South Plains Financial, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
South Plains Financial, Inc. is a Texas bank holding company operating primarily through City Bank across Texas and Eastern New Mexico. Its principal activities are commercial and retail banking, investment, trust, and mortgage services. This unaudited filing covers the three months ended March 31, 2024, compared primarily with the three months ended March 31, 2023 and December 31, 2023 balance-sheet amounts.
Key financial metrics
| Metric | Q1 2024 | Comparable period / prior date |
|---|---|---|
| Net income | $10.9 million | $9.2 million in Q1 2023 |
| Diluted EPS | $0.64 | $0.53 in Q1 2023 |
| Net interest income | $35.4 million | $34.3 million in Q1 2023 |
| Net interest margin | 3.56% | 3.75% in Q1 2023 |
| Net interest spread | 2.50% | 2.95% in Q1 2023 |
| Noninterest income | $11.4 million | $10.7 million in Q1 2023 |
| Noninterest expense | $31.9 million | $32.4 million in Q1 2023 |
| Return on average equity | 10.72% annualized | 10.34% in Q1 2023 |
| Return on average assets | 1.04% annualized | 0.95% in Q1 2023 |
| Total assets | $4.22 billion | $4.20 billion at December 31, 2023 |
| Loans held for investment | $3.01 billion | $3.01 billion at December 31, 2023 |
| Total deposits | $3.64 billion | $3.63 billion at December 31, 2023 |
| Cash and cash equivalents | $371.9 million | $330.2 million at December 31, 2023 |
Interest income increased 23.8% to $58.7 million, but interest expense increased 77.9% to $23.4 million as deposit pricing rose. Average loans increased by $235.7 million year over year, while the average rate paid on interest-bearing liabilities increased 117 basis points.
Cash flow, debt, liquidity, and capital
- Operating cash flow was $19.2 million in Q1 2024, compared with $25.4 million in Q1 2023.
- Investing activities provided $12.5 million, principally reflecting securities maturities, prepayments, and calls exceeding purchases.
- Financing activities provided $10.1 million, including $12.4 million of net deposit growth, partly offset by $2.1 million of dividends.
- Cash and cash equivalents increased $41.8 million during the quarter to $371.9 million.
- Subordinated debt was $63.8 million and junior subordinated deferrable interest debentures were $46.4 million. There were no outstanding FHLB advances or Federal Reserve borrowings at March 31, 2024.
- Available borrowing capacity included approximately $1.13 billion from the FHLB, $619.8 million from the Federal Reserve Bank of Dallas, and $140.0 million under uncollateralized bank lines.
- Stockholders’ equity was $408.7 million, up from $407.1 million at year-end 2023. The company and City Bank remained well capitalized; City Bank’s total risk-based capital ratio was 14.23% and its Tier 1 leverage ratio was 10.72%.
Material changes versus prior comparable periods
- Net income increased $1.6 million, or 17.6%, driven by higher net interest income and noninterest income, lower credit-loss provision, and lower operating expenses.
- Net interest income increased $1.1 million, or 3.1%, but margin declined 19 basis points because funding costs increased faster than asset yields.
- Noninterest income increased $0.7 million, or 6.7%. Mortgage banking income increased $1.7 million, while insurance income declined $1.4 million following the April 2023 sale of Windmark Insurance Agency.
- Noninterest expense declined $0.4 million, or 1.3%, including lower salaries and employee benefits after the Windmark sale.
- Commercial real estate loans increased $29.2 million to $1.11 billion. Commercial-specialized loans declined $20.8 million, construction loans declined $16.0 million, and consumer loans declined $5.0 million from year-end 2023.
- Nonaccrual loans declined to $2.0 million from $3.2 million at year-end 2023, and total nonperforming loans declined to $3.4 million from $5.2 million.
- The allowance for credit losses declined modestly to $42.2 million, or 1.40% of loans held for investment, from 1.41%. Net charge-offs increased to $947 thousand from $630 thousand in Q1 2023.
- Accumulated other comprehensive loss increased by $7.5 million, primarily because of higher unrealized losses on available-for-sale securities as market rates rose. Management attributed the losses to non-credit factors and recorded no securities credit-loss allowance.
- The company corrected an immaterial prior-period cash-flow presentation error. The correction reduced reported Q1 2023 proceeds from sales of loans held for sale by $14.4 million and reduced reported loan originations for sale by the same amount, with no impact on balance sheets, income, or equity.
Outlook, commentary, risks, and unusual items
The filing provides no formal quantitative earnings or revenue guidance. Management states that liquidity is adequate and that the company expects to remain well capitalized, but notes that future results remain sensitive to interest rates, deposit competition, inflation, economic conditions, and credit quality.
- Management expects credit-loss estimates to remain subject to uncertainty because of elevated interest rates and persistent inflation; additional provisions may be required in future periods.
- Approximately 73.2% of loans were secured by real property, with commercial real estate representing 40.5% of loans held for investment. Risks include declines in real estate values, refinancing conditions, borrower cash flows, agricultural conditions, commodity prices, and regional economic activity.
- Estimated uninsured deposits were $998.1 million, or approximately 18% of total deposits, excluding collateralized public funds.
- Commitments to grant loans and unfunded lines of credit totaled $634.8 million, and standby letters of credit totaled $11.9 million.
- The company authorized a new $10.0 million stock-repurchase program expiring February 26, 2025. It repurchased 1,406 shares for $35 thousand during Q1.
- On April 18, 2024, the company declared a $0.14 per-share dividend payable May 13, 2024.
- Interest-rate sensitivity modeling indicated that a 300-basis-point rate increase would reduce projected 12-month net interest income by 5.97%, while a 200-basis-point decrease would increase it by 1.85%; actual results may differ from modeled outcomes.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. It also stated that no material changes occurred in previously disclosed risk factors.
Important facts for investors to verify
- Whether deposit pricing and the shift from noninterest-bearing to interest-bearing deposits continue to compress net interest margin.
- Trends in commercial real estate, agricultural, construction, and consumer credit performance, including charge-offs, nonaccrual loans, and allowance coverage.
- The market-value sensitivity and liquidity implications of the securities portfolio, which had $92.9 million of unrealized losses at March 31, 2024.
- The stability of uninsured deposits and the availability and cost of contingent borrowing sources.
- The effect of the Windmark disposal on recurring noninterest income and expense comparisons.
- Execution and timing of the $10.0 million repurchase authorization and the sustainability of the quarterly dividend.
- Assumptions used in the allowance for credit losses, mortgage servicing rights valuation, and interest-rate sensitivity models.