SEC Filing | South Plains Financial

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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 June 30, 2023

☐	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 August 3, 2023, the registrant had 16,913,686 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 (Loss) (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	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	56
PART II.	OTHER INFORMATION	57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	58
Signatures		59

Table of Contents

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)

	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Cash and due from banks	$	64,497		$	61,613
Interest-bearing deposits in banks		231,084			173,270
Cash and cash equivalents		295,581			234,883
Securities available for sale		628,093			701,711
Loans held for sale ($15,516 and $10,038 at fair value at June 30, 2023 and December 31, 2022, respectively)		22,158			30,403
Loans held for investment		2,979,063			2,748,081
Allowance for credit losses on loans		(43,137	)		(39,288	)
Loans held for investment, net		2,935,926			2,708,793
Accrued interest receivable		15,917			16,432
Premises and equipment, net		56,416			56,337
Bank-owned life insurance		73,804			73,174
Goodwill		19,315			19,508
Intangible assets, net		2,834			4,349
Mortgage servicing rights		26,658			27,474
Deferred tax asset, net		22,359			22,818
Other assets		51,068			48,181
Total assets	$	4,150,129		$	3,944,063

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:
Noninterest-bearing	$	1,100,767		$	1,150,488
Interest-bearing		2,473,755			2,255,942
Total deposits		3,574,522			3,406,430
Accrued expenses and other liabilities		61,131			58,265
Subordinated debt		76,054			75,961
Junior subordinated deferrable interest debentures		46,393			46,393
Total liabilities		3,758,100			3,587,049

Stockholders’ equity:
Common stock, $1.00 par value per share, 30,000,000 shares authorized; 16,952,072 and 17,027,197 issued and outstanding at June 30, 2023 and December 31, 2022, respectively		16,952			17,027
Additional paid-in capital		111,133			112,834
Retained earnings		325,772			292,261
Accumulated other comprehensive loss		(61,828	)		(65,108	)
Total stockholders’ equity		392,029			357,014
Total liabilities and stockholders’ equity	$	4,150,129		$	3,944,063

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

Table of Contents

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Interest income:
Loans, including fees	$	42,864	$	35,419	$	82,461	$	64,797
Securities:
Taxable		5,365		3,542		10,605		5,918
Non-taxable		1,108		1,137		2,224		2,281
Federal funds sold and interest-bearing deposits in banks		1,484		654		2,979		836
Total interest income		50,821		40,752		98,269		73,832
Interest expense:
Deposits		14,433		2,317		25,803		4,207
Notes payable & other borrowings		5		—		5		—
Subordinated debt		1,013		1,013		2,025		2,025
Junior subordinated deferrable interest debentures		789		317		1,540		548
Total interest expense		16,240		3,647		29,373		6,780
Net interest income		34,581		37,105		68,896		67,052
Provision for credit losses		3,700		—		4,710		(2,085	)
Net interest income, after provision for credit losses		30,881		37,105		64,186		69,137
Noninterest income:
Service charges on deposit accounts		1,745		1,612		3,446		3,385
Income from insurance activities		37		1,577		1,448		3,147
Net gain on sales of loans		3,528		5,979		6,446		13,472
Bank card services and interchange fees		4,043		3,478		6,999		6,700
Other mortgage banking income		1,731		2,690		1,098		8,834
Investment commissions		420		466		809		1,012
Fiduciary fees		597		635		1,197		1,247
Gain on sale of subsidiary		33,488		—		33,488		—
Other		1,523		2,398		2,872		4,735
Total noninterest income		47,112		18,835		57,803		42,532
Noninterest expense:
Salaries and employee benefits		23,437		21,990		42,691		44,693
Occupancy and equipment, net		4,303		4,033		8,135		7,770
Professional services		1,716		2,647		3,364		5,272
Marketing and development		784		758		1,720		1,478
IT and data services		888		941		1,752		1,994
Bank card expenses		1,316		1,328		2,668		2,651
Appraisal expenses		301		508		579		1,073
Realized loss on sale of securities		3,409		—		3,409		—
Other		4,345		3,851		8,542		9,049
Total noninterest expense		40,499		36,056		72,860		73,980
Income before income taxes		37,494		19,884		49,129		37,689
Income tax expense		7,811		4,001		10,202		7,528
Net income	$	29,683	$	15,883	$	38,927	$	30,161

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

Table of Contents

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (CONTINUED)

(Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Earnings per share:
Basic	$	1.74		$	0.91		$	2.28		$	1.71
Diluted	$	1.71		$	0.88		$	2.23		$	1.66

