600	$	6,273	$	580	$	3,666
Commercial - specialized		—		—		—		—		—		673
Commercial - general		4,626		3,364		1,262		4,626		515		3,400
Consumer:
1-4 family residential		2,541		2,122		—		2,122		—		2,155
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	13,440	$	9,159	$	3,862	$	13,021	$	1,095	$	9,894

All impaired loans $250 thousand and greater were specifically evaluated for impairment. Interest income recognized using a cash-basis method on impaired loans for the nine-month period ended September 30, 2021 and the year ended December 31, 2020 was not significant. Additional funds committed to be advanced on impaired loans are not significant.

The table below provides an age analysis on accruing past-due loans and nonaccrual loans:

	30-89 Days Past Due		90 Days or More Past Due		Nonaccrual
September 30, 2021
Commercial real estate	$	598	$	34	$	1,767
Commercial - specialized		43		62		293
Commercial - general		698		149		5,564
Consumer:
1-4 family residential		1,998		410		2,313
Auto loans		330		23		—
Other consumer		729		69		46
Construction		457		—		166
Total	$	4,853	$	747	$	10,149
December 31, 2020
Commercial real estate	$	914	$	34	$	6,311
Commercial - specialized		241		—		272
Commercial - general		1,891		149		5,489
Consumer:
1-4 family residential		2,089		906		1,595
Auto loans		738		38		—
Other consumer		481		119		51
Construction		206		—		—
Total	$	6,560	$	1,246	$	13,718

15

The Company grades its loans on a thirteen-point grading scale. These grades fit in one of the following categories: (i) pass, (ii) special mention, (iii) substandard, (iv) doubtful, or (v) loss. Loans categorized as loss are charged-off immediately. The grading of loans reflect a judgment by the Company about the risks of default associated with the loan. The Company reviews the grades on loans as part of our on-going monitoring of the credit quality of our loan portfolio.

Pass loans have financial factors or nature of collateral that are considered reasonable credit risks in the normal course of lending and encompass several grades that are assigned based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loans at some future date.

Substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize collection and present the distinct possibility that some loss will be sustained if the deficiencies are not corrected. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed. Substandard loans can be accruing or can be nonaccrual depending on the circumstances of the individual loans.

Doubtful loans have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. All doubtful loans are on nonaccrual.

The following table summarizes the internal classifications of loans:

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2021
Commercial real estate	$	684,939	$	—	$	61,836	$	—	$	746,775
Commercial - specialized		384,220		—		6,174		—		390,394
Commercial - general		443,221		1,684		7,871		—		452,776
Consumer:
1-4 family residential		379,706		—		7,461		—		387,167
Auto loans		238,310		—		1,087		—		239,397
Other consumer		68,756		—		323		—		69,079
Construction		143,287		—		166		—		143,453
Total	$	2,342,439	$	1,684	$	84,918	$	—	$	2,429,041
December 31, 2020
Commercial real estate	$	602,250	$	—	$	61,094	$	—	$	663,344
Commercial - specialized		303,831		—		7,855		—		311,686
Commercial - general		510,543		—		7,766		—		518,309
Consumer:
1-4 family residential		352,930		—		7,385		—		360,315
Auto loans		204,301		—		1,539		—		205,840
Other consumer		67,216		—		379		—		67,595
Construction		94,494		—		—		—		94,494
Total	$	2,135,565	$	—	$	86,018	$	—	$	2,221,583

16

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banks may elect to deem that loan modifications do not result in a classification as a TDR if they are (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency or (B) December 31, 2020. Under section 540 of the Consolidated Appropriations Act, 2021 (the “Act”), section 4013 of the CARES Act was amended and the period for loan modifications was extended to the earlier of (1) January 1, 2022, or (2) 60 days after the date of termination of the national emergency. The Company elected to adopt the provisions of the CARES Act, as amended by the Act.

Additionally, other short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40 and the interagency statement released by the federal banking regulators on April 7, 2020 in response to the COVID-19 pandemic (the “Joint Interagency Regulatory Guidance”). This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

In response to the COVID-19 pandemic, the Company implemented a short-term deferral modification program that complies with ASC Subtopic 310-40 and the Joint Interagency Regulatory Guidance. As of September 30, 2021, the Company had 23 loans totaling approximately $414 thousand under an active modification that comply with ASC Subtopic 310-40 and the Joint Interagency Regulatory Guidance.

Beginning in April 2020, the Company began offering additional COVID-19 related deferral and modification of principal and/or interest payments to selected borrowers on a case-by-case basis that were outside the scope of the short-term deferral modification program. These additional modifications comply with the provisions of section 4013 of the CARES Act, as amended by the Act. As of September 30, 2021, the Company had three loans totaling approximately $16.0 million subject to these deferral and modification agreements, representing 0.7% of outstanding loans held for investment.

There were no loans modified as a TDR during the nine-month period ended September 30, 2021 and the year ended December 31, 2020.

4.  GOODWILL AND INTANGIBLES

Goodwill and other intangible assets are summarized below:

	September 30, 2021			December 31, 2020
Beginning goodwill	$	19,508		$	18,757
Arising from business combinations		—			—
Measurement period acquisition adjustment		—			751
Ending goodwill	$	19,508		$	19,508
Amortized intangible assets
Core deposit intangible	$	6,679		$	6,679
Less: Accumulated amortization		(2,216	)		(1,396	)
		4,463			5,283
Other intangibles		2,972			2,309
Arising from business combinations		—			663
Less: Accumulated amortization		(1,139	)		(693	)
		1,833			2,279
Other intangible assets, net	$	6,296		$	7,562

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5.  BORROWING ARRANGEMENTS

Subordinated Debt Securities

In December 2018, the Company issued $26.5 million in subordinated debt securities. $12.4 million of the securities have a maturity date of December 2028 and an average fixed rate of 5.74% for the first five years. The remaining $14.1 million of securities have a maturity date of December 2030 and an average fixed rate of 6.41% for the first seven years. After the expiration of the fixed rate periods, all securities will float at the Wall Street Journal prime rate, with a floor of 4.5% and a ceiling of 7.5%. These securities pay interest quarterly, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these securities are intended to qualify for Tier 2 capital treatment, subject to regulatory limitations.

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

As of September 30, 2021, the total amount of subordinated debt securities outstanding was $76.5 million less approximately $744 thousand of remaining debt issuance costs for a total balance of $75.7 million.

Notes Payable and Other Borrowings

At December 31, 2020, City Bank had three advances from the Federal Home Loan Bank of Dallas (“FHLB”) totaling $75.0 million. Advances are collateralized through the line of credit with FHLB with interest payable monthly and principal due at maturity. In March 2021, City Bank repaid two of the advances for a total of $50 million and then repaid the remaining advance of $25 million in April 2021. As of September 30, 2021, City Bank had no outstanding advances from the FHLB.

6.  STOCK-BASED COMPENSATION

Equity Incentive Plan

The 2019 Equity Incentive Plan (“Plan”) was approved by the Company’s Board of Directors on January 16, 2019 and by its shareholders on March 6, 2019. The purpose of the Plan is to: (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) provide additional incentive to employees, directors and consultants, and (iii) promote the success of the Company’s business. This Plan permits the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock-based awards. The initial maximum aggregate number of shares of common stock that may be issued pursuant to all awards under the Plan is 2,300,000. The maximum aggregate number of shares that may be issued under the Plan may be increased annually by up to 3% of the total issued and outstanding common shares of the Company at the beginning of each fiscal year.

The fair value of each option award under the Plan is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer company averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant. Forfeitures of options are recognized as they occur.

Options

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		1,554,894		$	14.77			$	14,941
Granted		214,452			19.46				1,055
Exercised		(3,666	)		17.94				(24	)
Forfeited		(6,152	)		18.56				(36	)
Expired		—			—				—
Balance, September 30, 2021		1,759,528		$	15.32		5.73	$	15,936
Exercisable at end of period		1,122,353		$	13.21		4.94	$	12,541
Vested at end of period		1,122,353		$	13.21		4.94	$	12,541

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A summary of assumptions used to calculate the fair values of the awards granted during the periods noted is presented below:

	Nine Months Ended September 30,
	2021			2020
Expected volatility	41.20% to 41.32%				27.46	%
Expected dividend yield		1.00	%		0.70	%
Expected term (years)	6.1 to 6.2 years			6.2 years
Risk-free interest rate	0.52% to 0.83%				1.44	%
Weighted average grant date fair value	$	7.07		$	5.68

The total intrinsic value of options exercised during the nine months ended September 30, 2021 and September 30, 2020 was $17 thousand and $185 thousand, respectively.

Restricted Stock Units

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Grant Date Fair Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		62,476		$	19.47
Granted		6,370			19.62
Vested		(24,805	)		19.70
Forfeited		(1,274	)		19.62
Balance, September 30, 2021		42,767		$	19.35

Restricted stock units granted under the Plan typically vest over four years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

The total unrecognized compensation cost for the awards outstanding under the Plan at September 30, 2021 was $3.1 million and will be recognized over a weighted average remaining period of 1.53 years. The total fair value of restricted stock units vested during each of the nine months ended September 30, 2021 and September 30, 2020 was $489 thousand.

7.  COMMITMENTS AND CONTINGENCIES

Financial instruments with off-balance-sheet risk - The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Company’s consolidated financial statements. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for recorded instruments.

Financial instruments whose contract amounts represent credit risk outstanding follow:

	September 30, 2021		December 31, 2020
Commitments to grant loans and unfunded commitments under lines of credit	$	547,738	$	417,798
Standby letters of credit		12,420		10,481

Commitments to grant loans and extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company requires collateral supporting those commitments if deemed necessary.

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Litigation - The Company is a defendant in legal actions arising from time to time in the ordinary course of business. Management believes that the aggregate ultimate liability, if any, arising from these matters will not materially affect the Company’s consolidated financial statements.

FHLB Letters of Credit - The Company has used FHLB letters of credit to pledge to certain public deposits. The balance of the FHLB letters of credit at December 31, 2020 was $199.0 million. These letters of credit expired in July 2021 and the Company began pledging securities to these public funds rather than renewing the letters of credit. As a result, there were no FHLB letters of credit outstanding at September 30, 2021.

8.  CAPITAL AND REGULATORY MATTERS

The Company and its bank subsidiary are subject to various regulatory capital requirements administered by its banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and its bank subsidiary’s financial statements. Under capital guidelines and the regulatory framework for prompt corrective action, the Company and its bank subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In July 2013, the Board of Governors of the Federal Reserve System published final rules for the adoption of the Basel III regulatory capital framework (“Basel III”). Basel III, among other things, (i) introduced a new capital measure called Common Equity Tier 1 (“CET1”), (ii) specified that Tier 1 capital consists of CET1 and Additional Tier 1 Capital instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations. Basel III became effective for the Company and its bank subsidiary on January 1, 2016 with certain transition provisions fully phased-in on January 1, 2019.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its bank subsidiary to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2021 and December 31, 2020, that the Company and its bank subsidiary met all capital adequacy requirements to which they are subject.

As of September 30, 2021, the bank subsidiary was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since September 30, 2021 that management believes have changed the bank subsidiary’s category.

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The Company and its bank subsidiary’s actual capital amounts and ratios follow:

	Actual					Minimum Required Under BASEL III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total Capital to Risk Weighted Assets:
Consolidated	$	514,327		18.19	%	$	296,912		10.50	%		N/A		N/A
City Bank		421,458		14.91	%		296,838		10.50	%	$	282,703		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		403,159		14.26	%		240,358		8.50	%		N/A		N/A
City Bank		386,026		13.65	%		240,298		8.50	%		226,162		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		358,159		12.67	%		197,942		7.00	%		N/A		N/A
City Bank		386,026		13.65	%		197,892		7.00	%		183,757		6.50	%
Tier I Capital to Average Assets:
Consolidated		403,159		10.83	%		149,932		4.00	%		N/A		N/A
City Bank		386,026		10.38	%		149,854		4.00	%		186,027		5.00	%
December 31, 2020
Total Capital to Risk Weighted Assets:
Consolidated	$	473,425		19.08	%	$	260,531		10.50	%		N/A		N/A
City Bank		404,138		16.29	%		260,481		10.50	%	$	248,077		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		366,639		14.78	%		210,906		8.50	%		N/A		N/A
City Bank		372,947		15.03	%		210,866		8.50	%		198,462		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		321,639		12.96	%		173,688		7.00	%		N/A		N/A
City Bank		372,947		15.03	%		173,654		7.00	%		161,250		6.50	%
Tier I Capital to Average Assets:
Consolidated		366,639		10.24	%		144,347		4.00	%		N/A		N/A
City Bank		372,947		10.42	%		144,282		4.00	%		178,999		5.00	%

State banking regulations place certain restrictions on dividends paid by banks to their shareholders. Dividends paid by the Company’s bank subsidiary to the Company, as sole shareholder of the bank subsidiary, would be prohibited if the effect thereof would cause the bank subsidiary’s capital to be reduced below applicable minimum capital requirements.

9.  DERIVATIVES

The Company utilizes interest rate and cash flow swap agreements as part of its asset-liability management strategy to help manage its interest rate and cash flow risk position. The notional amount of the interest rate and cash flow swaps do not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amounts and the other terms of the individual interest rate and cash flow swap agreements.

The following table reflects the fair value hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Interest rate swaps related to fixed rate loans	$	9,911	$	576	$	10,178	$	927
Included in other assets:
Interest rate swaps related to fixed rate loans	$	—	$	—	$	—	$	—

The following table reflects the cash flow hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Cash flow swaps related to state and municipal securities	$	—	$	—	$	68,485	$	1,643
Included in other assets:
Cash flow swaps related to state and municipal securities	$	123,760	$	4,828	$	55,275	$	1,618

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Mortgage banking derivatives

The following table reflects the amount and fair value of mortgage banking derivatives in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Forward contracts related to mortgage loans held for sale	$	—	$	—	$	—	$	—
Interest rate lock commitments		142,419		3,453		210,716		5,115
Total included in other assets	$	142,419	$	3,453	$	210,716	$	5,115
Included in other liabilities:
Forward contracts related to mortgage loans held for sale	$	129,045	$	879	$	203,669	$	1,787
Interest rate lock commitments		—		—		—		—
Total included in other liabilities	$	129,045	$	879	$	203,669	$	1,787

The Company had received cash collateral of $3.7 million to offset asset derivative positions on its securities cash flow hedges at September 30, 2021. This amount is reported in other liabilities in the consolidated balance sheets. The Company had advanced $1.1 million to offset liability positions on its interest rate swaps at September 30, 2021. Additionally, the Company had advanced $440 thousand on its mortgage forward contracts at September 30, 2021. The advanced cash collateral amounts are reported in cash and due from banks in the consolidated balance sheets.

10.  EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	15,190	$	16,731	$	44,000	$	29,429
Weighted average common shares outstanding - basic		17,931,174		18,059,174		18,012,963		18,054,678
Effect of dilutive securities:
Stock-based compensation awards		532,523		196,987		503,525		269,044
Weighted average common shares outstanding - diluted		18,463,697		18,256,161		18,516,488		18,323,722
Basic earnings per share	$	0.85	$	0.93	$	2.44	$	1.63
Diluted earnings per share	$	0.82	$	0.92	$	2.38	$	1.61

11.  SEGMENT INFORMATION

Financial results by reportable segment are detailed below:

Three Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	31,178		$	—		$	31,178
Provision for loan loss		—			—			—
Noninterest income		22,043			3,748			25,791
Noninterest expense		(35,613	)		(2,450	)		(38,063	)
Income before income taxes		17,608			1,298			18,906
Income tax (expense) benefit		(3,495	)		(221	)		(3,716	)
Net income	$	14,113		$	1,077		$	15,190

Three Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	31,273		$	—		$	31,273
Provision for loan loss		(6,062	)		—			(6,062	)
Noninterest income		28,393			3,267			31,660
Noninterest expense		(33,984	)		(2,009	)		(35,993	)
Income before income taxes		19,620			1,258			20,878
Income tax (expense) benefit		(3,891	)		(256	)		(4,147	)
Net income	$	15,729		$	1,002		$	16,731

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Financial results by reportable segment are detailed below:

Nine Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	90,315		$	—		$	90,315
Provision for loan loss		1,918			—			1,918
Noninterest income		68,536			6,005			74,541
Noninterest expense		(107,233	)		(4,665	)		(111,898	)
Income before income taxes		53,536			1,340			54,876
Income tax (expense) benefit		(10,645	)		(231	)		(10,876	)
Net income	$	42,891		$	1,109		$	44,000

Nine Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	91,920		$	—		$	91,920
Provision for loan loss		(25,429	)		—			(25,429	)
Noninterest income		70,050			5,381			75,431
Noninterest expense		(100,876	)		(4,335	)		(105,211	)
Income before income taxes		35,665			1,046			36,711
Income tax (expense) benefit		(7,008	)		(274	)		(7,282	)
Net income	$	28,657		$	772		$	29,429

12.  FAIR VALUE DISCLOSURES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Valuation techniques that are consistent with the market approach, the income approach and/or the cost approach are required by GAAP. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset. Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

● Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

● Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

● Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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The following table summarizes fair value measurements:

	Level 1		Level 2			Level 3		Total
September 30, 2021
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	—		$	—	$	—
State and municipal		—		275,029			—		275,029
Mortgage-backed securities		—		328,858			—		328,858
Collateralized mortgage obligations		—		106,439			—		106,439
Asset-backed and other amortizing securities		—		29,446			—		29,446
Other securities		—		12,790			—		12,790
Loans held for sale (mandatory)		—		45,849			—		45,849
Mortgage servicing rights		—		—			18,122		18,122
Asset derivatives		—		8,281			—		8,281
Liability derivatives		—		(1,455	)		—		(1,455	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			7,285		7,285
Other real estate owned		—		—			1,081		1,081
December 31, 2020
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	4,753		$	—	$	4,753
State and municipal		—		272,607			—		272,607
Mortgage-backed securities		—		373,362			—		373,362
Collateralized mortgage obligations		—		106,715			—		106,715
Asset-backed and other amortizing securities		—		33,572			—		33,572
Other securities		—		12,078			—		12,078
Loans held for sale (mandatory)		—		80,174			—		80,174
Mortgage servicing rights		—		—			9,049		9,049
Asset derivatives		—		6,734			—		6,734
Liability derivatives		—		(4,357	)		—		(4,357	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			11,926		11,926
Other real estate owned		—		—			1,353		1,353

Securities – Securities are carried at fair value. When available, fair value is based on quoted prices for the identical security in an active market and as such, would be classified as Level 1. If quoted market prices are not available, fair values are calculated based on market prices of similar securities using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded. Securities for which Level 1 valuations are not available are classified as Level 2.

Loans held for sale (mandatory) – Loans held for sale originated for mandatory delivery are reported at fair value. Fair value is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.

Mortgage servicing rights – Mortgage servicing rights are reported at fair value using Level 3 inputs. The mortgage servicing rights asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing rights asset is impacted by a variety of factors, including prepayment and discount rates, which are significant unobservable inputs.

Derivatives – Fair value of derivatives is based on valuation models using observable market data as of the measurement date.

Impaired loans – Impaired loans are reported at the fair value of the underlying collateral, less estimated disposal costs, if repayment is expected solely from the sale of the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

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Foreclosed assets – Foreclosed assets are transferred from loans at the lower of cost or fair value, less estimated costs to sell. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

Loans held for sale (best efforts) – Loans held for sale originated for best efforts delivery are reported at fair value if, on an aggregate basis, the fair value for the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments or discounted cash flow analyses with market assumptions. Such fair values are classified within either Level 2 or Level 3 of the fair value hierarchy.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range of Discounts
September 30, 2021
Non-recurring:
Impaired loans	$	7,285	Third party appraisals or inspections	Collateral discounts and selling costs		20%-100	%
Other real estate owned		1,081	Third party appraisals or inspections	Collateral discounts and selling costs		0	%
Recurring:
Mortgage servicing rights		18,122	Discounted cash flows	Conditional prepayment rate		5.41	%
				Discount rate		9.14	%
December 31, 2020
Non-recurring:
Impaired loans	$	11,926	Third party appraisals or inspections	Collateral discounts and selling costs		0%-100	%
Other real estate owned		1,353	Third party appraisals or inspections	Collateral discounts and selling costs		15%-66	%
Recurring:
Mortgage servicing rights		9,049	Discounted cash flows	Conditional prepayment rate		4.48	%
				Discount rate		9.72	%

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
September 30, 2021
Financial assets:
Cash and cash equivalents	$	327,600	$	327,600	$	—	$	—	$	327,600
Loans, net		2,386,273		—		—		2,430,158		2,430,158
Accrued interest receivable		11,778		—		11,778		—		11,778
Bank-owned life insurance		71,676		—		71,676		—		71,676
Financial liabilities:
Deposits	$	3,212,245	$	2,879,997	$	334,870	$	—	$	3,214,867
Accrued interest payable		1,460		—		1,460		—		1,460
Notes payable & other borrowings		—		—		—		—		—
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,728		—		77,892		—		77,892

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
December 31, 2020
Financial assets:
Cash and cash equivalents	$	300,307	$	300,307	$	—	$	—	$	300,307
Loans, net		2,176,030		—		—		2,179,573		2,179,573
Accrued interest receivable		15,233		—		15,233		—		15,233
Bank-owned life insurance		70,731		—		70,731		—		70,731
Financial liabilities:
Deposits	$	2,974,351	$	2,649,830	$	329,609	$	—	$	2,979,439
Short-term borrowings		26,550		26,550		—		—		26,550
Accrued interest payable		2,113		—		2,113		—		2,113
Notes payable & other borrowings		75,000		—		75,000		—		75,000
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,589		—		76,889		—		76,889

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to assist readers in understanding our financial condition as of and results of operations for the period covered by this Quarterly Report on Form 10-Q (this “Form 10-Q”) and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2021. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us” and “the Company” refer to South Plains Financial, Inc., a Texas corporation, our wholly-owned banking subsidiary, City Bank, a Texas banking association and our other consolidated subsidiaries. References in this Form 10-Q to the “Bank” refer to City Bank.

Cautionary Notice Regarding Forward-Looking Statements

This Form 10-Q contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

● the impact, duration and severity of the ongoing novel coronavirus (“COVID-19”) pandemic, the Delta variant (or any other new variant of COVID-19), the response of governmental authorities to the COVID-19 pandemic and our participation in COVID-19-related government programs such as the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (the “SBA”) and created under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”);

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

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

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

● risks associated with our commercial loan portfolio, including the uncertain economic consequences of the ongoing COVID-19 pandemic or any deterioration in value of the general business assets that secure such loans;

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

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

● risks associated with the sale of crop insurance products, including termination of or substantial changes to the federal crop insurance program;

● risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;

● public funds deposits comprising a relatively high percentage of our deposits;

● potential impairment on the goodwill we have recorded or may record in connection with business acquisitions;

● our ability to maintain our reputation;

● our ability to successfully manage our credit risk and the sufficiency of our allowance for loan losses;

● our ability to attract, hire and retain qualified management personnel;

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

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

26

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

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

● system failures, service denials, cyber-attacks and security breaches;

● our ability to maintain effective internal control over financial reporting;

● employee error, fraudulent activity by employees or customers and inaccurate or incomplete information about our customers and counterparties;

● increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

● our ability to maintain adequate liquidity and to raise necessary capital to fund our acquisition strategy and operations or to meet increased minimum regulatory capital levels;

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

● natural disasters, severe weather, acts of god, acts of war or terrorism, outbreaks of hostilities, public health outbreaks (such as the ongoing COVID-19 pandemic or any new variant thereof), other international or domestic calamities, and other matters beyond our control;

● tariffs and trade barriers;

● compliance with governmental and regulatory requirements, including the Dodd-Frank Act Wall Street Reform and Consumer Protection Act, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), and others relating to banking, consumer protection, securities and tax matters; and

● changes in the laws, rules, regulations, interpretations or policies relating to financial institutions, accounting, tax, trade, monetary and fiscal matters, including the policies of the Board of Governors of the Federal Reserve System (“Federal Reserve”) and as a result of initiatives of the Biden administration.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-Q and the risk factors set forth in our 2020 Annual Report on Form 10-K. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, the Company cautions readers not to place undue reliance on any such forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Available Information

The Company maintains an Internet web site at www.spfi.bank. The Company makes available, free of charge, on its web site (under www.spfi.bank/financials-filings/sec-filings ) the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Company files such material with, or furnishes it to, the SEC. The Company also makes available, free of charge, through its web site (under www.spfi.bank/corporate-governance/documents-charters ) links to the Company’s Code of Conduct and the charters for its board committees. In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company routinely posts important information for investors on its web site (under www.spfi.bank and, more specifically, under the News & Events tab at www.spfi.bank/news-events/press-releases ). The Company intends to use its web site as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Company’s web site, in addition to following the Company’s press releases, SEC filings, public conference calls, presentations and webcasts.

The information contained on, or that may be accessed through, the Company’s web site is not incorporated by reference into, and is not a part of, this Form 10-Q.

Overview

We are a bank holding company headquartered in Lubbock, Texas, and our wholly-owned subsidiary, City Bank, is one of the largest independent banks in West Texas. We have additional banking operations in the Dallas, El Paso, Greater Houston, the Permian Basin, and College Station, Texas markets, and the Ruidoso, New Mexico market. Through City Bank, we provide a wide range of commercial and consumer financial services to small and medium-sized businesses and individuals in our market areas. Our principal business activities include commercial and retail banking, along with insurance, investment, trust and mortgage services.

27

Recent Developments

COVID-19 Update

The spread of COVID-19 continues to cause significant disruptions in the U.S. economy since it was declared a pandemic in March 2020 by the World Health Organization. The changes have impacted our clients, their industries, as well as the financial services industry. At this time, we cannot predict the impact or how long the economy or our impacted clients will be disrupted by the ongoing COVID-19 pandemic, the Delta variant, or any other new variants of COVID-19, which depends on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against variants, and the response by governmental bodies and regulators. We are closely monitoring the current environment, including the rise in cases due to the Delta variant, and are preparing to quickly make any necessary adjustments to protect our employees and customers.

The Bank also continues to utilize a rigorous enterprise risk management (“ERM”) system that delivers a systematic approach to risk measurement and enhances the effectiveness of risk management across the Bank. The Bank’s ERM system has allowed management to consistently and aggressively review the Bank’s loan portfolio for signs of potential issues during the ongoing COVID-19 pandemic and the Bank continues to closely monitoring its loans to borrowers in the retail, hospitality and energy sectors.

