Business Context and Reporting Period
Company: South Plains Financial, Inc. (SPFI)
Reporting Period: Fiscal year ended December 31, 2024
Business Overview: SPFI is a bank holding company headquartered in Lubbock, Texas, operating primarily through its wholly-owned subsidiary, City Bank. The company provides commercial and retail banking, investment, trust, and mortgage services across seven geographic markets in Texas and New Mexico. As of December 31, 2024, the company reported total assets of $4.23 billion, gross loans of $3.06 billion, and total deposits of $3.62 billion.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Net Income | $49.7 million | $62.7 million |
| Diluted EPS | $2.92 | $3.62 |
| Net Interest Income | $147.1 million | $139.7 million |
| Noninterest Income | $48.1 million | $79.2 million |
| Noninterest Expense | $127.6 million | $134.9 million |
| Return on Average Assets (ROA) | 1.17% | 1.54% |
| Return on Average Equity (ROE) | 11.75% | 16.58% |
| Net Interest Margin (NIM) | 3.65% | 3.61% |
| Efficiency Ratio | 65.07% | 61.33% |
| Allowance for Credit Losses (ACL) | $43.2 million (1.42% of loans) | $42.4 million (1.41% of loans) |
| Nonperforming Assets | 0.58% of total assets | 0.14% of total assets |
| Total Stockholders' Equity | $438.9 million | $407.1 million |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 20.8% to $49.7 million, primarily driven by a $31.2 million decrease in noninterest income. This was partially offset by a $7.4 million increase in net interest income and a $7.4 million decrease in noninterest expenses.
- Noninterest Income Drop: The significant decline in noninterest income was largely due to the absence of a $33.8 million gain on the sale of the Windmark Insurance Agency subsidiary, which occurred in 2023. Mortgage banking income increased slightly by $0.4 million, and service charges on deposit accounts grew by $0.9 million.
- Net Interest Income Growth: Net interest income rose 5.3% to $147.1 million, fueled by a $25.7 million increase in loan interest income due to higher loan volumes and yields. This was partially offset by a $21.5 million increase in interest expense as deposit rates rose.
- Expense Reduction: Noninterest expenses decreased 5.5% to $127.6 million. Salaries and employee benefits dropped $5.0 million, largely due to the prior year's Windmark sale-related compensation. However, IT and data services expenses increased $0.9 million due to cloud migration projects.
- Asset Quality Deterioration: Nonaccrual loans increased significantly to $22.1 million (0.72% of total loans) from $3.2 million in 2023. This increase was primarily driven by a single $19.5 million loan placed on nonaccrual status in the second quarter of 2024. Net charge-offs rose to $3.5 million from $2.0 million.
Guidance, Outlook, and Risks
Management Commentary: Management highlighted that organic loan growth remained relationship-focused, with increases in commercial real estate, residential mortgage, and energy loans. The company maintained a "well-capitalized" status under regulatory frameworks. Dividends were increased to $0.15 per share in the fourth quarter of 2024.
Risks and Contingencies:
- Interest Rate Risk: The company faces sensitivity to market interest rate fluctuations. Rising rates increase funding costs, while falling rates could compress net interest margins or increase prepayment speeds on mortgage servicing rights.
- Credit Concentration: Approximately 73.7% of the loan portfolio is secured by real estate. Non-owner-occupied commercial real estate loans represent 40.1% of the portfolio. The company is exposed to economic conditions in Texas and New Mexico, particularly in the energy, agricultural, and real estate sectors.
- Cybersecurity: The filing emphasizes risks related to cyber-attacks, data breaches, and third-party vendor failures, which could disrupt operations and damage reputation.
- Regulatory Environment: The company is subject to extensive regulation regarding capital adequacy, liquidity, and consumer protection. Changes in regulations could increase compliance costs or restrict operations.
Key Facts for Investor Verification
- One-Time Gain Impact: Verify the sustainability of earnings by excluding the $33.8 million gain on the sale of Windmark Insurance Agency recorded in 2023, which significantly inflated prior-year noninterest income.
- Nonaccrual Loan Concentration: Investigate the specific details of the $19.5 million loan that drove the increase in nonaccruals to $22.1 million and assess the adequacy of the specific reserve allocated to it.
- Deposit Stability: Review the composition of deposits, noting that 25.8% are noninterest-bearing and 5.7% are brokered deposits, to assess funding stability in a rising rate environment.
- Capital Ratios: Confirm that the company remains "well-capitalized" with a Common Equity Tier 1 (CET1) ratio of 13.53% and a Tier 1 leverage ratio of 12.04%, well above regulatory minimums.
- Stock Repurchase Program: Note that the company repurchased $1.3 million of stock in 2024 and approved a new $15.0 million repurchase program in February 2025.