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 September 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 November 3, 2023, the registrant had 16,482,279 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	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
PART II.	OTHER INFORMATION	56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
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)

	September 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Cash and due from banks	$	44,583		$	61,613
Interest-bearing deposits in banks		307,841			173,270
Cash and cash equivalents		352,424			234,883
Securities available for sale		584,969			701,711
Loans held for sale ($14,496 and $10,038 at fair value at September 30, 2023 and December 31, 2022, respectively)		20,273			30,403
Loans held for investment		2,993,563			2,748,081
Allowance for credit losses on loans		(42,075	)		(39,288	)
Loans held for investment, net		2,951,488			2,708,793
Accrued interest receivable		17,672			16,432
Premises and equipment, net		56,391			56,337
Bank-owned life insurance		74,104			73,174
Goodwill		19,315			19,508
Intangible assets, net		2,621			4,349
Mortgage servicing rights		27,749			27,474
Deferred tax asset, net		28,135			22,818
Other assets		51,299			48,181
Total assets	$	4,186,440		$	3,944,063

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:
Noninterest-bearing	$	1,046,253		$	1,150,488
Interest-bearing		2,574,361			2,255,942
Total deposits		3,620,614			3,406,430
Accrued expenses and other liabilities		71,617			58,265
Subordinated debt		76,100			75,961
Junior subordinated deferrable interest debentures		46,393			46,393
Total liabilities		3,814,724			3,587,049

Stockholders’ equity:
Common stock, $1.00 par value per share, 30,000,000 shares authorized; 16,600,442 and 17,027,197 issued and outstanding at September 30, 2023 and December 31, 2022, respectively		16,600			17,027
Additional paid-in capital		102,633			112,834
Retained earnings		337,076			292,261
Accumulated other comprehensive loss		(84,593	)		(65,108	)
Total stockholders’ equity		371,716			357,014
Total liabilities and stockholders’ equity	$	4,186,440		$	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 September 30,						Nine Months Ended September 30,
	2023			2022			2023		2022
Interest income:
Loans, including fees	$	46,242		$	34,463		$	128,703	$	99,260
Securities:
Taxable		5,422			4,224			16,027		10,142
Non-taxable		833			1,128			3,057		3,409
Federal funds sold and interest-bearing deposits in banks		4,031			1,293			7,010		2,129
Total interest income		56,528			41,108			154,797		114,940
Interest expense:
Deposits		18,965			4,537			44,768		8,744
Notes payable & other borrowings		—			—			5		—
Subordinated debt		1,012			1,012			3,037		3,037
Junior subordinated deferrable interest debentures		862			457			2,402		1,005
Total interest expense		20,839			6,006			50,212		12,786
Net interest income		35,689			35,102			104,585		102,154
Provision for credit losses		(700	)		(782	)		4,010		(2,867	)
Net interest income, after provision for credit losses		36,389			35,884			100,575		105,021
Noninterest income:
Service charges on deposit accounts		1,840			1,764			5,286		5,149
Income from insurance activities		30			4,856			1,478		8,003
Net gain on sales of loans		2,631			4,452			9,077		17,924
Bank card services and interchange fees		3,157			3,156			10,156		9,856
Other mortgage banking income		1,971			1,836			3,069		10,670
Investment commissions		430			391			1,239		1,403
Fiduciary fees		582			568			1,779		1,815
Gain on sale of subsidiary		290			—			33,778		—
Other		1,346			3,914			4,218		8,649
Total noninterest income		12,277			20,937			70,080		63,469
Noninterest expense:
Salaries and employee benefits		18,709			22,927			61,400		67,620
Occupancy and equipment, net		4,111			4,132			12,246		11,902
Professional services		1,560			2,523			4,924		7,795
Marketing and development		853			913			2,573		2,391
IT and data services		818			908			2,570		2,902
Bank card expenses		1,451			1,399			4,119		4,050
Appraisal expenses		283			359			862		1,432
Realized loss on sale of securities		—			—			3,409		—
Other		3,704			4,240			12,246		13,289
Total noninterest expense		31,489			37,401			104,349		111,381
Income before income taxes		17,177			19,420			66,306		57,109
Income tax expense		3,683			3,962			13,885		11,490
Net income	$	13,494		$	15,458		$	52,421	$	45,619

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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Earnings per share:
Basic	$	0.80		$	0.89		$	3.09		$	2.61
Diluted	$	0.78		$	0.86		$	3.01		$	2.52