While the duration of the COVID-19 pandemic, the Delta variant, or any other new variants of COVID-19, and the scope of its impact on the economy is uncertain, the Bank continues to be proactive with its borrowers in those sectors most affected by the COVID-19 pandemic and offering loan modifications to borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19. As part of the Bank’s efforts to support its customers and protect the Bank, the Bank has offered varying forms of loan modifications including 90-day payment deferrals, 6-month interest only terms, or in certain select cases periods of longer than 6 months of interest only, to provide borrowers relief. As of September 30, 2021, total active loan modifications attributed to COVID-19 were approximately $16.4 million, or 0.7%, of the Company’s loan portfolio. Approximately 97% of active modifications are loans have original modified terms that extended up to 18 months in the Bank’s hotel portfolio. The Bank expects that these remaining modified loans will return to full payment status at the end of their respective modification period.

The PPP was created by the CARES Act and implemented by the SBA in March 2020. The PPP allowed entities to apply for a 1.00% interest rate loan with payments generally deferred until the date the lender receives the applicable forgiveness amount from the SBA. The PPP loans may be partially or fully forgiven by the SBA if the entity meets certain conditions. The maturity term for any principal portion left unforgiven is either 2 or 5 years from the funding date, depending on when the loan was originated. For PPP loans that were approved by the SBA on or after June 5, 2020, the PPP loan must have a maturity of at least 5 years. All PPP loans are fully guaranteed by the SBA and are included in total loans outstanding. The Economic Aid Act, signed into law on December 27, 2020, authorized an additional $284.5 billion in new PPP loan funding and extends the authority of lenders to make PPP loans through March 31, 2021. The PPP Extension Act of 2021 was subsequently signed into law on March 30, 2021 and extended the PPP application deadline to May 31, 2021.

The Bank assisted approximately 2,100 customers for a total of $218 million in the first round of PPP. The SBA began the PPP loan forgiveness process in October 2020 and has forgiven approximately $216 million of PPP loans from the first round of the PPP, leaving $2 million outstanding as of September 30, 2021. The Bank began accepting new applications for PPP loans in January 2021 to assist customers with the new round of the PPP until funding for the PPP expired on May 31, 2021. During 2021, the Bank funded approximately 1,100 PPP loans for a total of $91 million. The SBA has forgiven approximately $32 million of PPP loans from this last round as of September 30, 2021, leaving $62 million outstanding as of September 30, 2021.

We are currently unable to fully assess or predict the extent of the effects of the COVID-19 pandemic, the Delta variant, or any other new variants of COVID-19, on our operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control. Please refer to Part I, Item 1A, “Risk Factors” in this Form 10-Q.

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Results of Operations

We had net income of $15.2 million, or $0.82 per diluted common share for the three months ended September 30, 2021, compared to net income of $16.7 million, or $0.92 per diluted common share for the three months ended September 30, 2020. Return on average equity (annualized) was 15.24% and return on average assets (annualized) was 1.61% for the three months ended September 30, 2021, compared to 19.32% and 1.88%, respectively, for the three months ended September 30, 2020.

We had net income of $44.0 million, or $2.38 per diluted common share for the nine months ended September 30, 2021, compared to net income of $29.4 million, or $1.61 per diluted common share for the nine months ended September 30, 2020. Return on average equity (annualized) was 15.32% and return on average assets (annualized) was 1.57% for the nine months ended September 30, 2021, compared to 11.88% and 1.15%, respectively, for the nine months ended September 30, 2020.

Net Interest Income

Net interest income is the principal source of the Company’s net income and represents the difference between interest income (interest and fees earned on assets, primarily loans and investment securities) and interest expense (interest paid on deposits and borrowed funds). We generate interest income from interest-earning assets that we own, including loans and investment securities. We incur interest expense from interest-bearing liabilities, including interest-bearing deposits and other borrowings, notably FHLB advances and subordinated notes. To evaluate net interest income, we measure and monitor (i) yields on our loans and other interest-earning assets, (ii) the costs of our deposits and other funding sources, (iii) our net interest spread and (iv) our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the annualized net interest income on a fully tax-equivalent basis divided by average interest-earning assets.

Changes in the market interest rates and interest rates we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities, are usually the largest drivers of periodic changes in net interest spread, net interest margin and net interest income.

The following tables present, for the periods indicated, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. For purposes of this table, interest income, net interest margin and net interest spread are shown on a fully tax-equivalent basis.

	Three Months Ended September 30,
	2021							2020
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans, excluding PPP(1)	$	2,365,010	$	28,947		4.86	%	$	2,195,507	$	29,162		5.28	%
Loans - PPP		86,645		1,872		8.57			212,337		1,602		3.00
Investment securities – taxable		531,620		2,309		1.72			525,301		2,613		1.98
Investment securities – non-taxable		221,026		1,468		2.64			187,400		1,343		2.85
Other interest-earning assets(2)		284,369		151		0.21			168,922		105		0.25
Total interest-earning assets		3,488,670		34,747		3.95			3,289,467		34,825		4.21
Noninterest-earning assets		259,641							247,338
Total assets	$	3,748,311						$	3,536,805
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
NOW, savings and money market deposits	$	1,820,677	$	1,005		0.22	%	$	1,695,476	$	1,213		0.28	%
Time deposits		330,161		1,025		1.23			322,535		1,304		1.61
Short-term borrowings		725		—		0.00			12,080		3		0.10
Notes payable & other longer-term borrowings		—		—		0.00			95,870		65		0.27
Subordinated debt securities		75,728		1,013		5.31			26,472		403		6.06
Junior subordinated deferrable interest debentures		46,393		217		1.86			46,393		242		2.08
Total interest-bearing liabilities	$	2,273,684	$	3,260		0.57	%	$	2,198,826	$	3,230		0.58	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	$	1,035,910						$	944,420
Other liabilities		43,171							49,008
Total noninterest-bearing liabilities		1,079,081							993,428
Shareholders’ equity		395,546							344,551
Total liabilities and shareholders’ equity	$	3,748,311						$	3,536,805
Net interest income			$	31,487						$	31,595
Net interest spread						3.38	%						3.63	%
Net interest margin(3)						3.58	%						3.82	%

(1) Average loan balances include nonaccrual loans and loans held for sale.

(2) Includes income and average balances for interest-earning deposits at other banks, nonmarketable securities, federal funds sold and other miscellaneous interest-earning assets.

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

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	Nine Months Ended September 30,
	2021							2020
	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans, excluding PPP(1)	$	2,246,650	$	82,314		4.90	%	$	2,188,988	$	89,041		5.43	%
Loans - PPP		141,040		7,147		6.78			127,880		2,678		2.80
Investment securities – taxable		540,380		7,118		1.76			544,650		9,285		2.28
Investment securities – non-taxable		219,242		4,414		2.69			142,158		3,037		2.85
Other interest-earning assets(2)		328,412		373		0.15			164,936		963		0.78
Total interest-earning assets		3,475,724		101,366		3.90			3,168,612		105,004		4.43
Noninterest-earning assets		261,449							248,523
Total assets	$	3,737,173						$	3,417,135
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities:
NOW, savings and money market deposits	$	1,834,113	$	3,259		0.24	%	$	1,630,524	$	5,199		0.43	%
Time deposits		326,862		3,114		1.27			334,189		4,361		1.74
Short-term borrowings		10,725		5		0.06			19,758		102		0.69
Notes payable & other longer-term borrowings		26,188		38		0.19			117,726		518		0.59
Subordinated debt securities		75,682		3,044		5.38			26,472		1,210		6.11
Junior subordinated deferrable interest debentures		46,393		661		1.90			46,393		937		2.70
Total interest-bearing liabilities	$	2,319,963	$	10,121		0.58	%	$	2,175,062	$	12,327		0.76	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits	$	991,331						$	870,606
Other liabilities		41,996							40,579
Total noninterest-bearing liabilities		1,033,327							911,185
Shareholders’ equity		383,883							330,888
Total liabilities and shareholders’ equity	$	3,737,173						$	3,417,135
Net interest income			$	91,245						$	92,677
Net interest spread						3.32	%						3.67	%
Net interest margin(3)						3.51	%						3.91	%

(1) Average loan balances include nonaccrual loans and loans held for sale.

(2) Includes income and average balances for interest-earning deposits at other banks, nonmarketable securities, federal funds sold and other miscellaneous interest-earning assets.

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

30

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following tables sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volume and rate have been allocated to volume.

	Three Months Ended September 30,
	2021 over 2020
	Change due to:						Total
	Volume			Rate			Variance
	(Dollars in thousands)
Interest-earning assets:
Loans, excluding PPP	$	2,251		$	(2,466	)	$	(215	)
Loans - PPP		(948	)		1,218			270
Investment securities – taxable		31			(335	)		(304	)
Investment securities – non-taxable		241			(116	)		125
Other interest-earning assets		72			(26	)		46
Total increase (decrease) in interest income		1,647			(1,725	)		(78	)
Interest-bearing liabilities:
NOW, Savings, MMDAs		90			(298	)		(208	)
Time deposits		31			(310	)		(279	)
Short-term borrowings		(3	)		—			(3	)
Notes payable & other borrowings		(65	)		—			(65	)
Subordinated debt securities		750			(140	)		610
Junior subordinated deferrable interest debentures		—			(25	)		(25	)
Total increase (decrease) interest expense:		803			(773	)		30
Increase (decrease) in net interest income	$	844		$	(952	)	$	(108	)

	Nine Months Ended September 30,
	2021 over 2020
	Change due to:						Total
	Volume			Rate			Variance
	(Dollars in thousands)
Interest-earning assets:
Loans, excluding PPP	$	2,346		$	(9,073	)	$	(6,727	)
Loans - PPP		276			4,193			4,469
Investment securities – taxable		(73	)		(2,094	)		(2,167	)
Investment securities – non-taxable		1,647			(270	)		1,377
Other interest-earning assets		954			(1,544	)		(590	)
Total increase (decrease) in interest income		5,150			(8,788	)		(3,638	)
Interest-bearing liabilities:
NOW, Savings, MMDAs		649			(2,589	)		(1,940	)
Time deposits		(96	)		(1,151	)		(1,247	)
Short-term borrowings		(47	)		(50	)		(97	)
Notes payable & other borrowings		(403	)		(77	)		(480	)
Subordinated debt securities		2,249			(415	)		1,834
Junior subordinated deferrable interest debentures		—			(276	)		(276	)
Total increase (decrease) interest expense:		2,352			(4,558	)		(2,206	)
Increase (decrease) in net interest income	$	2,798		$	(4,230	)	$	(1,432	)

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Net interest income for the three months ended September 30, 2021 was $31.2 million, compared to $31.3 million for the three months ended September 30, 2020, a decrease of $100 thousand, or 0.3%. Interest income was flat as the decrease in the yield on average interest-earning assets of 26 basis points was offset by the growth of $199.2 million in these assets during the three months ended September 2021. During the third quarter of 2021, the Company recognized $1.7 million in deferred PPP-related SBA fees. When received, these fees are deferred and then accreted into interest income over the life of the applicable loans. At September 30, 2021, there was $2.9 million of deferred PPP-related SBA fees that have not been accreted to income. The Company expects that the majority of the remaining first and second rounds of PPP loans will continue to be forgiven by the SBA or repaid over the next several quarters.

Interest expense for the three months ended September 30, 2021 was consistent as compared to the three months ended September 30, 2020, with a reduction in interest rates on interest-bearing deposits offset by an increase in the overall cost of long-term borrowings. There was an increase in average interest-bearing liabilities from September 30, 2020 to September 30, 2021 largely due to growth in deposits from PPP loan funding, other government stimulus payments and programs during the period, as well as organic growth. Interest expense on subordinated debt increased $610 thousand for the three months ended September 30, 2021, as compared to the same period in 2020 due to $50.0 million of subordinated notes that were issued in September 2020. Additionally, average noninterest-bearing demand deposits increased to $1.0 billion at September 30, 2021 from $944.4 million at September 30, 2020.

For the three months ended September 30, 2021, net interest margin and net interest spread were 3.58% and 3.38%, respectively, compared to 3.82% and 3.63% for the same three-month period in 2020, which reflects the changes in interest income and interest expense discussed above.

Net interest income for the nine months ended September 30, 2021 was $90.3 million, compared to $91.9 million for the nine months ended September 30, 2020, a decrease of $1.6 million, or 1.7%. The decrease in net interest income was comprised of a $3.8 million, or 3.7%, decrease in interest income and a $2.2 million, or 17.9% decrease in interest expense. The decrease in interest income was primarily attributable to a decrease of 53 basis points in the yield on non-PPP loans, partially offset by an increase of $57.7 million in average non-PPP loans outstanding and an increase of $4.4 million in PPP-related SBA fees recognized as PPP loans were forgiven by the SBA or repaid during the nine-month period ended September 30, 2021, compared to the nine-month period ended September 30, 2020.

The $2.2 million decrease in interest expense for the nine months ended September 30, 2021 was primarily related to a decrease of 18 basis points in the rate paid on interest-bearing liabilities, partially offset by an increase of $144.9 million, or 13.9%, in average interest-bearing liabilities over the same nine-month period in 2020. The increase in average interest-bearing liabilities was mainly due to increased deposits from PPP loan funding, other government stimulus payments and programs during the period as well as organic growth and the $50.0 million of subordinated notes issued by the Company in September 2020, partially offset by the repayment of $75.0 million in long-term advances during 2021. Additionally, average noninterest-bearing demand deposits increased to $991.3 million at September 30, 2021 from $870.6 million at September 30, 2020.

For the nine months ended September 30, 2021, net interest margin and net interest spread were 3.51% and 3.32%, respectively, compared to 3.91% and 3.67%, respectively, for the same nine-month period in 2020, which reflects the changes in interest income and interest expense discussed above.

Provision for Loan Losses

Credit risk is inherent in the business of making loans. We establish an allowance for loan losses through charges to earnings, which are shown in the statements of income as the provision for loan losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of our allowance for loan losses and charging the shortfall or excess, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to our earnings. The provision for loan losses and the amount of allowance for each period are dependent upon many factors, including loan growth, net charge offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in our market areas.

The Company did not record a provision for loan losses for the three months ended September 30, 2021, compared to a provision of $6.1 million for the three months ended September 30, 2020. The Company recorded a negative provision for loan losses for the nine months ended September 30, 2021 of $1.9 million, compared to a positive provision of $25.4 million for the nine months ended September 30, 2020. The decrease in the provision for loan losses in the three-month and nine-month periods ended September 30, 2021 compared to the same three-month and nine-month periods in 2020 is primarily a result of general improvement in the economy, a decline in the amount of loans actively under a modification, and a decrease in nonperforming loans. The allowance for loan losses as a percentage of loans held for investment was 1.76% at September 30, 2021 and 2.05% at December 31, 2020. Further discussion of the allowance for loan losses is noted below.

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Noninterest Income

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

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

	Three Months Ended September 30,							Nine Months Ended September 30,
	2021		2020		Increase (Decrease)			2021		2020		Increase (Decrease)
	(Dollars in thousands)
Noninterest income:
Service charges on deposit accounts	$	1,851	$	1,749	$	102		$	5,023	$	5,171	$	(148	)
Income from insurance activities		3,794		3,303		491			6,146		5,484		662
Bank card services and interchange fees		3,045		2,608		437			8,760		7,190		1,570
Mortgage banking activities		14,802		21,409		(6,607	)		47,329		48,117		(788	)
Investment commissions		430		441		(11	)		1,390		1,261		129
Fiduciary income		556		781		(225	)		2,234		2,386		(152	)
Gain on sale of securities		—		—		—			—		2,318		(2,318	)
Other income and fees(1)		1,313		1,369		(56	)		3,659		3,504		155
Total noninterest income	$	25,791	$	31,660	$	(5,869	)	$	74,541	$	75,431	$	(890	)

(1) Other income and fees includes the increase in the cash surrender value of life insurance, safe deposit box rental, check printing, collections, wire transfer and other miscellaneous services.

Noninterest income for the three months ended September 30, 2021 was $25.8 million, compared to $31.7 million for the three months ended September 30, 2020, a decrease of $5.9 million, or 18.5%. Income from mortgage banking activities decreased $6.6 million, or 30.9%, to $14.8 million for the three months ended September 30, 2021 from $21.4 million for the three months ended September 30, 2020. The decrease was primarily the result of a reduction of $75 million in interest rate lock commitments and a decline in gain on sale margins. Additionally, bank card services and interchange fee income increased $437 thousand and income from insurance activities increased $491 thousand for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase in bank card services and interchange fee income was primarily tied to the growth in deposits and increased consumer spending. The increase in income from insurance activities is primarily related to Windmark Insurance Agency, Inc.’s 2020 acquisition.

Noninterest income for the nine months ended September 30, 2021 was $74.5 million, compared to $75.4 million for the nine months ended September 30, 2020, a decrease of $0.9 million, or 1.2%. Income from mortgage banking activities decreased $0.8 million, or 1.6%, to $47.3 million for the nine months ended September 30, 2021 from $48.1 million for the nine months ended September 30, 2020. This decrease was primarily a result of a decrease in gain on sale margins, partially offset by an increase of $205 million in mortgage loan originations for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Further, bank card services and interchange fee income increased $1.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, primarily tied to growth in deposits and increased consumer spending. There was a $2.3 million gain on sale of securities, which occurred in the first quarter of 2020.

Noninterest Expense

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		Increase (Decrease)		2021		2020		Increase (Decrease)
	(Dollars in thousands)
Noninterest expense:
Salaries and employee benefits	$	24,116	$	23,672	$	444	$	71,811	$	66,103	$	5,708
Occupancy expense, net		3,896		3,710		186		10,960		10,896		64
Professional services		1,388		1,177		211		4,483		4,710		(227	)
Marketing and development		777		615		162		2,157		2,189		(32	)
IT and data services		1,068		843		225		3,029		2,769		260
Bankcard expenses		1,339		1,095		244		3,640		3,164		476
Appraisal expenses		790		744		46		2,350		1,837		513
Other expenses(1)		4,689		4,137		552		13,468		13,543		(75	)
Total noninterest expense	$	38,063	$	35,993	$	2,070	$	111,898	$	105,211	$	6,687

(1) Other expenses include items such as telephone expenses, postage, courier fees, directors’ fees, and insurance.

33

Noninterest expense for the three months ended September 30, 2021 was $38.1 million compared, to $36.0 million for the three months ended September 30, 2020, an increase of $2.1 million, or 5.8%. Salaries and employee benefits increased $444 thousand, or 1.9%, from $23.7 million for the three months ended September 30, 2020 to $24.1 million for the three months ended September 30, 2021. This increase in salaries and employee benefits expense was primarily reflective of the Company’s stated initiative of growing its loan officer capacity. There were also smaller increases in mortgage related expenses, bank card expenses, technology costs, and travel related expenses in the third quarter of 2021 as compared to the third quarter of 2020.

Noninterest expense for the nine months ended September 30, 2021 was $111.9 million, compared to $105.2 million for the nine months ended September 30, 2020, an increase of $6.7 million, or 6.4%. Salaries and employee benefits increased $5.7 million, or 8.6%, from $66.1 million for the nine months ended September 30, 2020 to $71.8 million for the nine months ended September 30, 2021. This increase in salaries and employee benefits expense was predominately driven by increased commissions paid on the higher volume of mortgage loan originations and other personnel expenses to support mortgage activities in addition to expenses for newly-hired loan officers. Other noninterest expenses increased $979 thousand for the nine months ended September 30, 2021, compared to the same nine-month period in 2020. This increase was primarily related to additional expenses incurred in 2021 for bankcard expenses as a result of increased consumer spending and growth in deposits as well as increases in appraisal expenses due to the high mortgage volume noted above.

Financial Condition

Our total assets increased $175.0 million, or 4.9%, to $3.77 billion at September 30, 2021, compared to $3.60 billion at December 31, 2020. Our gross loans held for investment increased $207.5 million, or 9.3%, to $2.43 billion at September 30, 2021, compared to $2.22 billion at December 31, 2020. Our securities portfolio decreased $50.5 million, or 6.3%, to $752.6 million at September 30, 2021, compared to $803.1 million at December 31, 2020. Total deposits increased $237.9 million, or 8.0% to $3.21 billion at September 30, 2021, compared to $2.97 billion at December 31, 2020.

Loan Portfolio

Our loans represent the largest portion of earning assets, greater than our securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition. We originate substantially all of the loans in our portfolio, except certain loan participations that are independently underwritten by the Company prior to purchase.

The following table presents the balance and associated percentage of each major category in our loans held for investment portfolio at the dates indicated:

	September 30, 2021						December 31, 2020
	Amount			% of Total			Amount			% of Total
	(Dollars in thousands)
Commercial real estate	$	746,775			30.8	%	$	663,344			29.9	%
Commercial – specialized		390,394			16.1			311,686			14.0
Commercial – general		452,776			18.6			518,309			23.3
Consumer:
1-4 family residential		387,167			15.9			360,315			16.2
Auto loans		239,397			9.9			205,840			9.3
Other consumer		69,079			2.8			67,595			3.0
Construction		143,453			5.9			94,494			4.3
Gross loans		2,429,041			100.0	%		2,221,583			100.0	%
Allowance for loan losses		(42,768	)					(45,553	)
Net loans	$	2,386,273					$	2,176,030

Loans held for investment increased $207.5 million, or 9.3%, to $2.43 billion at September 30, 2021, compared to $2.22 billion at December 31, 2020. We had net organic growth in non-PPP loans of $315.3 million during the nine months ended September 30, 2021. This increase occurred in a majority of loan segments, with the largest volume growth in residential construction, consumer auto, direct energy, and multifamily property loans. These increases were partially offset by a decrease in PPP loans of $107.8 million as the Company funded $91.4 million in new PPP loans and received forgiveness payments from the SBA or repayments totaling $199.2 million on PPP loans, during the first nine months of 2021.

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The Bank is primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout Texas and Eastern New Mexico. We have a collateral concentration, as 64.8% of our loans held for investment were secured by real property as of September 30, 2021, compared to 66.5% as of December 31, 2020. We believe that these loans are not concentrated in any one single property type and that they are geographically dispersed throughout the areas we serve. Although the Bank has a diversified loan portfolio, its debtors’ ability to honor their contracts is substantially dependent upon the general economic conditions of the markets in which it operates, which consist primarily of agribusiness, wholesale/retail, oil and gas and related businesses, healthcare industries and institutions of higher education.

We have established concentration limits in the loan portfolio for commercial real estate loans and unsecured lending, among other loan types. All loan types are within established limits. We use underwriting guidelines to assess the borrowers’ historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow us to react to a borrower’s deteriorating financial condition, should that occur.

Commercial Real Estate. Our commercial real estate portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of commercial real estate investment properties and residential developments. Commercial real estate loans are subject to underwriting standards and processes similar to our commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing our real estate portfolio are diversified by type and geographic location. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.

Commercial real estate loans increased $83.4 million, or 12.6%, to $746.8 million as of September 30, 2021 from $663.3 million as of December 31, 2020. This increase was primarily driven by organic growth of $64.0 million in multifamily property loans and an increase of $16.1 million in other commercial tenant loans.

Commercial – General and Specialized. Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, to evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations, and to ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and typically include personal guarantees. Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties. Commercial loans are grouped into two distinct sub-categories: specialized and general. Commercial related loans that are considered “specialized” include agricultural production and real estate loans, energy loans, and finance, investment, and insurance loans. Commercial related loans that contain a broader diversity of borrowers, sub-industries, or serviced industries are grouped into the “general category.” These include goods, services, restaurant and retail, construction, and other industries.

Commercial specialized loans increased $78.7 million, or 25.3%, to $390.4 million as of September 30, 2021 from $311.7 million as of December 31, 2020. This increase was primarily due to organic growth in our direct energy sector of $43.2 million and an increase of $32.9 million in agricultural real estate and production loans. The increase in agricultural production loans was for the seasonal funding of operating loans.

Commercial general loans decreased $65.5 million, or 12.6%, to $452.8 million as of September 30, 2021 from $518.3 million as of December 31, 2020. The decrease in commercial general loans was primarily due to a decrease in PPP loans of $107.8 million, partially offset by organic loan growth in the rest of the segment.

Consumer. We utilize a computer-based credit scoring analysis to supplement our policies and procedures in underwriting consumer loans. Our loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimize our risk. Residential real estate loans are included in consumer loans. We generally require mortgage title insurance and hazard insurance on these residential real estate loans.

Consumer and other loans increased $61.9 million, or 9.8%, to $695.6 million as of September 30, 2021, from $633.8 million as of December 31, 2020. The increase in these loans was primarily a result of a $26.9 million increase in residential mortgage loans and a $33.6 million increase in consumer auto loans as a result of increased auto and home buyer demand related to the continued low interest rate environment in 2021. As of September 30, 2021, our consumer loan portfolio was comprised of $387.2 million in 1-4 family residential loans, $239.4 million in auto loans, and $69.1 million in other consumer loans.

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Construction. Loans for residential construction are for single-family properties to developers, builders, or end-users. These loans are underwritten based on estimates of costs and completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control costs of the projects.

Construction loans increased $49.0 million, or 51.8%, to $143.5 million as of September 30, 2021 from $94.5 million as of December 31, 2020. The increase resulted from continued higher demand for residential construction as a result of home shortages in many of our markets as lower mortgage interest rates has increased the number of buyers for homes.

Allowance for Loan Losses

The allowance for loan losses provides a reserve against which loan losses are charged as those losses become evident. Management evaluates the appropriate level of the allowance for loan losses on a quarterly basis. The analysis takes into consideration the results of an ongoing loan review process, the purpose of which is to determine the level of credit risk within the portfolio and to ensure proper adherence to underwriting and documentation standards. Additional allowances are provided to those loans which appear to represent a greater than normal exposure to risk. The quality of the loan portfolio and the adequacy of the allowance for loan losses is reviewed by regulatory examinations and the Company’s internal and external loan reviews. The allowance for loan losses consists of two elements: (1) specific valuation allowances established for probable losses on specific loans and (2) historical valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, judgmentally adjusted for general economic conditions and other qualitative risk factors internal and external to the Company.

To determine the adequacy of the allowance for loan losses, the loan portfolio is broken into categories based on loan type. Historical loss experience factors by category, adjusted for changes in trends and conditions, are used to determine an indicated allowance for each portfolio category. These factors are evaluated and updated based on the composition of the specific loan portfolio. Other considerations include volumes and trends of delinquencies, nonaccrual loans, levels of bankruptcies, criticized and classified loan trends, expected losses on real estate secured loans, new credit products and policies, economic conditions, concentrations of credit risk, and the experience and abilities of the Company’s lending personnel. In addition to the portfolio evaluations, impaired loans with a balance of $250 thousand or more are individually evaluated based on facts and circumstances of the loan to determine if a specific allowance amount may be necessary. Specific allowances may also be established for loans whose outstanding balances are below the above threshold when it is determined that the risk associated with the loan differs significantly from the risk factor amounts established for its loan category.

