EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2021

10.	EMPLOYEE BENEFITS

The Company sponsors the South Plains Financial, Inc. Employee Stock Ownership Plan (“ESOP”). Effective May 9, 2019, the ESOP was restated and amended. The 401(k) related assets, which consisted of participants’ elective and rollover accounts, were transferred to the newly formed City Bank 401(k) Plan. The ESOP covers all employees who have completed one month of service.

The ESOP may be leveraged to purchase shares of SPFI stock. Shares are released from collateral and allocated to active employees, in proportion to annual debt service. The Company recognizes any debt of the ESOP as notes payable and the shares pledged as collateral are deducted from the stockholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets. All ESOP shares were allocated as of December 31, 2021 and 2020.

Through 2019, the Company made contributions to the ESOP as approved by the Board of Directors on an annual basis. These contributions, plus dividends received, were used to service any ESOP debt and repurchase allocated shares from participants and terminating vested participants. Company contributions to the ESOP in 2019 were $1.8 million. There were no Company contributions made to the ESOP in 2021 or 2020.

As of December 31, 2021 and 2020, the number of shares held by the ESOP were 2,795,762 and 2,876,419, respectively. During 2019, the Company did not repurchase any shares from ESOP participants prior to the Company’s shares being publicly traded.

In accordance with applicable provisions of Code, the terms of the ESOP, for so long as SPFI was a privately held company, ESOP participants would have the right, for a specified period of time, to require SPFI to repurchase shares of its common stock that were distributed to such participants by the ESOP. This repurchase obligation terminated upon the consummation of our initial public offering and listing of our common stock on the NASDAQ Global Select Market in May 2019. However, because we were privately held at December 31, 2018, the value of ESOP- owned shares have been deducted from stockholders’ equity in our consolidated changes in stockholders’ equity statement as of December 31, 2018. For all periods following our initial public offering and continued listing of our common stock on the NASDAQ Global Select Market, the ESOP-owned shares are and will be included in stockholders’ equity. At December 31, 2018, the fair value of all ESOP-owned shares subject to this repurchase obligation totaled $58.2 million.

Under the provisions of the 401(k) Plan, participants may elect to contribute pre-tax salary deferrals and direct investment of those salary deferrals among investments offered in the 401(k) Plan. The Company may elect to contribute a safe harbor match equal to 100% of the first 5% of the participants’ compensation contributed. The expense for Company contributions to the 401(k) Plan was $1.8 million in 2021, $1.7 million in 2020, and $0 in 2019.

Employee Health Benefits – The Company has a self-insured welfare benefit plan which provides health and dental benefits. For officers of the Company, there is no waiting period to be eligible, while there is a 60-day waiting period for all other employees. In addition, to be eligible, an employee must be scheduled to work on a full-time basis (at least 30 hours per week). The Company periodically evaluates the costs of the plan and determines the amount to be contributed by the Company and the amount, if any, to be contributed by the employee. Welfare benefit expense was approximately $4.5 million, $4.4 million, and $4.8 million for the years ending December 31, 2021, 2020, and 2019, respectively. In addition, benefit obligations have been accrued and include reported claims payable and claims incurred but not reported, for approximately $825 thousand and $823 thousand as of December 31, 2021 and 2020, respectively. The Company has limited its risk exposure for these benefits through a stop-loss policy with an independent third party insurer which reimburses benefits paid that exceed $100 thousand per participant per year.

Non-Qualified Plans – Certain Company executives, as determined by the Company’s Board from time-to-time, were granted SARs based on grant date values. The rights had varying vesting provisions. Exercise and payment options for the rights varied and were governed by the program they were issued under as well as the specific award agreement. See further discussion in Note 11 for conversion of SARs to stock options.

Certain Company executives, as determined by the Company’s Board from time-to-time, have post-retirement salary continuation agreements under an Executive Salary Continuation Plan. Retirement ages and retirement salary amounts are specified in each agreement. The Company accrues actuarial estimates of the costs of these benefits over the respective service periods; approximately $12.5 million and $12.1 million was accrued at December 31, 2021 and 2020, respectively. This plan is nonqualified, noncontributory, and unfunded. The charge to income for this plan during 2021, 2020, and 2019 was approximately $1.0 million, $1.1 million and, $1.1 million, respectively.