Net income	$	13,494		$	15,458		$	52,421		$	45,619
Other comprehensive loss:
Unrealized losses on securities available for sale		(30,907	)		(39,102	)		(29,393	)		(126,076	)
Less: Change in fair value on hedged state and municipal securities		2,091			5,332			1,320			15,681
Reclassification adjustment for loss on sale of securities		—			—			3,409			—
Tax effect		6,051			7,092			5,179			23,183
Other comprehensive loss		(22,765	)		(26,678	)		(19,485	)		(87,212	)
Comprehensive income (loss)	$	(9,271	)	$	(11,220	)	$	32,936		$	(41,593	)

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
Nine Months Ended September 30,
Balance at December 31, 2021		17,760,243		$	17,760		$	133,215		$	242,750		$	13,702		$	407,427
Net income		—			—			—			45,619			—			45,619
Cash dividends declared - $0.34 per share		—			—			—			(5,973	)		—			(5,973	)
Other comprehensive loss		—			—			—			—			(87,212	)		(87,212	)
Impact of adoption of Topic 842 related to leases		—			—			—			(717	)		—			(717	)
Exercise of employee stock options and vesting of restricted stock units, net of 16,255 shares for cashless exercise and net of 11,126 shares for taxes		34,010			34			(319	)		—			—			(285	)
Repurchases of common stock		(729,613	)		(729	)		(18,197	)		—			—			(18,926	)
Stock-based compensation		—			—			1,866			—			—			1,866
Balance at September 30, 2022		17,064,640		$	17,065		$	116,565		$	281,679		$	(73,510	)	$	341,799

Balance at December 31, 2022		17,027,197		$	17,027		$	112,834		$	292,261		$	(65,108	)	$	357,014
Net income		—			—			—			52,421			—			52,421
Cash dividends declared - $0.39 per share		—			—			—			(6,609	)		—			(6,609	)
Other comprehensive loss		—			—			—			—			(19,485	)		(19,485	)
Impact of adoption of ASU 2016-13 - CECL		—			—			—			(997	)		—			(997	)
Exercise of employee stock options and vesting of restricted stock units, net of 26,872 shares for cashless exercise and net of 15,769 shares for taxes		40,720			40			(433	)		—			—			(393	)
Repurchases of common stock		(467,475	)		(467	)		(11,393	)		—			—			(11,860	)
Stock-based compensation		—			—			1,625			—			—			1,625
Balance at September 30, 2023		16,600,442		$	16,600		$	102,633		$	337,076		$	(84,593	)	$	371,716

Three Months Ended September 30,
Balance at June 30, 2022		17,417,094		$	17,417		$	125,332		$	268,305		$	(46,832	)	$	364,222
Net income		—			—			—			15,458			—			15,458
Cash dividends declared - $0.12 per share		—			—			—			(2,084	)		—			(2,084	)
Other comprehensive loss		—			—			—			—			(26,678	)		(26,678	)
Exercise of employee stock options and vesting of restricted stock units, net of 11,431 shares for cashless exercise and net of 3,997 shares for taxes		13,673			14			(104	)		—			—			(90	)
Repurchases of common stock		(366,127	)		(366	)		(9,352	)		—			—			(9,718	)
Stock-based compensation		—			—			689			—			—			689
Balance at September 30, 2022		17,064,640		$	17,065		$	116,565		$	281,679		$	(73,510	)	$	341,799

Balance at June 30, 2023		16,952,072		$	16,952		$	111,133		$	325,772		$	(61,828	)	$	392,029
Net income		—			—			—			13,494			—			13,494
Cash dividends declared - $0.13 per share		—			—			—			(2,190	)		—			(2,190	)
Other comprehensive loss		—			—			—			—			(22,765	)		(22,765	)
Exercise of employee stock options and vesting of restricted stock units, net of 2,732 shares for cashless exercise and net of 1,877 shares for taxes		2,891			2			(53	)		—			—			(51	)
Repurchases of common stock		(354,521	)		(354	)		(8,958	)		—			—			(9,312	)
Stock-based compensation		—			—			511			—			—			511
Balance at September 30, 2023		16,600,442		$	16,600		$	102,633		$	337,076		$	(84,593	)	$	371,716

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)

	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net income	$	52,421		$	45,619
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses		4,010			(2,867	)
Provision for foreclosed asset losses		97			—
Depreciation and amortization		4,784			5,277
Accretion and amortization		2,731			3,089
Other gains, net		(248	)		(65	)
Gain on sale of subsidiary		(33,778	)		—
Loss on sale of securities		3,409			—
Net gain on sales of loans		(9,077	)		(17,924	)
Proceeds from sales of loans held for sale		339,220			659,061
Loans originated for sale