The allowance for loan losses was $42.8 million at September 30, 2021, compared to $45.6 million at December 31, 2020, a decrease of $2.8 million, or 6.1%. The decrease is primarily a result of a negative provision of $2.0 million being recorded in June 2021 based on general improvement in the economy, a decline in the amount of loans actively under a modification, and a decrease in nonperforming loans.

The following table provides an analysis of the allowance for loan losses at the dates indicated.

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Three Months Ended September 30, 2021
Commercial real estate	$	17,288	$	—		$	—	$	960		$	18,248
Commercial – specialized		4,823		(16	)		20		(596	)		4,231
Commercial – general		8,948		(2	)		63		(838	)		8,171
Consumer:
1-4 family residential		5,064		—			2		135			5,201
Auto loans		3,815		(111	)		20		79			3,803
Other consumer		1,434		(213	)		42		139			1,402
Construction		1,591		—			—		121			1,712
Total	$	42,963	$	(342	)	$	147	$	—		$	42,768

	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Three Months Ended September 30, 2020
Commercial real estate	$	15,156	$	—		$	23	$	3,085		$	18,264
Commercial – specialized		6,614		(109	)		19		(220	)		6,304
Commercial – general		9,293		(372	)		91		977			9,989
Consumer:
1-4 family residential		2,926		(56	)		126		1,688			4,684
Auto loans		3,939		(212	)		32		474			4,233
Other consumer		1,640		(262	)		99		250			1,727
Construction		1,067		—			—		(192	)		875
Total	$	40,635	$	(1,011	)	$	390	$	6,062		$	46,076

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	Beginning Balance		Charge-offs			Recoveries		Provision			Ending Balance
	(Dollars in thousands)
Nine Months Ended September 30, 2021
Commercial real estate	$	18,962	$	—		$	—	$	(714	)	$	18,248
Commercial – specialized		5,760		(21	)		119		(1,627	)		4,231
Commercial – general		9,227		(379	)		193		(870	)		8,171
Consumer:
1-4 family residential		4,646		(52	)		5		602			5,201
Auto loans		4,226		(438	)		103		(88	)		3,803
Other consumer		1,671		(590	)		189		132			1,402
Construction		1,061		—			4		647			1,712
Total	$	45,553	$	(1,480	)	$	613	$	(1,918	)	$	42,768

	Beginning Balance		Charge-offs			Recoveries		Provision		Ending Balance
	(Dollars in thousands)
Nine Months Ended September 30, 2020
Commercial real estate	$	5,049	$	—		$	238	$	12,977	$	18,264
Commercial – specialized		2,287		(959	)		106		4,870		6,304
Commercial – general		9,609		(1,752	)		180		1,952		9,989
Consumer:
1-4 family residential		2,093		(56	)		127		2,520		4,684
Auto loans		3,385		(916	)		140		1,624		4,233
Other consumer		1,341		(1,011	)		352		1,045		1,727
Construction		433		—			1		441		875
Total	$	24,197	$	(4,694	)	$	1,144	$	25,429	$	46,076

Net charge-offs totaled $195 thousand and were 0.03% (annualized) of average loans outstanding for the three months ended September 30, 2021, compared to $621 thousand and 0.10% (annualized) for the three months ended September 30, 2020. Net charge-offs totaled $867 thousand and were 0.05% (annualized) of average loans outstanding for the nine months ended September 30, 2021, compared to $3.6 million and 0.20% (annualized) for the nine months ended September 30, 2020. The decrease in net charge-offs for the year-to-date comparison was primarily the result of a $518 thousand charge-off on a retail commercial relationship in the first quarter of 2020, a $822 thousand charge-off of an acquired direct energy relationship in the second quarter of 2020, and a $451 thousand charge-off of a commercial credit in the third quarter of 2020, as well as other smaller commercial-general charge-offs during 2020. The allowance for loan losses as a percentage of loans held for investment was 1.76% at September 30, 2021 and 2.05% at December 31, 2020.

While the entire allowance for loan losses is available to absorb losses from any part of our loan portfolio, the following table sets forth the allocation of the allowance for loan losses for the periods presented and the percentage of allowance in each classification to total allowance:

	September 30, 2021					December 31, 2020
	Amount		% of Total			Amount		% of Total
	(Dollars in thousands)
Commercial real estate	$	18,248		42.7	%	$	18,962		41.6	%
Commercial – specialized		4,231		9.9			5,760		12.6
Commercial – general		8,171		19.1			9,227		20.3
Consumer:
1-4 family residential		5,201		12.2			4,646		10.2
Auto loans		3,803		8.9			4,226		9.3
Other consumer		1,402		3.2			1,671		3.7
Construction		1,712		4.0			1,061		2.3
Total allowance for loan losses	$	42,768		100.0	%	$	45,553		100.0	%

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Asset Quality

Loans are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 90 days past due. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Typically, the accrual of interest on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently recognized only to the extent that cash is received and the loan’s principal balance is deemed collectible. Loans are restored to accrual status when loans become well-secured and management believes full collectability of principal and interest is probable.

A loan is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include loans on nonaccrual status and performing restructured loans. Income from loans on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectible. Depending on a particular loan’s circumstances, we measure impairment of a loan based upon either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral less estimated costs to sell if the loan is collateral dependent. A loan is considered collateral dependent when repayment of the loan is based solely on the liquidation of the collateral. Fair value, where possible, is determined by independent appraisals, typically on an annual basis. Between appraisal periods, the fair value may be adjusted based on specific events, such as if deterioration of quality of the collateral comes to our attention as part of our problem loan monitoring process, or if discussions with the borrower lead us to believe the last appraised value no longer reflects the actual market for the collateral. The impairment amount on a collateral-dependent loan is charged-off to the allowance if deemed not collectible and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve.

Real estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as other real estate owned (“OREO”) until sold and is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans and loans past due 90 days or more.

	September 30, 2021		December 31, 2020
	(Dollars in thousands)
Nonaccrual loans:
Commercial real estate	$	1,767	$	6,311
Commercial – specialized		293		272
Commercial – general		5,564		5,489
Consumer:
1-4 family residential		2,313		1,595
Auto loans		—		—
Other consumer		46		51
Construction		166		—
Total nonaccrual loans		10,149		13,718
Past due loans 90 days or more and still accruing		747		1,246
Total nonperforming loans		10,896		14,964
Other real estate owned		1,081		1,353
Total nonperforming assets	$	11,977	$	16,317
Restructured loans - nonaccrual(1)	$	299	$	88
Restructured loans - accruing	$	564	$	1,687

(1) Restructured loans, nonaccrual, are included in nonaccrual loans which are a component of nonperforming loans.

In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructuring (“TDR”). Included in certain loan categories of impaired loans are TDRs on which we have granted certain material concessions to the borrower as a result of the borrower experiencing financial difficulties. The concessions granted by us may include, but are not limited to: (1) a modification in which the maturity date, timing of payments or frequency of payments is modified, (2) an interest rate lower than the current market rate for new loans with similar risk, or (3) a combination of the first two factors.

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If a borrower on a restructured accruing loan has demonstrated performance under the previous terms, is not experiencing financial difficulty and shows the capacity to continue to perform under the restructured terms, the loan will remain on accrual status. Otherwise, the loan will be placed on nonaccrual status until the borrower demonstrates a sustained period of performance, which generally requires six consecutive months of payments. Loans identified as TDRs are evaluated for impairment using the present value of the expected cash flows or the estimated fair value of the collateral, if the loan is collateral dependent. The fair value is determined, when possible, by an appraisal of the property less estimated costs related to liquidation of the collateral. The appraisal amount may also be adjusted for current market conditions. Adjustments to reflect the present value of the expected cash flows or the estimated fair value of collateral dependent loans are a component in determining an appropriate allowance for loan losses, and as such, may result in increases or decreases to the provision for loan losses in current and future earnings.

We had no loans restructured as TDRs during the first nine months of 2021 or 2020. TDRs are excluded from our nonperforming loans unless they otherwise meet the definition of nonaccrual loans or past due 90 days or more.

COVID-19 Industry Exposures. The Company’s COVID-19 industry exposures at September 30, 2021 were:

• Restaurant and retail owner-occupied loans totaled $101.6 million, or 4.2% of total loans. The average loan size is $369 thousand. There was $1.9 million in classified loans, $3 thousand in loans past due 30 days or more, and $1.2 million in nonaccrual loans. The related allowance for loan losses to total restaurant and retail owner-occupied loans is 3.07%. As of September 30, 2021, none of these loans were active modifications as a result of the COVID-19 pandemic.

• Hospitality and assisted living center loans totaled $129.4 million, or 5.3% of total loans. The average loan size is $2.8 million. There was $48.2 million in classified loans, no loans past due 30 days or more, and $1.1 million in nonaccrual loans. The related allowance for loan losses to total hospitality and assisted living center loans is 7.55%. As of September 30, 2021, approximately 12% of these loans were active modifications as a result of the COVID-19 pandemic. All of these modifications were interest-only periods of 12 months or a combination of a 90-day deferral and nine months of interest only. The Company expects that these remaining modified loans will return to full payment status at the end of their respective modification period.

Oil and Gas Exposures. The Company’s direct energy sector loans totaled $107.2 million, or 4.4% of total loans, at September 30, 2021. There was $5.9 million in classified loans, $62 thousand in loans past due 30 days or more, and $178 thousand in nonaccrual loans. Management has expanded the monitoring of the loans in this category. The related allowance for loan losses to direct energy loans is 1.66%. As of September 30, 2021, none of these loans were active modifications as a result of the COVID-19 pandemic.

Securities Portfolio

The securities portfolio is the second largest component of the Company’s interest-earning assets, and the structure and composition of this portfolio is important to an analysis of the financial condition of the Company. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning asset when loan demand is weak or when deposits grow more rapidly than loans.

The securities portfolio consists of securities classified as either held-to-maturity or available-for-sale. All held-to-maturity securities are reported at amortized cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. All available-for-sale securities are reported at fair value. Securities available-for-sale consist primarily of state and municipal securities, mortgage-backed securities and U.S. government sponsored agency securities. We determine the appropriate classification at the time of purchase.

Our securities portfolio decreased $50.5 million, or 6.3%, to $752.6 million at September 30, 2021, compared to $803.1 million at December 31, 2020. The decrease was primarily due to $95.0 million in maturities, prepayments, and calls, partially offset by $61.5 million in purchases and a $13.8 million decline in the unrealized gain at September 30, 2021 compared to December 31, 2020.

The following table summarizes the fair value of the securities portfolio as of the dates presented.

	September 30, 2021							December 31, 2020
	Amortized Cost		Fair Value		Unrealized Gain/(Loss)			Amortized Cost		Fair Value		Unrealized Gain/(Loss)
	(Dollars in thousands)
Available-for-sale
U.S. government and agencies	$	—	$	—	$	—		$	4,750	$	4,753	$	3
State and municipal		266,306		275,029		8,723			261,023		272,607		11,584
Mortgage-backed securities		326,022		328,858		2,836			359,542		373,362		13,820
Collateralized mortgage obligations		106,864		106,439		(425	)		107,175		106,715		(460	)
Asset-backed and other amortizing securities		28,117		29,446		1,329			31,509		33,572		2,063
Other securities		12,000		12,790		790			12,000		12,078		78
Total available-for-sale	$	739,309	$	752,562	$	13,253		$	775,999	$	803,087	$	27,088

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Certain securities have fair values less than amortized cost and, therefore, contain unrealized losses. At September 30, 2021, we evaluated the securities which had an unrealized loss for other-than-temporary impairment and determined all declines in value to be temporary. We anticipate full recovery of amortized cost with respect to these securities by maturity, or sooner in the event of a more favorable market interest rate environment. We do not intend to sell these securities and it is not probable that we will be required to sell them before recovery of the amortized cost basis, which may be at maturity.

The following table sets forth certain information regarding contractual maturities and the weighted average yields of our investment securities as of the date presented. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligation with or without call or prepayment penalties.

	As of September 30, 2021
	Due in One Year or Less					Due after One Year Through Five Years					Due after Five Year Through Ten Years					Due after Ten Years
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield
	(Dollars in thousands)
Available-for-sale
U.S. government and agencies	$	—		—	%	$	—		—	%	$	—		—	%	$	—		—	%
State and municipal		1,615		2.58			6,864		2.63			11,918		2.21			245,909		2.24
Mortgage-backed securities		—		—			1,055		1.56			60,913		2.16			264,054		1.91
Collateralized mortgage obligations		—		—			—		—			106,864		0.56			—		—
Asset-backed and other amortizing securities		—		—			—		—			2,439		2.90			25,678		2.81
Other securities		—		—			—		—			12,000		4.47			—		—
Total available-for-sale	$	1,615		1.92	%	$	7,919		2.48	%	$	194,134		1.43	%	$	535,641		2.10	%

	As of December 31, 2020
	Due in One Year or Less					Due after One Year Through Five Years					Due after Five Years Through Ten Years					Due after Ten Years
	Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield			Amortized Cost		Weighted Average Yield
	(Dollars in thousands)
Available-for-sale
U.S. government and agencies	$	4,750		2.75	%	$	—		—		$	—		—	%	$	—		—	%
State and municipal		1,982		11.60			3,397		2.70	%		14,079		2.11			241,565		2.28
Mortgage-backed securities		—		—			577		1.50	%		12,723		1.94			346,242		1.95
Collateralized mortgage obligations		—		—			—		—			—		—			107,175		0.62
Asset-backed and other amortizing securities		—		—			—		—			820		2.89			30,689		2.82
Total available-for-sale	$	6,732		5.35	%	$	3,974		2.52	%	$	39,622		2.78	%	$	725,671		1.90	%

Deposits

Deposits represent the Company’s primary and most vital source of funds. We offer a variety of deposit products including demand deposits accounts, interest-bearing products, savings accounts and certificate of deposits. We put continued effort into gathering noninterest-bearing demand deposit accounts through loan production, customer referrals, marketing staffs, mobile and online banking and various involvements with community networks.

Total deposits at September 30, 2021 were $3.21 billion, representing an increase of $237.9 million, or 8.0%, compared to $2.97 billion at December 31, 2020. The increase in total deposits since December 31, 2020 is primarily due to organic growth, customers depositing funds received from PPP loans and maintaining higher balances, and other government stimulus payments and programs. We anticipate that as customers spend down their PPP loan funds, this may result in a reduction in deposits. As of September 30, 2021, 32.8% of total deposits were comprised of noninterest-bearing demand accounts, 56.8% of interest-bearing non-maturity accounts and 10.4% of time deposits.

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

	September 30, 2021					December 31, 2020
	Amount		% of Total			Amount		% of Total
	(Dollars in thousands)
Noninterest-bearing deposits	$	1,054,264		32.8	%	$	917,322		30.9	%
NOW and other transaction accounts		359,177		11.2			332,829		11.2
Money market and other savings		1,464,376		45.6			1,398,699		47.0
Time deposits		334,428		10.4			325,501		10.9
Total deposits	$	3,212,245		100.0	%	$	2,974,351		100.0	%

The following table sets forth the remaining maturity of time deposits of $100 thousand and greater as of the date indicated:

(Dollars in thousands)	September 30, 2021
Time deposits $100,000 or greater with remaining maturity of:
Three months or less	$	38,767
After three months through six months		35,931
After six months through twelve months		63,696
After twelve months		118,753
Total	$	257,147

Borrowed Funds

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

FHLB Advances. The FHLB allows us to borrow, both short and long-term, on a blanket floating lien status collateralized by first mortgage loans and commercial real estate loans as well as FHLB stock. At September 30, 2021 and December 31, 2020, we had total remaining borrowing capacity from the FHLB of $584.2 million and $512.5 million, respectively.

The following table sets forth our FHLB borrowings as of and for the periods indicated:

	As of/For the Three Months Ended September 30,						As of/For the Nine Months Ended September 30,
	2021			2020			2021			2020
	(Dollars in thousands)
Amount outstanding at end of the period	$	—		$	75,000		$	—		$	75,000
Weighted average interest rate at end of the period		0.00	%		0.21	%		0.00	%		0.21	%
Maximum month-end balance during the period	$	—		$	75,000		$	75,000		$	170,000
Average balance outstanding during the period	$	—		$	95,870		$	26,188		$	116,517
Weighted average interest rate during the period		0.00	%		0.27	%		0.19	%		0.59	%

Federal Reserve Bank of Dallas. The Bank has a line of credit with the Federal Reserve Bank of Dallas (the “FRB”). The amount of the line is determined on a monthly basis by the FRB. The line is collateralized by a blanket floating lien on all agriculture, commercial and consumer loans. The amount of the line was $609.0 million and $700.8 million at September 30, 2021 and December 31, 2020, respectively.

The following table sets forth our FRB borrowings as of and for the periods indicated:

	As of/For the Three Months Ended September 30,						As of/For the Nine Months Ended September 30,
	2021			2020			2021			2020
	(Dollars in thousands)
Amount outstanding at end of the period	$	—		$	—		$	—		$	—
Weighted average interest rate at end of the period		0.00	%		0.00	%		0.00	%		0.00	%
Maximum month-end balance during the period	$	—		$	—		$	—		$	30,000
Average balance outstanding during the period	$	—		$	—		$	—		$	1,209
Weighted average interest rate during the period		0.00	%		0.00	%		0.00	%		0.29	%

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Lines of Credit. The Bank has uncollateralized lines of credit with multiple banks as a source of funding for liquidity management. The total amount of the lines was $796.0 million and $799.3 million as of September 30, 2021 and December 31, 2020, respectively. The lines were not used during the three or nine month periods ended September 30, 2021 or the three or nine month periods ending September 30, 2020.

Subordinated Debt Securities. In December 2018, the Company issued $26.5 million in subordinated debt securities. Securities totaling $12.4 million have a maturity date of December 2028 and an average fixed rate of 5.74% for the first five years. The remaining $14.1 million of securities have a maturity date of December 2030 and an average fixed rate of 6.41% for the first seven years. After the fixed rate periods, all securities will float at the Wall Street Journal prime rate, with a floor of 4.5% and a ceiling of 7.5%. These securities pay interest quarterly, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these securities are intended to qualify for tier 2 capital treatment, subject to regulatory limitations.

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

The balance of subordinated debt securities as of September 30, 2021 and December 31, 2020 was $75.7 million and $75.6 million, respectively.

Junior Subordinated Deferrable Interest Debentures and Trust Preferred Securities. Between March 2004 and June 2007, the Company formed three wholly-owned statutory business trusts solely for the purpose of issuing trust preferred securities, the proceeds of which were invested in junior subordinated deferrable interest debentures. The trusts are not consolidated and the debentures issued by the Company to the trusts are reflected in the Company’s consolidated balance sheets. The Company records interest expense on the debentures in its consolidated financial statements. The amount of debentures outstanding was $46.4 million at September 30, 2021 and December 31, 2020. The Company has the right, as has been exercised in the past, to defer payments of interest on the securities for up to twenty consecutive quarters. During such time, corporate dividends may not be paid. The Company is current in its interest payments on the debentures.

The chart below indicates certain information about each of the statutory trusts and the junior subordinated deferrable interest debentures, including the date the junior subordinated deferrable interest debentures were issued, outstanding amounts of trust preferred securities and junior subordinated deferrable interest debentures, the maturity date of the junior subordinated deferrable interest debentures, the interest rates on the junior subordinated deferrable interest debentures and the investment banker.

Name of Trust	Issue Date	Amount of Trust Preferred Securities		Amount of Debentures		Stated Maturity Date of Trust Preferred Securities and Debentures(1)		Interest Rate of Trust Preferred Securities and Debentures(2)(3)
	(Dollars in thousands)
South Plains Financial Capital Trust III	2004	$	10,000	$	10,310		2034	3-mo. LIBOR + 265 bps; 2.82%
South Plains Financial Capital Trust IV	2005		20,000		20,619		2035	3-mo. LIBOR + 139 bps; 1.51%
South Plains Financial Capital Trust V	2007		15,000		15,464		2037	3-mo. LIBOR + 150 bps; 1.62%
Total		$	45,000	$	46,393

(1) May be redeemed at the Company’s option.

(2) Interest payable quarterly with principal due at maturity.

(3) Rate as of last reset date, prior to September 30, 2021.

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Liquidity and Capital Resources

Liquidity

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Interest rate sensitivity involves the relationships between rate-sensitive assets and liabilities and is an indication of the probable effects of interest rate fluctuations on the Company’s net interest income. Interest rate-sensitive assets and liabilities are those with yields or rates that are subject to change within a future time period due to maturity or changes in market rates. The model is used to project future net interest income under a set of possible interest rate movements. The Company’s Investment/Asset Liability Committee (the “ALCO Committee”), reviews this information to determine if the projected future net interest income levels would be acceptable. The Company attempts to stay within acceptable net interest income levels.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB advances, and the FRB discount window. At September 30, 2021, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $584.2 million and the capacity to borrow from the FRB discount window of approximately $609.0 million. The FRB has also lowered the primary credit rate to 0.25% and extended the term to 90 days to enhance liquidity and encourage use of the FRB discount window. In addition, the Company maintains overnight fed fund purchase arrangements with correspondent banks.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis. Management believes that these sources of liquidity will provide adequate funding and liquidity to address the economic uncertainties caused by the ongoing COVID-19 pandemic. However, during this period management is closely monitoring the Company’s potential liquidity needs, and if general economic conditions, the COVID-19 pandemic, or other events cause these sources of liquidity to become restricted or are eliminated, the Company may not be able to raise adequate funds or may incur substantially higher funding costs or operating restrictions in order to raise the necessary funds to support the Company’s operations and growth.

Capital Requirements

Total shareholders’ equity increased to $398.3 million as of September 30, 2021, compared to $370.0 million as of December 31, 2020, an increase of $28.2 million, or 7.6%. The increase from December 31, 2020 was primarily the result of $44.0 million in net earnings for the nine months ended September 30, 2021, partially offset by a decrease in accumulated other comprehensive income of $7.0 million, net of tax, repurchases of common stock of $6.1 million and $3.8 million of dividends paid.

We are subject to various regulatory capital requirements administered by the federal and state banking regulators. Failure to meet regulatory capital requirements may result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. In July 2013, the Board of Governors of the Federal Reserve System published final rules for the adoption of the Basel III regulatory capital framework (“Basel III”). Under the Basel III capital adequacy guidelines and the regulatory framework for “prompt corrective action,” we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting policies. The capital amounts and classifications are subject to qualitative judgments by the federal banking regulators about components, risk weightings and other factors. Qualitative measures established by regulation to ensure capital adequacy required us to maintain minimum amounts and ratio of common equity tier 1 (“CET1”) capital, tier 1 capital and total capital to risk-weighted assets and of tier 1 capital to average consolidated assets, referred to as the “leverage ratio.”

The risk-based capital ratios measure the adequacy of a bank’s capital against the riskiness of its assets and off-balance sheet activities. Failure to maintain adequate capital is a basis for “prompt corrective action” or other regulatory enforcement action. In assessing a bank’s capital adequacy, regulators also consider other factors such as interest rate risk exposure; liquidity, funding and market risks; quality and level of earnings; concentrations of credit, quality of loans and investments; risks of any nontraditional activities; effectiveness of bank policies; and management’s overall ability to monitor and control risks.

At September 30, 2021, both the Company and the Bank met all the capital adequacy requirements to which the Company and the Bank were subject. At September 30, 2021, the Bank was “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since September 30, 2021 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support the Company’s and the Bank’s further growth and to maintain our “well capitalized” status.

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The following table presents the Company’s and the Bank’s regulatory capital ratios as of the dates indicated.

	September 30, 2021					December 31, 2020
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
South Plains Financial, Inc.:
Total capital (to risk-weighted assets)	$	514,327		18.19	%	$	473,425		19.08	%
Tier 1 capital (to risk-weighted assets)		403,159		14.26			366,639		14.78
CET1 capital (to risk-weighted assets)		358,159		12.67			321,639		12.96
Tier 1 capital (to average assets)		403,159		10.83			366,639		10.24
City Bank:
Total capital (to risk-weighted assets)	$	421,458		14.91	%	$	404,138		16.29	%
Tier 1 capital (to risk-weighted assets)		386,026		13.65			372,947		15.03
CET1 capital (to risk-weighted assets)		386,026		13.65			372,947		15.03
Tier 1 capital (to average assets)		386,026		10.38			372,947		10.42

Community Bank Leverage Ratio

On September 17, 2019, the federal banking agencies jointly finalized a rule to be effective January 1, 2020 and intended to simplify the regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio (“CBLR”) framework, as required by Section 201 of the EGRRCPA. The final rule became effective on January 1, 2020, and the CBLR framework became available for banks to use beginning with their March 31, 2020 Call Reports. Under the final rule, if a qualifying community banking organization opts into the CBLR framework and meets all requirements under the framework, it will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations described above and will not be required to report or calculate risk-based capital. In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. However, Section 4012 of the CARES Act required that the CBLR be temporarily lowered to 8%. The federal regulators issued a rule implementing the lower CBLR effective April 23, 2020. The rule also established a two-quarter grace period for a qualifying institution whose leverage ratio falls below the 8% CBLR requirement so long as the bank maintains a leverage ratio of 7% or greater. Another rule was issued to transition back to the 9% CBLR by increasing the ratio to 8.5% for calendar year 2021 and 9% thereafter. Although the Company and the Bank are qualifying community banking organizations, the Company and the Bank have elected not to opt in to the CBLR framework at this time and will continue to follow the Basel III capital requirements as described above.

Treasury Stock

The Company repurchased stock in accordance with its stock repurchase program during 2021. These shares were retired immediately upon repurchase and not included in treasury stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” of this Form 10-Q for further information.

Off-Balance Sheet Arrangements

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company uses the same credit policies in making commitments and conditional obligations as they do for on-balance sheet instruments. The amount and nature of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the potential borrower.

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Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private short-term borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral supporting those commitments for which collateral is deemed necessary.

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

	September 30, 2021		December 31, 2020
	(Dollars in thousands)
Commitments to grant loans and unfunded commitments under lines of credit	$	547,738	$	417,798
Standby letters of credit		12,420		10,481
Total	$	560,158	$	428,279

We may use our line of credit with the FHLB to take out letters of credit and to be pledged as collateral for certain public fund deposits. These letters of credit are off-balance sheet liabilities and would only be funded in the event of a default by the Company. See “Borrowed Funds - FHLB Advances” herein for a discussion for amounts of letters of credit.

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate cash levels. We expect to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities. We have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Interest Rate Sensitivity and Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our interest rate risk policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the ALCO Committee, in accordance with policies approved by the Bank’s board of directors. The ALCO Committee formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, the ALCO Committee considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. The ALCO Committee meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, commitments to originate loans and the maturities of investments and borrowings. Additionally, the ALCO Committee reviews liquidity, cash flow flexibility, maturities of deposits and consumer and commercial deposit activity. Management employs methodologies to manage interest rate risk, which include an analysis of relationships between interest-earning assets and interest-bearing liabilities and an interest rate shock simulation model.