Net income	$	29,683		$	15,883		$	38,927		$	30,161
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale		(7,109	)		(42,097	)		1,514			(86,974	)
Less: Change in fair value on hedged state and municipal securities		1,866			3,450			(771	)		10,349
Reclassification adjustment for loss on sale of securities		3,409			—			3,409			—
Tax effect		385			8,116			(872	)		16,091
Other comprehensive income (loss)		(1,449	)		(30,531	)		3,280			(60,534	)
Comprehensive income (loss)	$	28,234		$	(14,648	)	$	42,207		$	(30,373	)

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

Table of Contents

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
Six Months Ended June 30,
Balance at December 31, 2021		17,760,243		$	17,760		$	133,215		$	242,750		$	13,702		$	407,427
Net income		—			—			—			30,161			—			30,161
Cash dividends declared - $0.22 per share		—			—			—			(3,889	)		—			(3,889	)
Other comprehensive loss		—			—			—			—			(60,534	)		(60,534	)
Impact of adoption of Topic 842 related to leases		—			—			—			(717	)		—			(717	)
Exercise of employee stock options and vesting of restricted stock units, net of 4,824 shares for cashless exercise and net of 7,129 shares for taxes		20,337			20			(215	)		—			—			(195	)
Repurchases of common stock		(363,486	)		(363	)		(8,845	)		—			—			(9,208	)
Stock-based compensation		—			—			1,177			—			—			1,177
Balance at June 30, 2022		17,417,094		$	17,417		$	125,332		$	268,305		$	(46,832	)	$	364,222

Balance at December 31, 2022		17,027,197		$	17,027		$	112,834		$	292,261		$	(65,108	)	$	357,014
Net income		—			—			—			38,927			—			38,927
Cash dividends declared - $0.26 per share		—			—			—			(4,419	)		—			(4,419	)
Other comprehensive income		—			—			—			—			3,280			3,280
Impact of adoption of ASU 2016-13 - CECL		—			—			—			(997	)		—			(997	)
Exercise of employee stock options and vesting of restricted stock units, net of 24,140 shares for cashless exercise and net of 13,892 shares for taxes		37,829			38			(380	)		—			—			(342	)
Repurchases of common stock		(112,954	)		(113	)		(2,435	)		—			—			(2,548	)
Stock-based compensation		—			—			1,114			—			—			1,114
Balance at June 30, 2023		16,952,072		$	16,952		$	111,133		$	325,772		$	(61,828	)	$	392,029

Three Months Ended June 30,
Balance at March 31, 2022		17,673,407		$	17,673		$	130,618		$	255,078		$	(16,301	)	$	387,068
Net income		—			—			—			15,883			—			15,883
Cash dividends declared - $0.11 per share		—			—			—			(1,939	)		—			(1,939	)
Other comprehensive loss		—			—			—			—			(30,531	)		(30,531	)
Impact of adoption of Topic 842 related to leases		—			—			—			(717	)		—			(717	)
Exercise of employee stock options and vesting of restricted stock units, net of 272 shares for taxes		675			1			(1	)		—			—			—
Repurchases of common stock		(256,988	)		(257	)		(5,933	)		—			—			(6,190	)
Stock-based compensation		—			—			648			—			—			648
Balance at June 30, 2022		17,417,094		$	17,417		$	125,332		$	268,305		$	(46,832	)	$	364,222

Balance at March 31, 2023		17,062,572		$	17,062		$	112,981		$	298,300		$	(60,379	)	$	367,964
Net income		—			—			—			29,683			—			29,683
Cash dividends declared - $0.13 per share		—			—			—			(2,211	)		—			(2,211	)
Other comprehensive loss		—			—			—			—			(1,449	)		(1,449	)
Exercise of employee stock options and vesting of restricted stock units, net of 10,567 shares for cashless exercise		2,454			3			(3	)		—			—			—
Repurchases of common stock		(112,954	)		(113	)		(2,435	)		—			—			(2,548	)
Stock-based compensation		—			—			590			—			—			590
Balance at June 30, 2023		16,952,072		$	16,952		$	111,133		$	325,772		$	(61,828	)	$	392,029

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

Table of Contents

SOUTH PLAINS FINANCIAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	38,927	$	30,161
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses		4,710		(2,085	)
Provision for foreclosed asset losses		97		—
Depreciation and amortization		3,240		3,508
Accretion and amortization		1,980		2,077