We use interest rate risk simulation models and shock analyses to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model. The average lives of non-maturity deposit accounts are based on decay assumptions and are incorporated into the model. All of the assumptions used in our analyses are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

On a quarterly basis, we run a simulation model for a static balance sheet and other scenarios. These models test the impact on net interest income from changes in market interest rates under various scenarios. Under the static model, rates are shocked instantaneously and ramped rates change over a 12-month and 24-month horizon based upon parallel and non-parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulation involves analysis of interest income and expense under various changes in the shape of the yield curve. Our internal policy regarding internal rate risk simulations currently specifies that for gradual parallel shifts of the yield curve, estimated net interest income at risk for the subsequent one-year period should not decline by more than 7.5% for a 100 basis point shift, 15% for a 200 basis point shift, and 22.5% for a 300 basis point shift.

45

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

	September 30, 2021			December 31, 2020
Change in Interest Rates (Basis Points)	Percent Change in Net Interest Income			Percent Change in Net Interest Income
+300		5.50	%		5.33	%
+200		3.58	%		2.90	%
+100		1.57	%		1.06	%
-100		(0.91	)%		(1.24	)%

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this Form 10-Q have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

Critical Accounting Policies and Estimates

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgments inherent in those policies, are critical in understanding our financial statements.

The Jumpstart Our Business Startups Act (the “JOBS Act”) permits us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this Form 10-Q, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

The following is a discussion of the critical accounting policies and significant estimates that we believe require us to make the most complex or subjective decisions or assessments. Additional information about these policies can be found in Note 1 of the Company’s consolidated financial statements as of September 30, 2021.

Basis of Presentation and Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents. The Company includes all cash on hand, balances due from other banks, and Federal funds sold, all of which have original maturities within three months, as cash and cash equivalents.

Securities. Investment securities may be classified into trading, held-to-maturity, or available-for-sale portfolios. Securities that are held principally for resale in the near term are classified as trading. Securities that management has the ability and positive intent to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Securities not classified as trading or held-to-maturity are available-for-sale and are reported at fair value with unrealized gains and losses excluded from earnings, but included in the determination of other comprehensive income. Management uses these assets as part of its asset/liability management strategy; they may be sold in response to changes in liquidity needs, interest rates, resultant prepayment risk changes, and other factors. Management determines the appropriate classification of securities at the time of purchase. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses and declines in value judged to be other than temporary are included in gain or loss on sale of securities. The cost of securities sold is based on the specific identification method.

46

Loans. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.

Loans are placed on non-accrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and general valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, judgmentally adjusted for general economic conditions and other qualitative risk factors internal and external to the Company.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. The Bank’s loans are generally secured by specific items of collateral including real property, crops, livestock, consumer assets, and other business assets.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250 thousand are specifically reviewed to determine if they are impaired. Factors considered by management in determining whether a loan is impaired include payment status and the sources, amounts, and probabilities of estimated cash flow available to service debt in relation to amounts due according to contractual terms. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans that are determined to be impaired are then evaluated to determine estimated impairment, if any. GAAP allows impairment to be measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Loans that are not individually determined to be impaired or are not subject to the specific review of impaired status are subject to the general valuation allowance portion of the allowance for loan loss.

Loans Held for Sale. Loans held for sale are comprised of residential mortgage loans. Loans that are originated for best efforts delivery are carried at the lower of aggregate cost or fair value as determined by aggregate outstanding commitments from investors or current investor yield requirements. All other loans held for sale are carried at fair value. Loans sold are typically subject to certain indemnification provisions with the investor; management does not believe these provisions will have any significant consequences.

Goodwill and Other Intangible Assets. Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for impairment at least annually or more frequently if events and circumstances exist that indicate that an impairment test should be performed. Intangible assets with definite lives are amortized over their estimated useful lives.

47

Recently Issued Accounting Pronouncements

See Note 1, Summary of Significant Accounting Policies, in the notes to the consolidated financial statements included elsewhere in this Form 10-Q regarding the impact of new accounting pronouncements which we have adopted.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

The Company manages market risk, which, as a financial institution is primarily interest rate volatility, through the ALCO Committee of the Bank, in accordance with policies approved by its board of directors. The Company uses an interest rate risk simulation model and shock analysis to test the interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Interest Rate Sensitivity and Market Risk” herein for a discussion of how we manage market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) were effective as of the end of the period covered by this Form 10-Q.

Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are subject to various legal actions, as described in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) filed with the SEC on March 11, 2021. Except as described above or in our 2020 Annual Report on Form 10-K, we are not presently involved in any other 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 1A. Risk Factors

In evaluating an investment in any of our securities, investors should consider carefully, among other things, information under the heading “Cautionary Notice Regarding Forward-Looking Statements” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q and the risk factors previously disclosed under the heading “Risk Factors” in Part I, Item 1A of our 2020 Annual Report on Form 10-K. There have been no material changes in the risk factors disclosed by the Company in the 2020 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On March 13, 2020, the Company 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”). The shares may 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 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, applicable legal requirements and other factors. The Program may be terminated or amended by the Company’s board of directors at any time prior to the expiration date. On April 16, 2020, the Company announced a temporary suspension of the Program in light of the uncertainties presented by the COVID-19 pandemic and surrounding events. However, as announced on November 2, 2020, the Company resumed the Program. While the Program originally had an expiration date of April 15, 2021, the Company’s board of directors extended the expiration of the Program to November 5, 2021, subject to certain limitations and conditions.

On October 29, 2021, the Company’s board of directors approved a new stock repurchase program, effective November 6, 2021, 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 Repurchase Program”). The shares may be repurchased from time to time in privately negotiated transactions or the open market, including pursuant to a Rule 10b5-1 trading plan adopted by the Company, and in accordance with applicable regulations of the SEC. The Company is not obligated to purchase any shares of its common stock under the New Repurchase Program, and the 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, applicable legal requirements and other factors. The New Repurchase Program has an expiration date of November 6, 2022. The New Repurchase Program may be terminated or amended by the Company’s board of directors at any time prior to the expiration date. The stock repurchase program currently in place will expire prior to the New Repurchase Program becoming effective. Any remaining shares under such expiring stock repurchase program will not be rolled into the New Repurchase Program.

The following table summarizes the share repurchase activity for the three months ended September 30, 2021.

	Total Shares Repurchased		Average Price Paid Per Share		Total Dollar Amount Purchased Pursuant to Publicly-Announced Plan		Maximum Dollar Amount Remaining Available for Repurchase Pursuant to Publicly-Announced Plan
July 2021		46,140	$	23.28	$	1,074,143	$	6,958,288
August 2021		83,663		23.15		1,936,597		5,021,691
September 2021		60,501		23.02		1,392,539		3,629,152
Total		190,304

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

49

Item 6. Exhibits

Exhibit Number	Description
3.1	Amended and Restated Certificate of Formation of South Plains Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 filed with the SEC on April 12, 2019) (File No. 333-230851).
3.2	Amended and Restated Bylaws of South Plains Financial, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2021) (File No. 001-38895).
31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following material from South Plains Financial, Inc.’s Form 10-Q for the quarter ended September 30, 2021, formatted in XBRL (eXtensible Business Reporting Language), filed herewith: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Changes in Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Consolidated Financial Statements.

* Filed with this Form 10-Q

** Furnished with this Form 10-Q

50

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		South Plains Financial, Inc.
Date:	November 4, 2021	By:	/s/ Curtis C. Griffith
			Curtis C. Griffith
			Chairman and Chief Executive Officer
Date:	November 4, 2021	By:	/s/ Steven B. Crockett
			Steven B. Crockett
			Chief Financial Officer and Treasurer

51

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Curtis C. Griffith, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of South Plains Financial, Inc. (the “registrant”) for the quarter ended September 30, 2021 (this “report”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2021	By:	/s/ Curtis C. Griffith
		Curtis C. Griffith
		Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven B. Crockett, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of South Plains Financial, Inc. (the “registrant”) for the quarter ended September 30, 2021 (this “report”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2021	By:	/s/ Steven B. Crockett
		Steven B. Crockett
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of South Plains Financial, Inc. (the “Company”) for the quarter ended September 30, 2021 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 4, 2021	By:	/s/ Curtis C. Griffith
		Curtis C. Griffith
		Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of South Plains Financial, Inc. (the “Company”) for the quarter ended September 30, 2021 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 4, 2021	By:	/s/ Steven B. Crockett
		Steven B. Crockett
		Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 03, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Document Transition Report	false
Entity File Number	001-38895
Entity Registrant Name	South Plains Financial, Inc.
Entity Central Index Key	0001163668
Entity Incorporation, State or Country Code	TX
Entity Tax Identification Number	75-2453320
Entity Address, Address Line One	5219 City Bank Parkway
Entity Address, City or Town	Lubbock
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	79407
City Area Code	806
Local Phone Number	792-7101
Title of 12(b) Security	Common Stock, $1.00 par value per share
Trading Symbol	SPFI
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		17,789,192

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
ASSETS
Cash and due from banks	$ 62,638	$ 76,146
Interest-bearing deposits in banks	264,962	224,161
Cash and cash equivalents	327,600	300,307
Securities available for sale	752,562	803,087
Loans held for sale	90,880	111,477
Loans held for investment	2,429,041	2,221,583
Allowance for loan losses	(42,768)	(45,553)
Accrued interest receivable	11,778	15,233
Premises and equipment, net	59,056	60,331
Bank-owned life insurance	71,676	70,731
Goodwill	19,508	19,508
Intangible assets, net	6,296	7,562
Mortgage servicing rights	18,122	9,049
Deferred tax asset, net	2,598	2,461
Other assets	27,826	23,384
Total assets	3,774,175	3,599,160
Deposits:
Noninterest-bearing	1,054,264	917,322
Interest-bearing	2,157,981	2,057,029
Total deposits	3,212,245	2,974,351
Short-term borrowings	0	26,550
Accrued expenses and other liabilities	41,533	31,229
Notes payable & other borrowings	0	75,000
Subordinated debt securities	75,728	75,589
Junior subordinated deferrable interest debentures	46,393	46,393
Total liabilities	3,375,899	3,229,112
Stockholders' equity:
Common stock, $1.00 par value per share, 30,000,000 shares authorized; 17,824,094 and 18,076,364 issued and outstanding at September 30, 2021 and December 31, 2020, respectively	17,824	18,076
Additional paid-in capital	136,401	141,112
Retained earnings	229,737	189,521
Accumulated other comprehensive income	14,314	21,339
Total stockholders' equity	398,276	370,048
Total liabilities and stockholders' equity	$ 3,774,175	$ 3,599,160

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2021	Dec. 31, 2020
Stockholders' equity:
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	30,000,000	30,000,000
Common stock, shares issued (in shares)	17,824,094	18,076,364
Common stock, shares outstanding (in shares)	17,824,094	18,076,364

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Interest income:
Loans, including fees	$ 30,818	$ 30,724	$ 89,458	$ 91,600
Securities:
Taxable	2,346	2,678	7,219	9,628
Non taxable	1,160	1,061	3,487	2,399
Federal funds sold and interest-bearing deposits in banks	114	40	272	620
Total interest income	34,438	34,503	100,436	104,247
Interest expense:
Deposits	2,030	2,517	6,373	9,560
Notes payable & other borrowings	0	68	43	620
Subordinated debt securities	1,013	403	3,044	1,210
Junior subordinated deferrable interest debentures	217	242	661	937
Total interest expense	3,260	3,230	10,121	12,327
Net interest income	31,178	31,273	90,315	91,920
Provision for loan losses	0	6,062	(1,918)	25,429
Net interest income, after provision for loan losses	31,178	25,211	92,233	66,491
Noninterest income:
Service charges on deposit accounts	1,851	1,749	5,023	5,171
Income from insurance activities	3,794	3,303	6,146	5,484
Net gain on sales of loans	12,848	20,942	41,108	47,279
Bank card services and interchange fees	3,045	2,608	8,760	7,190
Realized gain on sale of securities	0	0	0	2,318
Investment commissions	430	441	1,390	1,261
Fiduciary fees	556	781	2,234	2,386
Other	3,267	1,836	9,880	4,342
Total noninterest income	25,791	31,660	74,541	75,431
Noninterest expense:
Salaries and employee benefits	24,116	23,672	71,811	66,103
Occupancy and equipment, net	3,896	3,710	10,960	10,896
Professional services	1,388	1,177	4,483	4,710
Marketing and development	777	615	2,157	2,189
IT and data services	1,068	843	3,029	2,769
Bank card expenses	1,339	1,095	3,640	3,164
Appraisal expenses	790	744	2,350	1,837
Other	4,689	4,137	13,468	13,543
Total noninterest expense	38,063	35,993	111,898	105,211
Income before income taxes	18,906	20,878	54,876	36,711
Income tax expense	3,716	4,147	10,876	7,282
Net income	$ 15,190	$ 16,731	$ 44,000	$ 29,429
Earnings per share:
Basic (in dollars per share)	$ 0.85	$ 0.93	$ 2.44	$ 1.63
Diluted (in dollars per share)	$ 0.82	$ 0.92	$ 2.38	$ 1.61
Net income	$ 15,190	$ 16,731	$ 44,000	$ 29,429
Other comprehensive income (loss):
Change in net unrealized gain (loss) on securities available for sale	(5,964)	(1,418)	(13,835)	26,584
Change in net gain (loss) on cash flow hedges	760	430	4,943	(1,728)
Reclassification adjustment for (gain) loss included in net income	0	0	0	(2,318)
Tax effect	1,093	207	1,867	(4,733)
Other comprehensive income (loss)	(4,111)	(781)	(7,025)	17,805
Comprehensive income	$ 11,079	$ 15,950	$ 36,975	$ 47,234

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2019	$ 18,036	$ 140,492	$ 146,696	$ 958	$ 306,182
Balance (in shares) at Dec. 31, 2019	18,036,115
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 0	0	29,429	0	29,429
Cash dividends declared	0	0	(1,624)	0	(1,624)
Other comprehensive income (loss), net of tax	0	0	0	17,805	17,805
Exercise of employee stock options and vesting of restricted stock units	$ 28	(157)	0	0	(129)
Exercise of employee stock options and vesting of restricted stock units (in shares)	27,759
Repurchases of common stock	$ (5)	(56)	0	0	(61)
Repurchases of common stock (in shares)	(4,700)
Stock based compensation	$ 0	966	0	0	966
Balance at Sep. 30, 2020	$ 18,059	141,245	174,501	18,763	352,568
Balance (in shares) at Sep. 30, 2020	18,059,174
Balance at Jun. 30, 2020	$ 18,059	140,620	158,311	19,544	336,534
Balance (in shares) at Jun. 30, 2020	18,059,174
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 0	0	16,731	0	16,731
Cash dividends declared	0	0	(541)	0	(541)
Other comprehensive income (loss), net of tax	0	0	0	(781)	(781)
Repurchases of common stock	$ 0	0	0	0	0
Repurchases of common stock (in shares)	0
Stock based compensation	$ 0	625	0	0	625
Balance at Sep. 30, 2020	$ 18,059	141,245	174,501	18,763	352,568
Balance (in shares) at Sep. 30, 2020	18,059,174
Balance at Dec. 31, 2020	$ 18,076	141,112	189,521	21,339	$ 370,048
Balance (in shares) at Dec. 31, 2020	18,076,364				18,076,364
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 0	0	44,000	0	$ 44,000
Cash dividends declared	0	0	(3,784)	0	(3,784)
Other comprehensive income (loss), net of tax	0	0	0	(7,025)	(7,025)
Exercise of employee stock options and vesting of restricted stock units	$ 21	(127)	0	0	(106)
Exercise of employee stock options and vesting of restricted stock units (in shares)	20,552
Repurchases of common stock	$ (273)	(5,809)	0	0	(6,082)
Repurchases of common stock (in shares)	(272,822)
Stock based compensation	$ 0	1,225	0	0	1,225
Balance at Sep. 30, 2021	$ 17,824	136,401	229,737	14,314	$ 398,276
Balance (in shares) at Sep. 30, 2021	17,824,094				17,824,094
Balance at Jun. 30, 2021	$ 18,014	140,212	216,164	18,425	$ 392,815
Balance (in shares) at Jun. 30, 2021	18,014,398
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 0	0	15,190	0	15,190
Cash dividends declared	0	0	(1,617)	0	(1,617)
Other comprehensive income (loss), net of tax	0	0	0	(4,111)	(4,111)
Repurchases of common stock	$ (190)	(4,214)	0	0	(4,404)
Repurchases of common stock (in shares)	(190,304)
Stock based compensation	$ 0	403	0	0	403
Balance at Sep. 30, 2021	$ 17,824	$ 136,401	$ 229,737	$ 14,314	$ 398,276
Balance (in shares) at Sep. 30, 2021	17,824,094				17,824,094

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [Abstract]
Cash dividends, common (in dollars per share)	$ 0.09	$ 0.03	$ 0.21	$ 0.09
Exercise of employee stock options, shares for cashless exercise (in shares)			2,906	17,178
Exercise of employee stock options, shares for taxes (in shares)			5,013	7,608

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities:
Net income	$ 44,000	$ 29,429
Adjustments to reconcile net income to net cash from operating activities:
Provision for loan losses	(1,918)	25,429
Depreciation and amortization	4,837	4,935
Accretion and amortization	3,399	2,064
Other gains, net	(139)	(2,529)
Net gain on sales of loans	(41,108)	(47,279)
Proceeds from sales of loans held for sale	1,243,380	998,367
Loans originated for sale	(1,189,693)	(985,149)
Earnings on bank-owned life insurance	(945)	(1,004)
Stock based compensation	1,225	966
Change in valuation of mortgage servicing rights	(1,055)	2,081
Net change in:
Accrued interest receivable and other assets	1,509	(4,134)
Accrued expenses and other liabilities	14,209	10,669
Net cash from operating activities	77,701	33,845
Activity in securities available for sale:
Purchases	(61,548)	(158,291)
Sales	0	94,514
Maturities, prepayments, and calls	94,978	69,618
Loan originations and principal collections, net	(209,047)	(150,579)
Cash paid for acquisition	0	(687)
Goodwill adjustment related to litigation settlement	0	460
Purchases of premises and equipment, net	(2,319)	(3,159)
Proceeds from sales of premises and equipment	108	192
Proceeds from sales of foreclosed assets	1,048	2,068
Net cash from investing activities	(176,780)	(145,864)
Cash flows from financing activities:
Net change in deposits	237,894	246,945
Net change in short-term borrowings	(26,550)	(29,400)
Proceeds from subordinated debt issuance, net	0	49,074
Proceeds from notes payable & other borrowings	0	75,000
Payments to tax authorities for stock-based compensation	(106)	(129)
Payments made on notes payable and other borrowings	(75,000)	(95,000)
Cash dividends on common stock	(3,784)	(1,624)
Payments to repurchase common stock	(6,082)	(61)
Net cash from financing activities	126,372	244,805
Net change in cash and cash equivalents	27,293	132,786
Beginning cash and cash equivalents	300,307	158,099
Ending cash and cash equivalents	327,600	290,885
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowed funds	10,774	12,956
Income taxes paid	8,842	8,719
Supplemental schedule of noncash activities:
Loans transferred to foreclosed assets	722	1,468
Additions to mortgage servicing rights	$ 8,018	$ 6,589

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations – South Plains Financial, Inc. (“SPFI”) is a Texas corporation and registered bank holding company that conducts its principal activities through its subsidiaries from offices located throughout Texas and Eastern New Mexico. Principal activities include commercial and retail banking, along with insurance, investment, trust, and mortgage services. The following are subsidiaries of SPFI:

Wholly Owned, Consolidated Subsidiaries:
City Bank	Bank subsidiary
Windmark Insurance Agency, Inc. (“Windmark”)	Non-bank subsidiary
Ruidoso Retail, Inc.	Non-bank subsidiary
CB Provence, LLC	Non-bank subsidiary
CBT Brushy Creek, LLC	Non-bank subsidiary
CBT Properties, LLC	Non-bank subsidiary
Wholly Owned, Equity Method Subsidiaries:
South Plains Financial Capital Trusts (SPFCT) III-V	Non-bank subsidiaries

Basis of Presentation and Consolidation – The consolidated financial statements in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this “Form 10-Q”) include the accounts of SPFI and its wholly owned consolidated subsidiaries (collectively referred to as the “Company”) identified above. All significant intercompany balances and transactions have been eliminated in consolidation.

The interim consolidated financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Determination of the adequacy of the allowance for loan losses is a material estimate that is particularly susceptible to significant change in the near term; the assumptions used in stock-based compensation, the valuation of foreclosed assets, and fair values of financial instruments can also involve significant management estimates.

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.

Loans are placed on nonaccrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses – The allowance for loan losses is established by management as an estimate to cover probable credit losses through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and general valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, judgmentally adjusted for general economic conditions and other qualitative risk factors internal and external to the Company.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in the Company’s loan portfolio in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. Loans originated by the bank subsidiary are generally secured by specific items of collateral including real property, crops, livestock, consumer assets, and other business assets.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the bank subsidiary to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250 thousand are specifically reviewed to determine if they are impaired. Factors considered by management in determining whether a loan is impaired include payment status and the sources, amounts, and probabilities of estimated cash flow available to service debt in relation to amounts due according to contractual terms. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans that are determined to be impaired are then evaluated to determine estimated impairment, if any. GAAP allows impairment to be measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Loans that are not individually determined to be impaired or are not subject to the specific review of impaired status are subject to the general valuation allowance portion of the allowance for loan loss.

The Company may modify its loan agreement with a borrower. The modification will be considered a troubled debt restructuring (“TDR”) if the following criteria are met: (1) the borrower is experiencing a financial difficulty and (2) the Company makes a concession that it would not otherwise make. Concessions may include debt forgiveness, interest rate change, or maturity extension. Each of these loans is impaired and is evaluated for impairment, with a specific reserve recorded as necessary based on probable losses related to collateral and cash flow. A loan will no longer be required to be reported as restructured in calendar years following the restructure if the interest rate at the time of restructure is greater than or equal to the rate the Company was willing to accept for a new extension of credit with similar risk and the loan is in compliance with its modified terms.

Acquired Loans – Loans that the Company acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, the Company then establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Goodwill and Other Intangible Assets – Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for impairment on October 31 of each year or more frequently if events and circumstances exist that indicate that an impairment test should be performed. There was no impairment recorded for the nine-month period ended September 30, 2021 and the year ended December 31, 2020, respectively.

Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposit relationships acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. Significantly all CDI is amortized using the sum of the years’ digits method.

The remaining other intangible assets consist of customer relationship and employment agreement intangible assets and are amortized over their estimated useful lives of 5 years using the straight-line method.

Stock-Based Compensation – The Company sponsors an equity incentive plan under which options to acquire shares of the Company’s common stock may be granted periodically to all full-time employees and directors of the Company or its affiliates at a specific exercise price. Shares are issued out of authorized and unissued common shares that have been reserved for issuance under such plan. Compensation cost is measured based on the estimated fair value of the award at the grant date and is recognized in earnings on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the date of grant using a closed form option valuation (“Black-Scholes”) option pricing model. This model requires assumptions as to the expected stock volatility, dividends, terms and risk-free rates. The expected volatility is based on the combination of the Company’s historical volatility and the volatility of comparable peer banks. The expected term represents the period of time that options are expected to be outstanding from the grant date. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the appropriate life of each stock option.

Recent Accounting Pronouncements – FASB ASC constitutes GAAP for nongovernmental entities. Updates to ASC are prescribed in Accounting Standards Updates (“ASU”), which are not authoritative until incorporated into ASC.

ASU 2021-01, Reference Rate Reform (Topic 848). In January 2021, the FASB issued ASU No. 2021-01 to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. This update additionally clarified that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. This update was effective upon issuance and generally can be applied through December 31, 2022. See the discussion regarding the adoption of ASU 2020-04 below.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU No. 2020-04 and it provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This update applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact the Company’s consolidated financial statements.

ASU 2019-12, Income Taxes, Simplifying the Accounting for Income Taxes (Topic 740). In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material effect on the Company’s financial statements.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU simplifies the accounting for goodwill impairment for all entities by eliminating Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company elected to early adopt ASU 2017-04 on January 1, 2020, and it did not have a material impact on its financial statements.

ASU 2016-13 Financial Instruments - Credit Losses (Topic 326). The FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity securities, and debt securities. ASU 2016-13 is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact adoption of ASU 2016-13 and the CECL methodology for estimating the allowance for credit losses will have on its consolidated operating results and financial condition.

ASU 2016-02 Leases (Topic 842). The FASB amended existing guidance that requires that lessees recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company is in the process of determining the effect of the standard on its consolidated operating results and financial condition. These amendments are effective for the Company for annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

Subsequent Events – The Company has evaluated subsequent events and transactions from September 30, 2021 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP. In October 2021, the Company’s board of directors approved a new stock repurchase program in which the Company may purchase up to $10.0 million of its outstanding shares of common stock. Any remaining shares under the Company's existing program, which expires on November 5, 2021, will not be rolled into the new program.

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SECURITIES

9 Months Ended

Sep. 30, 2021

SECURITIES [Abstract]

SECURITIES

2.  SECURITIES

The amortized cost and fair value of securities are shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
Available for sale:
U.S. government and agencies	$	—	$	—	$	—		$	—
State and municipal		266,306		9,273		(550	)		275,029
Mortgage-backed securities		326,022		6,342		(3,506	)		328,858
Collateralized mortgage obligations		106,864		—		(425	)		106,439
Asset-backed and other amortizing securities		28,117		1,329		—			29,446
Other securities		12,000		790		—			12,790
	$	739,309	$	17,734	$	(4,481	)	$	752,562

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2020
Available for sale:
U.S. government and agencies	$	4,750	$	3	$	—		$	4,753
State and municipal		261,023		11,704		(120	)		272,607
Mortgage-backed securities		359,542		14,014		(194	)		373,362
Collateralized mortgage obligations		107,175		—		(460	)		106,715
Asset-backed and other amortizing securities		31,509		2,063		—			33,572
Other securities		12,000		91		(13	)		12,078
	$	775,999	$	27,875	$	(787	)	$	803,087

The amortized cost and fair value of securities at September 30, 2021 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities are shown separately since they are not due at a single maturity date.

	Available for Sale
	Amortized Cost		Fair Value
Within 1 year	$	1,615	$	1,640
After 1 year through 5 years		6,864		7,256
After 5 years through 10 years		23,918		25,227
After 10 years		245,909		253,697
Other		461,003		464,742
	$	739,309	$	752,562

At both September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity.

Securities with a carrying value of approximately $486.0 million and $292.2 million at September 30, 2021 and December 31, 2020, respectively, were pledged to collateralize public deposits and for other purposes as required or permitted by law.

The following table segregates securities with unrealized losses at the periods indicated, by the duration they have been in a loss position:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		52,939		550		—		—		52,939		550
Mortgage-backed securities		66,197		1,285		54,630		2,221		120,827		3,506
Collateralized mortgage obligations		106,439		425		—		—		106,439		425
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		—		—		—		—		—		—
	$	225,575	$	2,260	$	54,630	$	2,221	$	280,205	$	4,481
December 31, 2020
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		—		120		—		—		—		120
Mortgage-backed securities		93,482		194		—		—		93,482		194
Collateralized mortgage obligations		106,715		460		—		—		106,715		460
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		3,486		13		—		—		3,486		13
	$	203,683	$	787	$	—	$	—	$	203,683	$	787

There were 29 securities with an unrealized loss at September 30, 2021. Management does not believe that these losses are other than temporary as there is no intent to sell any of these securities before recovery and it is not probable that we will be required to sell any of these securities before recovery, and credit loss, if any, is not material. Any unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or if market yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of September 30, 2021, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s consolidated financial statements.

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LOANS HELD FOR INVESTMENT

9 Months Ended

Sep. 30, 2021

LOANS HELD FOR INVESTMENT [Abstract]

LOANS HELD FOR INVESTMENT

3.  LOANS HELD FOR INVESTMENT

Loans held for investment are summarized by category as of the periods presented below:

	September 30, 2021			December 31, 2020
Commercial real estate	$	746,775		$	663,344
Commercial - specialized		390,394			311,686
Commercial - general		452,776			518,309
Consumer:
1-4 family residential		387,167			360,315
Auto loans		239,397			205,840
Other consumer		69,079			67,595
Construction		143,453			94,494
		2,429,041			2,221,583
Allowance for loan losses		(42,768	)		(45,553	)
Loans, net	$	2,386,273		$	2,176,030

The Company has certain lending policies, underwriting standards, and procedures in place that are designed to maximize loan income with an acceptable level of risk. Management reviews and approves these policies, underwriting standards, and procedures on a regular basis and makes changes as appropriate. Management receives frequent reports related to loan originations, quality, concentrations, delinquencies, non-performing, and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions, both by type of loan and geography.

Commercial – General and Specialized – Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably. Underwriting standards have been designed to determine whether the borrower possesses sound business ethics and practices, evaluate current and projected cash flows to determine the ability of the borrower to repay their obligations, as agreed and ensure appropriate collateral is obtained to secure the loan. Commercial loans are primarily made based on the identified cash flows of the borrower and, secondarily, on the underlying collateral provided by the borrower. Most commercial loans are secured by the assets being financed or other business assets, such as real estate, accounts receivable, or inventory, and include personal guarantees. Owner-occupied real estate is included in commercial loans, as the repayment of these loans is generally dependent on the operations of the commercial borrower’s business rather than on income-producing properties or the sale of the properties. Commercial loans are grouped into two distinct sub-categories: specialized and general. Commercial related segments that are considered “specialized” include agricultural production and real estate loans, energy loans, and finance, investment, and insurance loans. Commercial related segments that contain a broader diversity of borrowers, sub-industries, or serviced industries are grouped into the “general category.” These include goods, services, restaurant & retail, construction, and other industries.

Commercial Real Estate – Commercial real estate loans are also subject to underwriting standards and processes similar to commercial loans. These loans are underwritten primarily based on projected cash flows for income-producing properties and collateral values for non-income-producing properties. The repayment of these loans is generally dependent on the successful operation of the property securing the loans or the sale or refinancing of the property. Real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s real estate portfolio are diversified by type and geographic location. This diversity helps reduce the exposure to adverse economic events that affect any single market or industry.

Construction – Loans for residential construction are for single-family properties to developers, builders, or end-users. These loans are underwritten based on estimates of costs and completed value of the project. Funds are advanced based on estimated percentage of completion for the project. Performance of these loans is affected by economic conditions as well as the ability to control costs of the projects.

Consumer – Loans to consumers include 1-4 family residential loans, auto loans, and other loans for recreational vehicles or other purposes. The Company utilizes a computer-based credit scoring analysis to supplement its policies and procedures in underwriting consumer loans. The Company’s loan policy addresses types of consumer loans that may be originated and the collateral, if secured, which must be perfected. The relatively smaller individual dollar amounts of consumer loans that are spread over numerous individual borrowers also minimizes the Company’s risk. The Company generally requires mortgage title insurance and hazard insurance on 1-4 family residential loans.

The allowance for loan losses was $42.8 million at September 30, 2021, compared to $45.6 million at December 31, 2020. The ratio of allowance for loan losses to loans held for investment was 1.76% at September 30, 2021 and 2.05% at December 31, 2020. The decrease in the allowance for loan losses at September 30, 2021 compared to December 31, 2020 was the result of the Company recording a negative provision for loan losses in the second quarter of 2021 of $2.0 million. The negative provision was primarily due to the general improvement in the economy, a decline in the amount of loans actively under a modification, and a decrease in nonperforming loans. The Company did not record a provision for loan losses in the third quarter of 2021.

The following table details the activity in the allowance for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the three months ended September 30, 2021
Commercial real estate	$	17,288	$	960		$	—		$	—	$	18,248
Commercial - specialized		4,823		(596	)		(16	)		20		4,231
Commercial - general		8,948		(838	)		(2	)		63		8,171
Consumer:
1-4 family residential		5,064		135			—			2		5,201
Auto loans		3,815		79			(111	)		20		3,803
Other consumer		1,434		139			(213	)		42		1,402
Construction		1,591		121			—			—		1,712
Total	$	42,963	$	—		$	(342	)	$	147	$	42,768
For the three months ended September 30, 2020
Commercial real estate	$	15,156	$	3,085		$	—		$	23	$	18,264
Commercial - specialized		6,614		(220	)		(109	)		19		6,304
Commercial - general		9,293		977			(372	)		91		9,989
Consumer:
1-4 family residential		2,926		1,688			(56	)		126		4,684
Auto loans		3,939		474			(212	)		32		4,233
Other consumer		1,640		250			(262	)		99		1,727
Construction		1,067		(192	)		—			—		875
Total	$	40,635	$	6,062		$	(1,011	)	$	390	$	46,076

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the nine months ended September 30, 2021
Commercial real estate	$	18,962	$	(714	)	$	—		$	—	$	18,248
Commercial - specialized		5,760		(1,627	)		(21	)		119		4,231
Commercial - general		9,227		(870	)		(379	)		193		8,171
Consumer:
1-4 family residential		4,646		602			(52	)		5		5,201
Auto loans		4,226		(88	)		(438	)		103		3,803
Other consumer		1,671		132			(590	)		189		1,402
Construction		1,061		647			—			4		1,712
Total	$	45,553	$	(1,918	)	$	(1,480	)	$	613	$	42,768
For the nine months ended September 30, 2020
Commercial real estate	$	5,049	$	12,977		$	—		$	238	$	18,264
Commercial - specialized		2,287		4,870			(959	)		106		6,304
Commercial - general		9,609		1,952			(1,752	)		180		9,989
Consumer:
1-4 family residential		2,093		2,520			(56	)		127		4,684
Auto loans		3,385		1,624			(916	)		140		4,233
Other consumer		1,341		1,045			(1,011	)		352		1,727
Construction		433		441			—			1		875
Total	$	24,197	$	25,429		$	(4,694	)	$	1,144	$	46,076

The following table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

	Recorded Investment				Allowance for Loan Losses
	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
September 30, 2021
Commercial real estate	$	1,741	$	745,033	$	—	$	18,248
Commercial - specialized		—		390,395		—		4,231
Commercial - general		5,115		447,661		763		7,408
Consumer:
1-4 family residential		1,235		385,932		43		5,158
Auto loans		—		239,397		—		3,803
Other consumer		—		69,079		—		1,402
Construction		—		143,453		—		1,712
Total	$	8,091	$	2,420,950	$	806	$	41,962
December 31, 2020
Commercial real estate	$	6,273	$	657,071	$	580	$	18,382
Commercial - specialized		—		311,686		—		5,760
Commercial - general		4,626		513,683		515		8,712
Consumer:
1-4 family residential		2,122		358,193		—		4,646
Auto loans		—		205,840		—		4,226
Other consumer		—		67,595		—		1,671
Construction		—		94,494		—		1,061
Total	$	13,021	$	2,208,562	$	1,095	$	44,458

Impaired loan information follows:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
September 30, 2021
Commercial real estate	$	1,741	$	1,741	$	—	$	1,741	$	—	$	4,007
Commercial - specialized		—		—		—		—		—		—
Commercial - general		5,115		398		4,717		5,115		763		4,871
Consumer:
1-4 family residential		1,235		936		299		1,235		43		1,679
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	8,091	$	3,075	$	5,016	$	8,091	$	806	$	10,557
December 31, 2020
Commercial real estate	$	6,273	$	3,673	$	2,600	$	6,273	$	580	$	3,666
Commercial - specialized		—		—		—		—		—		673
Commercial - general		4,626		3,364		1,262		4,626		515		3,400
Consumer:
1-4 family residential		2,541		2,122		—		2,122		—		2,155
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	13,440	$	9,159	$	3,862	$	13,021	$	1,095	$	9,894

All impaired loans $250 thousand and greater were specifically evaluated for impairment. Interest income recognized using a cash-basis method on impaired loans for the nine-month period ended September 30, 2021 and the year ended December 31, 2020 was not significant. Additional funds committed to be advanced on impaired loans are not significant.

The table below provides an age analysis on accruing past-due loans and nonaccrual loans:

	30-89 Days Past Due		90 Days or More Past Due		Nonaccrual
September 30, 2021
Commercial real estate	$	598	$	34	$	1,767
Commercial - specialized		43		62		293
Commercial - general		698		149		5,564
Consumer:
1-4 family residential		1,998		410		2,313
Auto loans		330		23		—
Other consumer		729		69		46
Construction		457		—		166
Total	$	4,853	$	747	$	10,149
December 31, 2020
Commercial real estate	$	914	$	34	$	6,311
Commercial - specialized		241		—		272
Commercial - general		1,891		149		5,489
Consumer:
1-4 family residential		2,089		906		1,595
Auto loans		738		38		—
Other consumer		481		119		51
Construction		206		—		—
Total	$	6,560	$	1,246	$	13,718

The Company grades its loans on a thirteen-point grading scale. These grades fit in one of the following categories: (i) pass, (ii) special mention, (iii) substandard, (iv) doubtful, or (v) loss. Loans categorized as loss are charged-off immediately. The grading of loans reflect a judgment by the Company about the risks of default associated with the loan. The Company reviews the grades on loans as part of our on-going monitoring of the credit quality of our loan portfolio.

Pass loans have financial factors or nature of collateral that are considered reasonable credit risks in the normal course of lending and encompass several grades that are assigned based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the loans at some future date.

Substandard loans are inadequately protected by the current net worth and paying capacity of the borrower or by the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize collection and present the distinct possibility that some loss will be sustained if the deficiencies are not corrected. A protracted workout on these credits is a distinct possibility. Prompt corrective action is therefore required to strengthen the Company’s position, and/or to reduce exposure and to assure that adequate remedial measures are taken by the borrower. Credit exposure becomes more likely in such credits and a serious evaluation of the secondary support to the credit is performed. Substandard loans can be accruing or can be nonaccrual depending on the circumstances of the individual loans.

Doubtful loans have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. All doubtful loans are on nonaccrual.

The following table summarizes the internal classifications of loans:

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2021
Commercial real estate	$	684,939	$	—	$	61,836	$	—	$	746,775
Commercial - specialized		384,220		—		6,174		—		390,394
Commercial - general		443,221		1,684		7,871		—		452,776
Consumer:
1-4 family residential		379,706		—		7,461		—		387,167
Auto loans		238,310		—		1,087		—		239,397
Other consumer		68,756		—		323		—		69,079
Construction		143,287		—		166		—		143,453
Total	$	2,342,439	$	1,684	$	84,918	$	—	$	2,429,041
December 31, 2020
Commercial real estate	$	602,250	$	—	$	61,094	$	—	$	663,344
Commercial - specialized		303,831		—		7,855		—		311,686
Commercial - general		510,543		—		7,766		—		518,309
Consumer:
1-4 family residential		352,930		—		7,385		—		360,315
Auto loans		204,301		—		1,539		—		205,840
Other consumer		67,216		—		379		—		67,595
Construction		94,494		—		—		—		94,494
Total	$	2,135,565	$	—	$	86,018	$	—	$	2,221,583

Under section 4013 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), banks may elect to deem that loan modifications do not result in a classification as a TDR if they are (1) related to the COVID-19 pandemic; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency or (B) December 31, 2020. Under section 540 of the Consolidated Appropriations Act, 2021 (the “Act”), section 4013 of the CARES Act was amended and the period for loan modifications was extended to the earlier of (1) January 1, 2022, or (2) 60 days after the date of termination of the national emergency. The Company elected to adopt the provisions of the CARES Act, as amended by the Act.

Additionally, other short-term modifications made on a good faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief are not TDRs under ASC Subtopic 310-40 and the interagency statement released by the federal banking regulators on April 7, 2020 in response to the COVID-19 pandemic (the “Joint Interagency Regulatory Guidance”). This includes short-term (e.g., up to six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

In response to the COVID-19 pandemic, the Company implemented a short-term deferral modification program that complies with ASC Subtopic 310-40 and the Joint Interagency Regulatory Guidance. As of September 30, 2021, the Company had 23 loans totaling approximately $414 thousand under an active modification that comply with ASC Subtopic 310-40 and the Joint Interagency Regulatory Guidance.

Beginning in April 2020, the Company began offering additional COVID-19 related deferral and modification of principal and/or interest payments to selected borrowers on a case-by-case basis that were outside the scope of the short-term deferral modification program. These additional modifications comply with the provisions of section 4013 of the CARES Act, as amended by the Act. As of September 30, 2021, the Company had three loans totaling approximately $16.0 million subject to these deferral and modification agreements, representing 0.7% of outstanding loans held for investment.

There were no loans modified as a TDR during the nine-month period ended September 30, 2021 and the year ended December 31, 2020.

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GOODWILL AND INTANGIBLES

9 Months Ended

Sep. 30, 2021

GOODWILL AND INTANGIBLES [Abstract]

GOODWILL AND INTANGIBLES

4.  GOODWILL AND INTANGIBLES

Goodwill and other intangible assets are summarized below:

	September 30, 2021			December 31, 2020
Beginning goodwill	$	19,508		$	18,757
Arising from business combinations		—			—
Measurement period acquisition adjustment		—			751
Ending goodwill	$	19,508		$	19,508
Amortized intangible assets
Core deposit intangible	$	6,679		$	6,679
Less: Accumulated amortization		(2,216	)		(1,396	)
		4,463			5,283
Other intangibles		2,972			2,309
Arising from business combinations		—			663
Less: Accumulated amortization		(1,139	)		(693	)
		1,833			2,279
Other intangible assets, net	$	6,296		$	7,562

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BORROWING ARRANGEMENTS

9 Months Ended

Sep. 30, 2021

BORROWING ARRANGEMENTS [Abstract]

BORROWING ARRANGEMENTS

5.  BORROWING ARRANGEMENTS

Subordinated Debt Securities

In December 2018, the Company issued $26.5 million in subordinated debt securities. $12.4 million of the securities have a maturity date of December 2028 and an average fixed rate of 5.74% for the first five years. The remaining $14.1 million of securities have a maturity date of December 2030 and an average fixed rate of 6.41% for the first seven years. After the expiration of the fixed rate periods, all securities will float at the Wall Street Journal prime rate, with a floor of 4.5% and a ceiling of 7.5%. These securities pay interest quarterly, are unsecured, and may be called by the Company at any time after the remaining maturity is five years or less. Additionally, these securities are intended to qualify for Tier 2 capital treatment, subject to regulatory limitations.

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

As of September 30, 2021, the total amount of subordinated debt securities outstanding was $76.5 million less approximately $744 thousand of remaining debt issuance costs for a total balance of $75.7 million.

Notes Payable and Other Borrowings

At December 31, 2020, City Bank had three advances from the Federal Home Loan Bank of Dallas (“FHLB”) totaling $75.0 million. Advances are collateralized through the line of credit with FHLB with interest payable monthly and principal due at maturity. In March 2021, City Bank repaid two of the advances for a total of $50 million and then repaid the remaining advance of $25 million in April 2021. As of September 30, 2021, City Bank had no outstanding advances from the FHLB.

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STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2021

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

6.  STOCK-BASED COMPENSATION

Equity Incentive Plan

The 2019 Equity Incentive Plan (“Plan”) was approved by the Company’s Board of Directors on January 16, 2019 and by its shareholders on March 6, 2019. The purpose of the Plan is to: (i) attract and retain the best available personnel for positions of substantial responsibility, (ii) provide additional incentive to employees, directors and consultants, and (iii) promote the success of the Company’s business. This Plan permits the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, and other stock-based awards. The initial maximum aggregate number of shares of common stock that may be issued pursuant to all awards under the Plan is 2,300,000. The maximum aggregate number of shares that may be issued under the Plan may be increased annually by up to 3% of the total issued and outstanding common shares of the Company at the beginning of each fiscal year.

The fair value of each option award under the Plan is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock and similar peer company averages. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be outstanding, which takes in to account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on U.S. Treasury yield curve in effect at the time of the grant. Forfeitures of options are recognized as they occur.

Options

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		1,554,894		$	14.77			$	14,941
Granted		214,452			19.46				1,055
Exercised		(3,666	)		17.94				(24	)
Forfeited		(6,152	)		18.56				(36	)
Expired		—			—				—
Balance, September 30, 2021		1,759,528		$	15.32		5.73	$	15,936
Exercisable at end of period		1,122,353		$	13.21		4.94	$	12,541
Vested at end of period		1,122,353		$	13.21		4.94	$	12,541

A summary of assumptions used to calculate the fair values of the awards granted during the periods noted is presented below:

	Nine Months Ended September 30,
	2021			2020
Expected volatility	41.20% to 41.32%				27.46	%
Expected dividend yield		1.00	%		0.70	%
Expected term (years)	6.1 to 6.2 years			6.2 years
Risk-free interest rate	0.52% to 0.83%				1.44	%
Weighted average grant date fair value	$	7.07		$	5.68

The total intrinsic value of options exercised during the nine months ended September 30, 2021 and September 30, 2020 was $17 thousand and $185 thousand, respectively.

Restricted Stock Units

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Grant Date Fair Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		62,476		$	19.47
Granted		6,370			19.62
Vested		(24,805	)		19.70
Forfeited		(1,274	)		19.62
Balance, September 30, 2021		42,767		$	19.35

Restricted stock units granted under the Plan typically vest over four years, but vesting periods may vary. Compensation expense for these grants will be recognized over the vesting period of the awards based on the fair value of the stock at the issue date.

The total unrecognized compensation cost for the awards outstanding under the Plan at September 30, 2021 was $3.1 million and will be recognized over a weighted average remaining period of 1.53 years. The total fair value of restricted stock units vested during each of the nine months ended September 30, 2021 and September 30, 2020 was $489 thousand.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

7.  COMMITMENTS AND CONTINGENCIES

Financial instruments with off-balance-sheet risk - The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Company’s consolidated financial statements. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for recorded instruments.

Financial instruments whose contract amounts represent credit risk outstanding follow:

	September 30, 2021		December 31, 2020
Commitments to grant loans and unfunded commitments under lines of credit	$	547,738	$	417,798
Standby letters of credit		12,420		10,481

Commitments to grant loans and extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company requires collateral supporting those commitments if deemed necessary.

Litigation - The Company is a defendant in legal actions arising from time to time in the ordinary course of business. Management believes that the aggregate ultimate liability, if any, arising from these matters will not materially affect the Company’s consolidated financial statements.

FHLB Letters of Credit - The Company has used FHLB letters of credit to pledge to certain public deposits. The balance of the FHLB letters of credit at December 31, 2020 was $199.0 million. These letters of credit expired in July 2021 and the Company began pledging securities to these public funds rather than renewing the letters of credit. As a result, there were no FHLB letters of credit outstanding at September 30, 2021.

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CAPITAL AND REGULATORY MATTERS

9 Months Ended

Sep. 30, 2021

CAPITAL AND REGULATORY MATTERS [Abstract]

CAPITAL AND REGULATORY MATTERS

8.  CAPITAL AND REGULATORY MATTERS

The Company and its bank subsidiary are subject to various regulatory capital requirements administered by its banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and its bank subsidiary’s financial statements. Under capital guidelines and the regulatory framework for prompt corrective action, the Company and its bank subsidiary must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

In July 2013, the Board of Governors of the Federal Reserve System published final rules for the adoption of the Basel III regulatory capital framework (“Basel III”). Basel III, among other things, (i) introduced a new capital measure called Common Equity Tier 1 (“CET1”), (ii) specified that Tier 1 capital consists of CET1 and Additional Tier 1 Capital instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations. Basel III became effective for the Company and its bank subsidiary on January 1, 2016 with certain transition provisions fully phased-in on January 1, 2019.

Quantitative measures established by regulation to ensure capital adequacy require the Company and its bank subsidiary to maintain minimum amounts and ratios (set forth in the following table) of total, Tier 1 and CET1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2021 and December 31, 2020, that the Company and its bank subsidiary met all capital adequacy requirements to which they are subject.

As of September 30, 2021, the bank subsidiary was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios as set forth in the following tables. There are no conditions or events since September 30, 2021 that management believes have changed the bank subsidiary’s category.

The Company and its bank subsidiary’s actual capital amounts and ratios follow:

	Actual					Minimum Required Under BASEL III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total Capital to Risk Weighted Assets:
Consolidated	$	514,327		18.19	%	$	296,912		10.50	%		N/A		N/A
City Bank		421,458		14.91	%		296,838		10.50	%	$	282,703		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		403,159		14.26	%		240,358		8.50	%		N/A		N/A
City Bank		386,026		13.65	%		240,298		8.50	%		226,162		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		358,159		12.67	%		197,942		7.00	%		N/A		N/A
City Bank		386,026		13.65	%		197,892		7.00	%		183,757		6.50	%
Tier I Capital to Average Assets:
Consolidated		403,159		10.83	%		149,932		4.00	%		N/A		N/A
City Bank		386,026		10.38	%		149,854		4.00	%		186,027		5.00	%
December 31, 2020
Total Capital to Risk Weighted Assets:
Consolidated	$	473,425		19.08	%	$	260,531		10.50	%		N/A		N/A
City Bank		404,138		16.29	%		260,481		10.50	%	$	248,077		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		366,639		14.78	%		210,906		8.50	%		N/A		N/A
City Bank		372,947		15.03	%		210,866		8.50	%		198,462		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		321,639		12.96	%		173,688		7.00	%		N/A		N/A
City Bank		372,947		15.03	%		173,654		7.00	%		161,250		6.50	%
Tier I Capital to Average Assets:
Consolidated		366,639		10.24	%		144,347		4.00	%		N/A		N/A
City Bank		372,947		10.42	%		144,282		4.00	%		178,999		5.00	%

State banking regulations place certain restrictions on dividends paid by banks to their shareholders. Dividends paid by the Company’s bank subsidiary to the Company, as sole shareholder of the bank subsidiary, would be prohibited if the effect thereof would cause the bank subsidiary’s capital to be reduced below applicable minimum capital requirements.

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DERIVATIVES

9 Months Ended

Sep. 30, 2021

DERIVATIVES [Abstract]

DERIVATIVES

9.  DERIVATIVES

The Company utilizes interest rate and cash flow swap agreements as part of its asset-liability management strategy to help manage its interest rate and cash flow risk position. The notional amount of the interest rate and cash flow swaps do not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amounts and the other terms of the individual interest rate and cash flow swap agreements.

The following table reflects the fair value hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Interest rate swaps related to fixed rate loans	$	9,911	$	576	$	10,178	$	927
Included in other assets:
Interest rate swaps related to fixed rate loans	$	—	$	—	$	—	$	—

The following table reflects the cash flow hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Cash flow swaps related to state and municipal securities	$	—	$	—	$	68,485	$	1,643
Included in other assets:
Cash flow swaps related to state and municipal securities	$	123,760	$	4,828	$	55,275	$	1,618

Mortgage banking derivatives

The following table reflects the amount and fair value of mortgage banking derivatives in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Forward contracts related to mortgage loans held for sale	$	—	$	—	$	—	$	—
Interest rate lock commitments		142,419		3,453		210,716		5,115
Total included in other assets	$	142,419	$	3,453	$	210,716	$	5,115
Included in other liabilities:
Forward contracts related to mortgage loans held for sale	$	129,045	$	879	$	203,669	$	1,787
Interest rate lock commitments		—		—		—		—
Total included in other liabilities	$	129,045	$	879	$	203,669	$	1,787

The Company had received cash collateral of $3.7 million to offset asset derivative positions on its securities cash flow hedges at September 30, 2021. This amount is reported in other liabilities in the consolidated balance sheets. The Company had advanced $1.1 million to offset liability positions on its interest rate swaps at September 30, 2021. Additionally, the Company had advanced $440 thousand on its mortgage forward contracts at September 30, 2021. The advanced cash collateral amounts are reported in cash and due from banks in the consolidated balance sheets.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2021

EARNINGS PER SHARE [Abstract]

EARNINGS PER SHARE

10.  EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	15,190	$	16,731	$	44,000	$	29,429
Weighted average common shares outstanding - basic		17,931,174		18,059,174		18,012,963		18,054,678
Effect of dilutive securities:
Stock-based compensation awards		532,523		196,987		503,525		269,044
Weighted average common shares outstanding - diluted		18,463,697		18,256,161		18,516,488		18,323,722
Basic earnings per share	$	0.85	$	0.93	$	2.44	$	1.63
Diluted earnings per share	$	0.82	$	0.92	$	2.38	$	1.61

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SEGMENT INFORMATION

9 Months Ended

Sep. 30, 2021

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

11.  SEGMENT INFORMATION

Financial results by reportable segment are detailed below:

Three Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	31,178		$	—		$	31,178
Provision for loan loss		—			—			—
Noninterest income		22,043			3,748			25,791
Noninterest expense		(35,613	)		(2,450	)		(38,063	)
Income before income taxes		17,608			1,298			18,906
Income tax (expense) benefit		(3,495	)		(221	)		(3,716	)
Net income	$	14,113		$	1,077		$	15,190

Three Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	31,273		$	—		$	31,273
Provision for loan loss		(6,062	)		—			(6,062	)
Noninterest income		28,393			3,267			31,660
Noninterest expense		(33,984	)		(2,009	)		(35,993	)
Income before income taxes		19,620			1,258			20,878
Income tax (expense) benefit		(3,891	)		(256	)		(4,147	)
Net income	$	15,729		$	1,002		$	16,731

Financial results by reportable segment are detailed below:

Nine Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	90,315		$	—		$	90,315
Provision for loan loss		1,918			—			1,918
Noninterest income		68,536			6,005			74,541
Noninterest expense		(107,233	)		(4,665	)		(111,898	)
Income before income taxes		53,536			1,340			54,876
Income tax (expense) benefit		(10,645	)		(231	)		(10,876	)
Net income	$	42,891		$	1,109		$	44,000

Nine Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	91,920		$	—		$	91,920
Provision for loan loss		(25,429	)		—			(25,429	)
Noninterest income		70,050			5,381			75,431
Noninterest expense		(100,876	)		(4,335	)		(105,211	)
Income before income taxes		35,665			1,046			36,711
Income tax (expense) benefit		(7,008	)		(274	)		(7,282	)
Net income	$	28,657		$	772		$	29,429

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FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2021

FAIR VALUE DISCLOSURES [Abstract]

FAIR VALUE DISCLOSURES

12.  FAIR VALUE DISCLOSURES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.

Valuation techniques that are consistent with the market approach, the income approach and/or the cost approach are required by GAAP. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset. Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

● Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

● Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

● Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The following table summarizes fair value measurements:

	Level 1		Level 2			Level 3		Total
September 30, 2021
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	—		$	—	$	—
State and municipal		—		275,029			—		275,029
Mortgage-backed securities		—		328,858			—		328,858
Collateralized mortgage obligations		—		106,439			—		106,439
Asset-backed and other amortizing securities		—		29,446			—		29,446
Other securities		—		12,790			—		12,790
Loans held for sale (mandatory)		—		45,849			—		45,849
Mortgage servicing rights		—		—			18,122		18,122
Asset derivatives		—		8,281			—		8,281
Liability derivatives		—		(1,455	)		—		(1,455	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			7,285		7,285
Other real estate owned		—		—			1,081		1,081
December 31, 2020
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	4,753		$	—	$	4,753
State and municipal		—		272,607			—		272,607
Mortgage-backed securities		—		373,362			—		373,362
Collateralized mortgage obligations		—		106,715			—		106,715
Asset-backed and other amortizing securities		—		33,572			—		33,572
Other securities		—		12,078			—		12,078
Loans held for sale (mandatory)		—		80,174			—		80,174
Mortgage servicing rights		—		—			9,049		9,049
Asset derivatives		—		6,734			—		6,734
Liability derivatives		—		(4,357	)		—		(4,357	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			11,926		11,926
Other real estate owned		—		—			1,353		1,353

Securities – Securities are carried at fair value. When available, fair value is based on quoted prices for the identical security in an active market and as such, would be classified as Level 1. If quoted market prices are not available, fair values are calculated based on market prices of similar securities using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded. Securities for which Level 1 valuations are not available are classified as Level 2.

Loans held for sale (mandatory) – Loans held for sale originated for mandatory delivery are reported at fair value. Fair value is determined using quoted prices for similar assets, adjusted for specific attributes of that loan.

Mortgage servicing rights – Mortgage servicing rights are reported at fair value using Level 3 inputs. The mortgage servicing rights asset is valued by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair value of the mortgage servicing rights asset is impacted by a variety of factors, including prepayment and discount rates, which are significant unobservable inputs.

Derivatives – Fair value of derivatives is based on valuation models using observable market data as of the measurement date.

Impaired loans – Impaired loans are reported at the fair value of the underlying collateral, less estimated disposal costs, if repayment is expected solely from the sale of the collateral. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

Foreclosed assets – Foreclosed assets are transferred from loans at the lower of cost or fair value, less estimated costs to sell. Collateral values are estimated using Level 2 inputs based on observable market data or Level 3 inputs based on customized discounting criteria.

Loans held for sale (best efforts) – Loans held for sale originated for best efforts delivery are reported at fair value if, on an aggregate basis, the fair value for the loans is less than cost. In determining whether the fair value of loans held for sale is less than cost when quoted market prices are not available, the Company may consider outstanding investor commitments or discounted cash flow analyses with market assumptions. Such fair values are classified within either Level 2 or Level 3 of the fair value hierarchy.

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range of Discounts
September 30, 2021
Non-recurring:
Impaired loans	$	7,285	Third party appraisals or inspections	Collateral discounts and selling costs		20%-100	%
Other real estate owned		1,081	Third party appraisals or inspections	Collateral discounts and selling costs		0	%
Recurring:
Mortgage servicing rights		18,122	Discounted cash flows	Conditional prepayment rate		5.41	%
				Discount rate		9.14	%
December 31, 2020
Non-recurring:
Impaired loans	$	11,926	Third party appraisals or inspections	Collateral discounts and selling costs		0%-100	%
Other real estate owned		1,353	Third party appraisals or inspections	Collateral discounts and selling costs		15%-66	%
Recurring:
Mortgage servicing rights		9,049	Discounted cash flows	Conditional prepayment rate		4.48	%
				Discount rate		9.72	%

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
September 30, 2021
Financial assets:
Cash and cash equivalents	$	327,600	$	327,600	$	—	$	—	$	327,600
Loans, net		2,386,273		—		—		2,430,158		2,430,158
Accrued interest receivable		11,778		—		11,778		—		11,778
Bank-owned life insurance		71,676		—		71,676		—		71,676
Financial liabilities:
Deposits	$	3,212,245	$	2,879,997	$	334,870	$	—	$	3,214,867
Accrued interest payable		1,460		—		1,460		—		1,460
Notes payable & other borrowings		—		—		—		—		—
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,728		—		77,892		—		77,892

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
December 31, 2020
Financial assets:
Cash and cash equivalents	$	300,307	$	300,307	$	—	$	—	$	300,307
Loans, net		2,176,030		—		—		2,179,573		2,179,573
Accrued interest receivable		15,233		—		15,233		—		15,233
Bank-owned life insurance		70,731		—		70,731		—		70,731
Financial liabilities:
Deposits	$	2,974,351	$	2,649,830	$	329,609	$	—	$	2,979,439
Short-term borrowings		26,550		26,550		—		—		26,550
Accrued interest payable		2,113		—		2,113		—		2,113
Notes payable & other borrowings		75,000		—		75,000		—		75,000
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,589		—		76,889		—		76,889

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Nature of Operations

Nature of Operations – South Plains Financial, Inc. (“SPFI”) is a Texas corporation and registered bank holding company that conducts its principal activities through its subsidiaries from offices located throughout Texas and Eastern New Mexico. Principal activities include commercial and retail banking, along with insurance, investment, trust, and mortgage services. The following are subsidiaries of SPFI:

Wholly Owned, Consolidated Subsidiaries:
City Bank	Bank subsidiary
Windmark Insurance Agency, Inc. (“Windmark”)	Non-bank subsidiary
Ruidoso Retail, Inc.	Non-bank subsidiary
CB Provence, LLC	Non-bank subsidiary
CBT Brushy Creek, LLC	Non-bank subsidiary
CBT Properties, LLC	Non-bank subsidiary
Wholly Owned, Equity Method Subsidiaries:
South Plains Financial Capital Trusts (SPFCT) III-V	Non-bank subsidiaries

Consolidation

Basis of Presentation and Consolidation – The consolidated financial statements in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (this “Form 10-Q”) include the accounts of SPFI and its wholly owned consolidated subsidiaries (collectively referred to as the “Company”) identified above. All significant intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The interim consolidated financial statements in this Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements, and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Determination of the adequacy of the allowance for loan losses is a material estimate that is particularly susceptible to significant change in the near term; the assumptions used in stock-based compensation, the valuation of foreclosed assets, and fair values of financial instruments can also involve significant management estimates.

Loans

Loans – Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the straight-line method, which is not materially different from the effective interest method required by GAAP.

Loans are placed on nonaccrual status when, in management’s opinion, collection of interest is unlikely, which typically occurs when principal or interest payments are more than ninety days past due. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses

Allowance for Loan Losses – The allowance for loan losses is established by management as an estimate to cover probable credit losses through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The Company’s allowance for loan losses consists of specific valuation allowances established for probable losses on specific loans and general valuation allowances calculated based on historical loan loss experience for similar loans with similar characteristics and trends, judgmentally adjusted for general economic conditions and other qualitative risk factors internal and external to the Company.

The allowance for loan losses is evaluated on a quarterly basis by management and is based upon management’s review of the collectability of the loans in the Company’s loan portfolio in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. Loans originated by the bank subsidiary are generally secured by specific items of collateral including real property, crops, livestock, consumer assets, and other business assets.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on various factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the bank subsidiary to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. All loans rated substandard or worse and greater than $250 thousand are specifically reviewed to determine if they are impaired. Factors considered by management in determining whether a loan is impaired include payment status and the sources, amounts, and probabilities of estimated cash flow available to service debt in relation to amounts due according to contractual terms. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans that are determined to be impaired are then evaluated to determine estimated impairment, if any. GAAP allows impairment to be measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Loans that are not individually determined to be impaired or are not subject to the specific review of impaired status are subject to the general valuation allowance portion of the allowance for loan loss.

The Company may modify its loan agreement with a borrower. The modification will be considered a troubled debt restructuring (“TDR”) if the following criteria are met: (1) the borrower is experiencing a financial difficulty and (2) the Company makes a concession that it would not otherwise make. Concessions may include debt forgiveness, interest rate change, or maturity extension. Each of these loans is impaired and is evaluated for impairment, with a specific reserve recorded as necessary based on probable losses related to collateral and cash flow. A loan will no longer be required to be reported as restructured in calendar years following the restructure if the interest rate at the time of restructure is greater than or equal to the rate the Company was willing to accept for a new extension of credit with similar risk and the loan is in compliance with its modified terms.

Acquired Loans

Acquired Loans – Loans that the Company acquires in connection with business combinations are recorded at fair value with no carryover of the acquired entity’s related allowance for loan losses. The fair value of the acquired loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest.

The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the nonaccretable discount. These loans are accounted for under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The nonaccretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Company to evaluate the need for an additional allowance. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the nonaccretable discount which the Company will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.

Loans acquired through business combinations that meet the specific criteria of ASC 310-30 are individually evaluated each period to analyze expected cash flows.  To the extent that the expected cash flows of a loan have decreased due to credit deterioration, the Company then establishes an allowance.

Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30 are accounted for under ASC 310-20. These loans are initially recorded at fair value, and include credit and interest rate marks associated with acquisition accounting adjustments. Purchase premiums or discounts are subsequently amortized as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. An allowance for loan losses is recorded for any credit deterioration in these loans subsequent to acquisition.

Acquired loans that met the criteria for impaired or nonaccrual of interest prior to the acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company expects to fully collect the new carrying value (i.e. fair value) of the loans. As such, the Company may no longer consider the loan to be nonaccrual or nonperforming at the date of acquisition and may accrue interest on these loans, including the impact of any accretable discount. In addition, charge-offs on such loans would be first applied to the nonaccretable difference portion of the fair value adjustment.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets – Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill is not amortized, but is tested for impairment on October 31 of each year or more frequently if events and circumstances exist that indicate that an impairment test should be performed. There was no impairment recorded for the nine-month period ended September 30, 2021 and the year ended December 31, 2020, respectively.

Core deposit intangible (“CDI”) is a measure of the value of checking and savings deposit relationships acquired in a business combination. The fair value of the CDI stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding relative to an alternative source of funding. CDI is amortized over the estimated useful lives of the existing deposit relationships acquired, but does not exceed 10 years. Significantly all CDI is amortized using the sum of the years’ digits method.

The remaining other intangible assets consist of customer relationship and employment agreement intangible assets and are amortized over their estimated useful lives of 5 years using the straight-line method.

Stock-Based Compensation

Stock-Based Compensation – The Company sponsors an equity incentive plan under which options to acquire shares of the Company’s common stock may be granted periodically to all full-time employees and directors of the Company or its affiliates at a specific exercise price. Shares are issued out of authorized and unissued common shares that have been reserved for issuance under such plan. Compensation cost is measured based on the estimated fair value of the award at the grant date and is recognized in earnings on a straight-line basis over the requisite service period. The fair value of stock options is estimated at the date of grant using a closed form option valuation (“Black-Scholes”) option pricing model. This model requires assumptions as to the expected stock volatility, dividends, terms and risk-free rates. The expected volatility is based on the combination of the Company’s historical volatility and the volatility of comparable peer banks. The expected term represents the period of time that options are expected to be outstanding from the grant date. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the appropriate life of each stock option.

Recent Accounting Pronouncements

Recent Accounting Pronouncements – FASB ASC constitutes GAAP for nongovernmental entities. Updates to ASC are prescribed in Accounting Standards Updates (“ASU”), which are not authoritative until incorporated into ASC.

ASU 2021-01, Reference Rate Reform (Topic 848). In January 2021, the FASB issued ASU No. 2021-01 to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. This update additionally clarified that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. This update was effective upon issuance and generally can be applied through December 31, 2022. See the discussion regarding the adoption of ASU 2020-04 below.

ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued ASU No. 2020-04 and it provides optional expedients and exceptions for accounting related to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. This update applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The expedients and exceptions in this update are available to all entities starting March 12, 2020 through December 31, 2022. The adoption of ASU 2020-04 did not significantly impact the Company’s consolidated financial statements.

ASU 2019-12, Income Taxes, Simplifying the Accounting for Income Taxes (Topic 740). In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The adoption of ASU 2019-12 did not have a material effect on the Company’s financial statements.

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This ASU simplifies the accounting for goodwill impairment for all entities by eliminating Step 2 from the current provisions. Under the new guidance, an entity should perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying value and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company elected to early adopt ASU 2017-04 on January 1, 2020, and it did not have a material impact on its financial statements.

ASU 2016-13 Financial Instruments - Credit Losses (Topic 326). The FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity securities, and debt securities. ASU 2016-13 is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact adoption of ASU 2016-13 and the CECL methodology for estimating the allowance for credit losses will have on its consolidated operating results and financial condition.

ASU 2016-02 Leases (Topic 842). The FASB amended existing guidance that requires that lessees recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company is in the process of determining the effect of the standard on its consolidated operating results and financial condition. These amendments are effective for the Company for annual periods beginning after December 15, 2021, including interim periods within those fiscal years.

Subsequent Events

Subsequent Events – The Company has evaluated subsequent events and transactions from September 30, 2021 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP. In October 2021, the Company’s board of directors approved a new stock repurchase program in which the Company may purchase up to $10.0 million of its outstanding shares of common stock. Any remaining shares under the Company's existing program, which expires on November 5, 2021, will not be rolled into the new program.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Subsidiaries Information

The following are subsidiaries of SPFI:

Wholly Owned, Consolidated Subsidiaries:
City Bank	Bank subsidiary
Windmark Insurance Agency, Inc. (“Windmark”)	Non-bank subsidiary
Ruidoso Retail, Inc.	Non-bank subsidiary
CB Provence, LLC	Non-bank subsidiary
CBT Brushy Creek, LLC	Non-bank subsidiary
CBT Properties, LLC	Non-bank subsidiary
Wholly Owned, Equity Method Subsidiaries:
South Plains Financial Capital Trusts (SPFCT) III-V	Non-bank subsidiaries

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2021

SECURITIES [Abstract]

Amortized Cost and Fair Value of Securities

The amortized cost and fair value of securities are shown below:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2021
Available for sale:
U.S. government and agencies	$	—	$	—	$	—		$	—
State and municipal		266,306		9,273		(550	)		275,029
Mortgage-backed securities		326,022		6,342		(3,506	)		328,858
Collateralized mortgage obligations		106,864		—		(425	)		106,439
Asset-backed and other amortizing securities		28,117		1,329		—			29,446
Other securities		12,000		790		—			12,790
	$	739,309	$	17,734	$	(4,481	)	$	752,562

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2020
Available for sale:
U.S. government and agencies	$	4,750	$	3	$	—		$	4,753
State and municipal		261,023		11,704		(120	)		272,607
Mortgage-backed securities		359,542		14,014		(194	)		373,362
Collateralized mortgage obligations		107,175		—		(460	)		106,715
Asset-backed and other amortizing securities		31,509		2,063		—			33,572
Other securities		12,000		91		(13	)		12,078
	$	775,999	$	27,875	$	(787	)	$	803,087

Amortized Cost and Fair Value of Securities by Contractual Maturity

The amortized cost and fair value of securities at September 30, 2021 are presented below by contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Other securities are shown separately since they are not due at a single maturity date.

	Available for Sale
	Amortized Cost		Fair Value
Within 1 year	$	1,615	$	1,640
After 1 year through 5 years		6,864		7,256
After 5 years through 10 years		23,918		25,227
After 10 years		245,909		253,697
Other		461,003		464,742
	$	739,309	$	752,562

Securities with Unrealized Losses Segregated by the Period in a Loss Position

The following table segregates securities with unrealized losses at the periods indicated, by the duration they have been in a loss position:

	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
September 30, 2021
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		52,939		550		—		—		52,939		550
Mortgage-backed securities		66,197		1,285		54,630		2,221		120,827		3,506
Collateralized mortgage obligations		106,439		425		—		—		106,439		425
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		—		—		—		—		—		—
	$	225,575	$	2,260	$	54,630	$	2,221	$	280,205	$	4,481
December 31, 2020
U.S. government and agencies	$	—	$	—	$	—	$	—	$	—	$	—
State and municipal		—		120		—		—		—		120
Mortgage-backed securities		93,482		194		—		—		93,482		194
Collateralized mortgage obligations		106,715		460		—		—		106,715		460
Asset-backed and other amortizing securities		—		—		—		—		—		—
Other securities		3,486		13		—		—		3,486		13
	$	203,683	$	787	$	—	$	—	$	203,683	$	787

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LOANS HELD FOR INVESTMENT (Tables)

9 Months Ended

Sep. 30, 2021

LOANS HELD FOR INVESTMENT [Abstract]

Summary of Loans by Category

Loans held for investment are summarized by category as of the periods presented below:

	September 30, 2021			December 31, 2020
Commercial real estate	$	746,775		$	663,344
Commercial - specialized		390,394			311,686
Commercial - general		452,776			518,309
Consumer:
1-4 family residential		387,167			360,315
Auto loans		239,397			205,840
Other consumer		69,079			67,595
Construction		143,453			94,494
		2,429,041			2,221,583
Allowance for loan losses		(42,768	)		(45,553	)
Loans, net	$	2,386,273		$	2,176,030

Activity in Allowance for Loan Losses and Investment in Loans Disaggregated Based on Method of Evaluating Impairment

The following table details the activity in the allowance for loan losses. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the three months ended September 30, 2021
Commercial real estate	$	17,288	$	960		$	—		$	—	$	18,248
Commercial - specialized		4,823		(596	)		(16	)		20		4,231
Commercial - general		8,948		(838	)		(2	)		63		8,171
Consumer:
1-4 family residential		5,064		135			—			2		5,201
Auto loans		3,815		79			(111	)		20		3,803
Other consumer		1,434		139			(213	)		42		1,402
Construction		1,591		121			—			—		1,712
Total	$	42,963	$	—		$	(342	)	$	147	$	42,768
For the three months ended September 30, 2020
Commercial real estate	$	15,156	$	3,085		$	—		$	23	$	18,264
Commercial - specialized		6,614		(220	)		(109	)		19		6,304
Commercial - general		9,293		977			(372	)		91		9,989
Consumer:
1-4 family residential		2,926		1,688			(56	)		126		4,684
Auto loans		3,939		474			(212	)		32		4,233
Other consumer		1,640		250			(262	)		99		1,727
Construction		1,067		(192	)		—			—		875
Total	$	40,635	$	6,062		$	(1,011	)	$	390	$	46,076

	Beginning Balance		Provision for Loan Losses			Charge-offs			Recoveries		Ending Balance
For the nine months ended September 30, 2021
Commercial real estate	$	18,962	$	(714	)	$	—		$	—	$	18,248
Commercial - specialized		5,760		(1,627	)		(21	)		119		4,231
Commercial - general		9,227		(870	)		(379	)		193		8,171
Consumer:
1-4 family residential		4,646		602			(52	)		5		5,201
Auto loans		4,226		(88	)		(438	)		103		3,803
Other consumer		1,671		132			(590	)		189		1,402
Construction		1,061		647			—			4		1,712
Total	$	45,553	$	(1,918	)	$	(1,480	)	$	613	$	42,768
For the nine months ended September 30, 2020
Commercial real estate	$	5,049	$	12,977		$	—		$	238	$	18,264
Commercial - specialized		2,287		4,870			(959	)		106		6,304
Commercial - general		9,609		1,952			(1,752	)		180		9,989
Consumer:
1-4 family residential		2,093		2,520			(56	)		127		4,684
Auto loans		3,385		1,624			(916	)		140		4,233
Other consumer		1,341		1,045			(1,011	)		352		1,727
Construction		433		441			—			1		875
Total	$	24,197	$	25,429		$	(4,694	)	$	1,144	$	46,076

The following table shows the Company’s investment in loans disaggregated based on the method of evaluating impairment:

	Recorded Investment				Allowance for Loan Losses
	Individually Evaluated		Collectively Evaluated		Individually Evaluated		Collectively Evaluated
September 30, 2021
Commercial real estate	$	1,741	$	745,033	$	—	$	18,248
Commercial - specialized		—		390,395		—		4,231
Commercial - general		5,115		447,661		763		7,408
Consumer:
1-4 family residential		1,235		385,932		43		5,158
Auto loans		—		239,397		—		3,803
Other consumer		—		69,079		—		1,402
Construction		—		143,453		—		1,712
Total	$	8,091	$	2,420,950	$	806	$	41,962
December 31, 2020
Commercial real estate	$	6,273	$	657,071	$	580	$	18,382
Commercial - specialized		—		311,686		—		5,760
Commercial - general		4,626		513,683		515		8,712
Consumer:
1-4 family residential		2,122		358,193		—		4,646
Auto loans		—		205,840		—		4,226
Other consumer		—		67,595		—		1,671
Construction		—		94,494		—		1,061
Total	$	13,021	$	2,208,562	$	1,095	$	44,458

Impaired Loan Information

Impaired loan information follows:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
September 30, 2021
Commercial real estate	$	1,741	$	1,741	$	—	$	1,741	$	—	$	4,007
Commercial - specialized		—		—		—		—		—		—
Commercial - general		5,115		398		4,717		5,115		763		4,871
Consumer:
1-4 family residential		1,235		936		299		1,235		43		1,679
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	8,091	$	3,075	$	5,016	$	8,091	$	806	$	10,557
December 31, 2020
Commercial real estate	$	6,273	$	3,673	$	2,600	$	6,273	$	580	$	3,666
Commercial - specialized		—		—		—		—		—		673
Commercial - general		4,626		3,364		1,262		4,626		515		3,400
Consumer:
1-4 family residential		2,541		2,122		—		2,122		—		2,155
Auto loans		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
Construction		—		—		—		—		—		—
Total	$	13,440	$	9,159	$	3,862	$	13,021	$	1,095	$	9,894

Age Analysis on Accruing Past-due Loans and Nonaccrual Loans

The table below provides an age analysis on accruing past-due loans and nonaccrual loans:

	30-89 Days Past Due		90 Days or More Past Due		Nonaccrual
September 30, 2021
Commercial real estate	$	598	$	34	$	1,767
Commercial - specialized		43		62		293
Commercial - general		698		149		5,564
Consumer:
1-4 family residential		1,998		410		2,313
Auto loans		330		23		—
Other consumer		729		69		46
Construction		457		—		166
Total	$	4,853	$	747	$	10,149
December 31, 2020
Commercial real estate	$	914	$	34	$	6,311
Commercial - specialized		241		—		272
Commercial - general		1,891		149		5,489
Consumer:
1-4 family residential		2,089		906		1,595
Auto loans		738		38		—
Other consumer		481		119		51
Construction		206		—		—
Total	$	6,560	$	1,246	$	13,718

Summary of Internal Classifications of Loans

The following table summarizes the internal classifications of loans:

	Pass		Special Mention		Substandard		Doubtful		Total
September 30, 2021
Commercial real estate	$	684,939	$	—	$	61,836	$	—	$	746,775
Commercial - specialized		384,220		—		6,174		—		390,394
Commercial - general		443,221		1,684		7,871		—		452,776
Consumer:
1-4 family residential		379,706		—		7,461		—		387,167
Auto loans		238,310		—		1,087		—		239,397
Other consumer		68,756		—		323		—		69,079
Construction		143,287		—		166		—		143,453
Total	$	2,342,439	$	1,684	$	84,918	$	—	$	2,429,041
December 31, 2020
Commercial real estate	$	602,250	$	—	$	61,094	$	—	$	663,344
Commercial - specialized		303,831		—		7,855		—		311,686
Commercial - general		510,543		—		7,766		—		518,309
Consumer:
1-4 family residential		352,930		—		7,385		—		360,315
Auto loans		204,301		—		1,539		—		205,840
Other consumer		67,216		—		379		—		67,595
Construction		94,494		—		—		—		94,494
Total	$	2,135,565	$	—	$	86,018	$	—	$	2,221,583

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GOODWILL AND INTANGIBLES (Tables)

9 Months Ended

Sep. 30, 2021

GOODWILL AND INTANGIBLES [Abstract]

Goodwill and Other Intangible Assets

Goodwill and other intangible assets are summarized below:

	September 30, 2021			December 31, 2020
Beginning goodwill	$	19,508		$	18,757
Arising from business combinations		—			—
Measurement period acquisition adjustment		—			751
Ending goodwill	$	19,508		$	19,508
Amortized intangible assets
Core deposit intangible	$	6,679		$	6,679
Less: Accumulated amortization		(2,216	)		(1,396	)
		4,463			5,283
Other intangibles		2,972			2,309
Arising from business combinations		—			663
Less: Accumulated amortization		(1,139	)		(693	)
		1,833			2,279
Other intangible assets, net	$	6,296		$	7,562

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STOCK-BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2021

STOCK-BASED COMPENSATION [Abstract]

Summary of Stock Option Activity

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		1,554,894		$	14.77			$	14,941
Granted		214,452			19.46				1,055
Exercised		(3,666	)		17.94				(24	)
Forfeited		(6,152	)		18.56				(36	)
Expired		—			—				—
Balance, September 30, 2021		1,759,528		$	15.32		5.73	$	15,936
Exercisable at end of period		1,122,353		$	13.21		4.94	$	12,541
Vested at end of period		1,122,353		$	13.21		4.94	$	12,541

Summary of Assumptions Used to Calculate Fair Value of Awards

A summary of assumptions used to calculate the fair values of the awards granted during the periods noted is presented below:

	Nine Months Ended September 30,
	2021			2020
Expected volatility	41.20% to 41.32%				27.46	%
Expected dividend yield		1.00	%		0.70	%
Expected term (years)	6.1 to 6.2 years			6.2 years
Risk-free interest rate	0.52% to 0.83%				1.44	%
Weighted average grant date fair value	$	7.07		$	5.68

Summary of Activity of Restricted Stock Units

A summary of activity in the Plan is presented in the table below:

	Number of Shares			Weighted-Average Grant Date Fair Value
Nine Months Ended September 30, 2021
Outstanding at beginning of year:		62,476		$	19.47
Granted		6,370			19.62
Vested		(24,805	)		19.70
Forfeited		(1,274	)		19.62
Balance, September 30, 2021		42,767		$	19.35

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES [Abstract]

Financial Instrument Whose Contract Amounts Represent Credit Risk Outstanding

Financial instruments whose contract amounts represent credit risk outstanding follow:

	September 30, 2021		December 31, 2020
Commitments to grant loans and unfunded commitments under lines of credit	$	547,738	$	417,798
Standby letters of credit		12,420		10,481

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CAPITAL AND REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2021

CAPITAL AND REGULATORY MATTERS [Abstract]

Actual Capital Amounts and Ratios

The Company and its bank subsidiary’s actual capital amounts and ratios follow:

	Actual					Minimum Required Under BASEL III Fully Phased-In					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2021
Total Capital to Risk Weighted Assets:
Consolidated	$	514,327		18.19	%	$	296,912		10.50	%		N/A		N/A
City Bank		421,458		14.91	%		296,838		10.50	%	$	282,703		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		403,159		14.26	%		240,358		8.50	%		N/A		N/A
City Bank		386,026		13.65	%		240,298		8.50	%		226,162		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		358,159		12.67	%		197,942		7.00	%		N/A		N/A
City Bank		386,026		13.65	%		197,892		7.00	%		183,757		6.50	%
Tier I Capital to Average Assets:
Consolidated		403,159		10.83	%		149,932		4.00	%		N/A		N/A
City Bank		386,026		10.38	%		149,854		4.00	%		186,027		5.00	%
December 31, 2020
Total Capital to Risk Weighted Assets:
Consolidated	$	473,425		19.08	%	$	260,531		10.50	%		N/A		N/A
City Bank		404,138		16.29	%		260,481		10.50	%	$	248,077		10.00	%
Tier I Capital to Risk Weighted Assets:
Consolidated		366,639		14.78	%		210,906		8.50	%		N/A		N/A
City Bank		372,947		15.03	%		210,866		8.50	%		198,462		8.00	%
Common Equity Tier 1 to Risk Weighted Assets:
Consolidated		321,639		12.96	%		173,688		7.00	%		N/A		N/A
City Bank		372,947		15.03	%		173,654		7.00	%		161,250		6.50	%
Tier I Capital to Average Assets:
Consolidated		366,639		10.24	%		144,347		4.00	%		N/A		N/A
City Bank		372,947		10.42	%		144,282		4.00	%		178,999		5.00	%

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DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2021

DERIVATIVES [Abstract]

Fair Value Hedges

The following table reflects the fair value hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Interest rate swaps related to fixed rate loans	$	9,911	$	576	$	10,178	$	927
Included in other assets:
Interest rate swaps related to fixed rate loans	$	—	$	—	$	—	$	—

The following table reflects the cash flow hedges included in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other liabilities:
Cash flow swaps related to state and municipal securities	$	—	$	—	$	68,485	$	1,643
Included in other assets:
Cash flow swaps related to state and municipal securities	$	123,760	$	4,828	$	55,275	$	1,618

Fair Value of Derivatives in Consolidated Balance Sheets

The following table reflects the amount and fair value of mortgage banking derivatives in the consolidated balance sheets:

	September 30, 2021				December 31, 2020
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Forward contracts related to mortgage loans held for sale	$	—	$	—	$	—	$	—
Interest rate lock commitments		142,419		3,453		210,716		5,115
Total included in other assets	$	142,419	$	3,453	$	210,716	$	5,115
Included in other liabilities:
Forward contracts related to mortgage loans held for sale	$	129,045	$	879	$	203,669	$	1,787
Interest rate lock commitments		—		—		—		—
Total included in other liabilities	$	129,045	$	879	$	203,669	$	1,787

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2021

EARNINGS PER SHARE [Abstract]

Factors Used in Earnings Per Share Computation

The factors used in the earnings per share computation follow:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	15,190	$	16,731	$	44,000	$	29,429
Weighted average common shares outstanding - basic		17,931,174		18,059,174		18,012,963		18,054,678
Effect of dilutive securities:
Stock-based compensation awards		532,523		196,987		503,525		269,044
Weighted average common shares outstanding - diluted		18,463,697		18,256,161		18,516,488		18,323,722
Basic earnings per share	$	0.85	$	0.93	$	2.44	$	1.63
Diluted earnings per share	$	0.82	$	0.92	$	2.38	$	1.61

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SEGMENT INFORMATION (Tables)

9 Months Ended

Sep. 30, 2021

SEGMENT INFORMATION [Abstract]

Financial Results by Reportable Segment

Financial results by reportable segment are detailed below:

Three Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	31,178		$	—		$	31,178
Provision for loan loss		—			—			—
Noninterest income		22,043			3,748			25,791
Noninterest expense		(35,613	)		(2,450	)		(38,063	)
Income before income taxes		17,608			1,298			18,906
Income tax (expense) benefit		(3,495	)		(221	)		(3,716	)
Net income	$	14,113		$	1,077		$	15,190

Three Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	31,273		$	—		$	31,273
Provision for loan loss		(6,062	)		—			(6,062	)
Noninterest income		28,393			3,267			31,660
Noninterest expense		(33,984	)		(2,009	)		(35,993	)
Income before income taxes		19,620			1,258			20,878
Income tax (expense) benefit		(3,891	)		(256	)		(4,147	)
Net income	$	15,729		$	1,002		$	16,731

Financial results by reportable segment are detailed below:

Nine Months Ended September 30, 2021	Banking			Insurance			Consolidated
Net interest income	$	90,315		$	—		$	90,315
Provision for loan loss		1,918			—			1,918
Noninterest income		68,536			6,005			74,541
Noninterest expense		(107,233	)		(4,665	)		(111,898	)
Income before income taxes		53,536			1,340			54,876
Income tax (expense) benefit		(10,645	)		(231	)		(10,876	)
Net income	$	42,891		$	1,109		$	44,000

Nine Months Ended September 30, 2020	Banking			Insurance			Consolidated
Net interest income	$	91,920		$	—		$	91,920
Provision for loan loss		(25,429	)		—			(25,429	)
Noninterest income		70,050			5,381			75,431
Noninterest expense		(100,876	)		(4,335	)		(105,211	)
Income before income taxes		35,665			1,046			36,711
Income tax (expense) benefit		(7,008	)		(274	)		(7,282	)
Net income	$	28,657		$	772		$	29,429

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FAIR VALUE DISCLOSURES (Tables)

9 Months Ended

Sep. 30, 2021

FAIR VALUE DISCLOSURES [Abstract]

Assets (Liabilities) Measured at Fair Value on Recurring and Non-Recurring Basis

The following table summarizes fair value measurements:

	Level 1		Level 2			Level 3		Total
September 30, 2021
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	—		$	—	$	—
State and municipal		—		275,029			—		275,029
Mortgage-backed securities		—		328,858			—		328,858
Collateralized mortgage obligations		—		106,439			—		106,439
Asset-backed and other amortizing securities		—		29,446			—		29,446
Other securities		—		12,790			—		12,790
Loans held for sale (mandatory)		—		45,849			—		45,849
Mortgage servicing rights		—		—			18,122		18,122
Asset derivatives		—		8,281			—		8,281
Liability derivatives		—		(1,455	)		—		(1,455	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			7,285		7,285
Other real estate owned		—		—			1,081		1,081
December 31, 2020
Assets (liabilities) measured at fair value on a recurring basis:
Securities available for sale:
U.S. government and agencies	$	—	$	4,753		$	—	$	4,753
State and municipal		—		272,607			—		272,607
Mortgage-backed securities		—		373,362			—		373,362
Collateralized mortgage obligations		—		106,715			—		106,715
Asset-backed and other amortizing securities		—		33,572			—		33,572
Other securities		—		12,078			—		12,078
Loans held for sale (mandatory)		—		80,174			—		80,174
Mortgage servicing rights		—		—			9,049		9,049
Asset derivatives		—		6,734			—		6,734
Liability derivatives		—		(4,357	)		—		(4,357	)
Assets measured at fair value on a non-recurring basis:
Impaired loans		—		—			11,926		11,926
Other real estate owned		—		—			1,353		1,353

Quantitative Information about Non-Recurring Level 3 Fair Value Measurements

The following table presents quantitative information about recurring and non-recurring Level 3 fair value measurements:

	Fair Value		Valuation Techniques	Unobservable Inputs	Range of Discounts
September 30, 2021
Non-recurring:
Impaired loans	$	7,285	Third party appraisals or inspections	Collateral discounts and selling costs		20%-100	%
Other real estate owned		1,081	Third party appraisals or inspections	Collateral discounts and selling costs		0	%
Recurring:
Mortgage servicing rights		18,122	Discounted cash flows	Conditional prepayment rate		5.41	%
				Discount rate		9.14	%
December 31, 2020
Non-recurring:
Impaired loans	$	11,926	Third party appraisals or inspections	Collateral discounts and selling costs		0%-100	%
Other real estate owned		1,353	Third party appraisals or inspections	Collateral discounts and selling costs		15%-66	%
Recurring:
Mortgage servicing rights		9,049	Discounted cash flows	Conditional prepayment rate		4.48	%
				Discount rate		9.72	%

Estimated Fair Values, and Related Carrying Amounts of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
September 30, 2021
Financial assets:
Cash and cash equivalents	$	327,600	$	327,600	$	—	$	—	$	327,600
Loans, net		2,386,273		—		—		2,430,158		2,430,158
Accrued interest receivable		11,778		—		11,778		—		11,778
Bank-owned life insurance		71,676		—		71,676		—		71,676
Financial liabilities:
Deposits	$	3,212,245	$	2,879,997	$	334,870	$	—	$	3,214,867
Accrued interest payable		1,460		—		1,460		—		1,460
Notes payable & other borrowings		—		—		—		—		—
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,728		—		77,892		—		77,892

	Carrying Amount		Level 1		Level 2		Level 3		Total Fair Value
December 31, 2020
Financial assets:
Cash and cash equivalents	$	300,307	$	300,307	$	—	$	—	$	300,307
Loans, net		2,176,030		—		—		2,179,573		2,179,573
Accrued interest receivable		15,233		—		15,233		—		15,233
Bank-owned life insurance		70,731		—		70,731		—		70,731
Financial liabilities:
Deposits	$	2,974,351	$	2,649,830	$	329,609	$	—	$	2,979,439
Short-term borrowings		26,550		26,550		—		—		26,550
Accrued interest payable		2,113		—		2,113		—		2,113
Notes payable & other borrowings		75,000		—		75,000		—		75,000
Junior subordinated deferrable interest debentures		46,393		—		45,690		—		45,690
Subordinated debt securities		75,589		—		76,889		—		76,889

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020	Oct. 31, 2021
Loans [Abstract]
Number of days principal or interest payments are past due for loans to be placed on nonaccrual status	90 days
Goodwill and Other Intangible Assets [Abstract]
Impairment loss	$ 0	$ 0
Minimum [Member]
Allowance for Loan Losses [Abstract]
Threshold balance of loan to be specifically reviewed for impairment	$ 250
Subsequent Event [Member]
Subsequent Events [Abstract]
Stock repurchase program, amount authorized			$ 10,000
City Bank [Member] | Bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	City Bank
Windmark Insurance Agency, Inc. ("Windmark") [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	Windmark Insurance Agency, Inc. (“Windmark”)
Ruidoso Retail, Inc. [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	Ruidoso Retail, Inc.
CB Provence, LLC [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	CB Provence, LLC
CBT Brushy Creek, LLC [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	CBT Brushy Creek, LLC
CBT Properties, LLC [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Consolidated Subsidiaries	CBT Properties, LLC
South Plains Financial Capital Trusts (SPFCT) III-V [Member] | Non-bank Subsidiary [Member]
Subsidiaries Information [Abstract]
Wholly Owned, Equity Method Subsidiaries	South Plains Financial Capital Trusts (SPFCT) III-V
Substandard or Worse [Member] | Minimum [Member]
Allowance for Loan Losses [Abstract]
Threshold balance of loan to be specifically reviewed for impairment	$ 250
Customer Relationships [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful lives	5 years
Employment Agreements [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful lives	5 years
Core Deposit Intangible [Member] | Maximum [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful lives	10 years

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SECURITIES, Available for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Available for sale [Abstract]
Amortized cost	$ 739,309	$ 775,999
Gross unrealized gains	17,734	27,875
Gross unrealized losses	(4,481)	(787)
Fair value	752,562	803,087
U.S. Government and Agencies [Member]
Available for sale [Abstract]
Amortized cost	0	4,750
Gross unrealized gains	0	3
Gross unrealized losses	0	0
Fair value	0	4,753
State and Municipal [Member]
Available for sale [Abstract]
Amortized cost	266,306	261,023
Gross unrealized gains	9,273	11,704
Gross unrealized losses	(550)	(120)
Fair value	275,029	272,607
Mortgage-backed Securities [Member]
Available for sale [Abstract]
Amortized cost	326,022	359,542
Gross unrealized gains	6,342	14,014
Gross unrealized losses	(3,506)	(194)
Fair value	328,858	373,362
Collateralized Mortgage Obligations [Member]
Available for sale [Abstract]
Amortized cost	106,864	107,175
Gross unrealized gains	0	0
Gross unrealized losses	(425)	(460)
Fair value	106,439	106,715
Asset-backed and Other Amortizing Securities [Member]
Available for sale [Abstract]
Amortized cost	28,117	31,509
Gross unrealized gains	1,329	2,063
Gross unrealized losses	0	0
Fair value	29,446	33,572
Other Securities [Member]
Available for sale [Abstract]
Amortized cost	12,000	12,000
Gross unrealized gains	790	91
Gross unrealized losses	0	(13)
Fair value	$ 12,790	$ 12,078

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SECURITIES, Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Available for Sale, Amortized Cost [Abstract]
Within 1 year	$ 1,615
After 1 year through 5 years	6,864
After 5 years through 10 years	23,918
After 10 years	245,909
Other	461,003
Amortized cost	739,309	$ 775,999
Available for Sale, Fair Value [Abstract]
Within 1 year	1,640
After 1 year through 5 years	7,256
After 5 years through 10 years	25,227
After 10 years	253,697
Other	464,742
Fair value	$ 752,562	$ 803,087

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SECURITIES, Securities Transferred and Securities Pledged (Details) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2021 USD ($) Security	Dec. 31, 2020 USD ($) Security
SECURITIES [Abstract]
Holdings of securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders' equity | Security	0	0
Carrying value of securities pledged to collateralize public deposits and for other purposes | $	$ 486.0	$ 292.2

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SECURITIES, Securities with Unrealized Losses, Available for Sale (Details) $ in Thousands	Sep. 30, 2021 USD ($) Security	Dec. 31, 2020 USD ($)
Available for sale, Fair Value [Abstract]
Less than 12 months	$ 225,575	$ 203,683
12 months or more	54,630	0
Total	280,205	203,683
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	2,260	787
12 months or more	2,221	0
Total	$ 4,481	787
Number of securities with an unrealized loss | Security	29
U.S. Government and Agencies [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	$ 0	0
12 months or more	0	0
Total	0	0
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	0	0
12 months or more	0	0
Total	0	0
State and Municipal [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	52,939	0
12 months or more	0	0
Total	52,939	0
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	550	120
12 months or more	0	0
Total	550	120
Mortgage-backed Securities [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	66,197	93,482
12 months or more	54,630	0
Total	120,827	93,482
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	1,285	194
12 months or more	2,221	0
Total	3,506	194
Collateralized Mortgage Obligations [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	106,439	106,715
12 months or more	0	0
Total	106,439	106,715
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	425	460
12 months or more	0	0
Total	425	460
Asset-backed and Other Amortizing Securities [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	0	0
12 months or more	0	0
Total	0	0
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	0	0
12 months or more	0	0
Total	0	0
Other Securities [Member]
Available for sale, Fair Value [Abstract]
Less than 12 months	0	3,486
12 months or more	0	0
Total	0	3,486
Available for sale, Unrealized Loss [Abstract]
Less than 12 months	0	13
12 months or more	0	0
Total	$ 0	$ 13

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LOANS HELD FOR INVESTMENT, Summary of Loans by Category (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) Category	Jun. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Jun. 30, 2020 USD ($)	Dec. 31, 2019 USD ($)
Summary of Loans by Category [Abstract]
Loans, gross	$ 2,429,041		$ 2,221,583
Allowance for loan losses	(42,768)	$ (42,963)	(45,553)	$ (46,076)	$ (40,635)	$ (24,197)
Loans, net	2,386,273		2,176,030
Commercial Real Estate [Member]
Summary of Loans by Category [Abstract]
Loans, gross	746,775		663,344
Allowance for loan losses	$ (18,248)	(17,288)	(18,962)	(18,264)	(15,156)	(5,049)
Commercial [Member]
Summary of Loans by Category [Abstract]
Number of sub-categories of loans | Category	2
Commercial [Member] | Specialized [Member]
Summary of Loans by Category [Abstract]
Loans, gross	$ 390,394		311,686
Allowance for loan losses	(4,231)	(4,823)	(5,760)	(6,304)	(6,614)	(2,287)
Commercial [Member] | General [Member]
Summary of Loans by Category [Abstract]
Loans, gross	452,776		518,309
Allowance for loan losses	(8,171)	(8,948)	(9,227)	(9,989)	(9,293)	(9,609)
Consumer [Member] | 1-4 Family Residential [Member]
Summary of Loans by Category [Abstract]
Loans, gross	387,167		360,315
Allowance for loan losses	(5,201)	(5,064)	(4,646)	(4,684)	(2,926)	(2,093)
Consumer [Member] | Auto Loans [Member]
Summary of Loans by Category [Abstract]
Loans, gross	239,397		205,840
Allowance for loan losses	(3,803)	(3,815)	(4,226)	(4,233)	(3,939)	(3,385)
Consumer [Member] | Other Consumer [Member]
Summary of Loans by Category [Abstract]
Loans, gross	69,079		67,595
Allowance for loan losses	(1,402)	(1,434)	(1,671)	(1,727)	(1,640)	(1,341)
Construction [Member]
Summary of Loans by Category [Abstract]
Loans, gross	143,453		94,494
Allowance for loan losses	$ (1,712)	$ (1,591)	$ (1,061)	$ (875)	$ (1,067)	$ (433)

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LOANS HELD FOR INVESTMENT, Activity in Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
LOANS HELD FOR INVESTMENT [Abstract]
Ratio of allowance for loan losses to loans held for investment	1.76%			1.76%		2.05%
Allowance for Loan Losses [Roll Forward]
Beginning Balance	$ 42,963		$ 40,635	$ 45,553	$ 24,197
Provision for loan losses	0	$ 2,000	6,062	(1,918)	25,429
Charge-offs	(342)		(1,011)	(1,480)	(4,694)
Recoveries	147		390	613	1,144
Ending Balance	42,768	42,963	46,076	42,768	46,076
Commercial Real Estate [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	17,288		15,156	18,962	5,049
Provision for loan losses	960		3,085	(714)	12,977
Charge-offs	0		0	0	0
Recoveries	0		23	0	238
Ending Balance	18,248	17,288	18,264	18,248	18,264
Commercial [Member] | Specialized [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	4,823		6,614	5,760	2,287
Provision for loan losses	(596)		(220)	(1,627)	4,870
Charge-offs	(16)		(109)	(21)	(959)
Recoveries	20		19	119	106
Ending Balance	4,231	4,823	6,304	4,231	6,304
Commercial [Member] | General [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	8,948		9,293	9,227	9,609
Provision for loan losses	(838)		977	(870)	1,952
Charge-offs	(2)		(372)	(379)	(1,752)
Recoveries	63		91	193	180
Ending Balance	8,171	8,948	9,989	8,171	9,989
Consumer [Member] | 1-4 Family Residential [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	5,064		2,926	4,646	2,093
Provision for loan losses	135		1,688	602	2,520
Charge-offs	0		(56)	(52)	(56)
Recoveries	2		126	5	127
Ending Balance	5,201	5,064	4,684	5,201	4,684
Consumer [Member] | Auto Loans [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	3,815		3,939	4,226	3,385
Provision for loan losses	79		474	(88)	1,624
Charge-offs	(111)		(212)	(438)	(916)
Recoveries	20		32	103	140
Ending Balance	3,803	3,815	4,233	3,803	4,233
Consumer [Member] | Other Consumer [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	1,434		1,640	1,671	1,341
Provision for loan losses	139		250	132	1,045
Charge-offs	(213)		(262)	(590)	(1,011)
Recoveries	42		99	189	352
Ending Balance	1,402	1,434	1,727	1,402	1,727
Construction [Member]
Allowance for Loan Losses [Roll Forward]
Beginning Balance	1,591		1,067	1,061	433
Provision for loan losses	121		(192)	647	441
Charge-offs	0		0	0	0
Recoveries	0		0	4	1
Ending Balance	$ 1,712	$ 1,591	$ 875	$ 1,712	$ 875

XML

LOANS HELD FOR INVESTMENT, Investment in loans Disaggregated Based on Method of Evaluating Impairment (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Recorded Investment [Abstract]
Individually Evaluated	$ 8,091	$ 13,021
Collectively Evaluated	2,420,950	2,208,562
Allowance for Loan Losses [Abstract]
Individually Evaluated	806	1,095
Collectively Evaluated	41,962	44,458
Commercial Real Estate [Member]
Recorded Investment [Abstract]
Individually Evaluated	1,741	6,273
Collectively Evaluated	745,033	657,071
Allowance for Loan Losses [Abstract]
Individually Evaluated	0	580
Collectively Evaluated	18,248	18,382
Commercial [Member] | Specialized [Member]
Recorded Investment [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	390,395	311,686
Allowance for Loan Losses [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	4,231	5,760
Commercial [Member] | General [Member]
Recorded Investment [Abstract]
Individually Evaluated	5,115	4,626
Collectively Evaluated	447,661	513,683
Allowance for Loan Losses [Abstract]
Individually Evaluated	763	515
Collectively Evaluated	7,408	8,712
Consumer [Member] | 1-4 Family Residential [Member]
Recorded Investment [Abstract]
Individually Evaluated	1,235	2,122
Collectively Evaluated	385,932	358,193
Allowance for Loan Losses [Abstract]
Individually Evaluated	43	0
Collectively Evaluated	5,158	4,646
Consumer [Member] | Auto Loans [Member]
Recorded Investment [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	239,397	205,840
Allowance for Loan Losses [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	3,803	4,226
Consumer [Member] | Other Consumer [Member]
Recorded Investment [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	69,079	67,595
Allowance for Loan Losses [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	1,402	1,671
Construction [Member]
Recorded Investment [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	143,453	94,494
Allowance for Loan Losses [Abstract]
Individually Evaluated	0	0
Collectively Evaluated	$ 1,712	$ 1,061

XML

LOANS HELD FOR INVESTMENT, Impaired Loan Information (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	$ 8,091	$ 13,440
Recorded Investment [Abstract]
Recorded Investment With No Allowance	3,075	9,159
Recorded Investment With Allowance	5,016	3,862
Total Recorded Investment	8,091	13,021
Related Allowance	806	1,095
Average Recorded Investment	10,557	9,894
Minimum [Member]
Recorded Investment [Abstract]
Threshold balance of loan to be specifically reviewed for impairment	250
Commercial Real Estate [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	1,741	6,273
Recorded Investment [Abstract]
Recorded Investment With No Allowance	1,741	3,673
Recorded Investment With Allowance	0	2,600
Total Recorded Investment	1,741	6,273
Related Allowance	0	580
Average Recorded Investment	4,007	3,666
Commercial [Member] | Specialized [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	0	0
Recorded Investment [Abstract]
Recorded Investment With No Allowance	0	0
Recorded Investment With Allowance	0	0
Total Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	673
Commercial [Member] | General [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	5,115	4,626
Recorded Investment [Abstract]
Recorded Investment With No Allowance	398	3,364
Recorded Investment With Allowance	4,717	1,262
Total Recorded Investment	5,115	4,626
Related Allowance	763	515
Average Recorded Investment	4,871	3,400
Consumer [Member] | 1-4 Family Residential [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	1,235	2,541
Recorded Investment [Abstract]
Recorded Investment With No Allowance	936	2,122
Recorded Investment With Allowance	299	0
Total Recorded Investment	1,235	2,122
Related Allowance	43	0
Average Recorded Investment	1,679	2,155
Consumer [Member] | Auto Loans [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	0	0
Recorded Investment [Abstract]
Recorded Investment With No Allowance	0	0
Recorded Investment With Allowance	0	0
Total Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Consumer [Member] | Other Consumer [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	0	0
Recorded Investment [Abstract]
Recorded Investment With No Allowance	0	0
Recorded Investment With Allowance	0	0
Total Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	0	0
Construction [Member]
Impaired Loan Information [Abstract]
Unpaid Contractual Principal Balance	0	0
Recorded Investment [Abstract]
Recorded Investment With No Allowance	0	0
Recorded Investment With Allowance	0	0
Total Recorded Investment	0	0
Related Allowance	0	0
Average Recorded Investment	$ 0	$ 0

XML

LOANS HELD FOR INVESTMENT, Age Analysis on Accruing Past-due Loans and Nonaccrual Loans (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) Point	Dec. 31, 2020 USD ($)
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	$ 2,429,041	$ 2,221,583
Nonaccrual	$ 10,149	13,718
Number of points on a grading scale for loans | Point	13
30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	$ 4,853	6,560
90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	747	1,246
Commercial Real Estate [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	746,775	663,344
Nonaccrual	1,767	6,311
Commercial Real Estate [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	598	914
Commercial Real Estate [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	34	34
Commercial [Member] | Specialized [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	390,394	311,686
Nonaccrual	293	272
Commercial [Member] | Specialized [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	43	241
Commercial [Member] | Specialized [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	62	0
Commercial [Member] | General [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	452,776	518,309
Nonaccrual	5,564	5,489
Commercial [Member] | General [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	698	1,891
Commercial [Member] | General [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	149	149
Consumer [Member] | 1-4 Family Residential [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	387,167	360,315
Nonaccrual	2,313	1,595
Consumer [Member] | 1-4 Family Residential [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	1,998	2,089
Consumer [Member] | 1-4 Family Residential [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	410	906
Consumer [Member] | Auto Loans [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	239,397	205,840
Nonaccrual	0	0
Consumer [Member] | Auto Loans [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	330	738
Consumer [Member] | Auto Loans [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	23	38
Consumer [Member] | Other Consumer [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	69,079	67,595
Nonaccrual	46	51
Consumer [Member] | Other Consumer [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	729	481
Consumer [Member] | Other Consumer [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	69	119
Construction [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	143,453	94,494
Nonaccrual	166	0
Construction [Member] | 30-89 Days Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	457	206
Construction [Member] | 90 Days or More Past Due [Member]
Age Analysis on Accruing Past-due Loans and Nonaccrual Loans [Abstract]
Loans	$ 0	$ 0

XML

LOANS HELD FOR INVESTMENT, Summary of Internal Classifications of Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Loans by Internal Classifications [Abstract]
Loans	$ 2,429,041	$ 2,221,583
Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	2,342,439	2,135,565
Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	1,684	0
Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	84,918	86,018
Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Commercial Real Estate [Member]
Loans by Internal Classifications [Abstract]
Loans	746,775	663,344
Commercial Real Estate [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	684,939	602,250
Commercial Real Estate [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Commercial Real Estate [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	61,836	61,094
Commercial Real Estate [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Commercial [Member] | Specialized [Member]
Loans by Internal Classifications [Abstract]
Loans	390,394	311,686
Commercial [Member] | Specialized [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	384,220	303,831
Commercial [Member] | Specialized [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Commercial [Member] | Specialized [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	6,174	7,855
Commercial [Member] | Specialized [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Commercial [Member] | General [Member]
Loans by Internal Classifications [Abstract]
Loans	452,776	518,309
Commercial [Member] | General [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	443,221	510,543
Commercial [Member] | General [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	1,684	0
Commercial [Member] | General [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	7,871	7,766
Commercial [Member] | General [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | 1-4 Family Residential [Member]
Loans by Internal Classifications [Abstract]
Loans	387,167	360,315
Consumer [Member] | 1-4 Family Residential [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	379,706	352,930
Consumer [Member] | 1-4 Family Residential [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | 1-4 Family Residential [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	7,461	7,385
Consumer [Member] | 1-4 Family Residential [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | Auto Loans [Member]
Loans by Internal Classifications [Abstract]
Loans	239,397	205,840
Consumer [Member] | Auto Loans [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	238,310	204,301
Consumer [Member] | Auto Loans [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | Auto Loans [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	1,087	1,539
Consumer [Member] | Auto Loans [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | Other Consumer [Member]
Loans by Internal Classifications [Abstract]
Loans	69,079	67,595
Consumer [Member] | Other Consumer [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	68,756	67,216
Consumer [Member] | Other Consumer [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Consumer [Member] | Other Consumer [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	323	379
Consumer [Member] | Other Consumer [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Construction [Member]
Loans by Internal Classifications [Abstract]
Loans	143,453	94,494
Construction [Member] | Pass [Member]
Loans by Internal Classifications [Abstract]
Loans	143,287	94,494
Construction [Member] | Special Mention [Member]
Loans by Internal Classifications [Abstract]
Loans	0	0
Construction [Member] | Substandard [Member]
Loans by Internal Classifications [Abstract]
Loans	166	0
Construction [Member] | Doubtful [Member]
Loans by Internal Classifications [Abstract]
Loans	$ 0	$ 0

XML

LOANS HELD FOR INVESTMENT, COVID-19 Related Deferral and Modification (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) Loan	Dec. 31, 2020 USD ($)
CARES Act [Abstract]
TDRs	$ 0	$ 0
Covid-19 [Member]
CARES Act [Abstract]
Number of outstanding loans subject to deferral and modification agreements | Loan	3
Amount of outstanding loans subject to deferral and modification agreements	$ 16,000
Percentage of loans modified under CARES Act	0.70%
Covid-19 [Member] | Short-term Deferral Modification Program [Member]
CARES Act [Abstract]
Number of loans modified under CARES Act | Loan	23
Amount of outstanding principal balance of loans modified under CARES Act	$ 414

XML

GOODWILL AND INTANGIBLES (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Goodwill and Other Intangible Assets [Abstract]
Beginning goodwill	$ 19,508	$ 18,757
Arising from business combinations	0	0
Measurement period acquisition adjustment	0	751
Ending goodwill	19,508	19,508
Amortized Intangible Assets [Abstract]
Other intangible assets, net	6,296	7,562
Core Deposit Intangible [Member]
Amortized Intangible Assets [Abstract]
Other intangible assets, gross	6,679	6,679
Less: Accumulated amortization	(2,216)	(1,396)
Other intangible assets, net	4,463	5,283
Other Intangibles [Member]
Amortized Intangible Assets [Abstract]
Other intangible assets, gross	2,972	2,309
Arising from business combinations	0	663
Less: Accumulated amortization	(1,139)	(693)
Other intangible assets, net	$ 1,833	$ 2,279

XML

BORROWING ARRANGEMENTS, Subordinated Debt Securities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020	Sep. 29, 2020	Dec. 31, 2018
Subordinated Debt Securities [Abstract]
Subordinated debt securities	$ 75,728	$ 75,589
Subordinated Debt Securities Issued in December 2018 [Member]
Subordinated Debt Securities [Abstract]
Debt instrument, face amount				$ 26,500
Subordinated Debt Securities Issued in December 2018 [Member] | Debt Securities One [Member]
Subordinated Debt Securities [Abstract]
Debt instrument, face amount				$ 12,400
Debt instrument, maturity date	Dec. 31, 2028
Debt instrument, initial interest rate				5.74%
Debt instrument, period of fixed interest rate	5 years
Debt instrument, variable interest rate, floor	4.50%
Debt instrument, variable interest rate, ceiling	7.50%
Subordinated Debt Securities Issued in December 2018 [Member] | Debt Securities One [Member] | Maximum [Member]
Subordinated Debt Securities [Abstract]
Remaining maturity period during which debt can be called	5 years
Subordinated Debt Securities Issued in December 2018 [Member] | Debt Securities Two [Member]
Subordinated Debt Securities [Abstract]
Debt instrument, face amount				$ 14,100
Debt instrument, maturity date	Dec. 31, 2030
Debt instrument, initial interest rate				6.41%
Debt instrument, period of fixed interest rate	7 years
Debt instrument, variable interest rate, floor	4.50%
Debt instrument, variable interest rate, ceiling	7.50%
Subordinated Debt Securities Issued in December 2018 [Member] | Debt Securities Two [Member] | Maximum [Member]
Subordinated Debt Securities [Abstract]
Remaining maturity period during which debt can be called	5 years
Subordinated Debt Securities Issued in September 29, 2020 [Member]
Subordinated Debt Securities [Abstract]
Debt instrument, face amount			$ 50,000
Debt issuance cost			$ 926
Debt instrument, maturity date	Sep. 30, 2030
Debt instrument, initial interest rate			4.50%
Debt instrument, period of fixed interest rate	5 years
Subordinated Debt Securities Issued in September 29, 2020 [Member] | SOFR [Member]
Subordinated Debt Securities [Abstract]
Term of variable rate	3 months
Basis spread on variable rate	4.38%
Subordinated Debt Securities Issued in September 29, 2020 [Member] | Maximum [Member]
Subordinated Debt Securities [Abstract]
Remaining maturity period during which debt can be called	5 years
Subordinated Debt [Member]
Subordinated Debt Securities [Abstract]
Debt instrument, face amount	$ 76,500
Debt issuance cost	744
Subordinated debt securities	$ 75,700

XML

BORROWING ARRANGEMENTS, Notes Payable and Other Borrowings (Details) $ in Thousands	1 Months Ended		9 Months Ended
	Apr. 30, 2021 USD ($)	Mar. 31, 2021 USD ($) Advance	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($) Advance
Detail of Advances from FHLB [Abstract]
Repayment of advances			$ 75,000	$ 95,000
Federal Home Loan Bank Advance [Member]
Detail of Advances from FHLB [Abstract]
Number of advances | Advance					3
Original amount of advances			$ 0		$ 75,000
Number of advances repaid | Advance		2
Repayment of advances	$ 25,000	$ 50,000

XML

STOCK-BASED COMPENSATION, Equity Incentive Plan (Details) - 2019 Equity Incentive Plan [Member]	Mar. 06, 2019 shares
Equity Incentive Plan [Abstract]
Maximum aggregate number of shares of common stock that may be issued (in shares)	2,300,000
Maximum [Member]
Equity Incentive Plan [Abstract]
Annual increase in number of shares that may be issued	3.00%

XML

STOCK-BASED COMPENSATION, Stock Options Activity (Details) - 2019 Equity Incentive Plan [Member] - Stock Option [Member] $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) $ / shares shares
Number of Shares [Roll Forward]
Outstanding at beginning of year (in shares) | shares	1,554,894
Granted (in shares) | shares	214,452
Exercised (in shares) | shares	(3,666)
Forfeited (in shares) | shares	(6,152)
Expired (in shares) | shares	0
Balance at end of period (in shares) | shares	1,759,528
Exercisable at end of period (in shares) | shares	1,122,353
Vested at end of period (in shares) | shares	1,122,353
Weighted-Average Exercise Price [Abstract]
Outstanding at beginning of year (in dollars per share) | $ / shares	$ 14.77
Granted (in dollars per share) | $ / shares	19.46
Exercised (in dollars per share) | $ / shares	17.94
Forfeited (in dollars per share) | $ / shares	18.56
Expired (in dollars per share) | $ / shares	0
Balance at end of period (in dollars per share) | $ / shares	15.32
Exercisable at end of period (in dollars per share) | $ / shares	13.21
Vested at end of period (in dollars per share) | $ / shares	$ 13.21
Weighted Average Remaining Contractual Life in Years [Abstract]
Options Outstanding	5 years 8 months 23 days
Exercisable at end of period	4 years 11 months 8 days
Vested at end of period	4 years 11 months 8 days
Aggregate Intrinsic Value [Abstract]
Outstanding at beginning of year | $	$ 14,941
Granted | $	1,055
Exercised | $	(24)
Forfeited | $	(36)
Expired | $	0
Balance at end of period | $	15,936
Exercisable at end of period | $	12,541
Vested at end of period | $	$ 12,541

XML

STOCK-BASED COMPENSATION, Fair Value Assumptions (Details) - Stock Option [Member] - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Summary of Assumptions Used to Calculate Fair Value of Awards [Abstract]
Expected volatility		27.46%
Expected dividend yield	1.00%	0.70%
Expected term		6 years 2 months 12 days
Risk-free interest rate		1.44%
Weighted average grant date fair value (in dollars per share)	$ 7.07	$ 5.68
Minimum [Member]
Summary of Assumptions Used to Calculate Fair Value of Awards [Abstract]
Expected volatility	41.20%
Expected term	6 years 1 month 6 days
Risk-free interest rate	0.52%
Maximum [Member]
Summary of Assumptions Used to Calculate Fair Value of Awards [Abstract]
Expected volatility	41.32%
Expected term	6 years 2 months 12 days
Risk-free interest rate	0.83%
2019 Equity Incentive Plan [Member]
Equity Incentive Plan [Abstract]
Intrinsic value of options exercised	$ 17	$ 185

XML

STOCK-BASED COMPENSATION, Restricted Stock Units (Details) - Restricted Stock Units [Member] - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Number of Shares [Roll Forward]
Outstanding at beginning of year (in shares)	62,476
Granted (in shares)	6,370
Vested (in shares)	(24,805)
Forfeited (in shares)	(1,274)
Balance at ending of period (in shares)	42,767
Weighted-Average Exercise Price [Abstract]
Outstanding at beginning of year (in dollars per share)	$ 19.47
Granted (in dollars per share)	19.62
Vested (in dollars per share)	19.70
Forfeited (in dollars per share)	19.62
Balance at ending of period (in dollars per share)	$ 19.35
Award vesting period	4 years
Unrecognized compensation cost	$ 3,100
Weighted average remaining period, recognition of compensation cost	1 year 6 months 10 days
Fair value of restricted stock units vested	$ 489	$ 489

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
FHLB Letters of Credit [Abstract]
Letters of credit outstanding balance	$ 0	$ 199,000
Commitments to Grant Loans and Unfunded Commitments Under Lines of Credit [Member]
Financial instruments with off-balance-sheet risk [Abstract]
Financial instruments whose contract amounts represent credit risk outstanding	547,738	417,798
Standby Letters of Credit [Member]
Financial instruments with off-balance-sheet risk [Abstract]
Financial instruments whose contract amounts represent credit risk outstanding	$ 12,420	$ 10,481

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CAPITAL AND REGULATORY MATTERS (Details) $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Consolidated [Member]
Total Capital to Risk Weighted Assets [Abstract]
Actual, Amount	$ 514,327	$ 473,425
Actual, Ratio	0.1819	0.1908
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 296,912	$ 260,531
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.1050	0.1050
Tier I Capital to Risk Weighted Assets [Abstract]
Actual, Amount	$ 403,159	$ 366,639
Actual, Ratio	0.1426	0.1478
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 240,358	$ 210,906
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0850	0.0850
Common Equity Tier 1 to Risk Weighted Assets [Abstract]
Actual, Amount	$ 358,159	$ 321,639
Actual, Ratio	0.1267	0.1296
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 197,942	$ 173,688
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0700	0.0700
Tier I Capital to Average Assets [Abstract]
Actual, Amount	$ 403,159	$ 366,639
Actual, Ratio	0.1083	0.1024
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 149,932	$ 144,347
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0400	0.0400
City Bank [Member]
Total Capital to Risk Weighted Assets [Abstract]
Actual, Amount	$ 421,458	$ 404,138
Actual, Ratio	0.1491	0.1629
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 296,838	$ 260,481
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.1050	0.1050
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 282,703	$ 248,077
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.1000	0.1000
Tier I Capital to Risk Weighted Assets [Abstract]
Actual, Amount	$ 386,026	$ 372,947
Actual, Ratio	0.1365	0.1503
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 240,298	$ 210,866
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0850	0.0850
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 226,162	$ 198,462
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0800	0.0800
Common Equity Tier 1 to Risk Weighted Assets [Abstract]
Actual, Amount	$ 386,026	$ 372,947
Actual, Ratio	0.1365	0.1503
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 197,892	$ 173,654
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0700	0.0700
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 183,757	$ 161,250
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0650	0.0650
Tier I Capital to Average Assets [Abstract]
Actual, Amount	$ 386,026	$ 372,947
Actual, Ratio	0.1038	0.1042
Minimum Required Under BASEL III Fully Phased-In, Amount	$ 149,854	$ 144,282
Minimum Required Under BASEL III Fully Phased-In, Ratio	0.0400	0.0400
To Be Well Capitalized Under Prompt Corrective Action Provisions, Amount	$ 186,027	$ 178,999
To Be Well Capitalized Under Prompt Corrective Action Provisions, Ratio	0.0500	0.0500

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DERIVATIVES, Fair Value Hedges (Details) - Fair Value Hedging [Member] - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Interest Rate Swaps [Member] | Other Liabilities [Member]
Fair value hedges included in Consolidated Balance Sheets [Abstract]
Derivative liability, notional amount	$ 9,911	$ 10,178
Derivative liability, fair value	576	927
Interest Rate Swaps [Member] | Other Assets [Member]
Fair value hedges included in Consolidated Balance Sheets [Abstract]
Derivative asset, notional amount	0	0
Derivative asset, fair value	0	0
Cash Flow Swaps [Member] | Other Liabilities [Member]
Fair value hedges included in Consolidated Balance Sheets [Abstract]
Derivative liability, notional amount	0	68,485
Derivative liability, fair value	0	1,643
Cash Flow Swaps [Member] | Other Assets [Member]
Fair value hedges included in Consolidated Balance Sheets [Abstract]
Derivative asset, notional amount	123,760	55,275
Derivative asset, fair value	$ 4,828	$ 1,618

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DERIVATIVES, Mortgage Banking Derivatives (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Other Assets [Member] | Interest Rate Swap [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Cash collateral advanced to offset liability position	$ 1,100
Other Liabilities [Member] | Cash Flow Hedging [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Cash collateral received to offset asset derivative positions	3,700
Mortgage Forward Contracts [Member] | Other Assets [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Cash collateral advanced to offset liability position	440
Mortgage Banking [Member] | Other Assets [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative asset, notional amount	142,419	$ 210,716
Derivative asset, fair value	3,453	5,115
Mortgage Banking [Member] | Other Liabilities [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative liability, notional amount	129,045	203,669
Derivative liability, fair value	879	1,787
Mortgage Banking [Member] | Forward Contracts [Member] | Other Assets [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative asset, notional amount	0	0
Derivative asset, fair value	0	0
Mortgage Banking [Member] | Forward Contracts [Member] | Other Liabilities [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative liability, notional amount	129,045	203,669
Derivative liability, fair value	879	1,787
Mortgage Banking [Member] | Interest Rate Lock Commitments [Member] | Other Assets [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative asset, notional amount	142,419	210,716
Derivative asset, fair value	3,453	5,115
Mortgage Banking [Member] | Interest Rate Lock Commitments [Member] | Other Liabilities [Member]
Notional amount and fair value of mortgage banking derivatives in Consolidated Balance Sheets [Abstract]
Derivative liability, notional amount	0	0
Derivative liability, fair value	$ 0	$ 0

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Basic [Abstract]
Net income	$ 15,190	$ 16,731	$ 44,000	$ 29,429
Weighted average common shares outstanding - basic (in shares)	17,931,174	18,059,174	18,012,963	18,054,678
Effect of dilutive securities [Abstract]
Stock-based compensation awards (in shares)	532,523	196,987	503,525	269,044
Weighted average common shares outstanding - diluted (in shares)	18,463,697	18,256,161	18,516,488	18,323,722
Basic earnings per share (in dollars per share)	$ 0.85	$ 0.93	$ 2.44	$ 1.63
Diluted earnings per share (in dollars per share)	$ 0.82	$ 0.92	$ 2.38	$ 1.61

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SEGMENT INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Financial results by reportable segments [Abstract]
Net interest income	$ 31,178		$ 31,273	$ 90,315	$ 91,920
Provision for loan loss	0	$ (2,000)	(6,062)	1,918	(25,429)
Noninterest income	25,791		31,660	74,541	75,431
Noninterest expense	(38,063)		(35,993)	(111,898)	(105,211)
Income before income taxes	18,906		20,878	54,876	36,711
Income tax (expense) benefit	(3,716)		(4,147)	(10,876)	(7,282)
Net income	15,190		16,731	44,000	29,429
Banking [Member] | Operating Segments [Member]
Financial results by reportable segments [Abstract]
Net interest income	31,178		31,273	90,315	91,920
Provision for loan loss	0		(6,062)	1,918	(25,429)
Noninterest income	22,043		28,393	68,536	70,050
Noninterest expense	(35,613)		(33,984)	(107,233)	(100,876)
Income before income taxes	17,608		19,620	53,536	35,665
Income tax (expense) benefit	(3,495)		(3,891)	(10,645)	(7,008)
Net income	14,113		15,729	42,891	28,657
Insurance [Member] | Operating Segments [Member]
Financial results by reportable segments [Abstract]
Net interest income	0		0	0	0
Provision for loan loss	0		0	0	0
Noninterest income	3,748		3,267	6,005	5,381
Noninterest expense	(2,450)		(2,009)	(4,665)	(4,335)
Income before income taxes	1,298		1,258	1,340	1,046
Income tax (expense) benefit	(221)		(256)	(231)	(274)
Net income	$ 1,077		$ 1,002	$ 1,109	$ 772

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FAIR VALUE DISCLOSURES, Assets (Liabilities) Measured at Fair Value on Recurring and Non-Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Securities available for sale [Abstract]
Securities available for sale	$ 752,562	$ 803,087
U.S. Government and Agencies [Member]
Securities available for sale [Abstract]
Securities available for sale	0	4,753
State and Municipal [Member]
Securities available for sale [Abstract]
Securities available for sale	275,029	272,607
Mortgage-Backed Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	328,858	373,362
Collateralized Mortgage Obligations [Member]
Securities available for sale [Abstract]
Securities available for sale	106,439	106,715
Other Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	12,790	12,078
Recurring [Member]
Securities available for sale [Abstract]
Asset-backed and other amortizing securities	29,446	33,572
Loans held for sale (mandatory)	45,849	80,174
Mortgage servicing rights	18,122	9,049
Asset derivatives	8,281	6,734
Liability derivatives	(1,455)	(4,357)
Recurring [Member] | U.S. Government and Agencies [Member]
Securities available for sale [Abstract]
Securities available for sale	0	4,753
Recurring [Member] | State and Municipal [Member]
Securities available for sale [Abstract]
Securities available for sale	275,029	272,607
Recurring [Member] | Mortgage-Backed Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	328,858	373,362
Recurring [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale [Abstract]
Securities available for sale	106,439	106,715
Recurring [Member] | Other Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	12,790	12,078
Recurring [Member] | Level 1 [Member]
Securities available for sale [Abstract]
Asset-backed and other amortizing securities	0	0
Loans held for sale (mandatory)	0	0
Mortgage servicing rights	0	0
Asset derivatives	0	0
Liability derivatives	0	0
Recurring [Member] | Level 1 [Member] | U.S. Government and Agencies [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 1 [Member] | State and Municipal [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 1 [Member] | Mortgage-Backed Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 1 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 1 [Member] | Other Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 2 [Member]
Securities available for sale [Abstract]
Asset-backed and other amortizing securities	29,446	33,572
Loans held for sale (mandatory)	45,849	80,174
Mortgage servicing rights	0	0
Asset derivatives	8,281	6,734
Liability derivatives	(1,455)	(4,357)
Recurring [Member] | Level 2 [Member] | U.S. Government and Agencies [Member]
Securities available for sale [Abstract]
Securities available for sale	0	4,753
Recurring [Member] | Level 2 [Member] | State and Municipal [Member]
Securities available for sale [Abstract]
Securities available for sale	275,029	272,607
Recurring [Member] | Level 2 [Member] | Mortgage-Backed Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	328,858	373,362
Recurring [Member] | Level 2 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale [Abstract]
Securities available for sale	106,439	106,715
Recurring [Member] | Level 2 [Member] | Other Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	12,790	12,078
Recurring [Member] | Level 3 [Member]
Securities available for sale [Abstract]
Asset-backed and other amortizing securities	0	0
Loans held for sale (mandatory)	0	0
Mortgage servicing rights	18,122	9,049
Asset derivatives	0	0
Liability derivatives	0	0
Recurring [Member] | Level 3 [Member] | U.S. Government and Agencies [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 3 [Member] | State and Municipal [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 3 [Member] | Mortgage-Backed Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 3 [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Recurring [Member] | Level 3 [Member] | Other Securities [Member]
Securities available for sale [Abstract]
Securities available for sale	0	0
Non-recurring [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	7,285	11,926
Other real estate owned	1,081	1,353
Non-recurring [Member] | Level 1 [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	0	0
Other real estate owned	0	0
Non-recurring [Member] | Level 2 [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	0	0
Other real estate owned	0	0
Non-recurring [Member] | Level 3 [Member]
Assets measured at fair value on a non-recurring basis [Abstract]
Impaired loans	7,285	11,926
Other real estate owned	$ 1,081	$ 1,353

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FAIR VALUE DISCLOSURES, Quantitative Information about Recurring and Non-Recurring Level 3 Fair Value Measurements (Details) $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Non-recurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans	$ 7,285	$ 11,926
Other real estate owned	1,081	1,353
Non-recurring [Member] | Third Party Appraisals or Inspections [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans	7,285	11,926
Other real estate owned	$ 1,081	$ 1,353
Non-recurring [Member] | Third Party Appraisals or Inspections [Member] | Collateral Discounts and Selling Costs [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, discounts	0
Non-recurring [Member] | Third Party Appraisals or Inspections [Member] | Collateral Discounts and Selling Costs [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, discounts	0.20	0
Other real estate owned, discounts		0.15
Non-recurring [Member] | Third Party Appraisals or Inspections [Member] | Collateral Discounts and Selling Costs [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, discounts	1	1
Other real estate owned, discounts		0.66
Recurring [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Mortgage servicing rights	$ 18,122	$ 9,049
Recurring [Member] | Discounted Cash Flows [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Mortgage servicing rights	$ 18,122	$ 9,049
Recurring [Member] | Discounted Cash Flows [Member] | Conditional Prepayment Rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Mortgage servicing rights, discounts	0.0541	0.0448
Recurring [Member] | Discounted Cash Flows [Member] | Discount Rate [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Mortgage servicing rights, discounts	0.0914	0.0972

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FAIR VALUE DISCLOSURES, Estimated Fair Values, and Related Carrying Amounts (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Carrying Amount [Member]
Financial assets [Abstract]
Cash and cash equivalents	$ 327,600	$ 300,307
Loans, net	2,386,273	2,176,030
Accrued interest receivable	11,778	15,233
Bank-owned life insurance	71,676	70,731
Financial liabilities [Abstract]
Deposits	3,212,245	2,974,351
Short-term borrowings		26,550
Accrued interest payable	1,460	2,113
Notes payable & other borrowings	0	75,000
Junior subordinated deferrable interest debentures	46,393	46,393
Subordinated debt securities	75,728	75,589
Fair Value [Member]
Financial assets [Abstract]
Cash and cash equivalents	327,600	300,307
Loans, net	2,430,158	2,179,573
Accrued interest receivable	11,778	15,233
Bank-owned life insurance	71,676	70,731
Financial liabilities [Abstract]
Deposits	3,214,867	2,979,439
Short-term borrowings		26,550
Accrued interest payable	1,460	2,113
Notes payable & other borrowings	0	75,000
Junior subordinated deferrable interest debentures	45,690	45,690
Subordinated debt securities	77,892	76,889
Level 1 [Member]
Financial assets [Abstract]
Cash and cash equivalents	327,600	300,307
Loans, net	0	0
Accrued interest receivable	0	0
Bank-owned life insurance	0	0
Financial liabilities [Abstract]
Deposits	2,879,997	2,649,830
Short-term borrowings		26,550
Accrued interest payable	0	0
Notes payable & other borrowings	0	0
Junior subordinated deferrable interest debentures	0	0
Subordinated debt securities	0	0
Level 2 [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Loans, net	0	0
Accrued interest receivable	11,778	15,233
Bank-owned life insurance	71,676	70,731
Financial liabilities [Abstract]
Deposits	334,870	329,609
Short-term borrowings		0
Accrued interest payable	1,460	2,113
Notes payable & other borrowings	0	75,000
Junior subordinated deferrable interest debentures	45,690	45,690
Subordinated debt securities	77,892	76,889
Level 3 [Member]
Financial assets [Abstract]
Cash and cash equivalents	0	0
Loans, net	2,430,158	2,179,573
Accrued interest receivable	0	0
Bank-owned life insurance	0	0
Financial liabilities [Abstract]
Deposits	0	0
Short-term borrowings		0
Accrued interest payable	0	0
Notes payable & other borrowings	0	0
Junior subordinated deferrable interest debentures	0	0
Subordinated debt securities	$ 0	$ 0